<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 10, 1997
REGISTRATION NO. 333-33559
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
AMENDMENT NO. 2
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 OCTOBER 10, 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 Common Stock has been approved for quotation 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.
<TABLE>
<CAPTION>
<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>
<TABLE>
<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]
<TABLE>
<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]
<TABLE>
<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."
Nasdaq National Market symbol............... "LITE"
</TABLE>
- -------
(1) Excludes 547,400 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. The expiration dates
of the Company's patents range from 2001 to 2014 for its United States patents
and 1998 to 2020 for its foreign patents. 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, significant changes
in the prices and other purchase terms presently available to the Company 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, including the ability to purchase
such components on a timely basis and at prices and on other purchase terms
deemed reasonable by the Company.
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% (9.13% 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................................. 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 547,400 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."
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
547,400 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>
As of October 15, 1997, the Company had not compiled its results of
operations for the three-month period ended September 30, 1997. Nonetheless, the
Company expects its EBITDA and operating income for such period to be lower than
its EBITDA and operating income for the three-month period ended September 30,
1996, principally because it expects that revenues for the three-month period
ended September 30, 1997 will not increase as compared to the three-month period
ended September 30, 1996. The Company expects its total revenues, EBITDA and
operating income for fiscal 1997 to increase as compared to fiscal 1996.
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.
22
<PAGE>
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 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 Credit Agreement places limitations on the ability of the Company to (i)
pay stockholder distributions in excess of 30% of net income for a fiscal year;
(ii) make capital expenditures in excess of $3.0 million with respect to Showco
for fiscal 1998 and $2.0 million for each fiscal year thereafter; (iii) incur
indebtedness, other than certain indebtedness set forth in the Credit Agreement
including, among others, (a) indebtedness for the purchase or lease of capital
assets not to exceed $2.0 million per fiscal year or $4.0 million outstanding at
any time and (b) indebtedness representing advances from distributors and
subdistributors not in excess of $10.0 million outstanding at any time; (iv)
make certain loans or investments, other than intercompany loans or investments
or the purchase of cash equivalents; (v) sell substantially all of its assets;
and (vi) purchase its securities, other than the warrants issued to the banks in
connection with the Credit Agreement, the Common Stock issuable in connection
with the exercise of such warrants and Common Stock from employees whose
employment has terminated.
In addition, the Credit Agreement contains compliance covenants, including
requirements that the Company achieve certain financial ratios or tests,
including, among others, (i) a fixed charge ratio (ratio of EBITDA (as defined
in the Credit Agreement) to fixed charges) of at least 2.50 to 1.00 until
October 30, 1997 and at least 2.75 to 1.00 from October 31, 1997 until April 29,
1999, which increases from time to time throughout the term of the Credit
Agreement to 3.50 to 1.00 after March 31, 2001; (ii) an earnings ratio (ratio of
EBIT (as defined in the Credit Agreement) to interest expense) of at least 2.25
to 1.00 through March 30, 1998, which increases from time to time throughout the
term of the Credit Agreement to 4.00 to 1.00 after March 31, 2001; (iii)
tangible net worth (as defined in the Credit Agreement) of at least $16.5
million plus 60% of the net income of each fiscal year after fiscal 1996 and 60%
of the net proceeds of any public offering; (iv) a leverage ratio (ratio of
liabilities to tangible net worth) of less than 3.60 to 1.00, which decreases
from time to time throughout the term of the Credit Agreement to 2.00 to 1.00
after October 31, 2000; (v) a capital expenditure coverage ratio (ratio of
EBITDA to capital expenditures) of at least 0.90 to 1.00 until February 27,
1998, which increases from time to time throughout the term of the Credit
Agreement to 1.50 to 1.00 after May 31, 2001; and (vi) a total debt to cash flow
ratio of less than 2.50 to 1.00, which decreases to 2.00 to 1.00 after October
31, 1998.
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
23
<PAGE>
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.
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
24
<PAGE>
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.
25
<PAGE>
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.
26
<PAGE>
- 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.
27
<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.
28
<PAGE>
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.
29
<PAGE>
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>
30
<PAGE>
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
31
<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,
1991 through 1993 and 1997 (for which it was also nominated in 1994 through
1996) 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.
32
<PAGE>
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.
33
<PAGE>
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.
34
<PAGE>
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.
35
<PAGE>
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
36
<PAGE>
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.
37
<PAGE>
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,
38
<PAGE>
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
39
<PAGE>
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
40
<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.
41
<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.
42
<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 August 31, 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 1997, 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
43
<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 547,400 shares of Common Stock have been granted, with an exercise
price equal to the Offering price, to directors, officers and Named Executive
Officers 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 subsidiaries
(the Company and its participating subsidiaries are referred to herein as the
"Employers") who are
44
<PAGE>
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.
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.
45
<PAGE>
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. The
Annual Incentive Plan has been amended and restated effective October 1, 1997.
Any full-time employee who is employed by the Company or one of its subsidiaries
(approved by the Omnibus Committee) on March 31 of a year shall be considered an
eligible employee for that year. For purposes of the Annual Incentive Plan, an
employee is considered a full-time employee (i) if he is scheduled to work a
minimum of 30 hours per week throughout the year and (ii) in the case of an
individual who is an employee of the Company or a United States subsidiary of
the Company, he is entitled to coverage under the Showco/Vari-Lite Welfare
Benefit Plan. 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, team 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, departments or
teams. 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. With
respect to years that commenced prior to October 1, 1997, 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. 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 full-time employment
terminates due to death, total disability or retirement at or after age 65, the
employee must be employed by the Company or one of its subsidiaries as a
full-time employee 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
46
<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."
47
<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.
48
<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.
49
<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 issuance 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.
50
<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
51
<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.
52
<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
53
<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 547,400 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.
54
<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.
55
<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.
56
<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
October 10, 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; no shares
outstanding)................................................................. -- -- --
Common Stock, $0.10 par value (40,000,000 shares authorized; 5,813,687,
5,822,675 and 5,800,003 shares outstanding).................................. 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 $94, $144, $220, $165 and $165 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.................................................... 926 820 1,210
Net income per share.......................................... 0.16 0.14 0.21
</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.................................................................. 26
Management................................................................ 38
Principal Stockholders.................................................... 48
Selling Stockholders...................................................... 49
Description of Capital Stock.............................................. 50
Shares Eligible for Future Sale........................................... 53
Underwriting.............................................................. 54
Legal Matters............................................................. 56
Experts................................................................... 56
Additional Information.................................................... 56
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 -- 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
10.25 -- 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
10.26 -- 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
10.27 -- 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
10.28 -- 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
10.29 -- 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>
10.30 -- 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
10.31 -- 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
10.32 -- Amendment No. 8 to Credit Agreement, dated as of January 16, 1997, 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. 9 to Credit Agreement, dated as of September 30, 1997, among the Registrant and
all of its subsidiaries and Brown Brothers Harriman & Co., Coutts & Co., NBD Bank, SunTrust
Bank, Atlanta and Comerica Bank--Texas
10.34 -- 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
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
II-5
<PAGE>
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 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 10th day of October, 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 10th day of October, 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
<PAGE>
INDEX TO 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
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>
<PAGE>
<TABLE>
<C> <C> <S>
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 -- 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
10.25 -- 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
10.26 -- 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
10.27 -- 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
10.28 -- 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
10.29 -- 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
10.30 -- 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
10.31 -- 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
10.32 -- Amendment No. 8 to Credit Agreement, dated as of January 16, 1997, 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. 9 to Credit Agreement, dated as of September 30, 1997, among the Registrant and
all of its subsidiaries and Brown Brothers Harriman & Co., Coutts & Co., NBD Bank, SunTrust
Bank, Atlanta and Comerica Bank--Texas
10.34 -- 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.
</TABLE>
<PAGE>
<TABLE>
<C> <C> <S>
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
Unless otherwise indicated, all exhibits were previously filed.
<PAGE>
VARI-LITE INTERNATIONAL, INC.
ANNUAL INCENTIVE COMPENSATION PLAN
AS REVISED AND RESTATED EFFECTIVE OCTOBER 1, 1997
<PAGE>
VARI-LITE INTERNATIONAL, 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". . . . . . . . . . . . . . . . . . . . . . . . . 2
e. "Department" . . . . . . . . . . . . . . . . . . . . . . . 2
f. "Discretionary Award". . . . . . . . . . . . . . . . . . . 2
g. "Formula Derived Award". . . . . . . . . . . . . . . . . . 2
h. "Incentive Award". . . . . . . . . . . . . . . . . . . . . 2
i. "Operating Income" . . . . . . . . . . . . . . . . . . . . 2
j. "Performance Measures" . . . . . . . . . . . . . . . . . . 2
k. "Participant". . . . . . . . . . . . . . . . . . . . . . . 2
l. "Plan" . . . . . . . . . . . . . . . . . . . . . . . . . . 2
m. "Plan Year". . . . . . . . . . . . . . . . . . . . . . . . 2
n. "Team" . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2 Gender and Number . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE II ELIGIBILITY . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.1 Eligibility . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE III INCENTIVE AWARDS. . . . . . . . . . . . . . . . . . . . . . . . 3
3.1 Formula Derived Awards. . . . . . . . . . . . . . . . . . . . . 3
3.2 Discretionary Awards. . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE IV PERFORMANCE MEASUREMENT AND AWARD DETERMINATION . . . . . . . . 4
4.1 Basis of Formula Derived Awards . . . . . . . . . . . . . . . . 4
4.2 Procedure for Measuring Company Performance . . . . . . . . . . 4
4.3 Procedure for Measuring Subsidiary Performance. . . . . . . . . 4
4.4 Procedure for Measuring Department Performance. . . . . . . . . 5
4.5 Procedure for Measuring Team Performance. . . . . . . . . . . . 5
4.6 Procedure for Measuring Individual Performance. . . . . . . . . 5
4.7 Effect of Level of Attainment of Performance Measures . . . . . 5
4.8 Effect of Individual Performance Rating . . . . . . . . . . . . 6
4.9 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 . . . . . . . . . . . . . . . . . . . . . 8
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 INTERNATIONAL, INC.
ANNUAL INCENTIVE COMPENSATION PLAN
(AS REVISED AND RESTATED EFFECTIVE OCTOBER 1, 1997)
This Plan is executed and effective as of October 1, 1997 unless
specifically provided otherwise 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
WHEREAS, the Company changed the name of the Plan to "Vari-Lite
International, Inc. Annual Incentive Compensation Plan" effective December 27,
1995; and
WHEREAS, the Company believes that continuation of the Plan will provide
that incentive to its employees; and
WHEREAS, the Company desires to revise and restate the Plan effective
October 1, 1997;
NOW, THEREFORE, in consideration of the premises and the covenants herein
contained, the Company hereby adopts the revised and restated 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.
<PAGE>
d. "Company" means Vari-Lite International, 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.
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. "Performance Measures" means those criteria as determined by the
Committee at a Company, subsidiary, Department, Team or individual
level that have been determined to be directly linked to the Company's
success and against which actual performance will be measured.
k. "Participant" means an eligible employee of the Company or a
subsidiary of the Company under Article II hereof.
l. "Plan" means the Vari-Lite International, Inc. Annual Incentive
Compensation Plan herein described, as the same may be amended from
time to time.
m. "Plan Year" means the Company's fiscal year, October 1 through
September 30.
n. "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.
-2-
<PAGE>
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 April 1 of that Plan
Year. For purposes of this Plan, an employee shall be considered a full-time
employee (i) if he is scheduled to work a minimum of 30 hours per week
throughout the Plan Year and (ii) in the case of an individual who is an
employee of the Company or a United States subsidiary of the Company, he is
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 4.7 and is determined by that Participant's level of responsibility and
potential impact on Company, subsidiary, Department, Team or individual
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,
-3-
<PAGE>
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 threshold levels of the Performance Measures are
attained for that Plan Year.
ARTICLE IV
PERFORMANCE MEASUREMENT AND AWARD DETERMINATION
4.1 BASIS OF FORMULA DERIVED AWARDS. The Plan is based on the premises
that Incentive Awards should focus attention on the interests of stockholders,
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
determined based on one of the following: attainment by the Company of its
Operating Income goal for that Plan Year; in part on attainment by the Company
of that Operating Income goal and in part on the attainment of one or more
Performance Measures established by the Committee for that Plan Year based on
subsidiary, Department, Team or individual performance, or a combination
thereof; or solely 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 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, or as soon as administratively
practicable thereafter, 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.
4.2 PROCEDURE FOR MEASURING COMPANY PERFORMANCE. Prior to the beginning
of each Plan Year, or as soon as administratively practicable thereafter, 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
for that Plan Year.
4.3 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,
or as soon as administratively practicable thereafter, the Committee shall
determine the Operating Income goal of each
-4-
<PAGE>
subsidiary for that Plan Year and the threshold, target and maximum levels of
attainment of that goal for that Plan Year.
4.4 PROCEDURE FOR MEASURING DEPARTMENT PERFORMANCE. Prior to the
beginning of each Plan Year, or as soon as administratively practicable
thereafter, the Committee shall determine the Performance Measures for each
Department for that Plan Year, and the threshold, target and maximum levels of
attainment of those measures for that Plan Year.
4.5 PROCEDURE FOR MEASURING TEAM PERFORMANCE. Prior to the beginning of
each Plan Year, or as soon as administratively practicable thereafter, the
Committee shall determine the Performance Measures for each Team for that Plan
Year, and the threshold, target, and maximum levels of attainment of those
measures for that Plan Year.
4.6 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, or as soon as administratively practicable
thereafter, 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 Committee.
4.7 EFFECT OF LEVEL OF ATTAINMENT OF PERFORMANCE MEASURES. 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 of the
Company Operating Income, the subsidiary operating income, the Department
Performance Measures, the Team Performance Measures or the individual
Performance Measures 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 of the Performance Measures 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
-5-
<PAGE>
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.
4.8 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).
4.9 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 4.7 based on his category of employment and the level of
attainment of the Participant's Performance Measures for that Plan Year.
Finally, that new product is multiplied by the percentage determined under
Sections 4.7 or 4.8, 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 subsidiary performance and 20% of his potential Formula
Derived Award is based on individual performance, (iii) the subsidiary attains
the threshold level of its Operating Income goal for the Plan Year, (iv) the
Participant receives a performance rating of 4 for the 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:
-6-
<PAGE>
FORMULA
PERFORMANCE BASE % OF BASE PERCENT DERIVED
MEASURE WEIGHT SALARY SALARY EARNED AWARD
- ------- ------ ------ ------ ------ -----
Company 0% N/A N/A N/A 0
Subsidiary 80% 100,000 7.5% 100% 6,000
Department 0% N/A N/A N/A 0
Team 0% N/A N/A N/A 0
Individual 20% 100,000 7.5% 100% 1,500
------
$7,500
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
-7-
<PAGE>
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 Plan shall continue indefinitely until
terminated by the Committee. 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.
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.
-8-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Plan to be executed
effective as of October 1, 1997.
VARI-LITE INTERNATIONAL, INC.
By: /s/ H.R. Brutsche, III
-----------------------------------
H.R. Brutsche, III, President
-9-
<PAGE>
[Amendment No. 9]
September 30, 1997
Brown Brothers Harriman & Co.
59 Wall Street
New York, NY 10005
Attn: Jeffrey C. Lockwood
Coutts & Co.
440 Strand
London WC2R 0QS
Attn: A.D. Hills
NBD Bank/The First National Bank of Chicago
c/o First Chicago National Markets, Inc.
One First National Plaza
Mail Suite 0162
Chicago, IL 60670
Attn: Robert O'Connell
SunTrust Bank, Atlanta
25 Park Place
24th Floor, Center 120
Atlanta, Georgia 30303
Attn: John A. Fields, Jr.
Comerica Bank - Texas
8828 Stemmons Freeway, Suite 441
Dallas, Texas 75247
Attn: David B. Terry
Re: Credit Agreement dated as of March 31, 1994, by and among Vari-Lite,
Inc. ("VLI"), Showco, Inc. ("SHOWCO"), Vari-Lite Asia, Inc. ("VLA"),
Vari-Lite Europe Limited ("VLE"), Theatre Projects Lighting Services
Limited ("THEATRE PROJECTS") and Brilliant Stages Limited ("BRILLIANT
STAGES") (VLI, Showco, VLA, VLE, Theatre Projects and Brilliant Stages
are sometimes referred to herein individually as a "BORROWER" and
collectively as "BORROWERS"), Vari-Lite International, Inc. ("VLH"),
Vari-Lite Europe Holdings Limited ("VLEH"), Brown Brothers Harriman &
Co. ("BBH"), Coutts & Co. ("COUTTS"), NBD Bank, N.A. ("NBD"), Trust
Company Bank (the name of which is now SunTrust Bank, Atlanta)
("SUNTRUST") and Comerica Bank-Texas ("COMERICA") (BBH, Coutts, FNBC,
SunTrust and Comerica are hereinafter individually referred to as
"LENDER" and collectively referred to as "LENDERS"), and BBH in its
capacity as agent for Lenders (in such capacity, the "AGENT"), as
amended by: (a) that certain letter agreement dated July 1, 1994,
marked "[Amendment No. 1]", among Borrowers, VLH and VLEH, as
guarantors, Lenders, and Agent; (b) that certain letter agreement
dated September 30, 1994 marked "[Amendment No. 2]" among Borrowers,
VLH, VLEH, Ignition! Creative Group, Inc. (formerly known as Showco
Creative Services, Inc.) ("ICG"), as a Guarantor, and Irideon, Inc.
("IRIDEON") as a Guarantor, Lenders, and Agent; (c) that certain
letter agreement dated February 22, 1995
<PAGE>
September 30, 1997
Page 2
marked "[Amendment No. 3]" among Borrowers, Guarantors, Concert
Production Lighting, Inc., a Delaware corporation ("CPL"),as a
Guarantor (VLH, VLEH, ICG, Irideon, and CPL are sometimes referred to
herein collectively as "GUARANTORS"), Lenders, and Agent; (d) that
certain letter agreement dated November 22, 1995 marked
"[Amendment No. 4]" among Borrowers, Guarantors, Lenders, and Agent;
(e) that certain letter agreement dated December 18, 1995 marked
"[Amendment No. 5]" among Borrowers, Guarantors, Lenders, and Agent;
(f) that certain letter agreement dated May 20, 1996 marked
"[Amendment No. 6]" among Borrowers, Guarantors, Lenders, and Agent;
(g) that certain letter agreement dated July 31, 1996 marked
"[Amendment No. 7]" among Borrowers (including the addition thereto
of Irideon Limited, a newly formed subsidiary of VLEH as a Borrower,
which is hereafter included in collective references to the
"BORROWERS"), Guarantors, Lenders, and Agent; and (h) that certain
letter agreement dated January 16, 1997 marked "[Amendment No. 8]"
among Borrowers, Guarantors, Lenders, and Agent (the "CREDIT
AGREEMENT"). Unless otherwise defined herein, all terms used herein
with their initial letter capitalized shall have the meaning given
such terms in the Credit Agreement.
Gentlemen:
As you are aware, Borrowers and Guarantors have requested amendments to the
Credit Agreement in order to permit: (a) Borrowers to guaranty separate lease
financing facilities by third parties to lessees of VLI; and (b) Borrower to
grant liens in and to leased equipment, leases, and lease receivables to secure:
(i) lease financing facilities provided by third parties to lessees of VLI;
(ii) guaranty obligations referred to in (a) above; and (iii) obligations of
lessees under and with respect to leases and lease receivables sold and assigned
by VLI. In addition Borrowers have requested approval of the merger of CPL into
VLI, with VLI begin the surviving entity.
SECTION 11.5 of the Credit Agreement provides that no Borrower or Guarantor
will, and no Subsidiary will be permitted to, merge or consolidate with or into,
or convey, transfer, lease, or otherwise dispose of all or substantially all of
its assets to, or acquire all or substantially all of the assets or capital
stock of, any Person. SECTION 11.6 of the Credit Agreement provides that no
Borrower or Guarantor will, or will permit any Subsidiary to, make any
Investment, in excess of certain permitted amounts set forth therein.
Investment is defined to include any capital contribution to any other Person
and any ownership or similar investment in any other Person.
Borrowers and Guarantors have requested that Agent and Lenders execute this
letter agreement (hereinafter, "Amendment No. 9") in the space indicated below
to evidence their agreement to the modifications and amendments contained
herein, and to the merger of CPL into VLI.
For valuable consideration, the receipt and sufficiency of which are hereby
acknowledged and confessed, Borrowers, Guarantors, Lenders, and Agent agree to
the following:
1. AMENDMENTS TO DEFINITIONS.
a. The definitions contained in EXHIBIT A to the Credit Agreement shall
be supplemented effective the date hereof with the following definitions:
<PAGE>
September 30, 1997
Page 3
"CONTINGENT PAYMENT DEBT" is defined in SECTION 11.2(d).
"LEASE" means a lease for equipment manufactured by VLI, entered into
between a Lessee and VLI.
"LEASE RECEIVABLES" means the right of VLI to receive rental payments
under Leases.
"LESSEE" means a Person: (a) that has entered into or agreed to enter
into one or more Leases as a lessee; (b) the credit of which is
acceptable to VLI; and (c) the indebtedness of which can be guaranteed
by VLI pursuant to the terms of its articles of incorporation, bylaws,
and other governing documents.
b. The following definitions contained in EXHIBIT A to the Credit
Agreement shall be amended in their entireties as follows:
"LIABILITIES" means Debts, together with trade payables and other
obligations payable less than one year from the date of the creation
thereof, which would, in accordance with GAAP, be shown on a balance
sheet as a liability, PROVIDED, HOWEVER, that neither the deferred
revenue liability or the customer deposit liability on VLI's balance
sheet resulting from the operating lease treatment of Leases under
GAAP shall be considered a "LIABILITY" hereunder.
c. All references to "TRUST CO." shall be deemed to be references to
"SUNTRUST."
2. AMENDMENTS.
a. SECTION 9.2 of the Credit Agreement shall be, and is hereby, amended
to add a new SUBSECTION (h), and to re-letter the existing SUBSECTION (h)
as SUBSECTION (i). The new SUBSECTION (h) shall read as follows:
"(h) COPIES OF LEASE RECEIVABLE DOCUMENTS AND LEASE FINANCING
GUARANTIES. Promptly upon the closing of a transaction pursuant to
which VLI provides a guaranty or enters into documentation creating
Contingent Payment Debt described in SECTION 11.2(d)(ii) or (iii),
copies of such guaranty, Contingent Payment Debt documentation, and
the related Lease Receivable sale documents or lease financing
documents."
b. SECTION 11.1(d) of the Credit Agreement shall be, and is hereby
amended to read in full as follows:
"(d) (i) Liens securing Debt described in SECTION 11.2(d)(i);
(ii) Liens securing payment of Lease Receivables that have been sold
and assigned by VLI or that are payable under Leases that have been
sold and assigned by VLI, PROVIDED that such Liens shall only encumber
the equipment that is the subject of such Leases and any rights
retained by VLI in and to such Leases; (iii) Liens securing payment of
lease financing facilities provided by third-party lenders to Lessees,
whether or not such lease financing facilities have been guaranteed by
VLI or are recourse to the credit or other Assets of VLI; and
(iv) Liens securing guaranty obligations of VLI with respect to
guaranties permitted by SECTION 11.2(d)(ii); PROVIDED that,
<PAGE>
September 30, 1997
Page 4
in the case of Liens described in CLAUSES (ii), (iii) and (iv)
above, such Liens: shall only encumber the equipment which is the
subject of the Leases to which such Lessees are parties and any
rights retained by VLI in and to such Leases. All of such Liens
described above shall be permitted only if: (1) the related guaranty
or documents relating to the sale of the Lease or Lease Receivables
require that the Assets subject to the related Lease or Leases be
returned free and clear of all Liens upon the satisfaction of the
obligations under such guaranty or sale documents; and (2) demand
may be made under a guaranty only if the related Lease or Leases are
in default. Provided that no Default or Event of Default has
occurred which is continuing, upon request of VLI, each Collateral
Agent shall release any and all Liens held by it in and to: (y) any
equipment, Leases, or Lease Receivables to be pledged to any
third-party lender pursuant to CLAUSES (ii), (iii), or (iv) of this
SUBSECTION (d) at the time such Liens are granted to such
third-party lender; or (z) any Leases or Lease Receivables sold by
VLI at the time of such sale. If the Liens on such Assets are later
released by such third-party lenders and ownership of such Assets is
restored free and clear to VLI, VLI shall take all necessary actions
to regrant a security interest in such Assets to Lenders."
c. SECTION 11.2(d) of the Credit Agreement shall be, and is hereby
amended to read in full as follows:
"(d) Debt incurred: (i) upon acquisition or within 90 days thereof to
finance the purchase or lease of fixed or capital assets (excluding
lighting and sound equipment and other equipment which is typically
leased or rented by the Vari-Lite Corporate Group to its customers) up
to a maximum aggregate amount for the consolidated Vari-Lite Corporate
Group at any one time outstanding of $4,000,000; provided, however,
that no greater than $2,000,000 of such Debt may be incurred in any
fiscal year; (ii) Debt in the form of guaranties by VLI to third-party
lenders that make lease financing facilities available to Lessees; and
(iii) contingent Debt arising from the right of VLI to make rental
payments under Lease Receivables that have been sold and assigned by
VLI or which are payable under Leases that have been sold and assigned
by VLI, in order to cure defaults and prevent foreclosures of pledged
equipment ("CONTINGENT PAYMENT DEBT"); in the case of Debt under
CLAUSES (ii) and (iii) above, not to exceed an aggregate amount of
$6,000,000 at any one time. Debt under CLAUSES (ii) and (iii) above
shall be permitted so long as: (1) the guaranty documents necessary
for the transactions in CLAUSE (ii) and the language in Lease
Receivable or Lease sale documents creating the Contingent Payment
Debt may include a provision allowing the guarantors to assume the
payment obligations of a Lessee in the event of a default under the
related lease financing; (2) each guaranty and the amount of any
Contingent Payment Debt shall be for an amount less than or equal to
eighty percent (80%) of the total original face amount of the related
Lease or Leases; and (3) the financing supported by such guaranty or
such Contingent Payment Debt obligation is for a term of no longer
than three (3) years."
3. WAIVER. The provisions of SECTION 11.5 and SECTION 11.6, and any other
provisions of the Credit Agreement or any Loan Document which could restrict the
ability of the Borrowers from completing the merger of CPL into VLI, are waived
to the extent and only to the extent necessary to permit such merger.
<PAGE>
September 30, 1997
Page 5
4. REPRESENTATIONS AND WARRANTIES. In order to induce each Lender to enter
into this Amendment No. 9, each Borrower and each Guarantor hereby represents
and warrants to each Lender as follows:
a. The representations and warranties of Borrowers and VLH contained in
ARTICLE 8 of the Credit Agreement (except for those Sections or parts
thereof which, by their terms, relate to a specified date) are true and
correct in all material respects on and as of the date hereof, as though
made on and as of such date.
b. No event has occurred and is continuing, or would result from the
execution of this Amendment No. 9 (and after giving effect to the
provisions hereof), which, absent this Amendment, constitutes a Default or
Event of Default.
c. No material adverse change has occurred with respect to the financial
condition, business, properties or operations of the Vari-Lite Corporate
Group, on a consolidated basis, since the date of the most recent financial
statements delivered to Agent pursuant to SECTION 9.2 of the Credit
Agreement.
d. Each Borrower and each Guarantor executing this Amendment No. 9 is
duly authorized and empowered to execute this Amendment No. 9, and the
execution hereof will not violate any Governmental Requirement, the
violation of which would have a Material Adverse Effect.
5. REAFFIRMATION OF SECURITY DOCUMENTS AND GUARANTEES. Each Borrower and each
Guarantor, after giving effect to the amendments set forth herein, hereby: (a)
reaffirms each Guaranty and each Security Document previously executed and
delivered by such Borrower or Guarantor (as applicable); (b) acknowledges and
agrees that, to the extent the Guaranties and Security Documents executed and
delivered by such Borrower or Guarantor (as applicable) guarantee, or secure
payment of amounts outstanding under the Multicurrency Revolver Commitment or
the VLI Term Loan, such Guarantees and Security Documents continue to secure
payment of and guaranty (as applicable) amounts outstanding under the
Multicurrency Revolver Commitment and VLI Term Loan as redefined herein; and (c)
reaffirms and acknowledges that the Guarantees and Security Documents executed
and delivered by such Borrower or Guarantor (as applicable) continue to evidence
the valid, binding and enforceable obligation of such Borrower or Guarantor (as
applicable), subject only to applicable Debtor Laws.
6. REAFFIRMATION OF CREDIT AGREEMENT. The Credit Agreement, as amended by
this Amendment No. 9 is ratified and confirmed and all of the rights and powers
created hereby or thereunder shall be and remain in full force and effect. From
and after the date hereof, all references in the Credit Agreement to the
Agreement shall be deemed to be references to the Credit Agreement after giving
effect to this Amendment No. 9, and all prior Amendments.
7. NO UNINTENDED WAIVERS. The execution, delivery and effectiveness of this
Amendment No. 9 shall not, except as expressly provided herein, operate as a
waiver of any right, power or remedy of Agent or Lenders under the Credit
Agreement, as amended hereby, or under any of the Loan Documents to which any
Borrower or Guarantor is a party.
8. CONDITIONS PRECEDENT. Each of the modifications and amendments set forth
herein is subject to the satisfaction of each of the following conditions
precedent:
<PAGE>
September 30, 1997
Page 6
a. The Borrowers shall have paid to the Agent for the account of each
Lender an amendment fee which shall be distributed by the Agent to the
Multicurrency Revolver Lenders and to Coutts in accordance with the
following table:
LENDER AMENDMENT FEE
BBH $4,000
FNBC $6,000
Comerica $4,000
SunTrust $4,000
Coutts $2,000
The fees described in this Section represent compensation for services
rendered and to be rendered separate and apart from the lending of money or
the provision of credit and do not constitute compensation for the use,
detention or forbearance of money, and the obligation of the Borrowers to
pay such fees shall be in addition to, and not in lieu of, the obligation
of any Borrower to pay interest, other fees described in the Agreement, and
expenses described in the Agreement. All such fees shall be part of the
Obligations and shall be nonrefundable.
b. Borrowers and Guarantors shall have paid all reasonable costs and
expenses of Agent (including, without limitation, all reasonable fees,
costs and expenses of Agent's legal counsel, subject to a fee cap
(exclusive of disbursements or expenses) of US$12,500 for Haynes and Boone,
L.L.P.) incurred in connection with the negotiation, preparation, execution
and delivery of this Amendment No. 9, and all other Loan Documents executed
in connection herewith. Such fees and expenses shall be payable on the
effective date of this Amendment No. 9.
c. The Agent shall have received such other documents as it may
reasonably request.
9. GOVERNING LAW. THIS AMENDMENT NO. 9 SHALL BE DEEMED TO BE AN AGREEMENT
EXECUTED BY THE PARTIES HERETO UNDER THE LAWS OF THE STATE OF NEW YORK, AND
SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF NEW YORK AND APPLICABLE FEDERAL LAW.
10. COUNTERPARTS. This Amendment No. 9 shall become effective as of the date
first written above when a counterpart of this Amendment No. 9 has been executed
by all parties listed on the signature pages hereto. It is not necessary that
all signatures appear on the same counterpart. Each such counterpart shall be
deemed to be an original, and all counterparts, when taken together, shall
constitute but one and the same instrument.
11. COMPLETE AGREEMENT. THIS AMENDMENT NO. 9, TOGETHER WITH THE CREDIT
AGREEMENT, REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS
OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
<PAGE>
September 30, 1997
Page 7
This Amendment No. 9 has been executed by the duly authorized officers of
Borrowers and Guarantors. Please acknowledge your agreement to the terms and
conditions contained herein by executing this Amendment No. 9 in the space
indicated below.
REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.
SIGNATURE PAGE(S) FOLLOW.
<PAGE>
Very truly yours,
BORROWERS:
VARI-LITE, INC.
By: /s/ H. R. Brutsche
------------------------------------
H.R. Brutsche III
President
SHOWCO, INC.
By: /s/ Mike Herman
------------------------------------
Michael P. Herman
Vice President - Finance
VARI-LITE ASIA, INC.
By: /s/ H. R. Brutsche
------------------------------------
H.R. Brutsche III
Chairman of the Board and
Representative Director
VARI-LITE EUROPE LIMITED
THEATRE PROJECTS LIGHTING SERVICES LIMITED
BRILLIANT STAGES LIMITED
IRIDEON LIMITED
By: /s/ H. R. Brutsche
------------------------------------
H.R. Brutsche III
Director
Amendment No. 9 Signature Page
<PAGE>
GUARANTORS:
VARI-LITE INTERNATIONAL, INC.
IRIDEON, INC.
CONCERT PRODUCTION LIGHTING, INC.
By: /s/ H. R. Brutsche
------------------------------------
H.R. Brutsche III
President
VARI-LITE EUROPE HOLDINGS LIMITED
By: /s/ H. R. Brutsche
------------------------------------
H.R. Brutsche III
Director
IGNITION! CREATIVE GROUP, INC.
By: /s/ Michael P. Herman
------------------------------------
Michael P. Herman
Vice President - Finance
Amendment No. 9 Signature Page
<PAGE>
ACKNOWLEDGED AND AGREED:
AGENT:
PER PRO BROWN BROTHERS HARRIMAN & CO.
By: /s/ Richard J. Ragoza
---------------------------
Richard J. Ragoza
Senior Credit Officer
LENDERS:
PER PRO BROWN BROTHERS HARRIMAN & CO.
By: /s/ Richard J. Ragoza
---------------------------
Richard J. Ragoza
Senior Credit Officer
Amendment No. 9 Signature Page
<PAGE>
COUTTS & CO.
By: /s/ A. D. Hills
-----------------------------------
Name: MR. A.D. HILLS
Title: CLIENT MANAGER
Amendment No. 9 Signature Page
<PAGE>
SUNTRUST BANK, ATLANTA
(formerly known as Trust Company Bank)
By: /s/ Todd C. Davis
-----------------------------------
Name: TODD C. DAVIS
Title: Assistant Vice President
By: /s/ Steven J. Newby
-----------------------------------
Name: STEVEN J. NEWBY
Title: Corporate Banking Officer
Amendment No. 9 Signature Page
<PAGE>
NBD BANK, N. A.
By: /s/ Stephen E. McDonald
-----------------------------------
Name: STEPHEN E. MCDONALD
Title: 1st Vice President
Amendment No. 9 Signature Page
<PAGE>
COMERICA BANK-TEXAS
By: /s/ David Terry
-----------------------------------
Name: DAVID TERRY
Title: Vice President
Amendment No. 9 Signature Page
<PAGE>
(Multicurrency-Cross Border)
ISDA-Registered Trademark-
INTERNATIONAL SWAP DEALS ASSOCIATION. INC.
MASTER AGREEMENT
dated as of November 23, 1993
Vari-Lite Holdings, Inc. and Brown Brothers Harriman & Co. have entered
and/or anticipate entering into one or more transactions (each a
"Transaction") that are or will be governed by this Master Agreement, which
includes the schedule (the "Schedule"), and the documents and other
confirming evidence (each a "Confirmation") exchanged between the parties
confirming those Transactions.
Accordingly, the parties agree as follows:
1. INTERPRETATION
(a) DEFINITIONS. The terms defined in Section 14 and in the Schedule will have
the meanings therein specified for the purpose of this Master Agreement.
(b) INCONSISTENCY. In the event of any inconsistency between the provisions of
the Schedule and the other provisions of this Master Agreement, the Schedule
will prevail. In the event of any inconsistency between the provisions of any
Confirmation and this Master Agreement (including the Schedule), such
Confirmation will prevail for the purpose of the relevant Transaction.
(c) SINGLE AGREEMENT. All Transactions are entered into in reliance on the
fact that this Master Agreement and all Confirmations form a single agreement
between the parties (collectively referred to as this "Agreement"), and the
parties would not otherwise enter into any Transactions.
2. OBLIGATIONS
(a) GENERAL CONDITIONS.
(i) Each party will make each payment or delivery specified in each
Confirmation to be made by it, subject to the other provisions of this
Agreement.
1
<PAGE>
(ii) Payments under this Agreement will be made on the due date for value
on that date in the place of the account specified in the relevant
Confirmation or otherwise pursuant to this Agreement, in freely
transferable funds and in the manner customary for payments in the required
currency. Where settlement is by delivery (that is, other than by payment),
such delivery will be made for receipt on the due date in the manner
customary for the relevant obligation unless otherwise specified in the
relevant Confirmation or elsewhere in this Agreement.
(iii) Each obligation of each party under Section 2(a)(i) is subject to
(1) the condition precedent that no Event of Default or Potential Event of
Default with respect to the other party has occurred and is continuing, (2)
the condition precedent that no Early Termination Date in respect of the
relevant Transaction has occurred or been effectively designated and (3)
each other applicable condition precedent specified in this Agreement.
(b) CHANGE OF ACCOUNT: Either party may change its account for receiving a
payment or delivery by giving notice to the other party at least five Local
Business Days prior to the scheduled date for the payment or delivery to which
such change applies unless such other party gives timely notice of a reasonable
objection to such change.
(c) NETTING. If on any date amounts would otherwise be payable:
(i) in the same currency; and
(ii) in respect of the same Transaction,
by each party to the other, then, on such date, each party's obligation to make
payment of any such amount will be automatically satisfied and discharged and,
if the aggregate amount that would otherwise have been payable by one party
exceeds the aggregate amount that would otherwise have been payable by the other
party, replaced by an obligation upon the party by whom the larger aggregate
amount would have been payable to pay to the other party the excess of the
larger aggregate amount over the smaller aggregate amount.
The parties may elect in respect of two or more Transactions that a net amount
will be determined in respect of all amounts payable on the same date in the
same currency in respect of such Transactions, regardless of whether such
amounts are payable in respect of the same Transaction. The election may be made
in the Schedule or a Confirmation by specifying that subparagraph (ii) above
will not apply to the Transactions identified as being subject to the election,
together with the starting date (In which case subparagraph (ii) above will not,
or will cease to, apply to such Transactions from such date). This election may
be made separately for different groups of Transactions and will apply
separately to each pairing of Offices through which the parties make and receive
payments or deliveries.
2
<PAGE>
(d) DEDUCTION OR WITHHOLDING FOR TAX.
(i) GROSS-UP. All payments under this Agreement will be made without any
deduction or withholding for or on account of any Tax unless such deduction
or withholding is required by any applicable law, as modified by the
practice of any relevant governmental revenue authority, then in effect. If
a party is so required to deduct or withhold, then that party ("X") will:
(1) promptly notify the other party ("Y") of such requirement;
(2) pay to the relevant authorities the full amount required to be
deducted or withheld (including the full amount required to be
deducted or withheld from any additional amount paid by X to Y under
this Section 2(d)) promptly upon the earlier of determining that such
deduction or withholding is required or receiving notice that such
amount has been assessed against Y;
(3) promptly forward to Y an official receipt (or a certified copy),
or other documentation reasonably acceptable to Y, evidencing such
payment to such authorities; and
(4) if such Tax is an Indemnifiable Tax, pay to Y, in addition to the
payment to which Y is otherwise entitled under this Agreement, such
additional amount as is necessary to ensure that the net amount
actually received by Y (free and clear of Indemnifiable Taxes, whether
assessed against X or Y) will equal the full amount Y would have
received had no such deduction or withholding been required. However,
X will not be required to pay any additional amount to Y to the extent
that it would not be required to be paid but for;
(A) the failure by Y to comply with or perform any agreement
contained In Section 4(a)(i), 4(a)(iii) or 4(d); or
(B) the failure of a representation made by Y pursuant to
Section 3(f) to be accurate and true unless such failure would
not have occurred but for (I) any action taken by a taxing
authority, or brought in a court of competent jurisdiction, on or
after the date on which a Transaction is entered into (regardless
of whether such action is taken or brought with respect to a
party to this Agreement) or (II) a Change in Tax Law.
(ii) LIABILITY. If:
(1) X is required by any applicable law, as modified by the practice
of any relevant governmental revenue authority, to make any deduction
or withholding in
3
<PAGE>
respect of which X would not be required to pay an additional amount
to Y under Section 2(d)(i)(4);
(2) X does not so deduct or withhold, and
(3) a liability resulting from such Tax is assessed directly against
X,
then, except to the extent Y has satisfied or then satisfies the liability
resulting from such Tax, Y will promptly pay to X the amount of such liability
(including any related liability for interest, but including any related
liability for penalties only if Y has failed to comply with or perform any
agreement contained in Section 4(a)(i), 4(a)(iii) or 4(d)).
(e) DEFAULT INTEREST; OTHER AMOUNTS. Prior to the occurrence or effective
designation of an Early Termination Date in respect of the relevant Transaction,
a party that defaults in the performance of any payment obligation will, to the
extent permitted by law and subject to Section 6(c), be required to pay interest
(before as well as after judgment) on the overdue amount to the other party on
demand in the same currency as such overdue amount, for the period from (and
including) the original due date for payment to (but excluding) the date of
actual payment, at the Default Rate. Such interest will be calculated on the
basis of daily compounding and the actual number of days elapsed. If, prior to
the occurrence or effective designation of an Early Termination Date in respect
of the relevant Transaction, a party defaults in the performance of any
obligation required to be settled by delivery, it will compensate the other
party on demand if and to the extent provided for in the relevant Confirmation
or elsewhere in this Agreement.
3. REPRESENTATIONS
Each party represents to the other party (which representations will be deemed
to be repeated by each party on each date on which a Transaction is entered into
and, in the case of the representations in Section 3(1), at all times until the
termination of this Agreement) that:
(a) BASIC REPRESENTATIONS.
(i) STATUS. It is duly organized and validly existing under the laws of
the jurisdiction of its organization or incorporation and, if relevant
under such laws, in good standing;
(ii) POWERS. It has the power to execute this Agreement and any other
documentation relating to this Agreement to which it is a party, to deliver
this Agreement and any other documentation relating to this Agreement that
it is required by this Agreement TO deliver and to perform its obligations
under this Agreement and any obligations it has under any Credit Support
Document to which it is a party and has taken all necessary action to
authorize such execution, delivery and performance;
4
<PAGE>
(iii) NO VIOLATION OR CONFLICT. Such execution, delivery and performance
do not violate or conflict with any law applicable to it, any provision
of its constitutional documents, any order or judgment of any court or
other agency of government applicable to it or any of its assets or any
contractual restriction binding on or affecting it or any of its
assets;
(iv) CONSENTS. All governmental and other consents that are required to
have been obtained by it with respect to this Agreement or any Credit
Support Document to which it is a party have been obtained and are in full
force and effect and all conditions of any such consents have been complied
with; and
(v) OBLIGATIONS BINDING. Its obligations under this Agreement and any
Credit Support Document to which it is a party constitute its legal, valid
and binding obligations, enforceable in accordance with their respective
terms (subject to applicable bankruptcy, reorganization, insolvency,
moratorium or similar laws affecting creditors' rights generally and
subject, as to enforceability, to equitable principles of general
application (regardless of whether enforcement is sought in a proceeding in
equity or at law)).
(b) ABSENCE OF CERTAIN EVENTS. No Event of Default or Potential Event of
Default or, to its knowledge, Termination Event with respect to it has occurred
and is continuing and no such event or circumstance would occur as a result of
its entering into or performing its obligations under this Agreement or any
Credit Support Document to which it is a party.
(c) ABSENCE OF LITIGATION. There is not pending or, to its knowledge,
threatened against it or any of its Affiliates any action, suit or proceeding at
law or in equity or before any court, tribunal, governmental body, agency or
official or any arbitrator that is likely to affect the legality, validity or
enforceability against it of this Agreement or any Credit Support Document to
which it is a party or its ability to perform its obligations under this
Agreement or such Credit Support Document.
(d) ACCURACY OF SPECIFIED INFORMATION. All applicable information that is
furnished in writing by or on behalf of it to the other party and is identified
for the purpose of this Section 3(d) in the Schedule is, as of the date of the
information, true, accurate and complete in every material respect.
(e) PAYER TAX REPRESENTATION. Each representation specified in the Schedule as
being made by it for the purpose of this Section 3(e) is accurate and true.
(f) PAYEE TAX REPRESENTATIONS. Each representation specified in the Schedule as
being made by it for the purpose of this Section 3(f) is accurate and true.
4. AGREEMENTS
Each party agrees with the other that, so long as either party has or may have
any obligation under this Agreement or under any Credit Support Document to
which it is a party:
5
<PAGE>
(a) FURNISH SPECIFIC INFORMATION. It will deliver to the other party or, in
certain cases under subparagraph (iii.) below, to such government or taxing
authority as the other party reasonably directs:
(i) any forms, documents or certificates relating to taxation specified
in the Schedule or any Confirmation;
(ii) any other documents specified in the Schedule or any Confirmation;
and
(iii) upon reasonable demand by such other party, any form or document
that may be required or reasonably requested in writing in order to allow
such other party or its Credit Support Provider to make a payment under
this Agreement or any applicable Credit Support Document without any
deduction or withholding for or on account of any Tax or with such
deduction or withholding at a reduced rate (so long as the completion,
execution or submission of such form or document would not materially
prejudice the legal or commercial position of the party in receipt of such
demand), with any such form or document to be accurate and completed in a
manner reasonably satisfactory to such other party and to be executed and
to be delivered with any reasonably required certification.
in each case by the date specified in the Schedule or such Confirmation or, if
none is specified, as soon as reasonably practicable.
(b) MAINTAIN AUTHORIZATIONS. It will use all reasonable efforts to maintain in
full force and effect all consents of any governmental or other authority that
are required to be obtained by it with respect to this Agreement or any Credit
Support Document to which it is a party and will use all reasonable efforts to
obtain any that may become necessary in the future.
(c) COMPLY WITH LAWS. It will comply in all material respects with all
applicable laws and orders to which it may be subject if failure so to comply
would materially impair its ability to perform its obligations under this
Agreement or any Credit Support Document to which it is a party.
(d) TAX AGREEMENT. It will give notice of any failure of a representation made
by it under Section 3(f) to be accurate and true promptly upon learning of such
failure.
(e) PAYMENT OF STAMP TAX. Subject to Section 11, it will pay any Stamp Tax
levied or imposed upon it or in respect of its execution or performance of this
Agreement by jurisdiction in which it is incorporated, organized, managed and
controlled, or considered to have its seat, or in which a branch or office
through which it is acting for the purpose of this Agreement is located ("Stamp
Tax Jurisdiction") and will indemnify the other party against any Stamp Tax
levied or imposed upon the other party or in respect of the other party's
execution or performance of this Agreement by any such Stamp Tax Jurisdiction
which is riot also a Stamp Tax Jurisdiction with respect to the other party.
6
<PAGE>
5. EVENTS OF DEFAULT AND TERMINATION EVENTS
(a) EVENTS OF DEFAULT. The occurrence at any time with respect to a party or,
if applicable, any Credit Support Provider of such party or any Specified
Entity of such party of any of the following events constitutes an event of
default (an "Event of Default") with respect to such party:
(i) FAILURE TO PAY OR DELIVER. Failure by the party to make, when due,
any payment under this Agreement or delivery under Section 2(a)(i) or 2(e)
required to be made by it if such failure is not remedied on or before the
third Local Business Day after notice of such failure is given to the
party;
(ii) BREACH OF AGREEMENT. Failure by the party to comply with or perform
any agreement or obligation (other than an obligation to make any payment
under this Agreement or delivery under Section 2(a)(i) or 2(e) or to give
notice of a Termination Event or any agreement or obligation under Section
4(a)(i), 4(a)(iii) or 4(d)) to be complied with or performed by the party
in accordance with this Agreement if such failure is not remedied on or
before the thirtieth day after notice of such failure is given to the
party;
(iii) CREDIT SUPPORT DEFAULT.
(1) Failure by the party or any Credit Support Provider of such party
to comply with or perform any agreement or obligation to be complied
with or performed by it in accordance with any Credit Support Document
if such failure is continuing after any applicable grace period has
elapsed;
(2) the expiration or termination of such Credit Support Document or
the failing or ceasing of such Credit Support Document to be in full
force and effect for the purpose of this Agreement (in either case
other than in accordance with its terms) prior to the satisfaction of
all obligations of such party under each Transaction to which such
Credit Support Document relates without the written consent of the
other party; or
(3) the party or such Credit Support Provider disaffirms, disclaims,
repudiates or rejects, in whole or in part, or challenges the validity
of, such Credit Support Document;
(iv) MISREPRESENTATION. A representation (other than a representation
under Section 3(e) or (f)) made or repeated or deemed to have been made or
repeated by the party or any Credit Support Provider of such party in this
Agreement or any Credit Support Document proves to have been incorrect or
misleading in any material respect when made or repeated or deemed to have
been made or repeated;
7
<PAGE>
(v) DEFAULT UNDER SPECIFIED TRANSACTION. The party, any Credit Support
Provider of such party or any applicable Specified Entity of such party (1)
defaults under a Specified Transaction and, after giving effect to any
applicable notice requirement or grace period, there occurs a liquidation
of, an acceleration of obligations under, or an early termination of, that
Specified Transaction, (2) defaults, after giving effect to any applicable
notice requirement or grace period, in making any payment or delivery due
on the last payment, delivery or exchange date of, or any payment on early
termination of, a Specified Transaction (or such default continues for at
least three Local Business Days if there is no applicable notice
requirement or grace period) or (3) disaffirms, disclaims, repudiates or
rejects, in whole or in part, a Specified Transaction (or such action is
taken by any person or entity appointed or empowered to operate it or act
on its behalf);
(vi) CROSS DEFAULT. If "Cross Default" is specified in the Schedule as
applying to the party, the occurrence or existence of (1) a default, event
of default or other similar condition or event (however described) in
respect of such party, any Credit Support Provider of such party or any
applicable Specified Entity of such party under one or more agreements or
instruments relating to Specified Indebtedness of any of them (individually
or collectively) in an aggregate amount of not less than the applicable
Threshold Amount (as specified in the Schedule) which has resulted in such
Specified Indebtedness becoming, or becoming capable at such time of being
declared, due and payable under such agreements or instruments, before it
would otherwise have been due and payable or (2) a default by such party,
such Credit Support Provider or such Specified Entity (individually or
collectively) in making one or more payments on the due date thereof in an
aggregate amount of not less than the applicable Threshold Amount under
such agreements or instruments (after giving effect to any applicable
notice requirement or grace period);
(vii) BANKRUPTCY. The party any Credit Support Provider of such party
or any applicable Specified Entity of such party:
(1) is dissolved (other than pursuant to a consolidation, amalgamation
or merger); (2) becomes insolvent or is unable to pay its debts or
fails or admits in writing its inability generally to pay its debts as
they become due; (3) makes a general assignment, arrangement or
composition with or for the benefit of its creditors; (4) institutes
or has instituted against it a proceeding seeking a judgment of
insolvency or bankruptcy or any other relief under any bankruptcy or
insolvency law or other similar law affecting creditors' rights, or a
petition is presented for its winding-up or liquidation, and, in the
case of any such proceeding or petition instituted or presented
against it, such proceeding or petition (A) results in a judgment of
insolvency or bankruptcy or the entry of an order for relief or the
making of an order for its winding-up or liquidation or (B) is not
dismissed, discharged, stayed or restrained in each case within 30
days of the institution or presentation thereof; (5) has a resolution
passed for its winding-up, official management or liquidation (other
than pursuant to a consolidation, amalgamation or merger); (6) seeks
or becomes subject to the
8
<PAGE>
appointment of an administrator, provisional liquidator,
conservator, receiver, trustee, custodian or other similar official
for it or for all or substantially all its assets; (7) has a
secured party take possession of all or substantially all its assets
or has a distress, execution, attachment, sequestration or other
legal process levied, enforced or sued on or against all or
substantially all its assets and such secured party maintains
possession, or any such process is not dismissed, discharged,
stayed or restrained, in each case within 30 days thereafter;
(8) causes or is subject to any event with respect to it which,
under the applicable laws of any jurisdiction, has an analogous
effect to any of the events specified in clauses (1) to (7)
(inclusive); or (9) takes any action in furtherance of, or
indicating its consent to, approval of, or acquiescence in, any of
the foregoing acts; or
(viii) MERGER WITHOUT ASSUMPTION. The party or any Credit Support
Provider of such party consolidates or amalgamates with, or merges with or
into, or transfers all or substantially all its assets to, another entity
and, at the time of such consolidation, amalgamation, merger or transfer;
(1) the resulting, surviving or transferee entity fails to assume all
the obligations of such party or such Credit Support Provider under
this Agreement or any Credit Support Document to which it or its
predecessor was a party by operation of law or pursuant to an
agreement reasonably satisfactory to the other party to this
Agreement; or
(2) the benefits of any Credit Support Document fail to extend
(without the consent of the other party) to the performance by such
resulting, surviving or transferee entity of its obligations under
this Agreement.
(b) TERMINATION EVENTS. The occurrence at any time with respect to a party or,
if applicable, any Credit Support Provider of such party or any Specified Entity
of such party of any event specified below constitutes an Illegality if the
event is specified in (i) below, a Tax Event if the event is specified in (ii)
below or a Tax Event Upon Merger if the event is specified in (iii) below, and,
if specified to be applicable, a Credit Event Upon Merger if the event is
specified pursuant to (iv) below or an Additional Termination event if the event
is specified pursuant to (v) below:
(i) ILLEGALITY. Due to the adoption of, or any change in, any applicable
law after the date on which a Transaction is entered into, or due to the
promulgation of, or any change in, the interpretation by any court,
tribunal or regulatory authority with competent jurisdiction of any
applicable law after such date, it becomes unlawful (other than as a result
of a breach by the party of Section 4(b)) for such party (which will be the
Affected Party):
(1) to perform any absolute or contingent obligation to make a
payment or delivery or to receive a payment or delivery in respect of
such Transaction or to
9
<PAGE>
comply with any other material provision of this Agreement relating
to such Transaction; or
(2) to perform, or for any Credit Support Provider of such party to
perform, any contingent or other obligation which the party (or such
Credit Support Provider) has under any Credit Support Document
relating to such Transaction;
(ii) TAX EVENT. Due to (x) any action taken by a taxing authority, or
brought in a court of competent jurisdiction, on or after the date on which
a Transaction is entered into (regardless of whether such action is taken
or brought with respect to a party to this Agreement) or (y) a Change in
Tax Law, the party (which will be the Affected Party) will, or there is a
substantial likelihood that it will, on the next succeeding Scheduled
Payment Date (1) be required to pay to the other party an additional amount
in respect of an Indemnifiable Tax under Section 2(d)(i)(4) (except in
respect of interest under Section 2(e), 6(d)(ii) or 6(e)) or (2) receive a
payment from which an amount is required to be deducted or withheld for or
on account of a Tax (except in respect of interest under Section 2(e),
6(d)(ii) or 6(e)) and no additional amount is required to be paid in
respect of such Tax under Section 2(d)(i)(4) (other than by reason of
Section 2(d)(i)(4)(A) or (B));
(iii) TAX EVENT UPON MERGER. The party (the "Burdened Party") on the next
succeeding Scheduled Payment Date will either (1) be required to pay an
additional amount in respect of an Indemnifiable Tax under Section
2(d)(i)(4) (except in respect of interest under Section 2(e), 6(d)(il) or
6(e)) or (2) receive a payment from which an amount has been deducted or
withheld for or on account of any Indemnifiable Tax in respect of which the
other party is not required to pay an additional amount (other than by
reason of Section 2(d)(i)(4)(A) or (B)), in either case as a result of a
party consolidating or amalgamating with, or merging with or into, or
transferring all or substantially all its assets to, another entity (which
will be the Affected Party) where such action does not constitute an event
described in Section 5(a)(viii);
(iv) CREDIT EVENT UPON MERGER. If "Credit Event Upon Merger" is specified
in the Schedule as applying to the party, such party ("X"), any Credit
Support Provider of X or any applicable Specified Entity of X
consolidates or amalgamates with, or merges with or into, or transfers
all or substantially all its assets to, another entity and such action
does not constitute an event described in Section 5(a)(viii) but the
creditworthiness of the resulting, surviving or transferee entity is
materially weaker than that of X, such Credit Support Provider or such
Specified Entity, as the case may be, immediately prior to such action
(and, in such event, X or its successor or transferee, as appropriate,
will be the Affected Party); or
(v) ADDITIONAL TERMINATION EVENT. If any "Additional Termination Event" is
specified in the Schedule or any Confirmation as applying, the occurrence
of such event (and, in such
10
<PAGE>
event, the Affected Party or Affected Parties shall be as specified for
such Additional Termination Event in the Schedule or such Confirmation).
(c) EVENT OF DEFAULT AND ILLEGALITY. If an event or circumstance which would
otherwise constitute or give rise to an Event of Default also constitutes an
Illegality, it will be treated as an Illegality and will not constitute an Event
of Default.
6. EARLY TERMINATION
(a) RIGHT TO TERMINATE FOLLOWING EVENT OF DEFAULT. If at any time an Event of
Default with respect to a party (the "Defaulting Party") has occurred and is
then continuing, the other party (the "Non-defaulting Party") may, by not more
than 20 days notice to the Defaulting Party specifying the relevant Event of
Default, designate a day not earlier than the day such notice is effective as an
Early Termination Date in respect of all outstanding Transactions. If, however,
"Automatic Early Termination" is specified in the Schedule as applying to a
party, then an Early Termination Date in respect of all outstanding Transactions
will occur immediately upon the occurrence with respect to such party of an
Event of Default specified in Section 5(a)(vii)(1), (3), (5), (6) or, to the
extent analogous thereto, (8), and as of the time immediately preceding the
institution of the relevant proceeding or the presentation of the relevant
petition upon the occurrence with respect to such party of an Event of Default
specified in Section 5(a)(vii)(4) or, to the extent analogous thereto, (8).
(b) RIGHT TO TERMINATE FOLLOWING TERMINATION EVENT.
(i) NOTICE. If a Termination Event occurs, an Affected Party will,
promptly upon becoming aware of it, notify the other party, specifying the
nature of that Termination Event and each Affected Transaction and will
also give such other information about that Termination Event as the other
party may reasonably require.
(ii) TRANSFER TO AVOID TERMINATION EVENT. If either an Illegality under
Section 5(b)(i)(l) or a Tax Event occurs and there is only one Affected
Party, or if a Tax Event Upon Merger occurs and the Burdened Party is the
Affected Party, the Affected Party will, as a condition to its right to
designate an Early Termination Date under Section 6(b)(iv), use all
reasonable efforts (which will not require such party to incur a loss,
excluding immaterial, incidental expenses) to transfer within 20 days after
it gives notice under Section 6(b)(i) all its rights and obligations under
this Agreement in respect of the Affected Transactions to another of its
Offices or Affiliates so that such Termination Event ceases to exist.
If the Affected Party is not able to make such a transfer it will give
notice to the other party to that effect within such 20 day period,
whereupon the other party may effect such a transfer within 30 days after
the notice is given under Section 6(b)(i).
Any such transfer by a party under this Section 6(b)(ii) will be subject to
and conditional upon the prior written consent of the other party, which
consent will not be withheld if such
11
<PAGE>
other party's policies in effect at such time would permit it to enter
into transactions with the transferee on the terms proposed.
(iii) TWO AFFECTED PARTIES. If an Illegality under Section 5(b)(i)( 1) or a
Tax Event occurs and there are two Affected Parties, each party will use
all reasonable efforts to reach agreement within 30 days after notice
thereof is given under Section 6(b)(i) on action to avoid that Termination
Event.
(iv) RIGHT TO TERMINATE. If:
(1) a transfer under Section 6(b)(ii) or an agreement under Section
6(1)(iii), as the case may be, has not been effected with respect to
all Affected Transactions within 30 days after an Affected Party gives
notice under Section 6(b)(i); or
(2) an Illegality under Section 5(b)(i)(2), a Credit Event Upon
Merger or an Additional Termination Event occurs, or a Tax Event Upon
Merger occurs and the Burdened Party is not the Affected Party,
either party in the case of an Illegality, the Burdened Party in the case of a
Tax Event Upon Merger, any Affected Party in the case of a Tax Event or an
Additional Termination Event if there is more than one Affected Party, or the
party which is not the Affected Party in the case of a Credit Event Upon Merger
or an Additional Termination Event if there is only one Affected Party may, by
not more than 20 days notice to the other party and provided that the relevant
Termination Event is then continuing, designate a day not earlier than the day
such notice is effective as an Early Termination Date in respect of all Affected
Transactions.
(c) EFFECT OF DESIGNATION.
(i) If notice designating an Early Termination Date is given under Section
6(a) or (b), the Early Termination Date will occur on the date so
designated, whether or not the relevant Event of Default or Termination
Event is then continuing.
(ii) Upon the occurrence or effective designation of an Early Termination
Date, no further payments or deliveries under Section 2(a)(i) or 2(e) in
respect of the Terminated Transactions will be required to be made, but
without prejudice to the other provisions of this Agreement. The amount, if
any, payable in respect of an Early Termination Date shall be determined
pursuant to Section 6(e).
(d) CALCULATIONS.
(i) STATEMENT. On or as soon as reasonably practicable following the
occurrence of an Early Termination Date, each party will make the
calculations on its part, if any, contemplated by Section 6(e) and will
provide to the other party a statement (1) showing, in
12
<PAGE>
reasonable detail, such calculations (including all relevant quotations
and specifying any amount payable under Section 6(e)) and (2) giving
details of the relevant account to which any amount payable to it is to
be paid. In the absence of written confirmation from the source of a
quotation obtained in determining a Market Quotation, the records of the
party obtaining such quotation will be conclusive evidence of the
existence and accuracy of such quotation.
(ii) PAYMENT DATE. An amount calculated as being due in respect of any
Early Termination Date under Section 6(e) will be payable on the day that
notice of the amount payable is effective (in the case of an Early
Termination Date which is designated or occurs as a result of an Event of
Default) and on the day which is two Local Business Days after the day on
which notice of the amount payable is effective (in the case of an Early
Termination Date which is designated as a result of a Termination Event).
Such amount will be paid together with (to the extent permitted under
applicable law) interest thereon (before as well as after judgment) in the
Termination Currency, from (and including) the relevant Early Termination
Date to (but excluding) the date such amount is paid, at the Applicable
Rate. Such interest will be calculated on the basis of daily compounding
and the actual number of days elapsed.
(e) PAYMENTS ON EARLY TERMINATION. If an Early Termination Date occurs, the
following provisions shall apply based on the parties' election in the Schedule
of a payment measure, either "Market Quotation" or "Loss", and a payment method,
either the "First Method" or the "Second Method". If the parties fail to
designate a payment measure or payment method in the Schedule, it will be deemed
that "Market Quotation" or the "Second Method", as the case may be, shall apply.
The amount, if any, payable in respect of an Early Termination Date and
determined pursuant to this Section will be subject to any Set-off.
(i) EVENTS OF DEFAULT. If the Early Termination Date results from an Event of
Default:
(1) FIRST METHOD AND MARKET QUOTATION. If the First Method and
Market Quotation apply, the Defaulting Party will pay to the
Non-defaulting Party the excess, if a positive number, of (A) the sum
of the Settlement Amount (determined by the Non-Defaulting Party) in
respect of the Terminated Transactions and the Termination Currency
Equivalent of the Unpaid Amounts owing to the Non-Defaulting Party
over (B) the Termination Currency Equivalent of the Unpaid Amounts
owing to the Defaulting Party.
(2) FIRST METHOD AND LOSS. If the First Method and Loss apply, the
Defaulting Party will pay to the Non-defaulting Party, if a positive
number, the Non-defaulting Party's Loss in respect of this Agreement.
(3) SECOND METHOD AND MARKET QUOTATION. If the Second Method and
Market Quotation apply, an amount will be payable equal to (A) the sum
of the Settlement Amount (determined by the Non-defaulting Party) in
respect of the Terminated
13
<PAGE>
Transactions and the Termination Currency Equivalent of the Unpaid
Amounts owing to the Non-defaulting Party less (B) the Termination
Currency Equivalent of the Unpaid Amounts owing to the Defaulting
Party. If that amount is a positive number, the Defaulting Party will
pay it to the Non-defaulting Party; if it is a negative number, the
Non-defaulting Party will pay the absolute value of that amount to
the Defaulting Party.
(4) SECOND METHOD AND LOSS. If the Second Method and Loss apply, an
amount will be payable equal to the Non-defaulting Party's Loss in
respect of this Agreement. If that amount is a positive number, the
Defaulting Party will pay it to the Non-defaulting Party; if it is a
negative number, the Non-defaulting Party will pay the absolute value
of that amount to the Defaulting Party.
(ii) TERMINATION EVENTS. If the Early Termination Date results from a
Termination Event:
(1) ONE AFFECTED PARTY. If there is one Affected Party, the amount
payable will be determined in accordance with Section 6(e)(i)(3), if
Market Quotation applies, or Section 6(e)(i)(4), if Loss applies,
except that, in either case, references to the Defaulting Party and to
the Non-defaulting Party will be deemed to be references to the
Affected Party and the party which is not the Affected Party,
respectively, and, if Loss applies and fewer than all the Transactions
are being terminated, Loss shall be calculated in respect of all
Terminated Transactions.
(2) TWO AFFECTED PARTIES. If there are two Affected Parties:
(A) if Market Quotation applies, each party will determine a
Settlement Amount in respect of the Terminated Transactions, and
an amount will be payable equal to (I) the sum of (a) one-half of
the difference between the Settlement Amount of the party with
the higher Settlement Amount ("X") and the Settlement Amount of
the Party with the lower Settlement Amount ("Y") and (b) the
Termination Currency Equivalent of the Unpaid Amounts owing to X
less (II) the Termination Currency Equivalent of the Unpaid
Amounts owing to Y; and
(B) if Loss applies, each party will determine its Loss in
respect of this Agreement (or, if fewer than all the Transactions
are being terminated, in respect of all Terminated Transactions)
and an amount will be payable equal to one-half of the difference
between the Loss of the party with the higher Loss ("X") and the
Loss of the party with the lower Loss ("Y").
If the amount payable is a positive number, Y will pay it to X; if it
is a negative number, X will pay the absolute value of that amount to
Y.
14
<PAGE>
(iii) ADJUSTMENT FOR BANKRUPTCY. In circumstances where an Early
Termination Date occurs because "Automatic Early Termination" applies in
respect of a party, the amount determined under this Section 6(e) will be
subject to such adjustments as are appropriate and permitted by law to
reflect any payments or deliveries made by one party to the other under
this Agreement (and retained by such other party) during the period from
the relevant Early Termination Date to the date for payment determined
under Section 6(d)(ii).
(iv) PRE-ESTIMATE. The parties agree that if Market Quotation applies an
amount recoverable under this Section 6(e) is a reasonable pre-estimate of
loss and not a penalty. Such amount is payable for the loss of bargain and
the loss of protection against future risks and except as otherwise
provided in this Agreement neither party will be entitled to recover any
additional damages as a consequence of such losses.
7. TRANSFER
Subject to Section 6(b)(ii), neither this Agreement nor any interest or
obligation in or under this Agreement may be transferred (whether by way of
security or otherwise) by either party without the prior written consent of the
other party, except that:
(a) a party may make such a transfer of this Agreement pursuant to a
consolidation or amalgamation with, or merger with or into, or transfer of all
or substantially all its assets to, another entity (but without prejudice to any
other right or remedy under this Agreement); and
(b) a party may make such a transfer of all or any part of its interest in any
amount payable to it from a Defaulting Party under Section 6(e).
Any purported transfer that is not in compliance with this Section will be void.
8. CONTRACTUAL CURRENCY
(a) PAYMENT IN THE CONTRACTUAL CURRENCY. Each payment under this Agreement will
be made in the relevant currency specified in this Agreement for that payment
(the "Contractual Currency"). To the extent permitted by applicable law, any
obligation to make payments under this Agreement in the Contractual Currency
will not be discharged or satisfied by any tender in any currency other than the
Contractual Currency, except to the extent such tender results in the actual
receipt by the party to which payment is owed, acting in a reasonable manner and
in good faith in converting the currency so tendered into the Contractual
Currency, of the full amount in the Contractual Currency of all amounts payable
in respect of this Agreement. If for any reason the amount in the Contractual
Currency so received falls short of the amount in the Contractual Currency
payable in respect of this Agreement, the party required to make the payment
will, to the extent permitted by applicable law, immediately pay such additional
amount in the Contractual Currency as may be necessary to compensate for the
shortfall. If for any reason the amount in the Contractual Currency so received
15
<PAGE>
exceeds the amount in the Contractual Currency payable in respect of this
Agreement, the party receiving the payment will refund promptly the amount of
such excess.
(b) JUDGMENTS. To the extent permitted by applicable law, if any judgment or
order expressed in a currency other than the Contractual Currency is rendered
(i) for the payment of any amount owing in respect of this Agreement, (ii) for
the payment of any amount relating to any early termination in respect of this
Agreement or (iii) in respect of a judgment or order of another court for the
payment of any amount described in (i) or (ii) above, the party seeking
recovery, after recovery in full of the aggregate amount to which such party is
entitled pursuant to the judgment or order, will be entitled to receive
immediately from the other party the amount of any shortfall of the Contractual
Currency received by such party as a consequence of sums paid in such other
currency and will refund promptly to the other party any excess of the
Contractual Currency received by such party as a consequence of sums paid in
such other currency if such shortfall or such excess arises or results from any
variation between the rate of exchange at which the Contractual Currency is
converted into the currency of the judgment or order for the purposes of such
judgment or order and the rate of exchange at which such party is able, acting
in a reasonable manner and in good faith in converting the currency received
into the Contractual Currency, to purchase the Contractual Currency with the
amount of the currency of the judgment or order actually received by such party.
The term "rate of exchange" includes, without limitation, any premiums and costs
of exchange payable in connection with the purchase of or conversion into the
Contractual Currency.
(c) SEPARATE INDEMNITIES. To the extent permitted by applicable law, these
indemnities constitute separate and independent obligations from the other
obligations in this Agreement, will be enforceable as separate and independent
causes of action, will apply notwithstanding any indulgence granted by the party
to which any payment is owed and will not be affected by judgment being obtained
or claim or proof being made for any other sums payable in respect of this
Agreement.
(d) EVIDENCE OF LOSS. For the purpose of this Section 8, it will be sufficient
for a party to demonstrate that it would have suffered a loss had an actual
exchange or purchase been made.
9. MISCELLANEOUS
(a) ENTIRE AGREEMENT. This Agreement constitutes the entire agreement and
understanding of the parties with respect to its subject matter and supersedes
all oral communication and prior writings with respect thereto.
(b) AMENDMENTS. No amendment, modification or waiver in respect of this
Agreement will be effective unless in writing (including a writing evidenced by
a facsimile transmission) and executed by each of the parties or confirmed by an
exchange of telexes or electronic messages on an electronic messaging system.
(c) SURVIVAL OF OBLIGATIONS. Without prejudice to Sections 2(a)(iii) and
6(c)(ii), the obligations of the parties under this Agreement will survive the
termination of any Transaction.
16
<PAGE>
(d) REMEDIES CUMULATIVE. Except as provided in this Agreement, the rights,
powers, remedies and privileges provided in this Agreement are cumulative and
not exclusive of any rights, powers, remedies and privileges provided by law.
(e) COUNTERPARTS AND CONFIRMATIONS.
(i) This Agreement (and each amendment, modification and waiver in respect
of it) may be executed and delivered in counterparts (including by
facsimile transmission), each of which will be deemed an original.
(ii) The parties intend that they are legally bound by the terms of each
Transaction from the moment they agree to those terms (whether orally or
otherwise). A Confirmation shall be entered into as soon as practicable and
may be executed and delivered in counterparts (including by facsimile
transmission) or be created by an exchange of telexes or by an exchange of
electronic messages on an electronic messaging system, which in each case
will be sufficient for all purposes to evidence a binding supplement to
this Agreement. The parties will specify therein or through another
effective means that any such counterpart, telex or electronic message
constitutes a Confirmation.
(f) NO WAIVER OF RIGHTS. A failure or delay in exercising any right, power or
privilege in respect of this Agreement will not be presumed to operate as a
waiver, and a single or partial exercise of any right, power or privilege will
not be presumed to preclude any subsequent or further exercise, of that right,
power or privilege or the exercise of any other right, power or privilege.
(g) HEADINGS. The headings used in this Agreement are for convenience of
reference only and are not to affect the construction of or to be taken into
consideration in interpreting this Agreement.
10. OFFICES; MULTIBRANCH PARTIES
(a) If Section 10(a) is specified in the Schedule as applying, each party that
enters Into a Transaction through an Office other than its head or home office
represents to the other party that, notwithstanding the place of booking office
or jurisdiction of incorporation or organization of such party, the obligations
of such party are the same as if it had entered into the Transaction through its
head or home office. This representation will be deemed to be repeated by such
party on each date on which a Transaction is entered into.
(b) Neither party may change the Office through which it makes and receives
payments or deliveries for the purpose of a Transaction without the prior
written consent of the other party.
(c) If a party is specified as a Multibranch Party in the Schedule, such
Multibranch Party may make and receive payments or deliveries under any
Transaction through any Office listed in the Schedule, and the Office through
which it makes and receives payments or deliveries with respect to a Transaction
will be specified in the relevant Confirmation.
17
<PAGE>
11. EXPENSES
A Defaulting Party will, on demand, indemnify and hold harmless the other party
for and against all reasonable out-of-pocket expenses, including legal fees and
Stamp Tax, incurred by such other party by reason of the enforcement and
protection of its rights under this Agreement or any Credit Support Document to
which the Defaulting Party is a party or by reason of the early termination of
any Transaction, including, but not limited to, costs of collection.
12. NOTICES
(a) EFFECTIVENESS. Any notice or other communication in respect of this
Agreement may be given in any manner set forth below (except that a notice or
other communication under Section 5 or 6 may not be given by facsimile
transmission or electronic messaging system) to the address or number or in
accordance with the electronic messaging system details provided (see the
Schedule) and will be deemed effective as indicated:
(i) if in writing and delivered in person or by courier, on the date it
is delivered;
(ii) if sent by telex, on the date the recipient's answerback is received;
(iii) if sent by facsimile transmission, on the date that transmission
is received by a responsible employee of the recipient in legible form (it
being agreed that the burden of proving receipt will be on the sender and
will not be met by a transmission report generated by the sender's
facsimile machine);
(iv) if sent by certified or registered mail (airmail, if overseas) or the
equivalent (return receipt requested), on the date that mail is delivered
or its delivery is attempted; or
(v) if sent by electronic messaging system, on the date that electronic
message is received,
unless the date of that delivery (or attempted delivery) or that receipt, as
applicable, is not a Local Business Day or that communication is delivered (or
attempted) or received, as applicable, after the close of business on a Local
Business Day, in which case that communication shall be deemed given and
effective on the first following day that is a Local Business Day.
(b) CHANGE OF ADDRESSES. Either party may by notice to the other change the
address, telex or facsimile number or electronic messaging system details at
which notices or other communications are to be given to it.
18
<PAGE>
13. GOVERNING LAW AND JURISDICTION
(a) GOVERNING LAW. This Agreement will be governed by and construed in
accordance with the law specified in the Schedule.
(b) JURISDICTION. With respect to any suit, action or proceedings relating to
this Agreement ("Proceedings"), each party irrevocably:
(i) submits to the jurisdiction of the English courts, if this Agreement
is expressed to be governed by English law, or to the non-exclusive
jurisdiction of the courts of the State of New York and the United States
District Court located in the Borough of Manhattan in New York City, if
this Agreement is expressed to be governed by the laws of the State of New
York; and
(ii) waives any objection which it may have at any time to the laying, of
venue of any Proceedings brought in any such court, waives any claim that
such Proceedings have been brought in an inconvenient forum and further
waives the right to object, with respect to such Proceedings, that such
court does not have any jurisdiction over such party.
Nothing in this Agreement precludes either party from bringing Proceedings in
any other jurisdiction (outside, if this Agreement is expressed to be governed
by English law, the Contracting States, as defined in Section 1(3) of the Civil
Jurisdiction and Judgments Act 1982 or any modification, extension or
re-enactment thereof for the time being in force) nor will the bringing of
Proceedings in any one or more jurisdictions preclude the bringing of
Proceedings in any other jurisdiction.
(c) SERVICE OF PROCESS. Each party irrevocably appoints the Process Agent (if
any) specified opposite its name in the Schedule to receive, for it and on its
behalf, service of process in any Proceedings. If for any reason any party's
Process Agent is unable to act as such, such party will promptly notify the
other party and within 30 days appoint a substitute process agent acceptable to
the other party. The parties irrevocably consent to service of process given in
the manner provided for notices n Section 12. Nothing in this Agreement will
affect the right of either party to serve process in any other manner permitted
by law.
(d) WAIVER OF IMMUNITIES. Each party irrevocable waives, to the fullest extent
permitted by applicable law, with respect to itself and its revenues and assets
(irrespective of their use or intended use), all immunity on the grounds of
sovereignty or other similar grounds from (i) suit, (ii) jurisdiction of any
court, (iii) relief by way of injunction, order for specific performance or for
recovery of property, (iv) attachment of its assets (whether before or after
judgment) and (v) execution or enforcement of any judgment to which it or its
revenues or assets might otherwise be entitled in any Proceedings in the courts
of any jurisdiction and irrevocably agrees, to the extent permitted by
applicable law, that it will not claim any such immunity in any Proceedings.
19
<PAGE>
14. DEFINITIONS
As used in this Agreement:
"ADDITIONAL TERMINATION EVENT" has the meaning specified in Section 5(b).
"AFFECTED PARTY" has the meaning specified in Section 5(b).
"AFFECTED TRANSACTIONS" means (a) with respect to any Termination Event
consisting of an Illegality, Tax Event or Tax Event Upon Merger, all
Transactions affected by the occurrence of such Termination Event and (b) with
respect to any other Termination Event, all Transactions.
"AFFILIATE" means, subject to the Schedule, in relation to any person, any
entity controlled, directly or indirectly, by the person, any entity that
controls, directly or indirectly, the person or any entity directly or
indirectly under common control with the person. For this purpose, "control" of
any entity or person means ownership of a majority of the voting power of the
entity or person.
"APPLICABLE RATE" means:
(a) in respect of obligations payable or deliverable (or which would have been
but for Section 2(a)(iii)) by a Defaulting Party, the Default Rate;
(b) in respect of an obligation to pay an amount under Section 6(e) of either
party from and after the date (determined in accordance with Section 6(d)(ii))
on which that amount is payable, the Default Rate;
(c) in respect of all other obligations payable or deliverable (or which would
have been but for Section 2(a)(iii)) by a Non-defaulting Party, the Non-default
Rate; and
(d) in all other cases, the Termination Rate.
"BURDENED PARTY" has the meaning specified in Section 5(b).
"CHANGE IN TAX LAW" means the enactment, promulgation, execution or ratification
of, or any change in or amendment to, any law (or in the application or official
interpretation of any law) that occurs on or after the date on which the
relevant Transaction is entered into.
"CONSENT" includes a consent, approval, action, authorization, exemption,
notice, filing, registration or exchange control consent.
"CREDIT EVENT UPON MERGER" has the meaning specified in Section 5(b).
20
<PAGE>
"CREDIT SUPPORT DOCUMENT" means any agreement or instrument that is specified as
such in this Agreement.
"CREDIT SUPPORT PROVIDER" has the meaning specified in the Schedule.
"DEFAULT RATE" means a rate per annum equal to the cost (without proof or
evidence of any actual cost) to the relevant payee (as certified by it) if it
were to fund or of funding the relevant amount plus 1% per annum.
"DEFAULTING PARTY" has the meaning specified in Section 6(a).
"EARLY TERMINATION DATE" means the date determined in accordance with Section
6(a) or 6(b)(iv).
"EVENT OF DEFAULT" has the meaning specified in Section 5(a) and, if applicable,
in the Schedule.
"ILLEGALITY" has the meaning specified in Section 5(b).
"INDEMNIFIABLE TAX" means any Tax other than a Tax that would not be imposed in
respect of a payment under this Agreement but for a present or former connection
between the jurisdiction of the government or taxation authority imposing such
Tax and the recipient of such payment or a person related to such recipient
(including, without limitation, a connection arising from such recipient or
related person being or having been a citizen or resident of such jurisdiction,
or being or having been organized, present or engaged in a trade or business in
such jurisdiction, or having or having had a permanent establishment or fixed
place of business in such jurisdiction, but excluding a connection arising
solely from such recipient or related person having executed, delivered,
performed its obligations or received a payment under, or enforced, this
Agreement or a Credit Support Document).
"LAW" includes any treaty, law, rule or regulation (as modified, in the case of
tax matters. by the practice of any relevant governmental revenue authority) and
"lawful" and "unlawful" will be construed accordingly.
"LOCAL BUSINESS DAY" means, subject to the Schedule, a day on which commercial
banks are open for business (including dealings in foreign exchange and foreign
currency deposits) (a) in relation to any obligation under Section 2(a)(i), in
the place(s) specified in the relevant Confirmation or, if not so specified, as
otherwise agreed by the parties in writing or determined pursuant to provisions
contained, or incorporated by reference, in this Agreement, (b) in relation to
any other payment, in the place where the relevant account is located and, if
different, in the principal financial center, if any, of the currency of such
payment, (c) in relation to any notice or other communication, including notice
contemplated under Section 5(a)(i), Ii the city specified in the address for
notice provided by the recipient and, in the case of a notice contemplated by
Section 2(b), in the place where the relevant new account is to be located and
(d) in relation to Section 5(a)(v)(2), in the relevant locations for performance
with respect to such Specified Transaction.
21
<PAGE>
"LOSS" means, with respect to this Agreement or one or more Terminated
Transactions, as the case may be, and a party, the Termination Currency
Equivalent of an amount that party reasonably determines in good faith to be its
total losses and costs (or gain, in which case expressed as a negative number)
in connection with this Agreement or that Terminated Transaction or group of
Terminated Transactions, as the case may be, including any loss of bargain, cost
of funding or, at the election of such party but without duplication, loss or
cost incurred as a result of its terminating, liquidating, obtaining or
reestablishing any hedge or related trading position (or any gain resulting from
any of them). Loss includes losses and costs (or gains) in respect of any
payment or delivery required to have been made (assuming satisfaction of each
applicable condition precedent) on or before the relevant Early Termination Date
and not made, except, so as to avoid duplication, if Section 6(e)(i)(l) or (3)
or 6(e)(ii)(2)(A) applies. Loss does not include a party's legal fees and out-
of-pocket expenses referred to under Section 11. A party will determine its Loss
as of the relevant Early Termination Date, or, if that is not reasonably
practicable, as of the earliest date thereafter as is reasonably practicable. A
party may (but need not) determine its Loss by reference to quotations of
relevant rates or prices from one or more leading dealers in the relevant
markets.
"MARKET QUOTATION" means, with respect to one or more Terminated Transactions
and a party making the determination, an amount determined on the basis of
quotations from Reference Market-makers. Each quotation will be for an amount,
if any, that would be paid to such party (expressed as a negative number) or
by such party (expressed as a positive number) in consideration of an
agreement between such party (taking into account any existing Credit Support
Document with respect to the obligations of such party) and the quoting
Reference Market-maker to enter into a transaction (the "Replacement
Transaction") that would have the effect of preserving for such party the
economic equivalent of any payment or delivery (whether the underlying
obligation was absolute or contingent and assuming the satisfaction of each
applicable condition precedent) by the parties under Section 2(a)(i) in
respect of such Terminated Transaction or group of Terminated Transactions
that would, but for the occurrence of the relevant Early termination Date,
have been required after that date. For this purpose, Unpaid Amounts in
respect of the Terminated Transaction or group of Terminated Transactions are
to be excluded but, without limitation, any payment or delivery that would,
but for the relevant Early Termination Date, have been required (assuming
satisfaction of each applicable condition precedent) after that Early
Termination Date is to be included. The Replacement transaction would be
subject to such documentation as such party and the Reference Market-maker
may, in good faith, agree. The party making the determination (or its agent)
will request each Reference Market-maker to provide its quotation to the
extent reasonably practicable as of the same day and time (without regard to
different time zones) on or as soon as reasonably practicable after the
relevant Early Termination Date. The day and time as of which those quotations
are to be obtained will be selected in good faith by the party obliged to make
a determination under Section 6(e), and, if each party is so obliged, after
consultation with the other. If more than three quotations are provided, the
Market Quotation will be the arithmetic mean of the quotations, without regard
to the quotations having the highest and lowest values. If exactly three such
quotations are provided, the Market Quotation will be the quotation remaining
after disregarding the highest and lowest quotations. For this purpose, if
more than one quotation has the same highest value or lowest value, then one
of such quotations shall be disregarded. If fewer than three quotations are
provided,
22
<PAGE>
it will be deemed that the Market Quotation in respect of such Terminated
Transaction or group of Terminated Transactions cannot be determined.
"NON-DEFAULT RATE" means a rate per annum equal to the cost (without proof or
evidence of any actual cost) to the Non-defaulting Party (as certified by it) if
it were to fund the relevant amount.
"NON-DEFAULTING PARTY" has the meaning specified in Section 6(a).
"OFFICE" means a branch or office of a party, which may be such party's head or
home office.
"POTENTIAL EVENT OF DEFAULT" means any event which, with the giving of notice or
the lapse of time or both, would constitute an Event of Default.
"REFERENCE MARKET-MAKERS" means four leading dealers in the relevant market
selected by the party determining a Market Quotation in good faith (a) from
among dealers of the highest credit standing which satisfy all the criteria that
such party applies generally at the time in deciding whether to offer or to make
an extension of credit and (b) to the extent practicable, from among such
dealers having an office in the same city.
"RELEVANT JURISDICTION" means, with respect to a party, the jurisdictions (a) in
which the party is incorporated, organized, managed and controlled or considered
to have its seat, (b) where an Office through which the party is acting for
purposes of this Agreement is located, (c) in which the party executes this
Agreement and (d) in relation to any payment, from or through which such payment
is made.
"SCHEDULED PAYMENT DATE" means a date on which a payment or delivery is to be
made under Section 2(a)(i) with respect to a Transaction.
"SET-OFF" means set-off, offset, combination of accounts, right of retention or
withholding or similar right or requirement to which the payer of an amount
under Section 6 is entitled or subject (whether arising under this Agreement,
another contract, applicable law or otherwise) that is exercised by, or imposed
on, such payer.
"SETTLEMENT AMOUNT" means, with respect to a party and any Early Termination
Date, the sum of:
(a) the Termination Currency Equivalent of the Market Quotations (whether
positive or negative) for each Terminated Transaction or group of Terminated
Transactions for which a Market Quotation is determined; and
(b) such party's Loss (whether positive or negative and without reference to
any Unpaid Amounts) for each Terminated Transaction or group of Terminated
Transactions for which a Market Quotation cannot be determined or would not (in
the reasonable belief of the party making the determination) produce a
commercially reasonable result.
23
<PAGE>
"SPECIFIED ENTITY" has the meaning specified in the Schedule.
"SPECIFIED INDEBTEDNESS" means, subject to the Schedule, any obligation (whether
present or future, contingent or otherwise, as principal or surety or otherwise)
in respect of borrowed money.
"SPECIFIED TRANSACTION" means, subject to the Schedule, (a) any transaction
(including an agreement with respect thereto) now existing or hereafter entered
into between one party to this Agreement (or any Credit Support Provider of such
party or any applicable Specified Entity of such party) and the other party to
this Agreement (or any Credit Support Provider of such other party or any
applicable Specified Entity of such other party) which is a rate swap
transaction, basis swap, forward rate transaction, commodity swap, commodity
option, equity or equity index swap, equity or equity index option, bond option,
interest rate option, foreign exchange transaction, cap transaction, floor
transaction, collar transaction, currency swap transaction, cross-currency rate
swap transaction, currency option or any other similar transaction (including
any option with respect to any of these transactions), (b) any combination of
these transactions and (c) any other transaction identified as a Specified
Transaction in this Agreement or the relevant confirmation.
"STAMP TAX" means any stamp, registration, documentation or similar tax.
"TAX" means any present or future tax, levy, impost, duty, charge, assessment or
fee of any nature (including interest, penalties and additions thereto) that is
imposed by any government or other taxing authority in respect of any payment
under this Agreement other than a stamp, registration, documentation or similar
tax.
"TAX EVENT" has the meaning specified in Section 5(b).
"TAX EVENT UPON MERGER" has the meaning specified in Section 5(b).
"TERMINATED TRANSACTIONS" means with respect to any Early Termination Date (a)
if resulting from a Termination Event, all Affected Transactions and (b) if
resulting from an Event of Default, all Transactions (in either case) in effect
immediately before the effectiveness of the notice designating that Early
Termination Date (or, if "Automatic Early Termination" applies, immediately
before that Early Termination Date).
"TERMINATION CURRENCY" has the meaning specified in the Schedule.
"TERMINATION CURRENCY EQUIVALENT" means, In respect of any amount denominated in
the Termination Currency, such Termination Currency amount and, in respect of
any amount denominated in a currency other than the Termination Currency (the
"Other Currency"), the amount in the Termination Currency determined by the
party making the relevant determination as being required to purchase such
amount of such Other Currency as at the relevant Early Termination Date, or, if
the relevant Market Quotation or Loss (as the case may be), is determined as of
a later date, that later date, with the Termination Currency at the rate equal
to the spot exchange rate of the foreign
24
<PAGE>
exchange agent (selected as provided below) for the purchase of such Other
Currency with the Termination Currency at or about 11:00 a.m. (in the city in
which such foreign exchange agent is located) on such date as would be
customary for the determination of such a rate for the purchase of such Other
Currency for value on the relevant Early Termination Date or that later date.
The foreign exchange agent will, if only one party is obliged to make a
determination under Section 6(e), be selected in good faith by that party and
otherwise will be agreed by the parties.
"TERMINATION EVENT" means an Illegality, a Tax Event or a Tax Event Upon Merger
or, if specified to be applicable, a Credit Event Upon Merger or an Additional
Termination Event.
"TERMINATION RATE" means a rate per annum equal to the arithmetic mean of the
cost (without proof or evidence of any actual cost) to each party (as certified
by such party) if it were to fund or of funding such amounts.
"UNPAID AMOUNTS" owing to any party means, with respect to an Early Termination
Date, the aggregate of (a) in respect of all Terminated Transactions, the
amounts that became payable (or that would have become payable but for Section
2(a)(iii)) to such party under Section 2(a)(i) on or prior to such Early
Termination Date and which remain unpaid as at such Early Termination Date and
(b) in respect of each Terminated Transaction, for each obligation under Section
2(a)(i) which was (or would have been but for Section 2(a)(iii)) required to be
settled by delivery to such party on or prior to such Early Termination Date and
which has not been so settled as at such Early Termination Date, an amount equal
to the fair market value of that which was (or would have been) required to be
delivered as of the originally scheduled date for delivery, in each case
together with (to the extent permitted under applicable law) interest, in the
currency of such amounts, from (and including) the date such amounts or
obligations were or would have been required to have been paid or performed to
(but excluding) such Early Termination Date, at the Applicable Rate, Such
amounts of interest will be calculated on the basis of daily compounding and the
actual number of days elapsed, The fair market value of any obligation referred
to in clause (b) above shall be reasonably determined by the party obliged to
make the determination under Section 6(e) or, if each party is so obliged, it
shall be the average of the Termination Currency Equivalents of the fair market
values reasonably determined by both parties.
IN WITNESS WHEREOF the parties have executed this document on the respective
dates specified below with effect from the date specified on the first page of
this document.
VARI-LITE HOLDINGS, INC. BROWN BROTHERS HARRIMAN & CO.
- --------------------------------- ---------------------------------
(Name of Party) (Name of Party)
By: /s/ Mike Herman By: /s/ Anil Agarwal
----------------------------- -----------------------------
Name: Mike Herman Name: Anil Agarwal
Title: Vice President-Finance Title: Manager
Date: December 7, 1993 Date: November 23, 1992
25
<PAGE>
(MULTICURRENCY-CROSS BORDER)
ISDA-R-
INTERNATIONAL SWAP DEALERS ASSOCIATION, INC.
SCHEDULE
TO THE
MASTER AGREEMENT
dated as of ________________________
between ________________________________ and _________________________________
("Party A") ("Party B")
PART 1. TERMINATION PROVISIONS.
(a) "SPECIFIED ENTITY" means in relation to Party A for the purpose of:
Section 5(a)(v), _______________________________________________________
Section S(a)(vi), ______________________________________________________
Section 5(a)(vii), _____________________________________________________
Section 5)(iv), ________________________________________________________
and In relation to Party B for the purpose of:
Section 5(a)(v), _______________________________________________________
Section 5(a)(vi), ______________________________________________________
Section 5(a)(vii), _____________________________________________________
Section 5)(iv), ________________________________________________________
26
<PAGE>
(b) "SPECIFIED TRANSACTION" will have the meaning specified in Section 14 of
this Agreement unless another meaning is specified here ________________
________________________________________________________________________
________________________________________________________________________
(c) The "CROSS DEFAULT" provisions of Section 5(a)(vi)
will/will not* apply to Party A
will/will not* apply to Party B
If such provisions apply:
"SPECIFIED INDEBTEDNESS" will have the meaning specified in Section 14 of
this Agreement unless another meaning is specified here ________________
________________________________________________________________________
"THRESHOLD AMOUNT" means _______________________________________________
________________________________________________________________________
(d) The "CREDIT EVENT UPON MERGER" provisions of Section 5(b)(iv)
will/will not* apply to Party A
will/will not* apply to Party B
(e) The "AUTOMATIC EARLY TERMLNATION" provision of Section 6(a)
will/will not* apply to Party A
will/will not* apply to Party B
(f) PAYMENTS ON EARLY TERMINATION. For the purpose of Section 6(e) of this
Agreement:
(i) Market Quotation/Loss* will apply.
(ii) The First Method/The Second Method* will apply.
(g) "TERMINATION CURRENCY" means ____________________________ if such currency
is specified and freely available, and otherwise United States Dollars.
(h) ADDITIONAL TERMINATION EVENT will/will not* apply. The following shall
constitute an Additional Termination Event: ____________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
*Delete as applicable.
27
<PAGE>
For the purpose of the foregoing Termination Event, the Affected Party
or Affected Parties shall be:
________________________________________________________________________
PART 2. TAX REPRESENTATIONS.
(a) PAYER REPRESENTATIONS. For the purpose of Section 3(e) of this Agreement,
Party A will/will not* make the following representation and Party B
will/will not* make the following representation: It is not required by any
applicable law, as modified by the practice of any relevant governmental
revenue authority, of any Relevant Jurisdiction to make any deduction or
withholding for or on account of any Tax from any payment (other than
interest under Section 2(e), 6(d)(ii) or 6(e) of this Agreement) to be made
by it to the other party under this Agreement. In making this
representation, it may rely on (i) the accuracy of any representations made
by the other party pursuant to Section 3(f) of this Agreement, (ii) the
satisfaction of the agreement contained in Section 4(a)(i) or 4(a) (iii) of
this Agreement and the accuracy and effectiveness of any document provided
by the other party pursuant to Section 4(a)(i) or 4(a) (iii) of this
Agreement and (iii) the satisfaction of the agreement of the other party
contained in Section 4(d) of this Agreement, provided that it shall not be
a breach of this representation where reliance is placed on clause (ii) and
the other party does not deliver a form or document under Section 4(a)(iii)
by reason of material prejudice to its legal or commercial position.
(b) PAYEE REPRESENTATIONS. For the purpose of Section 3(f) of this Agreement,
Party A and Party B make the representations specified below, if any:
(i) The following representation will/will not* apply to Party A and
will/will not* apply to Party B:
It is fully eligible for the benefits of the "Business Profits" or
"Industrial and Commercial Profits" provision, as the case may be, the
"Interest" provision or the "Other Income" provision (if any) of the
Specified Treaty with respect to any payment described in such provisions
and received or to be received by it in connection with this Agreement and
no such payment is attributable to a trade or business carried on by it
through a permanent establishment in the Specified Jurisdiction.
If such representation applies, then:
"SPECIFIED TREATY" means with respect to Party A ____________________________
"SPECIFIED JURISDICTION" means with respect to Party A ______________________
*Delete as applicable.
28
<PAGE>
"SPECIFIED TREATY" means with respect to Party B ____________________________
"SPECIFIED JURISDICTION" means with respect to Party B ______________________
(ii) The following representation will/will not apply to Party A and
will/will not apply to Party B:
Each payment received or to be received by it in connection with this
Agreement will be effectively connected with its conduct of a trade or
business in the Specified Jurisdiction.
If such representation applies, then:
"SPECIFIED JURISDICTION" means with respect to Party A ______________________
"SPECIFIED JURISDICTION" means with respect to Party B ______________________
(iii) The following representation will/will not apply to Party A and
will/will not apply to Party B: --
(A) It is entering into each Transaction in the ordinary course of its
trade as, and is, either (1) a recognized U.K. bank or (2) a recognized
U.K. swaps dealer (in either case (1) or (2), for purposes of the United
Kingdom Inland Revenue extra statutory concession C17 on interest and
currency swaps dated March 14, 1989), and (B) it will bring into account
payments made and received in respect of each Transaction in computing its
income for United Kingdom tax purposes.
(iv) Other Payee Representations: ______________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
N.B. The above representations may need modification if either party is a
Multibranch Party.
PART 3. AGREEMENT TO DELIVER DOCUMENTS.
For the purpose of Sections 4(a)(i) and (ii) of this Agreement, each party
agrees to deliver the following documents, as applicable:
(a) Tax forms, documents or certificates to be delivered are:
29
<PAGE>
PARTY REQUIRED TO FORM/DOCUMENT DATE BY WHICH
DELIVER DOCUMENT CERTIFICATE TO BE DELIVERED
- --------------------- --------------------- ---------------------
- --------------------- --------------------- ---------------------
- --------------------- --------------------- ---------------------
- --------------------- --------------------- ---------------------
- --------------------- --------------------- ---------------------
(b) Other documents to be delivered are:
COVERED BY
PARTY REQUIRED TO FORM/DOCUMENT DATE BY WHICH SECTION 3(d)
DELIVER DOCUMENT CERTIFICATE TO BE DELIVERED REPRESENTATION
Yes/No*
- ------------------- ------------------- -------------------
Yes/No*
- ------------------- ------------------- -------------------
Yes/No*
- ------------------- ------------------- -------------------
Yes/No*
- ------------------- ------------------- -------------------
Yes/No*
- ------------------- ------------------- -------------------
Yes/No*
- ------------------- ------------------- -------------------
PART 4. MISCELLANEOUS
(a) ADDRESSES FOR NOTICES. For the purpose of section 12(a) of this Agreement:
Address for notices or communications to Party A:
Address: _______________________________________________________________
Attention: _____________________________________________________________
Telex No.: ____________________________ Answerback: ____________________
Facsimile No.: ________________________ Telephone No.: _________________
Delete as applicable.
30
<PAGE>
Electronic Messaging System Details: ___________________________________
Address for notices or communications to Party B:
Address: _______________________________________________________________
Attention: _____________________________________________________________
Telex No.: ____________________________ Answerback: ____________________
Facsimile No.: ________________________ Telephone No.: _________________
Electronic Messaging System Details: ___________________________________
(b) PROCESS AGENT. For the purpose of section 13(c) of this Agreement:
Party A appoints as its Process Agent __________________________________
Party B appoints as its Process Agent __________________________________
(c) OFFICES. The provisions of Section 10(a) will/will not* apply to this
Agreement.
(d) MULTIBRANCH PARTY. For the purpose of Section 10(c) of the Agreement:
Party A is/is not* a Multibranch Party and, if so, may act through the following
Offices:
- --------------------- --------------------- ---------------------
- --------------------- --------------------- ---------------------
- --------------------- --------------------- ---------------------
Party B is/is not* a Multibranch Party and, if so, may act through the following
Offices:
- --------------------- --------------------- ---------------------
- --------------------- --------------------- ---------------------
- --------------------- --------------------- ---------------------
*Delete as applicable.
31
<PAGE>
(e) CALCULATION AGENT. The Calculation Agent is _____________________ , unless
otherwise specified in a Confirmation in relation to the relevant
Transaction.
(f) CREDIT SUPPORT DOCUMENT. Details of any Credit Support Document:
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
(g) CREDIT SUPPORT PROVIDER. Credit Support Provider means in relation to
Party A,
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
Credit Support Provider means in relation to Party B, __________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
(h) GOVERNING LAW. This Agreement will be governed by and construed in
accordance with English law/the laws of the State of New York (without
reference to choice of law doctrine)*.
(i) NETTING OF PAYMENTS. Subparagraph (ii) of Section 2(c) of this Agreement
will not apply to the following transactions or groups of Transactions (in
each case starting from the date of this Agreement/in each case starting
from ___________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
(j) "AFFILIATE" will have the meaning specified in Section 14 of this Agreement
unless another meaning is specified here _______________________________
________________________________________________________________________
PART 5. OTHER PROVISIONS.
32
<PAGE>
TRADE CONFIRMATION
To: Vari-Lite Holdings, Inc.
201 Regal Row
Dallas, Texas 75247
Attn: Mr. Michael Herman
Chief Financial Officer
This confirmation sets forth the terms and conditions of the Swap Transaction
("Swap") entered into between Vari-Lite Holdings, Inc. and Brown Brothers
Harriman & Co. on the Trade Date specified below. This constitutes a
"Confirmation" as referred to in the Interest Rate & Currency Exchange Agreement
specified below. This Confirmation replaces our previous Confirmation dated
November 23, 1993 (copy attached) which shall be of no further force and effect.
The definitions and provisions contained in the 1991 ISDA Definitions (as
published by the International Swap Dealers Association, Inc.) are incorporated
into this Confirmation. In the event of any inconsistency between those
definitions and provisions and this Confirmation, this Confirmation will govern.
This Confirmation supplements, forms part of, and is subject to the 1992
Multicurrency-Cross Border ISDA Master Agreement (the Agreement) between us
(attached). All provisions contained in the Agreement govern this confirmation
except as expressly modified below.
The terms of the particular Swap executed are as follows:
A)
_____________________________________________________________________________
Initial
Notional Amount: USD 10,000,000
(Amortizing by $200,000 on September 30, 1996
and by $700,000 every quarter, commencing on
December 31, 1996 up to December 31, 1998
-see Attachment A)
_____________________________________________________________________________
Trade Date: February 28, 1994
_____________________________________________________________________________
Effective Date: March 31, 1994
_____________________________________________________________________________
Termination Date: March 31, 1999, subject to adjustment in
accordance with the Modified Following
Business Day Convention.
_____________________________________________________________________________
<PAGE>
B) Fixed Rate Payer: Vari-Lite Holdings, Inc.
Fixed Rate: 10.08 percent per annum.
Payment Dates: The last day of March, June, September,
and December of each year, commencing on
June 30, 1994 up to and including the
Termination Date, subject to adjustment
in accordance with the Modified Following
Business Day Convention.
Fixed Rate Day Count Fraction: Actual/360
C) Floating Rate Payer: Brown Brothers Harriman & Co.
Floating Rate: Three month USD-LIBOR-BBA plus 4.50
percent.
Floating Rate for Initial
Calculation Period: To be determined on March 29, 1994.
Payment Dates: The last day of March, June, September,
and December of each year, commencing on
June 30, 1994 up to and including the
Termination Date, subject to adjustment
in accordance with the Modified Following
Business Day Convention.
Reset Dates: Each Floating Rate Payment Date except the
Termination Date.
Fixed Rate Day Count
Fraction: Actual/360
D) Business Days: New York and London.
E) Governing Law: Laws of New York.
/s/ Anil Agarwal
------------------------------------
per pro Brown Brothers Harriman & Co.
Accepted and Agreed to:
By: Vari-Lite Holdings, Inc.
------------------------------------------------------
Name: /s/ Mike Herman
----------------------------------------------------
Title: Vice President Finance, Chief Financial Officer
---------------------------------------------------
<PAGE>
Brown Brothers Harriman & Co.
Attachment A
Date Principal Amount Outstanding
- ---- ----------------------------
1. March 31, 1994 $10,000,000
2. June 30, 1994 $10,000,000
3. September 30, 1994 $10,000,000
4. December 31, 1994 $10,000,000
5. March 31, 1995 $10,000,000
6. June 30, 1995 $10,000,000
7. September 30, 1995 $10,000,000
8. December 31, 1995 $10,000,000
9. March 31, 1996 $10,000,000
10. June 30, 1996 $10,000,000
11. September 30, 1996 $ 9,800,000
12. December 31, 1996 $ 9,100,000
13. March 31, 1997 $ 8,400,000
14. June 30, 1997 $ 7,700,000
15. September 30, 1997 $ 7,000,000
16. December 31, 1997 $ 6,300,000
17. March 31, 1998 $ 5,600,000
18. June 30, 1998 $ 4,900,000
19. September 30, 1998 $ 4,200,000
20. December 31, 1998 $ 3,500,000
21. March 31, 1999 $ 0
<PAGE>
(Multicurrency-Cross Border)
ISDA-Registered Trademark-
INTERNATIONAL SWAP DEALS ASSOCIATION, INC.
MASTER AGREEMENT
dated as of September 13, 1996
Sun Trust Bank, Atlanta and Vari-Lite, Inc. have entered and/or anticipate
entering into one or more transactions (each a "Transaction") that are or
will be governed by this Master Agreement, which includes the schedule (the
"Schedule"), and the documents and other confirming evidence (each a
"Confirmation") exchanged between the parties confirming those Transactions.
Accordingly, the parties agree as follows:
1. INTERPRETATION
(a) DEFINITIONS. The terms defined in Section 14 and in the Schedule will have
the meanings therein specified for the purpose of this Master Agreement.
(b) INCONSISTENCY. In the event of any inconsistency between the provisions of
the Schedule and the other provisions of this Master Agreement, the Schedule
will prevail. In the event of any inconsistency between the provisions of any
Confirmation and this Master Agreement (including the Schedule), such
Confirmation will prevail for the purpose of the relevant Transaction.
(c) SINGLE AGREEMENT. All Transactions are entered into in reliance on the
fact that this Master Agreement and all Confirmations form a single agreement
between the parties (collectively referred to as this "Agreement"), and the
parties would not otherwise enter into any Transactions.
2. OBLIGATIONS
(a) GENERAL CONDITIONS.
(i) Each party will make each payment or delivery specified in each
Confirmation to be made by it, subject to the other provisions of this
Agreement.
1
<PAGE>
(ii) Payments under this Agreement will be made on the due date for value
on that date in the place of the account specified in the relevant
Confirmation or otherwise pursuant to this Agreement, in freely
transferable funds and in the manner customary for payments in the required
currency. Where settlement is by delivery (that is, other than by payment),
such delivery will be made for receipt on the due date in the manner
customary for the relevant obligation unless otherwise specified in the
relevant Confirmation or elsewhere in this Agreement.
(iii) Each obligation of each party under Section 2(a)(i) is subject to
(1) the condition precedent that no Event of Default or Potential Event of
Default with respect to the other party has occurred and is continuing, (2)
the condition precedent that no Early Termination Date in respect of the
relevant Transaction has occurred or been effectively designated and (3)
each other applicable condition precedent specified in this Agreement.
(b) CHANGE OF ACCOUNT: Either party may change its account for receiving a
payment or delivery by giving notice to the other party at least five Local
Business Days prior to the scheduled date for the payment or delivery to which
such change applies unless such other party gives timely notice of a reasonable
objection to such change.
(c) NETTING. If on any date amounts would otherwise be payable:
(i) in the same currency; and
(ii) in respect of the same Transaction,
by each party to the other, then, on such date, each party's obligation to make
payment of any such amount will be automatically satisfied and discharged and,
if the aggregate amount that would otherwise have been payable by one party
exceeds the aggregate amount that would otherwise have been payable by the other
party, replaced by an obligation upon the party by whom the larger aggregate
amount would have been payable to pay to the other party the excess of the
larger aggregate amount over the smaller aggregate amount.
The parties may elect in respect of two or more Transactions that a net amount
will be determined in respect of all amounts payable on the same date in the
same currency in respect of such Transactions, regardless of whether such
amounts are payable in respect of the same Transaction. The election may be made
in the Schedule or a Confirmation by specifying that subparagraph (ii) above
will not apply to the Transactions identified as being subject to the election,
together with the starting date (In which case subparagraph (ii) above will not,
or will cease to, apply to such Transactions from such date). This election may
be made separately for different groups of Transactions and will apply
separately to each pairing of Offices through which the parties make and receive
payments or deliveries.
2
<PAGE>
(d) DEDUCTION OR WITHHOLDING FOR TAX.
(i) GROSS-UP. All payments under this Agreement will be made without any
deduction or withholding for or on account of any Tax unless such deduction
or withholding is required by any applicable law, as modified by the
practice of any relevant governmental revenue authority, then in effect. If
a party is so required to deduct or withhold, then that party ("X") will:
(1) promptly notify the other party ("Y") of such requirement;
(2) pay to the relevant authorities the full amount required to be
deducted or withheld (including the full amount required to be
deducted or withheld from any additional amount paid by X to Y under
this Section 2(d)) promptly upon the earlier of determining that such
deduction or withholding is required or receiving notice that such
amount has been assessed against Y;
(3) promptly forward to Y an official receipt (or a certified copy),
or other documentation reasonably acceptable to Y, evidencing such
payment to such authorities; and
(4) if such Tax is an Indemnifiable Tax, pay to Y, in addition to the
payment to which Y is otherwise entitled under this Agreement, such
additional amount as is necessary to ensure that the net amount
actually received by Y (free and clear of Indemnifiable Taxes, whether
assessed against X or Y) will equal the full amount Y would have
received had no such deduction or withholding been required. However,
X will not be required to pay any additional amount to Y to the extent
that it would not be required to be paid but for;
(A) the failure by Y to comply with or perform any agreement
contained In Section 4(a)(i), 4(a)(iii) or 4(d); or
(B) the failure of a representation made by Y pursuant to
Section 3(f) to be accurate and true unless such failure would
not have occurred but for (I) any action taken by a taxing
authority, or brought in a court of competent jurisdiction, on or
after the date on which a Transaction is entered into (regardless
of whether such action is taken or brought with respect to a
party to this Agreement) or (II) a Change in Tax Law.
(ii) LIABILITY. If:
(1) X is required by any applicable law, as modified by the practice
of any relevant governmental revenue authority, to make any deduction
or withholding in
3
<PAGE>
respect of which X would not be required to pay an additional amount
to Y under Section 2(d)(i)(4);
(2) X does not so deduct or withhold. and
(3) a liability resulting from such Tax is assessed directly against
X,
then, except to the extent Y has satisfied or then satisfies the liability
resulting from such Tax, Y will promptly pay to X the amount of such liability
(including any related liability for interest, but including any related
liability for penalties only if Y has failed to comply with or perform any
agreement contained in Section 4(a)(i), 4(a)(iii) or 4(d)).
(e) DEFAULT INTEREST; OTHER AMOUNTS. Prior to the occurrence or effective
designation of an Early Termination Date in respect of the relevant Transaction,
a party that defaults in the performance of any payment obligation will, to the
extent permitted by law and subject to Section 6(c), be required to pay interest
(before as well as after judgment) on the overdue amount to the other party on
demand in the same currency as such overdue amount, for the period from (and
including) the original due date for payment to (but excluding) the date of
actual payment, at the Default Rate. Such interest will be calculated on the
basis of daily compounding and the actual number of days elapsed. If, prior to
the occurrence or effective designation of an Early Termination Date in respect
of the relevant Transaction, a party defaults in the performance of any
obligation required to be settled by delivery, it will compensate the other
party on demand if and to the extent provided for in the relevant Confirmation
or elsewhere in this Agreement
3. REPRESENTATIONS
Each party represents to the other party (which representations will be deemed
to be repeated by each party on each date on which a Transaction is entered into
and, in the case of the representations in Section 3(1), at all times until the
termination of this Agreement) that:
(a) BASIC REPRESENTATIONS.
(i) STATUS. It is duly organized and validly existing under the laws of
the jurisdiction of its organization or incorporation and, if relevant
under such laws, in good standing;
(ii) POWERS. It has the power to execute this Agreement and any other
documentation relating to this Agreement to which it is a party, to deliver
this Agreement and any other documentation relating to this Agreement that
it is required by this Agreement TO deliver and to perform its obligations
under this Agreement and any obligations it has under any Credit Support
Document to which it is a party and has taken all necessary action to
authorize such execution, delivery and performance;
4
<PAGE>
(iii) NO VIOLATION OR CONFLICT. Such execution, delivery and performance
do not violate or conflict with any law applicable to it, any provision of
its constitutional documents, any order or judgment of any court or other
agency of government applicable to it or any of its assets or any
contractual restriction binding on or affecting it or any of its assets;
(iv) CONSENTS. All governmental and other consents that are required to
have been obtained by it with respect to this Agreement or any Credit
Support Document to which it is a party have been obtained and are in full
force and effect and all conditions of any such consents have been complied
with; and
(v) OBLIGATIONS BINDING. Its obligations under this Agreement and any
Credit Support Document to which it is a party constitute its legal, valid
and binding obligations. enforceable in accordance with their respective
terms (subject to applicable bankruptcy, reorganization, insolvency,
moratorium or similar laws affecting creditors' rights generally and
subject, as to enforceability, to equitable principles of general
application (regardless of whether enforcement is sought in a proceeding in
equity or at law)).
(b) ABSENCE OF CERTAIN EVENTS. No Event of Default or Potential Event of
Default or, to its knowledge, Termination Event with respect to it has occurred
and is continuing and no such event or circumstance would occur as a result of
its entering into or performing its obligations under this Agreement or any
Credit Support Document to which it is a party.
(c) ABSENCE OF LITIGATION. There is not pending or, to its knowledge,
threatened against it or any of its Affiliates any action, suit or proceeding at
law or in equity or before any court, tribunal, governmental body, agency or
official or any arbitrator that is likely to affect the legality, validity or
enforceability against it of this Agreement or any Credit Support Document to
which it is a party or its ability to perform its obligations under this
Agreement or such Credit Support Document.
(d) ACCURACY OF SPECIFIED INFORMATION. All applicable information that is
furnished in writing by or on behalf of it to the other party and is identified
for the purpose of this Section 3(d) in the Schedule is, as of the date of the
information, true, accurate and complete in every material respect.
(e) PAYER TAX REPRESENTATION. Each representation specified in the Schedule as
being made by it for the purpose of this Section 3(e) is accurate and true.
(f) PAYEE TAX REPRESENTATIONS. Each representation specified in the Schedule as
being made by it for the purpose of this Section 3(f) is accurate and true.
4. AGREEMENTS
Each party agrees with the other that, so long as either party has or may have
any obligation under this Agreement or under any Credit Support Document to
which it is a party:
5
<PAGE>
(a) FURNISH SPECIFIC INFORMATION. It will deliver to the other party or, in
certain cases under subparagraph (iii.) below, to such government or taxing
authority as the other party reasonably directs:
(i) any forms, documents or certificates relating to taxation specified
in the Schedule or any Confirmation;
(ii) any other documents specified in the Schedule or any Confirmation;
and
(iii) upon reasonable demand by such other party, any form or document
that may be required or reasonably requested in writing in order to allow
such other party or its Credit Support Provider to make a payment under
this Agreement or any applicable Credit Support Document without any
deduction or withholding for or on account of any Tax or with such
deduction or withholding at a reduced rate (so long as the completion,
execution or submission of such form or document would not materially
prejudice the legal or commercial position of the party in receipt of such
demand), with any such form or document to be accurate and completed in a
manner reasonably satisfactory to such other party and to be executed and
to be delivered with any reasonably required certification.
in each case by the date specified in the Schedule or such Confirmation or, if
none is specified, as soon as reasonably practicable.
(b) MAINTAIN AUTHORIZATIONS. It will use all reasonable efforts to maintain in
full force and effect all consents of any governmental or other authority that
are required to be obtained by it with respect to this Agreement or any Credit
Support Document to which it is a party and will use all reasonable efforts to
obtain any that may become necessary in the future.
(c) COMPLY WITH LAWS. It will comply in all material respects with all
applicable laws and orders to which it may be subject if failure so to comply
would materially impair its ability to perform its obligations under this
Agreement or any Credit Support Document to which it is a party.
(d) TAX AGREEMENT. It will give notice of any failure of a representation made
by it under Section 3(f) to be accurate and true promptly upon learning of such
failure.
(e) PAYMENT OF STAMP TAX. Subject to Section 11, it will pay any Stamp Tax
levied or imposed upon it or in respect of its execution or performance of this
Agreement by jurisdiction in which it is incorporated, organized, managed and
controlled, or considered to have its seat, or in which a branch or office
through which it is acting for the purpose of this Agreement is located ("Stamp
Tax Jurisdiction") and will indemnify the other party against any Stamp Tax
levied or imposed upon the other party or in respect of the other party's
execution or performance of this Agreement by any such Stamp Tax Jurisdiction
which is riot also a Stamp Tax Jurisdiction with respect to the other party.
6
<PAGE>
5. EVENTS OF DEFAULT AND TERMINATION EVENTS
(a) EVENTS OF DEFAULT. The occurrence at any time with respect to a party or,
if applicable, any Credit Support Provider of such party or any Specified
Entity of such party of any of the following events constitutes an event of
default (an "Event of Default") with respect to such party:
(i) FAILURE TO PAY OR DELIVER. Failure by the party to make, when due,
any payment under this Agreement or delivery under Section 2(a)(i) or 2(e)
required to be made by it if such failure is not remedied on or before the
third Local Business Day after notice of such failure is given to the
party;
(ii) BREACH OF AGREEMENT. Failure by the party to comply with or perform
any agreement or obligation (other than an obligation to make any payment
under this Agreement or delivery under Section 2(a)(i) or 2(e) or to give
notice of a Termination Event or any agreement or obligation under Section
4(a)(i), 4(a)(iii) or 4(d)) to be complied with or performed by the party
in accordance with this Agreement if such failure is not remedied on or
before the thirtieth day after notice of such failure is given to the
party;
(iii) CREDIT SUPPORT DEFAULT.
(1) Failure by the party or any Credit Support Provider of such
party to comply with or perform any agreement or obligation to be
complied with or performed by it in accordance with any Credit Support
Document f such failure is continuing after any applicable grace
period has elapsed;
(2) the expiration or termination of such Credit Support Document or
the failing or ceasing of such Credit Support Document to be in full
force and effect for the purpose of this Agreement (in either case
other than in accordance with its terms) prior to the satisfaction of
all obligations of such party under each Transaction to which such
Credit Support Document relates without the written consent of the
other party; or
(3) the party or such Credit Support Provider disaffirms, disclaims,
repudiates or rejects, in whole or in part, or challenges the
validity of, such Credit Support Document;
(iv) MISREPRESENTATION. A representation (other than a representation
under Section 3(e) or (f)) made or repeated or deemed to have been made or
repeated by the party or any Credit Support Provider of such party in this
Agreement or any Credit Support Document proves to have been incorrect or
misleading in any material respect when made or repeated or deemed to have
been made or repeated;
7
<PAGE>
(v) DEFAULT UNDER SPECIFIED TRANSACTION. The party, any Credit Support
Provider of such party or any applicable Specified Entity of such party (1)
defaults under a Specified Transaction and, after giving effect to any
applicable notice requirement or grace period, there occurs a liquidation
of, an acceleration of obligations under, or an early termination of, that
Specified Transaction, (2) defaults, after giving effect to any applicable
notice requirement or grace period, in making any payment or delivery due
on the last payment, delivery or exchange date of, or any payment on early
termination of, a Specified Transaction (or such default continues for at
least three Local Business Days if there is no applicable notice
requirement or grace period) or (3) disaffirms, disclaims, repudiates or
rejects, in whole or in part, a Specified Transaction (or such action is
taken by any person or entity appointed or empowered to operate it or act
on its behalf);
(vi) CROSS DEFAULT. If "Cross Default" is specified in the Schedule as
applying to the party, the occurrence or existence of (1) a default, event
of default or other similar condition or event (however described) in
respect of such party, any Credit Support Provider of such party or any
applicable Specified Entity of such party under one or more agreements or
instruments relating to Specified Indebtedness of any of them (individually
or collectively) in an aggregate amount of not less than the applicable
Threshold Amount (as specified in the Schedule) which has resulted in such
Specified Indebtedness becoming, or becoming capable at such time of being
declared, due and payable under such agreements or instruments, before it
would otherwise have been due and payable or (2) a default by such party,
such Credit Support Provider or such Specified Entity (individually or
collectively) in making one or more payments on the due date thereof in an
aggregate amount of not less than the applicable Threshold Amount under
such agreements or instruments (after giving effect to any applicable
notice requirement or grace period);
(vii) BANKRUPTCY. The party any Credit Support Provider of such party
or any applicable Specified Entity of such party:
(1) is dissolved (other than pursuant to a consolidation,
amalgamation or merger); (2) becomes insolvent or is unable to pay
its debts or fails or admits in writing its inability generally to
pay its debts as they become due; (3) makes a general assignment,
arrangement or composition with or for the benefit of its creditors;
(4) institutes or has instituted against it a proceeding seeking a
judgment of insolvency or bankruptcy or any other relief under any
bankruptcy or insolvency law or other similar law affecting
creditors' rights, or a petition is presented for its winding-up or
liquidation, and, in the case of any such proceeding or petition
instituted or presented against it, such proceeding or petition (A)
results in a judgment of insolvency or bankruptcy or the entry of an
order for relief or the making of an order for its winding-up or
liquidation or (B) is not dismissed, discharged, stayed or restrained
in each case within 30 days of the institution or presentation
thereof; (5) has a resolution passed for its winding-up, official
management or liquidation (other than pursuant to a consolidation,
amalgamation or merger); (6) seeks or becomes subject to the
8
<PAGE>
appointment of an administrator, provisional liquidator,
conservator, receiver, trustee, custodian or other similar official
for it or for all or substantially all its assets; (7) has a
secured party take possession of all or substantially all its assets
or has a distress, execution, attachment, sequestration or other
legal process levied, enforced or sued on or against all or
substantially all its assets and such secured party maintains
possession, or any such process is not dismissed, discharged, stayed
or restrained, in each case within 30 days thereafter; (8) causes or
is subject to any event with respect to it which, under the
applicable laws of any jurisdiction, has an analogous effect to any
of the events specified in clauses (1) to (7) (inclusive); or (9)
takes any action in furtherance of, or indicating its consent to,
approval of, or acquiescence in. any of the foregoing acts; or
(viii) MERGER WITHOUT ASSUMPTION. The party or any Credit Support
Provider of such party consolidates or amalgamates with, or merges with or
into, or transfers all or substantially all its assets to, another entity
and, at the time of such consolidation, amalgamation, merger or transfer;
(1) the resulting, surviving or transferee entity fails to assume all
the obligations of such party or such Credit Support Provider under
this Agreement or any Credit Support Document to which it or its
predecessor was a party by operation of law or pursuant to an
agreement reasonably satisfactory to the other party to this
Agreement; or
(2) the benefits of any Credit Support Document fail to extend
(without the consent of the other party) to the performance by such
resulting, surviving or transferee entity of its obligations under
this Agreement.
(b) TERMINATION EVENTS. The occurrence at any time with respect to a party or,
if applicable, any Credit Support Provider of such party or any Specified Entity
of such party of any event specified below constitutes an Illegality if the
event is specified in (i) below, a Tax Event if the event is specified in (ii)
below or a Tax Event Upon Merger if the event is specified in (iii) below, and,
if specified to be applicable, a Credit Event Upon Merger if the event is
specified pursuant to (iv) below or an Additional Termination event if the event
is specified pursuant to (v) below:
(i) ILLEGALITY. Due to the adoption of, or any change in, any applicable
law after the date on which a Transaction is entered into, or due to the
promulgation of, or any change in, the interpretation by any court,
tribunal or regulatory authority with competent jurisdiction of any
applicable law after such date, it becomes unlawful (other than as a result
of a breach by the party of Section 4(b)) for such party (which will be the
Affected Party):
(1) to perform any absolute or contingent obligation to make a
payment or delivery or to receive a payment or delivery in respect of
such Transaction or to
9
<PAGE>
comply with any other material provision of this Agreement relating
to such Transaction; or
(2) to perform, or for any Credit Support Provider of such party to
perform, any contingent or other obligation which the party (or such
Credit Support Provider) has under any Credit Support Document
relating to such Transaction;
(ii) TAX EVENT. Due to (x) any action taken by a taxing authority, or
brought in a court of competent jurisdiction, on or after the date on which
a Transaction is entered into (regardless of whether such action is taken
or brought with respect to a party to this Agreement) or (y) a Change in
Tax Law, the party (which will be the Affected Party) will, or there is a
substantial likelihood that it will, on the next succeeding Scheduled
Payment Date (1) be required to pay to the other party an additional amount
in respect of an Indemnifiable Tax under Section 2(d)(i)(4) (except in
respect of interest under Section 2(e), 6(d)(ii) or 6(e)) or (2) receive a
payment from which an amount is required to be deducted or withheld for or
on account of a Tax (except in respect of interest under Section 2(e),
6(d)(ii) or 6(e)) and no additional amount is required to be paid in
respect of such Tax under Section 2(d)(i)(4) (other than by reason of
Section 2(d)(i)(4)(A) or (B));
(iii) TAX EVENT UPON MERGER. The party (the Burdened Party") on the next
succeeding Scheduled Payment Date will either (1) be required to pay an
additional amount in respect of an Indemnifiable Tax under Section
2(d)(i)(4) (except in respect of interest under Section 2(e), 6(d)(il) or
6(e)) or (2) receive a payment from which an amount has been deducted or
withheld for or on account of any Indemnifiable Tax in respect of which the
other party is not required to pay an additional amount (other than by
reason of Section 2(d)(i)(4)(A) or (B)), in either case as a result of a
party consolidating or amalgamating with, or merging with or into, or
transferring all or substantially all its assets to, another entity (which
will be the Affected Party) where such action does not constitute an event
described in Section 5(a)(viii);
(iv) CREDIT EVENT UPON MERGER. If "Credit Event Upon Merger" is specified
in the Schedule as applying to the party, such party ("X'), any Credit
Support Provider of X or any applicable Specified Entity of X
consolidates or amalgamates with, or merges with or into, or transfers
all or substantially all its assets to, another entity and such action
does not constitute an event described in Section 5(a)(viii) but the
creditworthiness of the resulting, surviving or transferee entity is
materially weaker than that of X, such Credit Support Provider or such
Specified Entity, as the case may be, immediately prior to such action
(and, in such event, X or its successor or transferee, as appropriate,
will be the Affected Party); or
(v) ADDITIONAL TERMINATION EVENT. If any "Additional Termination Event" is
specified in the Schedule or any Confirmation as applying, the occurrence
of such event (and, in such
10
<PAGE>
event, the Affected Party or Affected Parties shall be as specified for
such Additional Termination Event in the Schedule or such Confirmation).
(c) EVENT OF DEFAULT AND ILLEGALITY. If an event or circumstance which would
otherwise constitute or give rise to an Event of Default also constitutes an
Illegality, it will be treated as an Illegality and will not constitute an Event
of Default.
6. EARLY TERMINATION
(a) RIGHT TO TERMINATE FOLLOWING EVENT OF DEFAULT. If at any time an Event of
Default with respect to a party (the "Defaulting Party") has occurred and is
then continuing, the other party (the "Non-defaulting Party") may, by not more
than 20 days notice to the Defaulting Party specifying the relevant Event of
Default, designate a day not earlier than the day such notice is effective as an
Early Termination Date in respect of all outstanding Transactions. If, however,
"Automatic Early Termination" is specified in the Schedule as applying to a
party, then an Early Termination Date in respect of all outstanding Transactions
will occur immediately upon the occurrence with respect to such party of an
Event of Default specified in Section 5(a)(vii)(1), (3), (5), (6) or, to the
extent analogous thereto, (8), and as of the time immediately preceding the
institution of the relevant proceeding or the presentation of the relevant
petition upon the occurrence with respect to such party of an Event of Default
specified in Section 5(a)(vii)(4) or, to the extent analogous thereto, (8).
(b) RIGHT TO TERMINATE FOLLOWING TERMINATION EVENT.
(i) NOTICE. If a Termination Event occurs, an Affected Party will,
promptly upon becoming aware of it, notify the other party, specifying the
nature of that Termination Event and each Affected Transaction and will
also give such other information about that Termination Event as the other
party may reasonably require.
(ii) TRANSFER TO AVOID TERMINATION EVENT. If either an Illegality under
Section 5(b)(i)(l) or a Tax Event occurs and there is only one Affected
Party, or if a Tax Event Upon Merger occurs and the Burdened Party is the
Affected Party, the Affected Party will, as a condition to its right to
designate an Early Termination Date under Section 6(b)(iv), use all
reasonable efforts (which will not require such party to incur a loss,
excluding immaterial, incidental expenses) to transfer within 20 days after
it gives notice under Section 6(b)(i) all its rights and obligations under
this Agreement in respect of the Affected Transactions to another of its
Offices or Affiliates so that such Termination Event ceases to exist.
If the Affected Party is not able to make such a transfer it will give
notice to the other party to that effect within such 20 day period,
whereupon the other party may effect such a transfer within 30 days after
the notice is given under Section 6(b)(i).
Any such transfer by a party under this Section 6(b)(ii) will be subject to
and conditional upon the prior written consent of the other party, which
consent will not be withheld if such
11
<PAGE>
other party's policies in effect at such time would permit it to enter
into transactions with the transferee on the terms proposed.
(iii) TWO AFFECTED PARTIES. If an Illegality under Section 5(b)(i)(1) or a
Tax Event occurs and there are two Affected Parties, each party will use
all reasonable efforts to reach agreement within 30 days after notice
thereof is given under Section 6(b)(i) on action to avoid that Termination
Event.
(iv) RIGHT TO TERMINATE. If:
(1) a transfer under Section 6(b)(ii) or an agreement under Section
6(1)(iii), as the case may be, has not been effected with respect to
all Affected Transactions within 30 days after an Affected Party gives
notice under Section 6(b)(i); or
(2) an Illegality under Section 5(b)(i)(2), a Credit Event Upon
Merger or an Additional Termination Event occurs, or a Tax Event Upon
Merger occurs and the Burdened Party is not the Affected Party,
either party in the case of an Illegality, the Burdened Party in the case of a
Tax Event Upon Merger, any Affected Party in the case of a Tax Event or an
Additional Termination Event if there is more than one Affected Party, or the
party which is not the Affected Party in the case of a Credit Event Upon Merger
or an Additional Termination Event if there is only one Affected Party may, by
not more than 20 days notice to the other party and provided that the relevant
Termination Event is then continuing, designate a day not earlier than the day
such notice is effective as an Early Termination Date in respect of all Affected
Transactions.
(c) EFFECT OF DESIGNATION.
(i) If notice designating an Early Termination Date is given under Section
6(a) or (b), the Early Termination Date will occur on the date so
designated, whether or not the relevant Event of Default or Termination
Event is then continuing.
(ii) Upon the occurrence or effective designation of an Early Termination
Date, no further payments or deliveries under Section 2(a)(i) or 2(e) in
respect of the Terminated Transactions will be required to be made, but
without prejudice to the other provisions of this Agreement. The amount, if
any, payable in respect of an Early Termination Date shall be determined
pursuant to Section 6(e).
(d) CALCULATIONS.
(i) STATEMENT. On or as soon as reasonably practicable following the
occurrence of an Early Termination Date, each party will make the
calculations on its part, if any, contemplated by Section 6(e) and will
provide to the other party a statement (1) showing, in
12
<PAGE>
reasonable detail, such calculations (including all relevant quotations
and specifying any amount payable under Section 6(e)) and (2) giving
details of the relevant account to which any amount payable to it is to
be paid. In the absence of written confirmation from the source of a
quotation obtained in determining a Market Quotation, the records of the
party obtaining such quotation will be conclusive evidence of the
existence and accuracy of such quotation.
(ii) PAYMENT DATE. An amount calculated as being due in respect of any
Early Termination Date under Section 6(e) will be payable on the day that
notice of the amount payable is effective (in the case of an Early
Termination Date which is designated or occurs as a result of an Event of
Default) and on the day which is two Local Business Days after the day on
which notice of the amount payable is effective (in the case of an Early
Termination Date which is designated as a result of a Termination Event).
Such amount will be paid together with (to the extent permitted under
applicable law) interest thereon (before as well as after judgment) in the
Termination Currency, from (and including) the relevant Early Termination
Date to (but excluding) the date such amount is paid, at the Applicable
Rate. Such interest will be calculated on the basis of daily compounding
and the actual number of days elapsed.
(e) PAYMENTS ON EARLY TERMINATION. If an Early Termination Date occurs, the
following provisions shall apply based on the parties' election in the Schedule
of a payment measure, either "Market Quotation" or "Loss", and a payment method,
either the "First Method" or the "Second Method". If the parties fail to
designate a payment measure or payment method in the Schedule, it will be deemed
that "Market Quotation" or the "Second Method", as the case may be, shall apply.
The amount, if any, payable in respect of an Early Termination Date and
determined pursuant to this Section will be subject to any Set-off.
(i) EVENTS OF DEFAULT. If the Early Termination Date results from an Event of
Default:
(1) FIRST METHOD AND MARKET QUOTATION. If the First Method and
Market Quotation apply, the Defaulting Party will pay to the
Non-defaulting Party the excess, if a positive number, of (A) the
sum of the Settlement Amount (determined by the Non-Defaulting Party)
in respect of the Terminated Transactions and the Termination Currency
Equivalent of the Unpaid Amounts owing to the Non-Defaulting Party
over (B) the Termination Currency Equivalent of the Unpaid Amounts
owing to the Defaulting Party.
(2) FIRST METHOD AND LOSS. If the First Method and Loss apply, the
Defaulting Party will pay to the Non-defaulting Party, if a positive
number, the Non-defaulting Party's Loss in respect of this Agreement.
(3) SECOND METHOD AND MARKET QUOTATION. If the Second Method and
Market Quotation apply, an amount will be payable equal to (A) the sum
of the Settlement Amount (determined by the Non-defaulting Party) in
respect of the Terminated
13
<PAGE>
Transactions and the Termination Currency Equivalent of the Unpaid
Amounts owing to the Non-defaulting Party less (B) the Termination
Currency Equivalent of the Unpaid Amounts owing to the Defaulting
Party. If that amount is a positive number, the Defaulting Party will
pay it to the Non-defaulting Party; if it is a negative number, the
Non-defaulting Party will pay the absolute value of that amount to
the Defaulting Party.
(4) SECOND METHOD AND LOSS. If the Second Method and Loss apply, an
amount will be payable equal to the Non-defaulting Party's Loss in
respect of this Agreement. If that amount is a positive number, the
Defaulting Party will pay it to the Non-defaulting Party; if it is a
negative number, the Non-defaulting Party will pay the absolute value
of that amount to the Defaulting Party.
(ii) TERMINATION EVENTS. If the Early Termination Date results from a
Termination Event:
(1) ONE AFFECTED PARTY. If there is one Affected Party, the amount
payable will be determined in accordance with Section 6(e)(i)(3), if
Market Quotation applies, or Section 6(e)(i)(4), if Loss applies,
except that, in either case, references to the Defaulting Party and to
the Non-defaulting Party will be deemed to be references to the
Affected Party and the party which is not the Affected Party,
respectively, and, if Loss applies and fewer than all the Transactions
are being terminated, Loss shall be calculated in respect of all
Terminated Transactions.
(2) TWO AFFECTED PARTIES. If there are two Affected Parties:
(A) if Market Quotation applies, each party will determine a
Settlement Amount in respect of the Terminated Transactions, and
an amount will be payable equal to (I) the sum of (a) one-half of
the difference between the Settlement Amount of the party with
the higher Settlement Amount ("X") and the Settlement Amount of
the Party with the lower Settlement Amount ("Y") and (b) the
Termination Currency Equivalent of the Unpaid Amounts owing to X
less (II) the Termination Currency Equivalent of the Unpaid
Amounts owing to Y; and
(B) if Loss applies, each party will determine its Loss in
respect of this Agreement (or, if fewer than all the Transactions
are being terminated, in respect of all Terminated Transactions)
and an amount will be payable equal to one-half of the difference
between the Loss of the party with the higher Loss ("X") and the
Loss of the party with the lower Loss ("Y").
If the amount payable is a positive number, Y will pay it to X; if it
is a negative number, X will pay the absolute value of that amount to
Y.
14
<PAGE>
(iii) ADJUSTMENT FOR BANKRUPTCY. In circumstances where an Early
Termination Date occurs because "Automatic Early Termination" applies in
respect of a party, the amount determined under this Section 6(e) will be
subject to such adjustments as are appropriate and permitted by law to
reflect any payments or deliveries made by one party to the other under
this Agreement (and retained by such other party) during the period from
the relevant Early Termination Date to the date for payment determined
under Section 6(d)(ii).
(iv) PRE-ESTIMATE. The parties agree that if Market Quotation applies an
amount recoverable under this Section 6(e) is a reasonable pre-estimate of
loss and not a penalty. Such amount is payable for the loss of bargain and
the loss of protection against future risks and except as otherwise
provided in this Agreement neither party will be entitled to recover any
additional damages as a consequence of such losses.
TRANSFER
Subject to Section 6(b)(ii), neither this Agreement nor any interest or
obligation in or under this Agreement may be transferred (whether by way of
security or otherwise) by either party without the prior written consent of the
other party, except that:
(a) a party may make such a transfer of this Agreement pursuant to a
consolidation or amalgamation with, or merger with or into, or transfer of all
or substantially all its assets to, another entity (but without prejudice to any
other right or remedy under this Agreement); and
(b) a party may make such a transfer of all or any part of its interest in any
amount payable to it from a Defaulting Party under Section 6(e).
Any purported transfer that is not in compliance with this Section will be void.
8. CONTRACTUAL CURRENCY
(a) PAYMENT IN THE CONTRACTUAL CURRENCY. Each payment under this Agreement will
be made in the relevant currency specified in this Agreement for that payment
(the "Contractual Currency"). To the extent permitted by applicable law, any
obligation to make payments under this Agreement in the Contractual Currency
will not be discharged or satisfied by any tender in any currency other than the
Contractual Currency, except to the extent such tender results in the actual
receipt by the party to which payment is owed, acting in a reasonable manner and
in good faith in converting the currency so tendered into the Contractual
Currency, of the full amount in the Contractual Currency of all amounts payable
in respect of this Agreement. If for any reason the amount in the Contractual
Currency so received falls short of the amount in the Contractual Currency
payable in respect of this Agreement, the party required to make the payment
will, to the extent permitted by applicable law, immediately pay such additional
amount in the Contractual Currency as may be necessary to compensate for the
shortfall. If for any reason the amount in the Contractual Currency so received
15
<PAGE>
exceeds the amount in the Contractual Currency payable in respect of this
Agreement, the party receiving the payment will refund promptly the amount of
such excess.
(b) JUDGMENTS. To the extent permitted by applicable law, if any judgment or
order expressed in a currency other than the Contractual Currency is rendered
(i) for the payment of any amount owing in respect of this Agreement, (ii) for
the payment of any amount relating to any early termination in respect of this
Agreement or (iii) in respect of a judgment or order of another court for the
payment of any amount described in (i) or (ii) above, the party seeking
recovery, after recovery in full of the aggregate amount to which such party is
entitled pursuant to the judgment or order, will be entitled to receive
immediately from the other party the amount of any shortfall of the Contractual
Currency received by such party as a consequence of sums paid in such other
currency and will refund promptly to the other party any excess of the
Contractual Currency received by such party as a consequence of sums paid in
such other currency if such shortfall or such excess arises or results from any
variation between the rate of exchange at which the Contractual Currency is
converted into the currency of the judgment or order for the purposes of such
judgment or order and the rate of exchange at which such party is able, acting
in a reasonable manner and in good faith in converting the currency received
into the Contractual Currency, to purchase the Contractual Currency with the
amount of the currency of the judgment or order actually received by such party.
The term "rate of exchange" includes, without limitation, any premiums and costs
of exchange payable in connection with the purchase of or conversion into the
Contractual Currency.
(c) SEPARATE INDEMNITIES. To the extent permitted by applicable law, these
indemnities constitute separate and independent obligations from the other
obligations in this Agreement, will be enforceable as separate and independent
causes of action, will apply notwithstanding any indulgence granted by the party
to which any payment is owed and will not be affected by judgment being obtained
or claim or proof being made for any other sums payable in respect of this
Agreement.
(d) EVIDENCE OF LOSS. For the purpose of this Section 8, it will be sufficient
for a party to demonstrate that it would have suffered a loss had an actual
exchange or purchase been made.
9. MISCELLANEOUS
(a) ENTIRE AGREEMENT. This Agreement constitutes the entire agreement and
understanding of the parties with respect to its subject matter and supersedes
all oral communication and prior writings with respect thereto.
(b) AMENDMENTS. No amendment, modification or waiver in respect of this
Agreement will be effective unless in writing (including a writing evidenced by
a facsimile transmission) and executed by each of the parties or confirmed by an
exchange of telexes or electronic messages on an electronic messaging system.
(c) SURVIVAL OF OBLIGATIONS. Without prejudice to Sections 2(a)(iii) and
6(c)(ii), the obligations of the parties under this Agreement will survive the
termination of any Transaction.
16
<PAGE>
(d) REMEDIES CUMULATIVE. Except as provided in this Agreement, the rights,
powers, remedies and privileges provided in this Agreement are cumulative and
not exclusive of any rights, powers, remedies and privileges provided by law.
(e) COUNTERPARTS AND CONFIRMATIONS.
(i) This Agreement (and each amendment, modification and waiver in respect
of it) may be executed and delivered in counterparts (including by
facsimile transmission), each of which will be deemed an original.
(ii) The parties intend that they are legally bound by the terms of each
Transaction from the moment they agree to those terms (whether orally or
otherwise). A Confirmation shall be entered into as soon as practicable and
may be executed and delivered in counterparts (including by facsimile
transmission) or be created by an exchange of telexes or by an exchange of
electronic messages on an electronic messaging system, which in each case
will be sufficient for all purposes to evidence a binding supplement to
this Agreement. The parties will specify therein or through another
effective means that any such counterpart, telex or electronic message
constitutes a Confirmation.
(f) NO WAIVER OF RIGHTS. A failure or delay in exercising any right, power or
privilege in respect of this Agreement will not be presumed to operate as a
waiver, and a single or partial exercise of any right, power or privilege will
not be presumed to preclude any subsequent or further exercise, of that right,
power or privilege or the exercise of any other right, power or privilege.
(g) HEADINGS. The headings used in this Agreement are for convenience of
reference only and are not to affect the construction of or to be taken into
consideration in interpreting this Agreement.
10. OFFICES; MULTIBRANCH PARTIES
(a) If Section 10(a) is specified in the Schedule as applying, each party that
enters Into a Transaction through an Office other than its head or home office
represents to the other party that, notwithstanding the place of booking office
or jurisdiction of incorporation or organization of such party, the obligations
of such party are the same as if it had entered into the Transaction through its
head or home office. This representation will be deemed to be repeated by such
party on each date on which a Transaction is entered into.
(b) Neither party may change the Office through which it makes and receives
payments or deliveries for the purpose of a Transaction without the prior
written consent of the other party.
(c) If a party is specified as a Multibranch Party in the Schedule, such
Multibranch Party may make and receive payments or deliveries under any
Transaction through any Office listed in the Schedule, and the Office through
which it makes and receives payments or deliveries with respect to a Transaction
will be specified in the relevant Confirmation.
17
<PAGE>
11. EXPENSES
A Defaulting Party will, on demand, indemnify and hold harmless the other party
for and against all reasonable out-of-pocket expenses, including legal fees and
Stamp Tax, incurred by such other party by reason of the enforcement and
protection of its rights under this Agreement or any Credit Support Document to
which the Defaulting Party is a party or by reason of the early termination of
any Transaction, including, but not limited to, costs of collection.
12. NOTICES
(a) EFFECTIVENESS. Any notice or other communication in respect of this
Agreement may be given in any manner set forth below (except that a notice or
other communication under Section 5 or 6 may not be given by facsimile
transmission or electronic messaging system) to the address or number or in
accordance with the electronic messaging system details provided (see the
Schedule) and will be deemed effective as indicated:
(i) if in writing and delivered in person or by courier, on the date it
is delivered;
(ii) if sent by telex, on the date the recipient's answerback is received;
(iii) if sent by facsimile transmission, on the date that transmission
is received by a responsible employee of the recipient in legible form (it
being agreed that the burden of proving receipt will be on the sender and
will not be met by a transmission report generated by the sender's
facsimile machine);
(iv) if sent by certified or registered mail (airmail, if overseas) or the
equivalent (return receipt requested), on the date that mail is delivered
or its delivery is attempted; or
(v) if sent by electronic messaging system, on the date that electronic
message is received,
unless the date of that delivery (or attempted delivery) or that receipt, as
applicable, is not a Local Business Day or that communication is delivered (or
attempted) or received, as applicable, after the close of business on a Local
Business Day, in which case that communication shall be deemed given and
effective on the first following day that is a Local Business Day.
(b) CHANGE OF ADDRESSES. Either party may by notice to the other change the
address, telex or facsimile number or electronic messaging system details at
which notices or other communications are to be given to it.
18
<PAGE>
13. GOVERNING LAW AND JURISDICTION
(a) GOVERNING LAW. This Agreement will be governed by and construed in
accordance with the law specified in the Schedule.
(b) JURISDICTION. With respect to any suit, action or proceedings relating to
this Agreement ("Proceedings"), each party irrevocably:
(i) submits to the jurisdiction of the English courts, if this Agreement
is expressed to be governed by English law, or to the non-exclusive
jurisdiction of the courts of the State of New York and the United States
District Court located in the Borough of Manhattan in New York City, if
this Agreement is expressed to be governed by the laws of the State of New
York; and
(ii) waives any objection which it may have at any time to the laying, of
venue of any Proceedings brought in any such court, waives any claim that
such Proceedings have been brought in an inconvenient forum and further
waives the right to object, with respect to such Proceedings, that such
court does not have any jurisdiction over such party.
Nothing in this Agreement precludes either party from bringing Proceedings in
any other jurisdiction (outside, if this Agreement is expressed to be governed
by English law, the Contracting States, as defined in Section 1(3) of the Civil
Jurisdiction and Judgments Act 1982 or any modification, extension or
re-enactment thereof for the time being in force) nor will the bringing of
Proceedings in any one or more jurisdictions preclude the bringing of
Proceedings in any other jurisdiction.
(c) SERVICE OF PROCESS. Each party irrevocably appoints the Process Agent (if
any) specified opposite its name in the Schedule to receive, for it and on its
behalf, service of process in any Proceedings. If for any reason any party's
Process Agent is unable to act as such, such party will promptly notify the
other party and within 30 days appoint a substitute process agent acceptable to
the other party. The parties irrevocably consent to service of process given in
the manner provided for notices in Section 12. Nothing in this Agreement will
affect the right of either party to serve process in any other manner permitted
by law.
(d) WAIVER OF IMMUNITIES. Each party irrevocable waives, to the fullest extent
permitted by applicable law, with respect to itself and its revenues and assets
(irrespective of their use or intended use), all immunity on the grounds of
sovereignty or other similar grounds from (i) suit, (ii) jurisdiction of any
court, (iii) relief by way of injunction, order for specific performance or for
recovery of property, (iv) attachment of its assets (whether before or after
judgment) and (v) execution or enforcement of any judgment to which it or its
revenues or assets might otherwise be entitled in any Proceedings in the courts
of any jurisdiction and irrevocably agrees, to the extent permitted by
applicable law, that it will not claim any such immunity in any Proceedings.
19
<PAGE>
14. DEFINITIONS
As used in this Agreement:
"ADDITIONAL TERMINATION EVENT" has the meaning specified in Section 5(b).
"AFFECTED PARTY" has the meaning specified in Section 5(b).
"AFFECTED TRANSACTIONS" means (a) with respect to any Termination Event
consisting of an Illegality, Tax Event or Tax Event Upon Merger, all
Transactions affected by the occurrence of such Termination Event and (b) with
respect to any other Termination Event, all Transactions.
"AFFILIATE" means, subject to the Schedule, in relation to any person, any
entity controlled, directly or indirectly, by the person, any entity that
controls, directly or indirectly, the person or any entity directly or
indirectly under common control with the person. For this purpose, "control" of
any entity or person means ownership of a majority of the voting power of the
entity or person.
"APPLICABLE RATE" means:
(a) in respect of obligations payable or deliverable (or which would have been
but for Section 2(a)(iii)) by a Defaulting Party, the Default Rate;
(b) in respect of an obligation to pay an amount under Section 6(e) of either
party from and after the date (determined in accordance with Section 6(d)(ii))
on which that amount is payable, the Default Rate;
(c) in respect of all other obligations payable or deliverable (or which would
have been but for Section 2(a)(iii)) by a Non-defaulting Party, the Non-default
Rate; and
(d) in all other cases, the Termination Rate.
"BURDENED PARTY" has the meaning specified in Section 5(b).
"CHANGE IN TAX LAW" means the enactment, promulgation, execution or ratification
of, or any change in or amendment to, any law (or in the application or official
interpretation of any law) that occurs on or after the date on which the
relevant Transaction is entered into.
"CONSENT" includes a consent, approval, action, authorization, exemption,
notice, filing, registration or exchange control consent.
"CREDIT EVENT UPON MERGER" has the meaning specified in Section 5(b).
20
<PAGE>
"CREDIT SUPPORT DOCUMENT" means any agreement or instrument that is specified as
such in this Agreement.
"CREDIT SUPPORT PROVIDER" has the meaning specified in the Schedule.
"DEFAULT RATE" means a rate per annum equal to the cost (without proof or
evidence of any actual cost) to the relevant payee (as certified by it) if it
were to fund or of funding the relevant amount plus 1% per annum.
"DEFAULTING PARTY" has the meaning specified in Section 6(a).
"EARLY TERMINATION DATE" means the date determined in accordance with Section
6(a) or 6(b)(iv).
"EVENT OF DEFAULT" has the meaning specified in Section 5(a) and, if applicable,
in the Schedule.
"ILLEGALITY" has the meaning specified in Section 5(b).
"INDEMNIFIABLE TAX" means any Tax other than a Tax that would not be imposed in
respect of a payment under this Agreement but for a present or former connection
between the jurisdiction of the government or taxation authority imposing such
Tax and the recipient of such payment or a person related to such recipient
(including, without limitation, a connection arising from such recipient or
related person being or having been a citizen or resident of such jurisdiction,
or being or having been organized, present or engaged in a trade or business in
such jurisdiction, or having or having had a permanent establishment or fixed
place of business in such jurisdiction, but excluding a connection arising
solely from such recipient or related person having executed, delivered,
performed its obligations or received a payment under, or enforced, this
Agreement or a Credit Support Document).
"LAW" includes any treaty, law, rule or regulation (as modified, in the case of
tax matters, by the practice of any relevant governmental revenue authority) and
"lawful" and "unlawful" will be construed accordingly.
"LOCAL BUSINESS DAY" means, subject to the Schedule, a day on which commercial
banks are open for business (including dealings in foreign exchange and foreign
currency deposits) (a) in relation to any obligation under Section 2(a)(i), in
the place(s) specified in the relevant Confirmation or, if not so specified, as
otherwise agreed by the parties in writing or determined pursuant to provisions
contained, or incorporated by reference, in this Agreement, (b) in relation to
any other payment, in the place where the relevant account is located and, if
different, in the principal financial center, if any, of the currency of such
payment, (c) in relation to any notice or other communication, including notice
contemplated under Section 5(a)(i), in the city specified in the address for
notice provided by the recipient and, in the case of a notice contemplated by
Section 2(b), in the place where the relevant new account is to be located and
(d) in relation to Section 5(a)(v)(2), in the relevant locations for performance
with respect to such Specified Transaction.
21
<PAGE>
"LOSS" means, with respect to this Agreement or one or more Terminated
Transactions, as the case may be, and a party, the Termination Currency
Equivalent of an amount that party reasonably determines in good faith to be its
total losses and costs (or gain, in which case expressed as a negative number)
in connection with this Agreement or that Terminated Transaction or group of
Terminated Transactions, as the case may be, including any loss of bargain, cost
of funding or, at the election of such party but without duplication, loss or
cost incurred as a result of its terminating, liquidating, obtaining or
reestablishing any hedge or related trading position (or any gain resulting from
any of them). Loss includes losses and costs (or gains) in respect of any
payment or delivery required to have been made (assuming satisfaction of each
applicable condition precedent) on or before the relevant Early Termination Date
and not made, except, so as to avoid duplication, if Section 6(e)(i)(l) or (3)
or 6(e)(ii)(2)(A) applies. Loss does not include a party's legal fees and
out-of-pocket expenses referred to under Section 11. A party will determine
its Loss as of the relevant Early Termination Date, or, if that is not
reasonably practicable, as of the earliest date thereafter as is reasonably
practicable. A party may (but need not) determine its Loss by reference to
quotations of relevant rates or prices from one or more leading dealers in
the relevant markets.
"MARKET QUOTATION" means, with respect to one or more Terminated Transactions
and a party making the determination, an amount determined on the basis of
quotations from Reference Market-makers. Each quotation will be for an amount,
if any, that would be paid to such party (expressed as a negative number) or by
such party (expressed as a positive number) in consideration of an agreement
between such party (taking into account any existing Credit Support Document
with respect to the obligations of such party) and the quoting Reference
Market-maker to enter into a transaction (the "Replacement Transaction") that
would have the effect of preserving for such party the economic equivalent of
any payment or delivery (whether the underlying obligation was absolute or
contingent and assuming the satisfaction of each applicable condition
precedent) by the parties under Section 2(a)(i) in respect of such Terminated
Transaction or group of Terminated Transactions that would, but for the
occurrence of the relevant Early termination Date, have been required after
that date. For this purpose, Unpaid Amounts in respect of the Terminated
Transaction or group of Terminated Transactions are to be excluded but,
without limitation, any payment or delivery that would, but for the relevant
Early Termination Date, have been required (assuming satisfaction of each
applicable condition precedent) after that Early Termination Date is to be
included. The Replacement transaction would be subject to such documentation
as such party and the Reference Market-maker may, in good faith, agree. The
party making the determination (or its agent) will request each Reference
Market-maker to provide its quotation to the extent reasonably practicable as
of the same day and time (without regard to different time zones) on or as
soon as reasonably practicable after the relevant Early Termination Date. The
day and time as of which those quotations are to be obtained will be selected
in good faith by the party obliged to make a determination under Section
6(e), and, if each party is so obliged, after consultation with the other. If
more than three quotations are provided, the Market Quotation will be the
arithmetic mean of the quotations, without regard to the quotations having
the highest and lowest values. If exactly three such quotations are provided,
the Market Quotation will be the quotation remaining after disregarding the
highest and lowest quotations. For this purpose, if more than one quotation
has the same highest value or lowest value, then one of such quotations shall
be disregarded. If fewer than three quotations are provided,
22
<PAGE>
it will be deemed that the Market Quotation in respect of such Terminated
Transaction or group of Terminated Transactions cannot be determined.
"NON-DEFAULT RATE" means a rate per annum equal to the cost (without proof or
evidence of any actual cost) to the Non-defaulting Party (as certified by it) if
it were to fund the relevant amount.
"NON-DEFAULTING PARTY" has the meaning specified in Section 6(a).
"OFFICE" means a branch or office of a party, which may be such party's head or
home office.
"POTENTIAL EVENT OF DEFAULT" means any event which, with the giving of notice or
the lapse of time or both, would constitute an Event of Default.
"REFERENCE MARKET-MAKERS" means four leading dealers in the relevant market
selected by the party determining a Market Quotation in good faith (a) from
among dealers of the highest credit standing which satisfy all the criteria that
such party applies generally at the time in deciding whether to offer or to make
an extension of credit and (b) to the extent practicable, from among such
dealers having an office in the same city.
"RELEVANT JURISDICTION" means, with respect to a party, the jurisdictions (a) in
which the party is incorporated, organized, managed and controlled or considered
to have its seat, (b) where an Office through which the party is acting for
purposes of this Agreement is located, (c) in which the party executes this
Agreement and (d) in relation to any payment, from or through which such payment
is made.
"SCHEDULED PAYMENT DATE" means a date on which a payment or delivery is to be
made under Section 2(a)(i) with respect to a Transaction.
"SET-OFF" means set-off, offset, combination of accounts, right of retention or
withholding or similar right or requirement to which the payer of an amount
under Section 6 is entitled or subject (whether arising under this Agreement,
another contract, applicable law or otherwise) that is exercised by, or imposed
on, such payer.
"SETTLEMENT AMOUNT" means, with respect to a party and any Early Termination
Date, the sum of:
(a) the Termination Currency Equivalent of the Market Quotations (whether
positive or negative) for each Terminated Transaction or group of Terminated
Transactions for which a Market Quotation is determined; and
(b) such party's Loss (whether positive or negative and without reference to
any Unpaid Amounts) for each Terminated Transaction or group of Terminated
Transactions for which a Market Quotation cannot be determined or would not (in
the reasonable belief of the party making the determination) produce a
commercially reasonable result.
23
<PAGE>
"SPECIFIED ENTITY" has the meaning specified in the Schedule.
"SPECIFIED INDEBTEDNESS" means, subject to the Schedule, any obligation (whether
present or future, contingent or otherwise, as principal or surety or otherwise)
in respect of borrowed money.
"SPECIFIED TRANSACTION" means, subject to the Schedule, (a) any transaction
(including an agreement with respect thereto) now existing or hereafter entered
into between one party to this Agreement (or any Credit Support Provider of such
party or any applicable Specified Entity of such party) and the other party to
this Agreement (or any Credit Support Provider of such other party or any
applicable Specified Entity of such other party) which is a rate swap
transaction, basis swap, forward rate transaction, commodity swap, commodity
option, equity or equity index swap, equity or equity index option, bond option,
interest rate option, foreign exchange transaction, cap transaction, floor
transaction, collar transaction, currency swap transaction, cross-currency rate
swap transaction, currency option or any other similar transaction (including
any option with respect to any of these transactions), (b) any combination of
these transactions and (c) any other transaction identified as a Specified
Transaction in this Agreement or the relevant confirmation.
"STAMP TAX" means any stamp, registration, documentation or similar tax.
"TAX" means any present or future tax, levy, impost, duty, charge, assessment or
fee of any nature (including interest, penalties and additions thereto) that is
imposed by any government or other taxing authority in respect of any payment
under this Agreement other than a stamp, registration, documentation or similar
tax.
"TAX EVENT" has the meaning specified in Section 5(b).
"TAX EVENT UPON MERGER" has the meaning specified in Section 5(b).
"TERMINATED TRANSACTIONS" means with respect to any Early Termination Date (a)
if resulting from a Termination Event, all Affected Transactions and (b) if
resulting from an Event of Default, all Transactions (in either case) in effect
immediately before the effectiveness of the notice designating that Early
Termination Date (or, if "Automatic Early Termination" applies, immediately
before that Early Termination Date).
"TERMINATION CURRENCY" has the meaning specified in the Schedule.
"TERMINATION CURRENCY EQUIVALENT" means, In respect of any amount denominated in
the Termination Currency, such Termination Currency amount and, in respect of
any amount denominated in a currency other than the Termination Currency (the
"Other Currency"), the amount in the Termination Currency determined by the
party making the relevant determination as being required to purchase such
amount of such Other Currency as at the relevant Early Termination Date, or, if
the relevant Market Quotation or Loss (as the case may be), is determined as of
a later date, that later date, with the Termination Currency at the rate equal
to the spot exchange rate of the foreign exchange
24
<PAGE>
agent (selected as provided below) for the purchase of such Other Currency
with the Termination Currency at or about 11:00 a.m. (in the city in which
such foreign exchange agent is located) on such date as would be customary
for the determination of such a rate for the purchase of such Other Currency
for value on the relevant Early Termination Date or that later date. The
foreign exchange agent will, if only one party is obliged to make a
determination under Section 6(e), be selected in good faith by that party and
otherwise will be agreed by the parties.
"TERMINATION EVENT" means an Illegality, a Tax Event or a Tax Event Upon Merger
or, if specified to be applicable, a Credit Event Upon Merger or an Additional
Termination Event.
"TERMINATION RATE" means a rate per annum equal to the arithmetic mean of the
cost (without proof or evidence of any actual cost) to each party (as certified
by such party) if it were to fund or of funding such amounts.
"UNPAID AMOUNTS" owing to any party means, with respect to an Early Termination
Date, the aggregate of (a) in respect of all Terminated Transactions, the
amounts that became payable (or that would have become payable but for Section
2(a)(iii)) to such party under Section 2(a)(i) on or prior to such Early
Termination Date and which remain unpaid as at such Early Termination Date and
(b) in respect of each Terminated Transaction, for each obligation under Section
2(a)(i) which was (or would have been but for Section 2(a)(iii)) required to be
settled by delivery to such party on or prior to such Early Termination Date and
which has not been so settled as at such Early Termination Date, an amount equal
to the fair market value of that which was (or would have been) required to be
delivered as of the originally scheduled date for delivery, in each case
together with (to the extent permitted under applicable law) interest, in the
currency of such amounts, from (and including) the date such amounts or
obligations were or would have been required to have been paid or performed to
(but excluding) such Early Termination Date, at the Applicable Rate, Such
amounts of interest will be calculated on the basis of daily compounding and the
actual number of days elapsed, The fair market value of any obligation referred
to in clause (b) above shall be reasonably determined by the party obliged to
make the determination under Section 6(e) or, if each party is so obliged, it
shall be the average of the Termination Currency Equivalents of the fair market
values reasonably determined by both parties.
IN WITNESS WHEREOF the parties have executed this document on the respective
dates specified below with effect from the date specified on the first page of
this document.
25
<PAGE>
SUN TRUST BANK, ATLANTA VARI-LITE, INC.
- -------------------------------- --------------------------------------
(Name of Party) (Name of Party)
By: /s/ W. P. Dechert By: /s/ Mike Herman
----------------------------- -----------------------------------
Name: W. P. Dechert Name: Mike Herman
Title: Senior Vice President Title: Vice President, Finance
Chief Financial Officer
Date: Date: October 7, 1996
By: /s/ Grace Vanderwall
-----------------------------
Name: Grace Vanderwall
Title: Assistant Vice President
Date:
(MULTICURRENCY-CROSS BORDER)
26
<PAGE>
ISDA-R-
INTERNATIONAL SWAP DEALERS ASSOCIATION, INC.
SCHEDULE
TO THE
MASTER AGREEMENT
dated as of ________________________
between ________________________________ and _________________________________
("Party A") ("Party B")
PART 1. TERMINATION PROVISIONS.
(a) "SPECIFIED ENTITY" means in relation to Party A for the purpose of:
Section 5(a)(v), _________________________________________________________
Section 5(a)(vi), ________________________________________________________
Section 5(a)(vii), _______________________________________________________
Section 5(iv), ___________________________________________________________
and In relation to Party B for the purpose of:
Section 5(a)(v), _________________________________________________________
Section 5(a)(vi), ________________________________________________________
Section 5(a)(vii), _______________________________________________________
Section 5(iv), ___________________________________________________________
(b) "SPECIFIED TRANSACTION" will have the meaning specified in Section 14 of
this Agreement unless another meaning is specified here __________________
__________________________________________________________________________
27
<PAGE>
__________________________________________________________________________
(c) The "CROSS DEFAULT" provisions of Section 5(a)(vi)
will/will not* apply to Party A
will/will not* apply to Party B
If such provisions apply:
"SPECIFIED INDEBTEDNESS" will have the meaning specified in Section 14 of
this Agreement unless another meaning is specified here __________________
__________________________________________________________________________
"THRESHOLD AMOUNT" means _________________________________________________
__________________________________________________________________________
(d) The "CREDIT EVENT UPON MERGER" provisions of Section 5(b)(iv)
will/will not* apply to Party A
will/will not* apply to Party B
(e) The "AUTOMATIC EARLY TERMINATION" provision of Section 6(a)
will/will not* apply to Party A
will/will not* apply to Party B
(f) PAYMENTS ON EARLY TERMINATION. For the purpose of Section 6(e) of this
Agreement:
(i) Market Quotation/Loss * will apply.
(ii) The First Method/The Second Method * will apply.
(g) "TERMINATION CURRENCY" means ____________________________ if such currency
is specified and freely available, and otherwise United States Dollars.
(h) ADDITIONAL TERMINATION EVENT will/will not* apply. The following shall
constitute an Additional Termination Event: ______________________________
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
*Delete as applicable.
<PAGE>
For the purpose of the foregoing Termination Event, the Affected Party
or Affected Parties shall be:
__________________________________________________________________________
PART 2. TAX REPRESENTATIONS.
(a) PAYER REPRESENTATIONS. For the purpose of Section 3(e) of this Agreement,
Party A will/will not* make the following representation and Party B
will/will not* make the following representation: It is not required by any
applicable law, as modified by the practice of any relevant governmental
revenue authority, of any Relevant Jurisdiction to make any deduction or
withholding for or on account of any Tax from any payment (other than
interest under Section 2(e), 6(d)(ii) or 6(e) of this Agreement) to be made
by it to the other party under this Agreement. In making this
representation, it may rely on (i) the accuracy of any representations made
by the other party pursuant to Section 3(f) of this Agreement, (ii) the
satisfaction of the agreement contained in Section 4(a)(i) or 4(a)(iii) of
this Agreement and the accuracy and effectiveness of any document provided
by the other party pursuant to Section 4(a)(i) or 4(a)(iii) of this
Agreement and (iii) the satisfaction of the agreement of the other party
contained in Section 4(d) of this Agreement, provided that it shall not be
a breach of this representation where reliance is placed on clause (ii) and
the other party does not deliver a form or document under Section 4(a)(iii)
by reason of material prejudice to its legal or commercial position.
(b) PAYEE REPRESENTATIONS. For the purpose of Section 3(f) of this Agreement,
Party A and Party B make the representations specified below, if any:
(i) The following representation will/will not * apply to Party A and
will/will not *apply to Party B:
It is fully eligible for the benefits of the "Business Profits" or
"Industrial and Commercial Profits" provision, as the case may be, the
"Interest" provision or the "Other Income" provision (if any) of the
Specified Treaty with respect to any payment described in such provisions
and received or to be received by it in connection with this Agreement and
no such payment is attributable to a trade or business carried on by it
through a permanent establishment in the Specified Jurisdiction.
If such representation applies, then:
"SPECIFIED TREATY" means with respect to Party A ______________________________
"SPECIFIED JURISDICTION" means with respect to Party A ________________________
*Delete as applicable.
<PAGE>
"SPECIFIED TREATY" means with respect to Party B ______________________________
"SPECIFIED JURISDICTION" means with respect to Party B ________________________
(ii) The following representation will/will not apply to Party A and
will/will not apply to Party B:
Each payment received or to be received by it in connection with this
Agreement will be effectively connected with its conduct of a trade or
business in the Specified Jurisdiction.
If such representation applies, then:
"SPECIFIED JURISDICTION" means with respect to Party A ________________________
"SPECIFIED JURISDICTION" means with respect to Party B ________________________
(iii) The following representation will/will not apply to Party A and
will/will not apply to Party B: --
(A) It is entering into each Transaction in the ordinary course of its
trade as, and is, either (1) a recognized U.K. bank or (2) a recognized
U.K. swaps dealer (in either case (1) or (2), for purposes of the United
Kingdom Inland Revenue extra statutory concession C17 on interest and
currency swaps dated March 14, 1989), and (B) it will bring into account
payments made and received in respect of each Transaction in computing its
income for United Kingdom tax purposes.
(iv) Other Payee Representations: ________________________________________
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
N.B. The above representations may need modification if either party is a
Multibranch Party.
PART 3. AGREEMENT TO DELIVER DOCUMENTS.
For the purpose of Sections 4(a)(i) and (ii) of this Agreement, each party
agrees to deliver the following documents, as applicable:
(a) Tax forms, documents or certificates to be delivered are:
<PAGE>
PARTY REQUIRED TO FORM/DOCUMENT DATE BY WHICH
DELIVER DOCUMENT CERTIFICATE TO BE DELIVERED
- ------------------------- ------------------------- -------------------------
- ------------------------- ------------------------- -------------------------
- ------------------------- ------------------------- -------------------------
- ------------------------- ------------------------- -------------------------
- ------------------------- ------------------------- -------------------------
(b) Other documents to be delivered are:
<TABLE>
PARTY REQUIRED TO FORM/DOCUMENT DATE BY WHICH COVERED BY
DELIVER DOCUMENT CERTIFICATE TO BE DELIVERED SECTION 3(d)
REPRESENTATION
<S> <C> <C> <C>
--------------------- --------------------- --------------------- ---------------------
--------------------- --------------------- --------------------- Yes/No*
--------------------- --------------------- --------------------- Yes/No*
--------------------- --------------------- --------------------- Yes/No*
--------------------- --------------------- --------------------- Yes/No*
--------------------- --------------------- --------------------- Yes/No*
--------------------- --------------------- --------------------- Yes/No*
</TABLE>
PART 4. MISCELLANEOUS
(a) ADDRESSES FOR NOTICES. For the purpose of section 12(a) of this Agreement:
Address for notices or communications to Party A:
Address: _________________________________________________________________
Attention: _______________________________________________________________
Telex No.: _________________________ Answerback: _________________________
Facsimile No.: _____________________ Telephone No.: ______________________
Delete as applicable.
<PAGE>
Electronic Messaging System Details: _____________________________________
Address for notices or communications to Party B:
Address: _________________________________________________________________
Attention: _______________________________________________________________
Telex No.: _________________________ Answerback: _________________________
Facsimile No.: _____________________ Telephone No.: ______________________
Electronic Messaging System Details: _____________________________________
(b) PROCESS AGENT. For the purpose of section 13(c) of this Agreement:
Party A appoints as its Process Agent ____________________________________
Party B appoints as its Process Agent ____________________________________
(c) OFFICES. The provisions of Section 10(a) will/will not* apply to this
Agreement.
(d) MULTIBRANCH PARTY. For the purpose of Section 10(c) of the Agreement:
Party A is/is not* a Multibranch Party and, if so, may act through the following
Offices:
- ------------------------- ------------------------- -------------------------
- ------------------------- ------------------------- -------------------------
- ------------------------- ------------------------- -------------------------
Party B is/is not* a Multibranch Party and, if so, may act through the following
Offices:
- ------------------------- ------------------------- -------------------------
- ------------------------- ------------------------- -------------------------
- ------------------------- ------------------------- -------------------------
*Delete as applicable.
<PAGE>
(e) CALCULATION AGENT. The Calculation Agent is ___________________________,
unless otherwise specified in a Confirmation in relation to the relevant
Transaction.
(f) CREDIT SUPPORT DOCUMENT. Details of any Credit Support Document: ________
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
(g) CREDIT SUPPORT PROVIDER. Credit Support Provider means in relation to
Party A, _________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
Credit Support Provider means in relation to Party B, ____________________
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
(h) GOVERNING LAW. This Agreement will be governed by and construed in
accordance with English law/the laws of the State of New York (without
reference to choice of law doctrine)*.
(i) NETTING OF PAYMENTS. Subparagraph (ii) of Section 2(c) of this Agreement
will not apply to the following transactions or groups of Transactions (in
each case starting from the date of this Agreement/in each case starting
from _____________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
(j) "AFFILIATE" will have the meaning specified in Section 14 of this Agreement
unless another meaning is specified here _________________________________
__________________________________________________________________________
PART 5. OTHER PROVISIONS.
<PAGE>
September 16, 1997
CONFIRMATION OF INTEREST RATE SWAP TRANSACTION
Mr. Mike Herman, CFO
Vari-Lite, Inc.
201 Regal Row
Dallas, TX 75247
Ph#: 214/819-3200
Fax#: 214/819-3247
Dear Mr. Herman:
The purpose of this letter agreement is to set forth the terms and
conditions of the Rate Swap Transaction entered into between you and SunTrust
Bank, Atlanta on the Trade Date specified below (the "Transaction"). This
letter agreement constitutes a "Confirmation" as referred to in the ISDA Master
Agreement to be entered into by the parties hereto.
The definitions and provisions contained in the 1991 ISDA Definitions (the
"Definitions") published by the International Swap Dealers Association, Inc.
("ISDA") are incorporated by reference to this Confirmation. In the event of
any inconsistency between the Definitions and this Confirmation, this
Confirmation will govern.
1. This Confirmation supplements, forms a part of, and is subject to the ISDA
Master Agreement (a "Swap Agreement"), as amended and supplemented from time to
time, between you and SunTrust Bank, Atlanta. All provisions contained or
incorporated by reference in the Swap Agreement shall govern this Confirmation
except as expressly modified below. Prior to the execution and delivery of such
Swap Agreement, this Confirmation alone shall constitute a complete and binding
agreement with respect to the Transaction.
Each party is hereby advised, and each such party acknowledges, that the
other party has engaged in (or refrained from engaging in) substantial financial
transactions and has taken other material actions in reliance upon the parties'
entry in the Transaction to which this Confirmation relates on the terms and
conditions set forth below.
This Confirmation will be governed by and construed in accordance with the
laws of the State of Georgia applicable to contracts made and wholly performed
within the State of Georgia.
<PAGE>
Page 2
The terms of the particular Transaction to which this Confirmation relates are
as follows:
Type of Transaction: Rate Swap
Notional Amount: US$ 10,000,000.00 amortizing $250,000 on the 30th of
each March, June, September, and December beginning
September 30, 1997, with adjustment in accordance
with the Modified Following Business Day Convention.
Trade Date: September 13, 1996
Effective Date September 17, 1996
Termination Date June 29, 2001, with adjustment in
accordance with the Modified Following Business Day
Convention.
FIXED AMOUNTS:
Fixed Rate Payer: Vari-Lite, Inc.
Fixed Rate Payer
Payment Dates: The 30th day of each March, June, September and
December, beginning September 30th, 1996 and
terminating on the Termination Date, subject to
adjustment in accordance with the Modified
Following Business Day Convention.
Fixed Rate: 6.60% per annum
Fixed Rate Day
Count Fraction: Actual/360
FLOATING AMOUNTS:
Floating Rate Payer: SunTrust Bank, Atlanta
Floating Rate Payer
Payment Dates: The 30th day of each March, June, September and
December, beginning September 30th, 1996 and
terminating on the Termination Date, subject to
adjustment in accordance with the Modified Following
Business Day Convention.
Floating Rate for
Initial Calculation
Period: 5.4375% per annum
Designated Maturity
for All Subsequent Three month
Calculation Periods:
<PAGE>
Page 3
Floating Rate Option: USD-LIBOR-BBA
Spread: 0.00% per annum
Floating Rate Day
Count Fraction: Actual/360
Reset Dates: The Effective Date and each Floating Rate Payer
Payment Date except the Termination Date.
Calculation Agent: SunTrust Bank, Atlanta
Business Days: New York
3. Other Provisions:
a) Vari-Lite, Inc. agrees to provide a certificate of signing
authority and incumbency with respect to the individual executing this
Confirmation as well as a Corporate Resolution authorizing Vari-Lite,
Inc. to enter into this Transaction. This provision will constitute
an additional Agreement for the purpose of Section 3 of the Interest
Rate Swap Agreement.
4. Account Details:
Payment to Fixed Rate Payer:
[PLEASE ADVISE]
Account No.:
Depository:
Address:
Favor of:
Payments to Floating Rate Payer:
SunTrust Bank, Atlanta
ABA# 061000104
Bond Wire Clearing, Center 095
Attn: Financial Risk Management, Operations
Offices:
(a) The Office of Fixed Rate Payer for the Transaction is its Dallas
office; and
(b) The Office of Floating Rate Payer for the Transaction is its Atlanta
office.
Please confirm that the foregoing correctly sets forth the terms of our
agreement by signing this copy of this Confirmation and faxing it back to us at
the following fax number: 404/658-4835, Attn: Andrean Stone. An original
execution copy will be forwarded to you upon us receiving your faxed copy.
<PAGE>
Page 4
By signing below, you also acknowledge and agree that we have explained to you
the risks involved in this Transaction, which risks include but are not limited
to the following:
- - Market Risk: the risk that the Transaction may increase or decrease in
value with a change in, among other things, interest rates or the yield
curve; and
- - Liquidity Risk: the risk that the Transaction cannot be closed out or
disposed of quickly at or near its value.
You further acknowledge and agree that you understand these risks and the
Transaction as a whole, that you are capable of managing the risks associated
with this Transaction, that the risks involved in this Transaction are
consistent with your financial goals, policies and procedures, and risk
tolerance, and that you have determined that this Transaction is appropriate for
you.
Very truly yours,
SunTrust Bank, Atlanta
By: /s/ W. P. Dechert
-------------------------------------
Name: W. P. Dechert
Title: Senior Vice President
By: /s/ Grace Vanderwall
-------------------------------------
Name: Grace Vanderwall
Title: Assistant Vice President
Accepted and Confirmed as
of the Date First Written:
Vari-Lite, Inc.
By: /s/ Mike Herman
--------------------------------
Name: Mike Herman
Title Senior Vice President, Chief Financial Officer
<PAGE>
September 16, 1997
CONFIRMATION OF INTEREST RATE SWAP TRANSACTION
Mr. Mike Herman, CFO
Vari-Lite, Inc.
201 Regal Row
Dallas, TX 75247
Ph#: 214/819-3200
Fax#: 214/819-3247
Dear Mr. Herman:
The purpose of this letter agreement is to set forth the terms and
conditions of the Rate Swap Transaction entered into between you and SunTrust
Bank, Atlanta on the Trade Date specified below (the "Transaction"). This
letter agreement constitutes a "Confirmation" as referred to in the ISDA Master
Agreement to be entered into by the parties hereto.
The definitions and provisions contained in the 1991 ISDA Definitions (the
"Definitions") published by the International Swap Dealers Association, Inc.
("ISDA") are incorporated by reference to this Confirmation. In the event of
any inconsistency between the Definitions and this Confirmation, this
Confirmation will govern.
1. This Confirmation supplements, forms a part of, and is subject to the ISDA
Master Agreement (a "Swap Agreement"), as amended and supplemented from time to
time, between you and SunTrust Bank, Atlanta. All provisions contained or
incorporated by reference in the Swap Agreement shall govern this Confirmation
except as expressly modified below. Prior to the execution and delivery of such
Swap Agreement, this Confirmation alone shall constitute a complete and binding
agreement with respect to the Transaction.
Each party is hereby advised, and each such party acknowledges, that the
other party has engaged in (or refrained from engaging in) substantial financial
transactions and has taken other material actions in reliance upon the parties'
entry in the Transaction to which this Confirmation relates on the terms and
conditions set forth below.
This Confirmation will be governed by and construed in accordance with the
laws of the State of Georgia applicable to contracts made and wholly performed
within the State of Georgia.
<PAGE>
Page 2
2. The terms of the particular Transaction to which this Confirmation relates
are as follows:
Type of Transaction: Rate Swap
Notional Amount: US$ 3,600,000.00
Trade Date: September 13, 1996
Effective Date September 17, 1996
Termination Date October 1, 2000, with adjustment in
accordance with the Modified
Following Business Day Convention
FIXED AMOUNTS:
Fixed Rate Payer: Vari-Lite, Inc.
Fixed Rate Payer Payment Dates: The 1st day of each month, beginning
October 1, 1996 and terminating on
the Termination Date, subject to
adjustment in accordance with the
Modified Following Business Day
Convention
Fixed Rate: 6.53% per annum
Fixed Rate Day Count Fraction: Actual/360
FLOATING AMOUNTS:
Floating Rate Payer: SunTrust Bank, Atlanta
Floating Rate Payer Payment Dates: The 1st day of each month, beginning
October 1, 1996 and terminating on
the Termination Date, subject to
adjustment in accordance with the
Modified Following Business Day
Convention
Floating Rate for initial 5.4375% per annum
Calculation Period:
Designated Maturity for all
subsequent Calculation Periods: One month
Floating Rate Option: USD-LIBOR-BBA
Spread: 0.00% per annum
Floating Rate Day Count Fraction: Actual/360
<PAGE>
Page 3
Reset Dates: The Effective Date and each Floating
Rate Payer Payment Date except the
Termination Date
Calculation Agent: SunTrust Bank, Atlanta
Business Days: New York
3. Other Provisions
a) Vari-Lite, Inc. agrees to provide a certificate of signing authority
and incumbency with respect to the individuals executing this Confirmation
as well as a Corporate Resolution authorizing Vari-Lite, Inc. to enter
into this Transaction. This provision will constitute an additional
Agreement for the purpose of Section 3 of the Interest Rate Swap Agreement.
4. Account Details
Payment to Fixed Rate Payer:
[PLEASE ADVISE]
Acct No.:
Depository:
Address:
Favor of:
Payments to Floating Rate Payer:
SunTrust Bank, Atlanta
ABA# 061000104
Bond Wire Clearing, Center 095
Attn: Financial Risk Management, Operations
5. Offices
(a) The Office of Fixed Rate Payer for the Transaction is its Dallas
office; and
(b) The Office of Floating Rate Payer for the Transaction is its Atlanta
office.
Please confirm that the foregoing correctly sets forth the terms of our
agreement by signing this copy of this Confirmation and faxing it back to us at
the following fax number: 404/658-4835, Attn: Andrean Stone. An original
execution copy will be forwarded to you upon us receiving your faxed copy.
By signing below, you also acknowledge and agree that we have explained to you
the risks involved in this Transaction, which risks include but are not limited
to the following:
<PAGE>
Page 4
- - Market Risk: the risk that the Transaction may increase or decrease in
value with a change in, among other things, interest rates or the yield
curve; and
- - Liquidity Risk: the risk that the Transaction cannot be closed out or
disposed of quickly at or near its value.
You further acknowledge and agree that you understand these risks and the
Transaction as a whole, that you are capable of managing the risks associated
with this Transaction, that the risks involved in this Transactionare consistent
with your financial goals, policies and procedures, and risk tolerance, and that
you have determined that this Transaction is appropriate for you.
Very truly yours,
SunTrust Bank, Atlanta
By: /s/ W. P. Dechert
----------------------------------
Name: W. P. Dechhert
Title: Senior Vice President
By: /s/ Grace Vanderwall
----------------------------------
Name: Grace Vanderwall
Title: Assistant Vice President
Accepted and Confirmed as
of the Date First Written:
Vari-Lite, Inc.
By: /s/ Mike Herman
-----------------------------
Name: Mike Herman
Title Vice President-Finance, Chief Financial Officer
<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
October 10, 1997
