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Vari-Lite Production Services Limited
20-22 Fairway Drive
Greenford
Middlesex
UB6 8PW
09 November 2000
RE: CHATTEL MORTGAGE FACILITY OFFER
1). Assets will be as detailed in the original Henry Butcher valuation. All
additions and deletions have been covered to our satisfaction in the
final asset register appended to the master documentation.
The Chattel Mortgage loan to Estimated Restricted Resale Value ratio is
to be a maximum of 75% and the maximum loan value at inception (pound)
4,000,000. The asset schedule provided satisfies this condition at
inception point.
2). Loan to Value Maintenance Clause @ 75%.
3). Maximum funding term of 48 months.
4). Pricing - Barclays Mercantile require a return of 2.50% over
appropriate fixed or linked funds. Fixed treasury rate for 48 months is
6.55% for drawdown 31/10/00. Hence gross yield will be 9.05%.
5). Fees - An arrangement fee of 0.75% of the facility will be deducted
from funds released on completion.
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The Henry Butcher Valuation fee of (pound) 13,125 plus Vat will be
charged separately. Barclays Mercantile have settled this bill in the
interim on behalf of Vari-Lite.
This will represent the maximum level of fees required to complete the
asset purchase and all accompanying paperwork.
6). Full payment Guarantee of Vari-Lite International Inc. in favour of
Vari-Lite Production services Ltd.
This document will be prepared by Barclays Mercantile internal
Solicitors and will require sign off by either Vari-Lite's internal
Solicitor or an external Solicitor within the state of Dallas, Texas.
7). Inter company Loan of(pound)2.125m provided by Vari-Lite Inc. to
Vari-Lite Production Services Ltd to be postponed via standard BMBF
documentation.
8). UK legal representatives for Vari-Lite will hold to the order of
Barclays Mercantile the following documents :
Bill of Sale for the schedule of assets Vari-Lite Inc. to Vari Lite
Production Services Ltd.
Appropriate wording from U.S. Attorney that the title chain is free of
any charges or encumbrances.
Appropriate wording from U.S. Attorney or U.S. Auditors to confirm that
the new (pound) 4,000,000 Barclays Mercantile chattel mortgage will
formally replace the current inter company lease charge and does not
breach any US Banking covenants.
9). Barclays Mercantile will register a charge over the assets with
Companies House via Chattel Mortgage documentation.
10). Barclays Mercantile will register an Assignment and Charge over sub-let
income.
This security will only be invoked on the occurrence of a default event
which is continuing or unwaived.
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11). Barclays Mercantile will lodge a Debenture charge over all additional
fixed assets. This is intended to capture the stock of spare parts
which is continually being exhausted and replenished.
12). Barclays Mercantile will require an audit of the sub-hire agreements to
be carried out four monthly from inception.
13). Barclays Bank to be the sole UK clearing Bank.
14). Cross Default Clause between Barclays Bank and Barclays Mercantile.
15). Negative Pledge from Vari-Lite Production Services Limited.
16). New Capital Expenditure to be capped at (pound)350k for the year to
29/09/00 and at (pound)650k for the year to 29/09/01. Capital
expenditure for subsequent years to be agreed in line with business
performance, full financial review process and covenant compliance.
17). Ratcheted Net Tangible Asset covenant of(pound)500k per annum for
financial year ends 29/09/01, 29/09/02 and 29/09/03.
18). Minimum Debt Service Ratio of 160% in Audited Accounts.
19). Confirmation from Jerry Trojan that ongoing technical support from VL
Inc and access to any software will be uninhibited by the sale of
assets to VLPS (UK) Ltd.
20). The process of Bar Coding the assets subject to the Barclays Mercantile
chattel mortgage needs to be completed post deal inception and within a
reasonable period of time. A sufficient level of completeness has been
achieved in order to complete drawdown.
21). The premises at 20-22 Fairway Drive, Greenford are subject to a lease
arrangement. Your Landlord has refused to provide a standard waiver in
respect to the assets which are the subject of the securities and
charges detailed within this Offer Letter. Any instance of non-payment
of monies due in respect to the lease of these premises which is
unremedied, shall be deemed a default event to the primary mortgage
facility.
22). In respect of `21' above, an amount equivalent to one quarterly lease
payment will be held to the order of Barclays Mercantile in a Barclays
Bank `Re' account. This payment will be made to the landlord under our
instruction to ensure the landlord has no right of distraint over the
assets subject to this offer letter.
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Any interest which accrues on the balance held, will be credited to
Vari-Lite Production Services Limited.
The monies held will be released to Vari-Lite Production Services upon
receipt of a satisfactorily completed waiver from the Landlord to the
premises.
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OFFER LETTER DATED 09/11/00
TERMS AND CONDITIONS
1). LOAN TO VALUE MAINTENANCE CLAUSE
The aggregate value of assets (as determined from time to time by Barclays
Mercantile or, at the expense of the Borrower, by professional valuers
acceptable to BM on such bases and assumptions as BM may in its discretion
require) charged to BM under the chattel mortgage.
Remedies to bring the loan value to 75% can be the introduction of additional
unencumbered assets deemed suitable for purpose by BM, or a partial payment
made to the chattel mortgage to reduce the balance outstanding.
ERRP MEANS ESTIMATED RESTRICTED RESALE PRICE AS CONFIRMED WITHIN THE HENRY
BUTCHER ASSET VALUATION DATED 13/04/00.
2). NEGATIVE PLEDGE
The Borrower shall not create or agree to create or permit to subsist (other
than in favour of Barclays Mercantile) any Encumbrance.
3). CAPITAL EXPENDITURE RESTRICTION
No acquisition of capital assets in excess of the stated limits without the
express consent of Barclays Mercantile.
4). RATCHETED NTA
The adjusted net worth at any time during each period set out below shall not
fall below the amount set out as follows:
Completion to 29/09/01 (pound)2,125,000
30/09/01 to 29/09/02 (pound)2,625,000
39/09/02 to 29/09/03 (pound)3,125,000
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Should profits be retained in the year to 29/09/00, then the above figures
will be adjusted upwards. Base figure is any retained profits plus postponed
loan of (pound)2,125,000 plus (pound)500,000 for each of the three subsequent
years.
ADJUSTED NET WORTH MEANS:
A). THE TOTAL AMOUNT OF THE POSTPONED INTER-COMPANY LOANS
B). EXCLUDE ANY NOTIONAL PROFIT OR GAIN DERIVED FROM ONE GROUP COMPANY TO
ANOTHER
C). DEDUCT ANY DIVIDEND OR DISTRIBUTION PAID OR PROPOSED TO BE PAID BY THE
BORROWER SINCE COMPLETION DATE.
D). ADD OR SUBTRACT ACCUMULATED PROFIT OR LOSS AFTER INTEREST AND PROVISION
FOR TAX.
E). TAKE ACCOUNT OF ANY SUBSCRIPTIONS IN CASH FOR SHARE CAPITAL OR REDEMPTIONS
OF SHARE CAPITAL SINCE THE COMPLETION DATE.
The base point for the Net Worth calculation is to be the amount of Paid Up or
Issued Share Capital, plus the aggregate amount of reserves (including postponed
loans) within the balance sheet of Vari-Lite Production Services Limited.
5). DEBT SERVICE RATIO
The ratio of Cash Flow to Debt Service for each accounting period shown in
the latest audited financial statements shall not fall below 160% calculated
in accordance with generally accepted UK accounting principles consistently
applied:
CASH FLOW MEANS:
THE CONSOLIDATED NET INCOME FIGURE AFTER:
a). DEDUCTING AMOUNTS PAID IN RESPECT OF CORPORATION TAX (INCLUDING ADVANCE
CORPORATION TAX)
b). ADDING AMOUNTS CHARGED IN RESPECT OF DEPRECIATION
c). ADDING AMOUNTS CHARGED IN RESPECT OF AMORTISATION OF KNOW-HOW AND OTHER
INTANGIBLES
d). DEDUCTING ANY INCREASE (OR ADDING ANY DECREASE) IN WORKING CAPITAL NOT
INCLUDING CASH
e). DEDUCTING AMOUNTS PAID IN RESPECT OF CAPITAL EXPENDITURE
f). DEDUCTING AMOUNTS OF ALL DIVIDENDS OR DISTRIBUTION OF ANY KIND IN CASH PAID
IN RESPECT OF THE SHARE CAPITAL.
DEBT SERVICE MEANS:
a). THE AGGREGATE AMOUNT OF INTEREST PAID OR CAPITALISED UNDER ALL BORROWINGS
PLUS
b). THE PRINCIPAL AMOUNT OF ALL BORROWINGS REPAID WITHIN THE RELEVANT
TESTING PERIOD.
WORKING CAPITAL MEANS:
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a). THE AGGREGATE OF ALL CURRENT ASSETS LESS THE AGGREGATE OF ALL CURRENT
LIABILITIES (AFTER DEDUCTING THE AMOUNT OF ALL SHORT TERM BORROWINGS,
OVERDRAFT AND THE CURRENT PORTION OF LONG TERM DEBT.
OFFER LETTER DATED 09/11/00
TERMS AND CONDITIONS
6). TESTING OF FINANCIAL COVENANTS
The Financial Covenants shall be tested by reference to the most recent
audited accounts of Vari-Lite Production Services (UK) Limited.
The first formal test will be undertaken on the Audited Accounts to
year end 30/09/01.
Notwithstanding the foregoing The Financial Covenants are to be satisfied
at all times and the Borrower shall if so required by Barclays Mercantile
from time to time provide evidence of such satisfaction acceptable to
Barclays Mercantile.
7). AUDITED ACCOUNTS
Copies of audited accounts, including a balance sheet and profit and
loss, as soon as they are available and not later than 180 days from the
end of its financial year end.
8). MANAGEMENT ACCOUNTS
Unaudited quarterly management accounts, including a balance sheet and
profit and loss, are required as soon as they are available and not more
than 30 days after the relevant accounting period.
9). CHANGE OF BUSINESS
No Relevant party will make any material change in the scope or nature
of its activity.
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Our willingness to provide these facilities is upon the condition that,
in our opinion, there is no adverse change in your financial
circumstances before we purchase the equipment.
As we play no part in selecting equipment for use in your business or
appropriate suppliers, we recommend that you review the equipment you
have selected to assess whether it needs to be and is Year 2000
compliant. If it is not, or if you are unsure, you should contact the
supplier or manufacturer for any specific advice, warranties or
maintenance and support you may consider appropriate.
This offer is valid for a period of fourteen days from today;
nevertheless we reserve the right to revise our terms should monetary,
economic or taxation conditions change before we purchase the equipment.
We welcome the opportunity to be of service to you. Please signify your
acceptance of the above terms by signing and returning the enclosed
additional copy of this letter.
Yours sincerely
David Roberts
Branch Manager
For and on behalf of Vari-Lite Production Services Limited
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Authorised to sign
