<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 23, 1998
REGISTRATION NO. 333-46235
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
PRODUCTION RESOURCE GROUP, L.L.C.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 3999 14-1786937
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD (I.R.S. EMPLOYER
OF INCORPORATION OR INDUSTRIAL CLASSIFICATION IDENTIFICATION NUMBER)
ORGANIZATION) CODE NUMBERS)
PRG FINANCE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 6799 14-1801689
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD (I.R.S. EMPLOYER
OF INCORPORATION OR INDUSTRIAL CLASSIFICATION IDENTIFICATION NUMBER)
ORGANIZATION) CODE NUMBERS)
SHOWPAY, L.L.C.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 8999 86-0884814
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD (I.R.S. EMPLOYER
OF INCORPORATION OR INDUSTRIAL CLASSIFICATION IDENTIFICATION NUMBER)
ORGANIZATION) CODE NUMBERS)
PRG PLANNING & DEVELOPMENT, L.L.C.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 3999 14-1796155
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD (I.R.S. EMPLOYER
OF INCORPORATION OR INDUSTRIAL CLASSIFICATION IDENTIFICATION NUMBER)
ORGANIZATION) CODE NUMBERS)
<PAGE>
ECTS, A SCENIC TECHNOLOGY COMPANY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 3999 16-1796155
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD (I.R.S. EMPLOYER
OF INCORPORATION OR INDUSTRIAL CLASSIFICATION IDENTIFICATION NUMBER)
ORGANIZATION) CODE NUMBERS)
ATTRACTION MANAGEMENT LLC
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 8999 86-0889506
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD (I.R.S. EMPLOYER
OF INCORPORATION OR INDUSTRIAL CLASSIFICATION IDENTIFICATION NUMBER)
ORGANIZATION) CODE NUMBERS)
================================================================================
539 TEMPLE HILL ROAD
NEW WINDSOR, NEW YORK 12553
(914) 567-5700
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA
CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
-----------------------
ROBERT A. MANNERS, ESQ.
PRODUCTION RESOURCE GROUP, L.L.C.
539 TEMPLE ROAD
NEW WINDSOR, NEW YORK 12553
(914) 567-5700
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF AGENT FOR SERVICE)
-----------------------
WITH A COPY TO:
JOSEPH W. BARTLETT, ESQ.
MORRISON & FOERSTER LLP
1290 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10104
(212) 468-8000
APPROXIMATE DATE OF COMMENCEMENT OF SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
<PAGE>
If the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
==================================================================================================
PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH AMOUNT MAXIMUM AGGREGATE AMOUNT OF
CLASS OF SECURITIES TO BE OFFERING PRICE OFFERING REGISTRATION
TO BE REGISTERED REGISTERED PER UNIT(1) PRICE(1) FEE
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
11 1/2% Senior Subordinated Notes
due 2008........................ $100,000,000 100% $100,000,000 $29,500(2)
Guarantees........................ N/A N/A N/A (3)
==================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457.
(2) Previously paid.
(3) No separate fee is payable pursuant to Rule 457(n).
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, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SUCH
SECTION 8(A), MAY DETERMINE.
================================================================================
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>
SUBJECT TO COMPLETION, DATED APRIL __, 1998
PRODUCTION RESOURCE GROUP, L.L.C.
PRG FINANCE CORPORATION
PRG PLANNING & DEVELOPMENT, L.L.C
ECTS, A SCENIC TECHNOLOGY COMPANY, INC.
SHOWPAY, LLC
ATTRACTION MANAGEMENT LLC
OFFER TO EXCHANGE
ALL OUTSTANDING
11 1/2% SENIOR SUBORDINATED NOTES DUE 2008
($100,000,000 PRINCIPAL AMOUNT OUTSTANDING)
FOR 11 1/2% SENIOR SUBORDINATED NOTES DUE 2008
------------------------------
The Exchange Offer and withdrawal rights will expire at 5:00 p.m., New York
City time, on [20 BUSINESS DAYS after the effective date], 1998 (as such date
may be extended, the "Expiration Date").
Production Resource Group, L.L.C., a Delaware limited liability company
(the "Company"), and PRG Finance Corporation, a Delaware corporation ("Finance
Corp." and, together with the Company, the "Issuers"), hereby offer (the
"Exchange Offer"), upon the terms and subject to the conditions set forth in
this Prospectus and the accompanying letter of transmittal (the "Letter of
Transmittal"), to exchange $1,000 in principal amount of its 11 1/2% Senior
Subordinated Notes due 2008 (the "New Notes") for each $1,000 in principal
amount of its outstanding 11 1/2% Senior Subordinated Notes due 2008 (the "Old
Notes") (the Old Notes and the New Notes are collectively referred to herein as
the "Notes"). The Notes are fully and unconditionally guaranteed on a senior
subordinated basis by the Company's existing domestic Restricted Subsidiaries
and all domestic Restricted Subsidiaries created or acquired by the Company in
the future. An aggregate principal amount of $100,000,000 of Old Notes is
outstanding. See "The Exchange Offer." As of December 31, 1997, after giving
effect to the Transactions (as defined) the Company had $0.9 million of
consolidated Senior Debt outstanding and no debt which was subordinate to the
Notes.
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. The Letter of Transmittal states
that by so acknowledging and by delivering a prospectus, a broker-dealer will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. If any holder of Old Notes is an affiliate of the Company, is
engaged in or intends to engage in or has any arrangement or understanding
with any person to participate in the distribution of the New Notes to be
acquired in the Exchange Offer, such holder (i) could not rely on the
applicable interpretations of the Securities and Exchange Commission (the
"Commission") enunciated in EXXON CAPITAL or interpretive letters to similar
effect and (ii) must comply with the registration and prospectus delivery
requirements of the Securities Act of 1933, as amended (the "Securities Act")
in connection with any resale transaction. This Prospectus, as it may be amended
or supplemented from time to time, may be used by a broker-dealer in connection
with resales of New Notes received in exchange for Notes where such Notes were
acquired by such broker-dealer as a result of market-making activities or other
trading activities. The Company has agreed that, starting on the Expiration Date
(as defined herein) and ending on the close of business one year after the
Expiration Date, it will make this Prospectus available to any broker-dealer for
use in connection with any such resale. See "Plan of Distribution."
<PAGE>
(continued on next page)
------------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR A DISCUSSION OF CERTAIN FACTORS
WHICH SHOULD BE CONSIDERED BY HOLDERS IN EVALUATING THE EXCHANGE OFFER.
------------------------------
THE 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.
THE DATE OF THIS PROSPECTUS IS , 1998
<PAGE>
The Company will accept for exchange any and all Old Notes that are validly
tendered prior to 5:00 p.m., New York City time, on the Expiration Date. Tenders
of Old Notes may be withdrawn at any time prior to 5:00 p.m., New York City
time, on the Expiration Date. The Exchange Offer is not conditioned upon any
minimum principal amount of the Old Notes being tendered for exchange. However,
the Exchange Offer is subject to the terms and provisions of the Registration
Rights Agreement, dated as of December 24, 1997 (the "Registration Rights
Agreement"), between the Company, Bear, Stearns & Co. Inc., BT Alex. Brown
Incorporated, Morgan Stanley & Co. Incorporated and BNY Capital Markets, Inc.
(together, the "Initial Purchasers"). The Old Notes may be tendered only in
multiples of $1,000. See "The Exchange Offer."
The Old Notes were issued in a transaction (the "Initial Offering")
pursuant to which the Issuers issued an aggregate of $100,000,000 principal
amount of the Old Notes to the Initial Purchaser on December 24, 1997 (the
"Closing Date") pursuant to a Purchase Agreement, dated December 19, 1997 (the
"Purchase Agreement"), among the Company, Finance Corp., a wholly-owned
subsidiary of the Company, PRG Planning and Development, L.L.C. a Delaware
limited liability company and a 99% owned subsidiary of the Company ("P&D"),
ECTS, A Scenic Technology Company, Inc., a Delaware corporation and wholly-owned
subsidiary of the Company ("ECTS"), Showpay, LLC, a Delaware limited liability
company and wholly-owned subsidiary of the Company ("Showpay"), and Attraction
Management LLC, a Delaware limited liability company and a wholly-owned
subsidiary of the Company ("Attraction" and, together with P&D, ECTS and
Showpay, the "Guarantors") and the Initial Purchasers. The Initial Purchasers
subsequently resold the Old Notes in reliance on Rule 144A under the Securities
Act. The Company and the Initial Purchasers also entered into the Registration
Rights Agreement pursuant to which the Company granted certain registration
rights for the benefit of the holders of the Old Notes. The Exchange Offer is
intended to satisfy certain of the Company's obligations under the Registration
Rights Agreement with respect to the Old Notes. The New Notes will be
obligations of the Company evidencing the same indebtedness as the old Notes and
will be issued under and entitled to the benefits of the Indenture, dated as of
December 24, 1997 (the "Indenture"), between the Company and First Union
National Bank as trustee (in such capacity, the "Trustee"). The form and terms
of the New Notes will be registered under the Securities Act and, therefore,
such New Notes will not be subject to certain transfer restrictions,
registration rights and related Special Interest (as defined) provisions
applicable to the Old Notes. See "The Exchange Offer -- Purpose and Effect."
The New Notes will bear interest at the rate of 11 1/2% per annum, payable
semi-annually in arrears on January 15 and July 15 of each year, commencing July
15, 1998, and will mature on January 15, 2008. Holders whose Old Notes are
accepted for exchange will have the right to receive interest accrued thereon
from the date of the original issuance to the date of issuance of the New Notes,
such interest to be payable with the first interest payment on the New Notes.
The Notes will be guaranteed by all of the Company's present and future domestic
Restricted Subsidiaries (as defined). Except as set forth below, the New Notes
will not be redeemable at the option of the Issuers prior to January 15, 2003.
Thereafter, the Notes will be subject to redemption at any time at the option of
the Issuers, in whole or in part, at the redemption prices set forth herein,
plus accrued and unpaid interest and Liquidated Damages (as defined), if any,
thereon to the date fixed for redemption. In addition, at any time prior to
January 15, 2001, the Issuers may redeem up to 35% of the aggregate principal
amount of the New Notes at a redemption price of 110% of the principal amount
thereof, plus accrued and unpaid interest and Liquidated Damages, if any,
thereon to the date fixed for redemption, with the net cash proceeds of one or
more public offerings of Capital Stock (as defined) of the Company (other than
Disqualified Stock (as defined)), provided that at least 65% of the aggregate
principal amount of the Notes originally issued remains outstanding immediately
after the occurrence of each such redemption. At any time prior to January 15,
2003, the Issuers may redeem the New Notes, in whole or in part, at a redemption
price equal to 100% of the principal amount thereof plus the applicable
Make-Whole Premium (as defined). In the event of a Change of Control (as
defined), the Issuers will be required to make an offer to each holder of Notes
to repurchase all or any part of such holder's Notes at a repurchase price equal
to 101% of the principal amount thereof, plus accrued and unpaid interest and
Liquidated Damages, if any, thereon to the date fixed for repurchase. See "Risk
Factors--Change of Control" and "Description of Notes."
The New Notes are general unsecured obligations of the Issuers,
subordinated in right of payment to all existing and future Senior Debt (as
defined) of the Issuers. As of December 31, 1997, after giving effect to the
Transactions (as defined), the Issuers would have had $0.9 million of
consolidated Senior Debt outstanding. In addition, upon consummation of the
Exchange Offer, the Company will have $100 million of total commitments under
the Amended Credit Facility (as defined), of which approximately $14.6 million
would have been available as of December 31, 1997, after giving effect to the
Transactions and the terms of the Amended Credit Facility.
<PAGE>
The Company is making the Exchange Offer in reliance on its interpretation
of the position of the Staff of the Commission as set forth in certain
interpretive letters issued to third parties in other transactions. However, the
Company has not sought its own interpretive letter, and there can be no
assurance that the Commission would make a similar determination with respect to
the Exchange Offer. Based on the Commission interpretations, the Company
believes that New Notes issued pursuant to the Exchange Offer to any holder of
Old Notes in exchange for Old Notes may be offered for resale, resold and
otherwise transferred by such holder (other than a broker-dealer who purchased
Old Notes directly from the Company for resale pursuant to Rule 144A under the
Securities Act or any other available exemption under the Securities Act)
without further compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that such holder is not an affiliate
of the Company, is acquiring the New Notes in the ordinary course of business
and is not participating, and has no arrangement or understanding with any
person to participate, in the distribution of the New Notes. Holders wishing to
accept the Exchange Offer must represent to the Company that such conditions
have been met. In addition, if such holder is not a broker-dealer, it must
represent that it is not engaged in, and does not intend to engage in, a
distribution of the New Notes. Each broker-dealer that receives New Notes for
its own account in exchange for Old Notes, where such Notes were acquired by
such broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such New Notes. See "The Exchange Offer - Resales of the New
Notes" and "Plan of Distribution." This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of New Notes received in exchange for Old Notes where such Old
Notes were acquired by such broker-dealer as a result of market-making or other
trading activities.
There has previously been only a limited secondary market, and no public
market, for the Old Notes. The Old Notes are eligible for trading in the Private
Offering, Resales and Trading through Automatic Linkages ("PORTAL") market. In
addition, the Initial Purchasers have advised the Company that they currently
intend to make a market in the New Notes; however, the Initial Purchasers are
not obligated to do so and any market making activities may be discontinued by
the Initial Purchasers at any time. Therefore, there can be no assurance that an
active market for the New Notes will develop. If such trading market develops
for the New Notes, future trading prices will depend on many factors, including,
among other things, prevailing interest rates, the Company's results of
operations and the market for similar securities. Depending on such factors, the
New Notes may trade at a discount from their face value. See "Risk Factors -
Lack of Public Market."
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF OLD NOTES IN ANY JURISDICTION IN WHICH
THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE
SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
The Old Notes were issued originally in global form (the "Global Old
Note"). The Global Old Note was deposited with, or on behalf of, The Depository
Trust Company ("DTC"), as the initial depository with respect to the Old Notes
(in such capacity, the "Depositary"). The Global Old Note is registered in the
name of Cede & Co. ("Cede"), as nominee of DTC, and beneficial interests in the
Global Old Note are shown on, and transfers thereof are effected only through,
records maintained by the Depositary and its participants, and anyone holding a
beneficial interest in an Old Note registered in the name of such a participant,
to transfer interests in the Old Notes electronically in accordance with the
Depositary's established procedures without the need to transfer a physical
certificate. New Notes issued in exchange for the Global Old Note will also be
issued initially as a note in global form (the "Global New Note," and, together
with the Global Old Note, the "Global Notes") and deposited with, or on behalf
of, the Depositary. After the initial issuance of the Global New Note, New Notes
in certificated form will be issued in exchange for a holder's proportionate
interest in the Global New Note only as set forth in the Indenture.
The Company will not receive any proceeds from this Exchange Offer.
Pursuant to the Registration Rights Agreement, the Company will bear certain
registration expenses.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Available Information..................................................... i
Prospectus Summary........................................................ 1
Risk Factors.............................................................. 10
The Exchange Offer........................................................ 17
Use of Proceeds........................................................... 24
Capitalization............................................................ 25
Selected Consolidated Financial Data...................................... 26
Pro Forma Consolidated Financial Data (Unaudited)......................... 28
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 32
Business.................................................................. 41
Management................................................................ 51
Certain Transactions...................................................... 56
Description of Operating Agreement........................................ 59
Description of Other Indebtedness......................................... 62
Description of Notes...................................................... 64
Certain U.S. Federal Income Tax Considerations............................ 91
Plan of Distribution...................................................... 95
Legal Matters............................................................. 96
Experts................................................................... 96
Index to Consolidated Financial Statements................................ F-1
</TABLE>
<PAGE>
AVAILABLE INFORMATION
The Company is filing a registration statement on Form S-4 (together with
any amendments thereto, the "Registration Statement") with the Commission under
the Securities Act with respect to the New Notes. This Prospectus, which
constitutes a part of the Registration Statement, omits certain information
contained in the Registration Statement and reference is made to the
Registration Statement and the exhibits and schedules thereto for further
information with respect to the Company and the New Notes offered hereby. This
Prospectus contains summaries of the material terms and provisions of certain
documents and in each instance reference is made to the copy of such document
filed as an exhibit to the Registration Statement. Each such summary is
qualified in its entirety by such reference.
The Company will be subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, will file reports, proxy statements and other information
with the Commission. Such reports, proxy statements and other information can be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the following regional offices of the Commission: Chicago Regional Office,
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60061;
and New York Regional Office, 7 World Trade Center, Suite 1300, New York, New
York 10048. In addition, certain of the information regarding the Company will
be available on the World Wide Web by accessing the Securities and Exchange
Commission web site at http://www.sec.gov. Copies of such material can be
obtained at prescribed rates from the Public Reference Section of the Commission
at its principal office at 450 Fifth Street, N.W., Washington, D.C. 20549.
It is not expected that any of the Subsidiary Guarantors will file reports or
other information pursuant to the Exchange Act.
The Company has agreed that, whether or not it is required to do so by the
rules and regulations of the Commission, for so long as any of the Notes remain
outstanding, it will furnish to the holders of the Notes and submit to the
Commission (unless the Commission will not accept such materials) (i) all
quarterly and annual financial information that would be required to be
contained in a filing with the Commission on Forms 10-Q and 10-K if the Company
were required to file such forms, including a "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and, with respect to
the annual information only, a report thereon by the Company's independent
accountants, and (ii) all reports that would be required to be filed with the
Commission on Form 8-K if the Company were required to file such reports. In
addition, for so long as any of the Notes remain outstanding, the Company has
agreed to make available to any prospective purchaser of the Notes in connection
with any sale thereof the information required by Rule 144A(d)(4) under the
Securities Act. In addition, upon registration of the guarantees of the New
Notes in connection with the Exchange Offer, each Guarantor will also become
subject to the reporting requirements of the Exchange Act, subject to obtaining
exemptive relief from the Commission or no-action relief from the Commission
staff.
FORWARD-LOOKING STATEMENTS
CERTAIN STATEMENTS CONTAINED IN THIS PROSPECTUS UNDER "SUMMARY,"
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" AND "BUSINESS," IN ADDITION TO CERTAIN STATEMENTS CONTAINED
ELSEWHERE IN THIS PROSPECTUS, ARE "FORWARD-LOOKING STATEMENTS" WITHIN THE
MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 AND ARE THUS
PROSPECTIVE. BECAUSE THE COMPANY IS NOT YET SUBJECT TO THE REPORTING
REQUIREMENTS OF THE EXCHANGE ACT, THE COMPANY IS NOT PERMITTED TO RELY ON THE
SAFE HARBOR FOR FORWARD LOOKING STATEMENTS PROVIDED BY SECTION 27A(b)(2)(D) OF
THE SECURITIES ACT AND SECTION 21E(b)(2)(D) OF THE EXCHANGE ACT WITH RESPECT TO
THIS OFFERING. NONETHELESS, SUCH FORWARD-LOOKING STATEMENTS ARE SUBJECT TO
RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH COULD CAUSE ACTUAL RESULTS TO
DIFFER MATERIALLY FROM FUTURE RESULTS EXPRESSED OR IMPLIED BY SUCH FORWARD-
LOOKING STATEMENTS. THE MOST SIGNIFICANT OF SUCH RISKS, UNCERTAINTIES AND OTHER
FACTORS ARE DISCUSSED UNDER THE HEADING "RISK FACTORS," BEGINNING ON PAGE 10 OF
THIS PROSPECTUS, AND PROSPECTIVE INVESTORS ARE URGED TO CAREFULLY CONSIDER SUCH
FACTORS.
As used herein, "Chrysler(R)" means Chrysler Corporation, "Disney(R)" means
The Walt Disney Company, "General Motors" means General Motors Corporation,
"Glaxo Wellcome(TM)" means Glaxo Wellcome plc, "IBM(R)" means International
Business Machines Corporation, "Iomega(R)" means Iomega Corporation, "Mercedes
Benz(R)" means Mercedes Benz AG, "Nike(R)" means Nike, Inc. and
"Toyota(R)/Lexus(R)" means Toyota Motor Corporation and its Lexus car division.
All registered trademarks used herein are the property of their respective
owners.
As used herein, "Mr. Harris" means Jeremiah J. Harris.
ii
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and historical financial statements, including the notes thereto,
included elsewhere in this Prospectus. Unless the context otherwise requires,
references herein to the "Company" refers to Production Resource Group, L.L.C.,
a Delaware limited liability company, and its subsidiaries and predecessors. The
Company acquired the net assets of Bash Theatrical Lighting, Inc. and four
affiliated entities (collectively, "Bash") and Design Dynamics, Inc. ("Design
Dynamics") in August 1997 and June 1997, respectively, and acquired the net
assets of Pro-Mix, Inc. ("Pro-Mix") on January 2, 1998. See "The Company."
Unless otherwise specified, pro forma financial information contained in this
Prospectus gives effect to (i) the acquisitions of the net assets of Bash and
Design Dynamics and the acquisition of the net assets of Pro-Mix (collectively,
the "Acquisitions") as if such Acquisitions had occurred on January 1, 1997,
(ii) the transfer of certain real estate and the related mortgage debt
obligations to a member of the Company as payment for redemption of such
member's equity interests in the Company, and the subsequent lease of such real
estate back to the Company (the "Real Estate Transaction") and (iii) the Initial
Offering and the application of net proceeds therefrom as described under "Use
of Proceeds." The Acquisitions, the Real Estate Transaction and the Initial
Offering and the application of net proceeds therefrom are referred to
collectively herein as the "Transactions"
The Company
The Company is a leading integrator, fabricator and supplier of a broad
range of products and services for the live entertainment (live theater, concert
touring and special events), corporate events (trade and industrial shows) and
themed entertainment (gaming, theme parks and themed retail) markets. The
Company's products and services include (i) scenery and exhibit fabrication,
(ii) computerized motion and show control systems, including its proprietary
Stage Command System(R), (iii) automated lighting systems and related products,
(iv) project management, which encompasses design engineering, budgeting,
logistical coordination and installation and (v) with the acquisition of Pro-Mix
in January 1998, theatrical audio equipment and related products. Depending
upon its clients' needs, the Company's highly-skilled staff can integrate some
or all of these products and services to produce creative, technically
sophisticated and visually "spectacular" productions, events or attractions. For
financial and accounting purposes, the Company operated in 1997 through four
segments: lighting systems and products; scenery automation and fabrication;
event services and themed attraction permanent installation ("themed
attraction") which management decided to discontinue in 1998. These segments
provide the Company's products and services (other than theatrical audio and
related products) set forth above to the markets that it serves as follows: (i)
the lighting systems and products segment provides automated lighting systems
and related products for sale or rental; (ii) the scenery automation and
fabrication segment fabricates scenery for sale and provides computerized motion
and show control equipment, primarily for rental; (iii) the event services
segment provides a variety of services for corporate clients including exhibit
fabrication and project management for trade and industrial shows and (iv) the
themed attraction segment, provided large-scale, fixed-price, "turn-key"
permanent
installations. See "Selected Consolidated Financial Data," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Company's Consolidated Financial Statements and the Notes thereto included
elsewhere in this prospectus. The Company's principal production and
distribution facilities are located in six states, including major entertainment
and convention centers such as the New York metropolitan area, Las Vegas and
Orlando. On a pro forma basis, after giving effect to the Transactions, the
Company generated revenues and EBITDA (as defined) from continuing operations of
$108.2 million and $21.8 million, respectively, for the year ended December 31,
1997.
The Company initially developed its technical and creative expertise in
live theater and industrial shows and subsequently applied such expertise to a
broader range of corporate events and the themed entertainment market. In the
live entertainment market, the Company's products and services are featured in
23 of the 33 current Broadway shows, including Beauty & the Beast(TM), Les
Miserables(TM), Miss Saigon(TM), The Phantom of the Opera(TM), Ragtime(TM) and
Titanic(TM). In recent years, the Company has applied its technical and creative
expertise in live entertainment to the corporate events and themed entertainment
markets. In the corporate events market, the Company has served as project
manager for trade and industrial shows for a diverse base of large
multi-national corporations such as Chrysler(R), General Motors(R), Glaxo
Wellcome(TM), IBM(R), Mercedes Benz(R), Nike(R) and Toyota(R)/Lexus(R). In the
themed entertainment market, the Company has participated in the fabrication of
several multi-million dollar attractions, including Terminator 2-3D(TM) at
Universal Studios Florida(R), Star Trek, The Experience(SM) at the Las Vegas
Hilton(R) and Nike(R)'s flagship superstore in New York City.
The Company estimates that the live entertainment, corporate events and
themed entertainment markets for sales of its products and services exceeded $11
billion in 1996. The live entertainment market includes live theater, concert
tours and special events such as the Olympics, political conventions and
debates, and televised award ceremonies. The corporate events market includes
industrial shows (primarily single corporation events such as large sales
meetings and new product launches) and trade shows. The themed entertainment
market includes various attractions within gaming, theme park and themed retail
establishments. While the Company will continue to provide lighting and audio
products and scenic elements in the themed entertainment market, it has
discontinued providing permanent installation of themed attractions. The markets
served by the Company are growing and the Company believes that such markets
will continue to grow as a result of favorable industry trends. In addition, the
Company believes that the demand for its products and services will continue to
grow as corporations increasingly utilize more sophisticated technology and
theatrical techniques to promote their corporate
1
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or brand identities, differentiate their product offerings and attract new
customers. See "Business--Markets Overview."
Competitive Strengths
The Company believes that it is well-positioned to capitalize on the growth
of the live entertainment, corporate events and themed entertainment markets as
well as to enhance its market position. The following are, in management's view,
the Company's principal strengths:
Leading Provider. The Company has established itself as a leading provider
of technical and creative products and services in the markets that it serves.
The Company believes that its (i) ability to offer clients fully-integrated
solutions, (ii) staff of highly-skilled project managers, engineers and
craftsmen, (iii) high standards for service and reliability, (iv) ability to
handle multiple large projects simultaneously through its strategically located
facilities and (v) access to capital should allow it to increase its market
share in each of the markets that it serves.
Proprietary Products and Expertise. The Company's proprietary Stage Command
System(R), a state-of-the-art computerized system for moving scenery and other
props, has set the industry standard for motion control systems. Stage Command
System(R) has been used in over 55 theatrical productions and themed attractions
since it was developed by the Company in 1988. The Company also offers
technologically-advanced show control systems, which synchronize the various
physical elements of a production or attraction, including scenery, sound,
lighting and special effects. The Company's motion and show control systems
allow for the addition of more sophisticated production elements on a
cost-effective basis. In addition, the Company's projects often involve
customized products and services that require significant design engineering and
fabrication expertise.
Diverse Client Base. The Company has expanded its revenue base and market
opportunities by applying its expertise in live entertainment to the corporate
events and themed entertainment markets. The Company currently serves a diverse
base of approximately 2,500 clients, ranging from large multi-national
corporations to small local businesses and organizations. The Company's
corporate clients are engaged in a number of different industries, including
automotive, computers, consumer products, entertainment, gaming and
pharmaceuticals.
Strong Client Relationships. The Company has developed strong,
long-standing relationships with many of its clients. For example, in the live
entertainment market, the Company has fabricated scenery and supplied its Stage
Command System(R) for such long-running shows as The Phantom of the Opera(TM)
and Les Miserables(TM). In the corporate events market, the Company has served
as project manager for the annual dealer meetings for Chrysler(R) and Toyota(R)
in each of the past ten years.
Experienced Management Team. Jeremiah J. Harris, the Company's Chairman and
Chief Executive Officer, comes from a family with four generations of experience
in live theater and has over 25 years of experience in providing products and
services for the live entertainment and corporate events markets. Mr. Harris is
supported by a team of ten senior executives with, on average, 14 years of
experience in the business.
Business Strategy
The Company's objective is to become the leading provider of technical and
creative products and services for the live entertainment, corporate events and
themed entertainment markets. The key elements of the Company's business
strategy are as follows:
Leverage Technical and Creative Expertise. The Company intends to leverage
its technical and creative expertise to further penetrate the corporate events
and themed entertainment markets. For example, the Company was awarded the
project management contract for the theater structure at IBM(R)'s Fall COMDEX
exhibit based on its ability to provide a fully-integrated solution. The Company
was required to integrate sophisticated scenery, lighting and audio/visual
equipment; fabricate a 24-foot high, 75-foot long structure containing 90 video
monitors that served as the focal point of IBM(R)'s exhibit; and collaborate
with IBM(R)'s advertising agency to ensure that the
2
<PAGE>
exhibit communicated IBM(R)'s new e [sic] business(R) marketing program in a
manner consistent with IBM(R)'s overall marketing strategy.
Expand Product and Service Offering. The Company plans to enhance its
"one-stop shopping" product and service offering by adding complementary
products and services through internal development and acquisitions. For
example, through the acquisition of three lighting providers since 1996, the
Company has become a leading supplier of theatrical lighting systems and related
products in the United States. The Company's acquisition of the net assets of
Pro-Mix, which provides sound equipment and acoustical and sound design
consulting services primarily to the live theater market segment, represents the
most recent example of the Company's strategy to identify and acquire
complementary products and services. See "The Company."
Intensify Cross-Selling Efforts. The Company intends to intensify its
cross-selling efforts. Many of the companies acquired by the Company typically
provided a limited number of products and services to a single market segment.
The Company intends to leverage its existing relationships in order to sell
additional products and services to clients across each of the markets that it
serves. The Company is also creating a management information system that will
track the use of its products and services by client in order to support its
cross-selling efforts.
Develop and Implement Focused Marketing Effort. To enhance the overall
growth of its business and expansion into new markets, the Company is developing
a nationally focused marketing effort under the direction of its recently
appointed Senior Vice President, Marketing and Sales. In connection with this
effort, the Company plans to target large, multi-national corporations with
significant, recurring events that require fully-integrated solutions.
Pursue Strategic Acquisitions. Strategic acquisitions have been and will
continue to be an important element of the Company's growth strategy. Each of
the markets that the Company serves has many small local or regional competitors
and, consequently, offers significant consolidation opportunities. The Company
will seek attractively priced acquisitions that expand or complement its
existing product and service offering, enhance relationships with existing
clients, provide an entry into new market segments or expand its operations into
domestic and international entertainment centers where it does not currently
have a significant presence.
Recent Acquisitions
Since January 1996, the Company has completed six acquisitions, which have
expanded the Company's product and service offering, diversified its client base
and substantially increased its revenues and EBITDA. On January 2, 1998, the
Company acquired the net assets of Pro-Mix, which provides audio equipment and
acoustical and sound design consulting services primarily to the live theater
market segment through its offices located in the New York metropolitan area and
Orlando. In August 1997, the Company acquired the net assets of Bash, which
supplies theatrical lighting systems and related products through its offices
located in the New York metropolitan area, Las Vegas, Orlando and Baltimore. As
a result of the Bash acquisition, the Company has become a leading supplier of
theatrical lighting systems and related products in the United States. In June
1997, the Company acquired the net assets of Design Dynamics, located in Denver,
which specializes in fabricating trade show exhibits. In March 1997, the Company
acquired the net assets of Thoughtful Designs, located in Las Vegas, which
provides technology design and show control systems. In February 1996, the
Company acquired the net assets of Cinema Services of Las Vegas, Inc.
("Cinema"), which established the Company's theatrical lighting capabilities in
the large gaming and corporate events markets in Las Vegas. In January 1996, the
Company acquired the net assets of Vanco Lighting Services, Inc. ("Vanco"),
located in Orlando, which established the Company's theatrical lighting
capabilities in the large theme park and convention markets in Orlando.
Discontinued Operations
On March 2, 1998, the Company decided to discontinue its themed attraction
segment and focus its operations on more profitable business segments. This
included the adoption of a formal plan of discontinuance prepared by management
and reviewed and approved by the Board of Advisors (as defined).
The Initial Offering
The outstanding $100.0 million principal amount of Old Notes were sold by
the Issuers to the Initial Purchasers on the Closing Date pursuant to the
Purchase Agreement among the Company, the Guarantors and the Initial Purchasers.
The Initial Purchasers subsequently resold the Old Notes in reliance on Rule
144A under the Securities Act. The Issuers and the Initial Purchasers also
entered into the Registration Rights Agreement pursuant to which the Company and
the Guarantors granted certain registration rights for the benefit of the
holders of the Old Notes. The Exchange Offer is intended to satisfy certain of
the Company's obligations under the Registration
3
<PAGE>
Rights Agreement with respect to the Old Notes. See "The Exchange Offer" and
"The Exchange Offer -- Purpose and Effect."
The Exchange Offer
<TABLE>
<S> <C>
Securities Offered ....................... Up to $100.0 million principal
amount of 11.50% Senior
Subordinated Notes Due 2008, which
have been registered under the
Securities Act. The form and terms
of the New Notes are substantially
identical to the Old Notes in all
material respects, except that the
New Notes will be registered under
the Securities Act and, therefore,
will not be subject to certain
transfer restrictions, registration
rights and related Special Interest
provisions applicable to the Old
Notes.
The Exchange Offer ....................... The New Notes are being offered in
exchange for up to $100.0 million
principal amount of Old Notes. The
issuance of the New Notes is
intended to satisfy certain
obligations of the Issuers
contained in the Registration
Rights Agreement. See "The Exchange
Offer -- Terms of the Exchange
Offer."
Expiration Date .......................... The Exchange Offer will expire at
5:00 p.m., New York City time, on
________, 1998, or such later date
and time to which it is extended.
See "The Exchange Offer -- Terms of
the Exchange Offer."
Withdrawal ............................... Tenders of Old Notes pursuant to
the Exchange Offer may be withdrawn
at any time prior to 5:00 p.m., New
York City time, on the Expiration
Date. See "The Exchange Offer --
Expiration Date: Extensions;
Amendments."
Conditions of the Exchange Offer ......... The Exchange Offer is not
conditioned upon any minimum
principal amount of Old Notes being
tendered for exchange. The only
condition to the Exchange Offer is
the declaration by the Commission
of the effectiveness of the
Registration Statement of which
this Prospectus constitutes a part.
See "The Exchange offer --
Conditions of the Exchange Offer."
Procedures for Tendering Old Notes ....... Each holder of Old Notes desiring
to accept the Exchange Offer must
complete, sign and date the Letter
of Transmittal according to the
instructions contained herein and
therein, and mail or otherwise
deliver the Letter of Transmittal,
together with the Old Notes and any
other required documents, to the
Exchange Agent (as defined herein)
at the address set forth herein
prior to 5:00 p.m., New York City
time, on the Expiration Date. Any
beneficial owner whose Old Notes
are registered in the name of a
broker, dealer, commercial bank,
trust company or other nominee and
who wishes to tender such Old Notes
in the Exchange Offer should
instruct such entity or person to
promptly tender on such beneficial
owner's behalf.
Guaranteed Delivery Procedures ........... Holders of Old Notes who wish to
tender their Old Notes and (i)
whose Old Notes are not immediately
available or (ii) who cannot
deliver their Old Notes, the Letter
of Transmittal or any other
documents required by the Letter of
Transmittal to the Exchange Agent
prior to the Expiration Date may
tender their Old Notes according to
the guaranteed delivery procedures
set forth in the Letter of
Transmittal. See "The Exchange
Offer -- Guaranteed Delivery
Procedures."
Acceptance of Old Notes and Delivery of
New Notes .............................. Upon effectiveness of the
Registration Statement of which
this Prospectus constitutes of part
and consummation of the Exchange
Offer, the Issuers will accept any
and all Old Notes that are properly
tendered in the Exchange Offer
prior to 5:00 p.m., New York City
time, on the Expiration Date. The
New Notes issued pursuant to the
Exchange Offer will be delivered
promptly after acceptance of Old
Notes. See "The Exchange Offer --
Acceptance of Old Notes for
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
Exchange; Delivery of New Notes."
The Exchange Agent ....................... First Union National Bank has
agreed to serve as the exchange
agent (in such capacity, the
"Exchange Agent") in connection
with the Exchange Offer. See "The
Exchange Offer -- The Exchange
Agent."
Certain Federal Income Tax Considerations For a discussion of certain federal
income tax considerations relating
to the Exchange Offer, see "Certain
Federal Income Tax Considerations."
Use of Proceeds .......................... There will be no proceeds to the
Company from the exchange pursuant
to the Exchange Offer. See "Use of
Proceeds."
Fees and Expenses ........................ All expenses incident to the
Issuers' consummation of the
Exchange Offer and compliance with
the Registration Rights Agreement
will be borne by the Issuers. See
"The Exchange Offer -- Fees and
Expenses."
Termination of Certain Rights ............ Pursuant to the Registration Rights
Agreement, holders of Old Notes (i)
have rights to receive Special
Interest and (ii) have certain
rights intended for the holders of
unregistered securities. "Special
Interest" means additional interest
of 0.50% per annum of the principal
amount of the Old Notes during the
first 90 days of a Registration
Default (as defined), increasing by
an additional 0.50% per annum for
each additional 90-day period (up
to a maximum of 2.0% per annum of
the principal amount) for any
period during which a Registration
Default is continuing pursuant to
the terms of the Registration
Rights Agreement. Holders of New
Notes will no longer be, and upon
consummation of the Exchange Offer,
holders of Old Notes will no longer
be, entitled to (i) the right to
receive Special Interest or (ii)
certain other rights under the
Registration Rights Agreement
intended for holders of
unregistered securities. See "The
Exchange Offer -- Termination of
Certain Rights" and "Procedures for
Tendering Old Notes."
Accrued Interest ......................... The New Notes will bear interest at
a rate equal to 11.50% per annum
from their date of issuance.
Holders whose Old Notes are
accepted for exchange will have the
right to receive interest accrued
thereon from the date of original
issuance or date of the last
interest payment, as applicable,
to, but not including, the date of
issuance of the New Notes, such
interest to be payable with the
first interest payment on the New
Notes. Interest on the Old Notes
accepted for exchange will cease to
accrue on the day prior to the
issuance of the New Notes. See
"Description of Notes -- Principal,
Maturity and Interest."
Resales of New Notes ..................... Based on its interpretation of the
position of the Staff of the
Commission as set forth in certain
interpretive letters issued to
third parties in other
transactions, the Company believes
that the New Notes issued pursuant
to the Exchange Offer to any holder
of Old Notes in exchange for Old
Notes may be offered for resale,
resold and otherwise transferred by
a holder (other than (i) a
broker-dealer who purchased the Old
Notes directly form the Company for
resale pursuant to Rule 144A under
the Securities Act or any other
available exemption under the
Securities Act or (ii) a person
that is an affiliate of the Issuers
or the Guarantors within the
meaning of Rule 405 under the
Securities Act), without further
compliance with the registration
and prospectus delivery provisions
of the Securities Act, provided
that such holder is not an
affiliate of the Issuers or the
Guarantors, is acquiring the New
Notes in the ordinary course of
business and is not participating,
and has no arrangement or
understanding with any person to
participate, in a distribution of
the New Notes. Each broker-dealer
that receives New Notes for its
own account in exchange for Old
Notes, where such Old Notes were
acquired by such broker as a
result of marketing-making or
other trading activities, must
acknowledge that it will
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
deliver a prospectus in connection
with any resale of such New Notes.
See "The Exchange Offer-- Resales
of the New Notes" and "Plan of
Distribution.
Effect of Not Tendering Old Notes for
Exchange ............................... Old Notes that are not tendered or
that are not properly tendered
will, following the expiration of
the Exchange Offer, continue to be
subject to the existing restriction
upon transfer thereof. The Company
will have no further obligations to
provide for the registration under
the Securities Act of such Old
Notes and such Old Notes will,
following the expiration of the
Exchange Offer, bear interest at
the same rate as the New Notes.
</TABLE>
Description of New Notes
The form and terms of the New Notes will be identical in all material
respects to the form and terms of the Old Notes, except that the New Notes will
be registered under the Securities Act, and therefore will not be subject to
certain transfer restrictions, registration rights and related Special Interest
provisions applicable to the Old Notes. The Exchange Offer shall be deemed
consummated upon the occurrence of the delivery by the Company to the Exchange
Agent of New Notes in the same aggregate principal amount as the aggregate
principal amount of Old Notes that are validly tendered by holders thereof
pursuant to the Exchange Offer. See "The Exchange Offer -- Termination of
Certain Rights" and " -- Procedures for Tendering Old Notes" and "Description of
Notes."
<TABLE>
<S> <C>
Securities Offered ....................... $100 million principal amount of
11.50% Senior Subordinated Notes
Due 2008.
Maturity Date ............................ January 15, 2008.
Interest ................................. Interest on the Notes will be
payable semi-annually on each
January 15 and July 15, commencing
July 15, 1998.
Ranking .................................. The Notes are general unsecured
obligations of the Issuers and are
subordinated in right of payment to
all existing and future Senior Debt
of the Issuers. As of December 31,
1997, after giving effect to the
Transactions, the Issuers would
have had approximately $0.9 million
of consolidated Senior Debt
outstanding and had no
outstanding debt which was
subordinate to the Notes. In
addition, after consummation of the
Initial Offering, the Company had
$100 million of total commitments
under the Amended Credit Facility,
of which approximately $14.6
million would have been available
as of December 31, 1997, after
giving effect to the Transactions
and the terms of the Amended Credit
Facility.
Optional Redemption ...................... Except as set forth below, the
Notes are not redeemable at the
option of the Issuers, in whole or
in part, at any time prior to
January 15, 2003. Thereafter, the
Notes are redeemable at any time at
the option of the Issuers, in whole
or in part, at the redemption
prices set forth herein, plus
accrued and unpaid interest and
Liquidated Damages, if any, thereon
to the date fixed for redemption.
In addition, at any time prior to
January 15, 2001, the Issuers may
redeem up to 35% of the aggregate
principal amount of the Notes
originally issued at a redemption
price of 110% of the principal
amount thereof, plus accrued and
unpaid interest and Liquidated
Damages, if any, thereon to the
date fixed for redemption, with the
net cash proceeds of one or more
public offerings of Capital Stock
of the Company (other than
Disqualified Stock), provided that
at least 65% of the aggregate
principal amount of the Notes
originally issued remains
outstanding immediately after the
occurrence of each such redemption.
At any time prior to January 15,
2003, the Issuers may, at their
option, redeem the Notes, in whole
or in part, at a redemption price
equal to 100% of the principal
amount thereof, plus the applicable
Make-Whole Premium.
</TABLE>
6
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<TABLE>
<S> <C>
Change of Control ........................ In the event of a Change of
Control, the Issuers are required
to make an offer to each holder of
the Notes to repurchase all or any
part of such holder's Notes at a
repurchase price equal to 101% of
the principal amount thereof plus
accrued and unpaid interest and
Liquidated Damages, if any, thereon
to the date fixed for repurchase.
The Company may not have sufficient
funds to repurchase the New Notes.
See "Risk Factors."
Certain Covenants ........................ The indenture pursuant to which the
Notes have been issued (the
"Indenture") contains certain
covenants that, among other things,
will limit the ability of the
Issuers and the Company's
Restricted Subsidiaries to sell
assets; pay dividends; repurchase
Equity Interests (as defined) or
make other Restricted Payments (as
defined); incur additional
Indebtedness (as defined); create
Liens (as defined); enter into
transactions with Affiliates (as
defined); enter into certain
mergers and consolidations; and
enter into sale and leaseback
transactions. See "Description of
Notes--Certain Covenants."
</TABLE>
Risk Factors
The Notes involve a high degree of risk including risks related to the
uncertainity in collection of accounts receivable, competition for projects and
clients, subordination of the notes, the substantial indebtedness in relation to
members' equity, the growth of the Company internally and through acquisitions
and the dependence of the Company's revenue and profit margins on Stage Command
System(R). Prospective purchasers of the Notes should carefully consider the
matters set forth under "Risk Factors" and as well as the other information,
historical financial statements and data and the pro forma financial data
included in this Prospectus prior to accepting the Exchange Offer.
7
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
The following table sets forth (i) summary historical consolidated
financial data of the Company for each of the three years in the period ended
December 31, 1997, (ii) summary pro forma consolidated financial data of the
Company for the year ended December 31, 1997, which give effect to the
Transactions as if they had occurred on January 1, 1997, and (iii) summary
historical balance sheet data of the Company and as adjusted to give effect to
the acquisition of the net assets of Pro-Mix and the Real Estate Transaction as
if such transactions had occurred on December 31, 1997. The summary historical
consolidated financial data for each of the three years in the period ended
December 31, 1997 were derived from the audited consolidated financial
statements of the Company, which are included elsewhere in this Prospectus
together with the report thereon of Ernst & Young LLP, independent auditors. The
pro forma financial data and the as adjusted balance sheet data are provided for
informational purposes only, are unaudited and are not necessarily indicative of
future results or what the operating results or financial condition of the
Company would have been had the Transactions actually been consummated on the
dates assumed. The following table should be read in conjunction with
"Capitalization," "Selected Consolidated Financial Data," "Pro Forma
Consolidated Financial Data," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the historical financial statements and
the notes thereto of the Company and Bash included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Pro Forma
------------------------------------- -------------
Year
Year Ended Ended
December 31, December 31,
------------------------------------- -------------
1995 1996(2)
Restated(1) Restated(1) 1997(3) 1997
---------- ---------- ------- ----
(Dollars in thousands)
<S> <C> <C> <C> <C>
Statement of Operations Data:
Revenues ................................. $37,284 $49,434 $75,180 $108,152
Direct production costs .................. 22,564 29,565 46,131 60,634
Depreciation expense ..................... 3,342 3,920 6,181 9,410
------- ------- ------- --------
Gross profit ............................. 11,378 15,949 22,868 38,108
Selling general and administrative
expenses ............................. 5,794 8,676 16,185 25,751
Other depreciation and amortization ...... 445 715 2,182 2,794
Non-recurring compensation expense(4) .... -- -- 2,125 --
------- ------- ------- --------
Operating profit ......................... 5,139 6,558 2,376 9,563
Loss on impairment of assets(5) .......... -- 495 -- --
Interest expense ......................... 632 1,292 3,956 11,952
Interest (income) ........................ (268) (128) (117) (134)
------- ------- ------- --------
Income (loss) from continuing operations
before taxes and extraordinary
item ................................... 4,775 4,899 (1,463) (2,255)
Provision for taxes ...................... 122 206 392 415
------- ------- ------- --------
Income (loss) from continuing operations.. 4,653 4,693 (1,855) $ (2,670)
========
Income (loss) from operations of
discontinued Themed Attraction Permanent
Installation segment.................... 244 1,407 (5,302)
------- ------- -------
Income (loss) before extraordinary item 4,897 6,100 (7,157)
Extraordinary item(6) .................... -- -- (614)
------- ------- -------
Net income (loss) ........................ $4,897 $6,100 $(7,771)
======= ======= =======
Other Financial Data:
EBITDA(7) ................................ $8,926 $11,193 $12,864 $21,767
Ratio of earnings to fixed charges(8) .... 6.3x 3.9x -- --
Pro forma ratio of EBITDA to interest
expense ................................ 1.8x
Pro forma ratio of total debt to EBITDA .. 4.6x
Cash Flow Data:
Net cash provided by (used in) operating
activities.............................. $8,974 $ 6,184 $(2,971)
Net cash used in investing activities..... (9,862) (20,302) (40,538)
Net cash provided by (used in) financing
activities.............................. (651) 15,098 67,663
<CAPTION>
As of December 31, 1997
-------------------------
Actual As Adjusted
------ -----------
(Dollars in thousands)
<S> <C> <C>
Balance Sheet Data:
Working capital ............................. $ 35,232 $ 28,340
Total assets ................................ 128,252 120,654
Total debt .................................. 104,565 100,939
Members' equity (deficit).................... 3,083 (1,827)
</TABLE>
- ----------
(1) On March 2, 1998, the Company adopted a plan to discontinue its themed
attraction segment. The historical Statement of Operations Data for the years
ended December 31, 1995 and 1996 have been restated to reflect this segment as
a discontinued operation. Revenues of the themed attraction segment were
approximately $2.1 million, $13.1 million and $24.6 million for the years ended
December 31, 1995, 1996 and 1997, respectively.
(2) The historical statement of operations data and other financial data for
1996 reflect the results of operations of Vanco and Cinema since they were
acquired by the Company on January 18, 1996 and February 8, 1996, respectively.
8
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(3) The historical statement of operations data and other financial data for the
year ended December 31, 1997 reflect the results of operations of Thoughtful
Designs, Design Dynamics and Bash since they were acquired by the Company on
March 7, 1997, June 6, 1997 and August 14, 1997, respectively.
(4) Non-recurring compensation expense for the year ended December 31, 1997
reflects bonuses of $2.125 million paid to the two shareholders of Bash and a
shareholder of Design Dynamics upon their execution of employment agreements
with the Company.
(5) Loss on impairment of assets for the year ended December 31, 1996 reflects a
writedown of $495,000 to the carrying value of the Company's former principal
fabrication facility in Cornwall-on-Hudson, NY.
(6) Extraordinary item for the year ended December 31, 1997 reflects the
write-off of unamortized deferred financing costs of $614,000 related to the
replacement of the Company's existing revolving credit facility with the Credit
Facility on July 31, 1997. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources."
(7) EBITDA is defined, in accordance with the definition of Consolidated EBITDA
in the Indenture, as the sum of income before interest expense, provision for
taxes, depreciation and amortization, certain non-recurring charges and certain
non-cash charges ("EBITDA"). Non-recurring charges consist of $2.125 million of
bonuses paid to the two shareholders of Bash and a shareholder of Design
Dynamics during the year ended December 31, 1997. EBITDA is presented because
it is a widely accepted financial indicator of a company's ability to service
indebtedness. However, EBITDA should not be considered an alternative to
operating income or cash flows from operating activities (as determined in
accordance with generally accepted accounting principles) and should not be
construed as an indication of a company's operating performance or as a measure
of liquidity. In addition, EBITDA may not be comparable to similarly titled
measures reported by other companies. EBITDA is calculated as follows:
Pro Forma
1995 1996 1997 1997
----- ----- ----- -----
Operating profit...................... $5,139 $ 6,558 $ 2,376 $ 9,563
Depreciation expense.................. 3,342 3,920 6,181 9,410
Other depreciation and amortization... 445 715 2,182 2,794
Non-recurring compensation expense.... -- -- 2,125 --
------ ------- ------- -------
$8,926 $11,193 $12,864 $21,767
====== ======= ======= =======
(8) For purposes of computing the ratio of earnings to fixed charges, earnings
consist of income from continuing operations before taxes plus fixed charges.
Fixed charges consist of interest expense plus the portion of operating lease
expense attributable to interest expense. The supplemental pro forma amounts
give effect to the Transactions. Earnings were insufficient to cover fixed
charges by approximately $1.5 million for the year ended December 31, 1997 and
$2.3 million on a pro forma basis.
9
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RISK FACTORS
Prospective purchasers of the Notes should carefully consider the following
risk factors, as well as the other information contained in this Prospectus,
including "Selected Consolidated Financial Data," "Pro Forma Consolidated
Financial Data" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations," in evaluating the Exchange Offer. This Prospectus
contains certain statements of a forward-looking nature relating to future
events or the future financial performance of the Company. Prospective investors
are cautioned that such statements are only predictions and that actual events
or results may differ materially. In evaluating such statements, prospective
investors should specifically consider the various factors identified in this
Prospectus, including the matters set forth below, which could cause actual
results to differ materially from those indicated by such forward looking
statements.
Substantial Indebtedness in Relation to Equity
The Company has consolidated indebtedness that is substantial in relation
to its members' equity. As of December 31, 1997, after giving effect to the
Transactions, the Company would have had total consolidated indebtedness of
approximately $101 million and a members' deficit of $1.8 million. In addition,
after consummation of the Initial Offering, the Company had $100 million of
total commitments under the Amended Credit Facility, of which approximately
$14.6 million was available as of December 31, 1997, after giving effect to the
Transactions and the terms of the Amended Credit Facility. For the year ended
December 31, 1997, after giving effect to the Transactions and the terms of the
Amended Credit Facility, earnings were insufficient to cover fixed charges by
approximately $2.3 million. For 1998, the current annual debt service
requirement for existing indebtedness is approximately $11.9 million. The
Company's leveraged financial position poses substantial consequences to holders
of the New Notes, including the following: (i) a substantial portion of the
Company's cash flow from operations will be dedicated to the payment of interest
on the New Notes, borrowings under the Amended Credit Facility and other
indebtedness, (ii) the Company's leveraged position may impede its ability to
obtain financing in the future for working capital, capital expenditures and
other general corporate purposes, including acquisitions, and (iii) the
Company's leveraged financial position may make it more vulnerable to economic
downturns and may limit its ability to withstand competitive pressures. If the
Company is unable to generate sufficient cash flow from operations in the future
to service its indebtedness and to meet its other commitments, the Company will
be required to adopt one or more alternatives, such as refinancing or
restructuring its indebtedness, selling material assets or operations, or
seeking to raise additional debt or equity capital. There can be no assurance
that any of these actions could be effected on satisfactory terms, that they
would enable the Company to continue to satisfy its capital requirements or that
they would be permitted by the terms of existing or future debt agreements,
including the Indenture and the Amended Credit Facility. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" and "Description of Other
Indebtedness--Amended Credit Facility."
Subordination of Notes
The payment of principal of, premium and interest on, and any other
amounts owing in respect of, the Notes is subordinated to the prior payment in
full of all existing and future Senior Debt of the Issuers, including
obligations under the Amended Credit Facility. As of December 31, 1997, after
giving effect to the Transactions, the Issuers would have had approximately $0.9
million of consolidated Senior Debt outstanding. In addition, after consummation
of the Initial Offering, the Company had $100 million of total commitments under
the Amended Credit Facility, of which approximately $14.6 million would have
been available as of December 31, 1997, after giving effect to the Transactions
and the terms of the Amended Credit Facility. Similarly, the payment of amounts
due under the Subsidiary Guarantees will be subordinated to the prior payment in
full of all existing and future Guarantor Senior Debt (as defined), including
all amounts owing pursuant to the Guarantors' guarantees of amounts outstanding
under the Credit Facility. The Indenture limits, but does not prohibit, the
ability of the Issuers and the Guarantors to incur additional indebtedness that
may constitute Senior Debt or Guarantor Senior Debt. In the event of the
bankruptcy, liquidation, dissolution, reorganization or other winding up of
either of the Issuers or any of the Guarantors, the assets of such Issuer or
such Guarantor will be available to pay obligations under the Notes or the
Subsidiary Guarantee of such Guarantor, as the case may be, only after all
Senior Debt or Guarantor Senior Debt, as applicable, has been paid in full, and
there can be no assurance that there will be sufficient assets to pay the
amounts due on any or all of the Notes or the Subsidiary Guarantees, as the case
may be, then outstanding. In addition, under certain circumstances, the Issuers
may be prohibited by the Indenture from paying amounts due in respect of the
Notes, or from purchasing, redeeming or otherwise acquiring Notes, if a payment
or non-payment default exists with respect to certain Senior Debt. See
"Description of Notes--Subordination" and "--Subsidiary Guarantees" and
"Description of Other Indebtedness--Amended Credit Facility."
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Risks Related to Company's Growth and Acquisitions
The Company's growth, both internally and through acquisitions, and related
changes in the Company's operations place significant demands on the Company's
management, administrative, operational and financial resources. The Company is
in the process of installing an expanded financial reporting system, which the
Company believes will not be fully implemented throughout its operations by
the end of 1998. There can be no assurance that the Company's systems,
procedures, controls or financial resources will be adequate to support the
Company's operations or that management will be able to sustain such growth. In
addition, the Company's continued growth will depend in part upon its ability to
successfully identify and acquire complementary businesses and successfully
integrate them into the Company's operations. No assurance can be given that the
Company will be able to identify complementary businesses that meet its
investment criteria. Any such acquisition will also involve potential risks,
including an increase in the Company's indebtedness, the inability to integrate
the operations of the acquired business or to consolidate systems, facilities
and employees, excessive expenses incurred in connection with the acquisition,
diversion of management's attention from other business concerns and potential
loss of key employees from the acquired business. The Company's failure to
manage growth effectively or successfully integrate acquired businesses would
have a material adverse effect on the Company's business, results of operations
and financial condition.
Risks Associated with Stage Command System(R)
In the live theater market segment, the Company's Stage Command System(R)
generally is rented pursuant to run-of-show contracts. As shows close, the
Company seeks to replace lost rental revenues with new shows. Failure to replace
such revenues, whether resulting from a reduction in the use of motion and show
control systems in live theater or from the Company's loss of market share for
motion and show control systems, could have a material adverse effect on the
Company's business, results of operations and financial condition.
Risks Associated with Large Projects; Discontinued Operations
The Company's largest single source of revenues in each of 1996 and
1997 has been a large project for the themed entertainment market. For the year
ended December 31, 1996, Marnell Corrao Associates, the general contractor for
Masquerade in the Sky(TM) at the Rio Suite Hotel & Casino(R) in Las Vegas,
accounted for approximately 18.0% of the Company's revenues including the
revenue from discontinued operations. For the year ended December 31, 1997,
Paramount Pictures, the owner and producer of Star Trek, The Experience(SM),
represented approximately 11.4% of the Company's revenues including the revenue
from discontinued operations. The gross profit margins associated with themed
attraction projects have been significantly lower than those associated with
live entertainment and corporate events projects. In addition, historically,
some of these projects have been unprofitable. As a result of certain
unprofitable projects and the Company's failure to achieve desired margins in
the themed attraction segment of its business, on March 2, 1998 the Company
formalized a plan that will discontinue the operations of its Themed Attraction
segment as of December 31, 1997 and focus operations on business segments that
generally have been more profitable. The themed attraction business included the
design, engineering, fabrication and permanent installation of the attraction
for the customer. The attractions generally contained moving scenic elements
and show action equipment. The contracts with the customers were always at a
fixed price and always in excess of $3 million. The Company entered this
business in 1995. The Company's profit margin in this segment ranged from
unprofitable to marginally profitable.
Dependence on Key Personnel
The success of the Company depends in large part upon the abilities and
continued service of its executive officers and other key employees,
particularly, Jeremiah J. Harris, Chairman of the Board and Chief Executive
Officer. In addition, during 1997, the Company hired several senior executives
including a Chief Operating and Financial Officer, a senior vice president
responsible for business affairs and a senior vice president responsible for
sales and marketing. Because the Company's management team has been assembled
recently, there can be no assurance that the team will be able to work together
effectively to manage the Company's operations and to implement the Company's
business strategy. Each of the Company's senior executives has an employment
agreement with the Company. There can be no assurance that the Company will be
able to retain the services of such officers and employees. The failure of the
Company to retain the services of Mr. Harris and other key personnel could have
a material adverse effect on the Company's business, results of operations and
financial condition.
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Controlling Equityholder
Jeremiah J. Harris, the Company's Chairman and Chief Executive Officer, is
the sole manager of the Company pursuant to its Operating Agreement (as defined)
and indirectly controls approximately 96.2% of the voting interests of the
Company. Accordingly, Mr. Harris has the ability to control the business and
affairs of the Company. In addition, the interest of Mr. Harris may be adverse
to the holders of the Notes. See "Principal Unitholders."
Risks of Technological Changes and Competing Products
The Company's past success has depended, in part, on its ability to develop
and enhance technology such as its Stage Command System and to introduce new
products to meet changing client requirements. There can be no assurance that
the Company will continue to develop such new technology or products. 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. A loss of the Company's market share for motion and show control
systems through the introduction of competing products or other factors could
have a material adverse effect on the Company's business, results of operations
and financial condition.
Uncertainty in Collection of Accounts Receivable
Due to the project nature of certain parts of its business, as well as
the Company's business and industry practices, the Company has periodically had
past due accounts receivable. As of December 31, 1997, the Company had $23.8
million of total accounts receivable of which approximately $4.4 million was 90
days past due. Approximately one half of the 90 days past due receivables is
related to a project for one of the Company's largest customers. The Company
reviews its allowances for doubtful accounts receivable on an ongoing basis and
may increase such allowances from time to time. There can be no assurance that
the Company's allowances for doubtful accounts receivables or its credit and
collection policies and practices will be adequate. As of December 31, 1997,
the Company's allowance for doubtful accounts receivable totaled approximately
$2.6 million.
Reliance on Key Suppliers
The Company relies on certain suppliers for important components of its
products, in particular, components of the hardware of its Stage Command
System(R). The Company generally purchases these components pursuant to purchase
orders and has no guaranteed supply contracts. Major delivery delays or
termination of the Company's relationship with any supplier of such components
could have a material adverse effect on the Company's business, results of
operations and financial condition.
Product Liability or Personal Injury Claims
The Company faces an inherent business risk of exposure to product
liability or personal injury claims in the event that its products and services
are alleged to have resulted in injury or other adverse effects. The Company
currently maintains insurance coverage but there can be no assurance that the
Company will be able to obtain such insurance on acceptable terms in the future,
if at all, or that any such insurance will provide adequate coverage. Any
successful claims which, individually or in the aggregate, exceed the Company's
insurance coverage could have a material adverse effect on the Company's
business, results of operations and financial condition. In this regard,
Michael Crawford and Entco Three, Inc. have filed an action in the District
Court for Clark County, Nevada against ten defendants including two of the
Company's predecessor entities for personal injury allegedly suffered
by Mr. Crawford while performing in EFX!. While the complaint does not specify
the damages claimed, prior to filing the litigation Mr. Crawford's attorneys
indicated that they would seek damages in excess of the Company's insurance.
See "Business--Legal Proceedings."
Competition for Projects and Clients
The markets for the Company's services in each industry segment are highly
competitive and fragmented. The competitors for the Company's products and
services include primarily small local or regional firms and several large
national firms, some of which may have greater financial, management and
marketing resources than the Company. In the corporate events market, the
Company also competes with the in-house communications departments of existing
and potential clients. The primary competitive factors vary by market but
include technological capability, range of products and services, price,
reputation, reliability, responsiveness to client needs and geographic proximity
to the
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client. The failure of the Company to compete effectively with respect to any of
these factors could have a material adverse effect on the Company's business,
results of operations and financial condition.
Uncertain Ability to Repurchase Notes Upon Change of Control
The Indenture provides that, in the event of a Change of Control, the
Issuers will be required to make an offer to each holder of Notes to repurchase
all or any part of such holder's Notes at a repurchase price equal to 101% of
the principal amount thereof, plus accrued and unpaid interest and Liquidated
Damages, if any, thereon to the date fixed for repurchase. If a Change of
Control were to occur, there can be no assurance that the Company would have the
financial resources necessary to repurchase all Notes tendered pursuant to such
an offer or would be permitted by the Amended Credit Facility or its other debt
agreements to repurchase the New Notes. In the event that a Change of Control
occurs at a time when the Issuers are prohibited from repurchasing Notes, the
Issuers' failure to make a Change of Control Offer (as defined) would constitute
a default under the Indenture. In such circumstances, the subordination
provisions of the Indenture would also likely restrict payments to the holders
of New Notes. See "Description of Notes--Subordination," "--Repurchase at the
Option of Holders--Change of Control" and "Description of Other Indebtedness--
Amended Credit Facility."
Absence of Public Market; Restrictions on Resale
The New Notes are a new issue of securities for which there is currently no
established market and may not be widely distributed. There can be no assurance
as to (i) the liquidity of any such market that may develop, (ii) the ability of
the holders of New Notes to sell their securities or (iii) the price at which
the holders of New Notes would be able to sell their securities. The Issuers do
not intend to apply for listing of the Notes on any national securities exchange
or on the NASDAQ System; an application has been made to have the Notes
designated for trading in the PORTAL market. The Initial Purchasers are not
obligated, however, to make a market in such securities, and any such
market-making may be discontinued at any time at the sole discretion of the
Initial Purchasers and without notice. In addition, such market making activity
may be limited during the Exchange Offer and the pendency of any Shelf
Registration. See "Description of Notes--Registration Rights; Liquidated
Damages." Therefore, there can be no assurance that an active market for New
Notes will develop or, if such a market develops, that it will continue. See
"Description of Notes--Registration Rights; Liquidated Damages."
Consequences of Failure to Exchange
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon as a
consequence of the issuance of the Old Notes pursuant to exemptions from, or in
transactions not subject to, the registration requirements of the Securities Act
and applicable state securities laws. In general, the Old Notes may not be
offered or sold, unless registered under the Securities Act, except pursuant to
an exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. The Company does not currently anticipate that
it will register the Old Notes under the Securities Act. To the extent that Old
Notes are tendered and accepted in the Exchange Offer, the trading market for
untendered and tendered but unaccepted Old Notes could be
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adversely affected. Generally, the rights of holders of Old Notes under the
Registration Rights Agreement would also terminate with respect to Old
Notes which are not exchanged for New Notes in the Exchange Offer.
Fraudulent Conveyance
Under applicable provisions of the United States Bankruptcy Code or
comparable provisions of state and federal fraudulent transfer or conveyance
law, if the Issuers, at the time they issued the Notes, or any Guarantor, at the
time it entered into its Subsidiary Guarantee of the Notes, (a) incurred such
obligation with intent to hinder, delay or defraud creditors or (b) received
less than reasonably equivalent value or fair consideration in connection with
such incurrence and (i) was insolvent at the time of the incurrence, (ii) was
rendered insolvent by reason of such incurrence (and the application of the
proceeds thereof), (iii) was engaged or was about to engage in a business or
transaction for which the assets remaining with the Issuers or such Guarantor
constituted unreasonably small capital to carry on its business or (iv) intended
to incur, or believed that it would incur, debts beyond its ability to pay such
debts as they mature, then, in each such case, a court of competent jurisdiction
could avoid, in whole or in part, the Notes or such Subsidiary Guarantee, as the
case may be, or, in the alternative, subordinate the Notes or such guarantee to
existing and future indebtedness of the Issuers or such Guarantor, as the case
may be. The measure of insolvency for purposes of the foregoing will vary
depending upon the law applied in such case. Generally, however, the Issuers or
a Guarantor would be considered insolvent if the sum of its debts, including
contingent liabilities, was greater than all of its assets at fair valuation or
if the present fair saleable value of its assets was less than the amount that
would be required to pay the probable liability on its existing debts, including
contingent liabilities, as they become absolute and matured.
The Company believes that, for purposes of the United States Bankruptcy
Code and other federal and state fraudulent transfer or conveyance laws, (a) the
Notes and the Subsidiary Guarantees are being issued without the intent to
hinder, delay or defraud creditors and for proper purposes and in good faith,
(b) the Issuers and the Guarantors will receive reasonably equivalent value or
fair consideration and (c) the Issuers and the Guarantors, after the issuance of
the Notes and the application of the proceeds thereof, will be solvent, will
have sufficient capital for carrying on their business and will be able to pay
their debts as they mature. There can be no assurance, however, that a court
passing on such questions would agree with the Company's belief.
Forward Looking Statements
This Prospectus contains certain "forward-looking statements" (as such term
is defined in the Private Securities Litigation Reform Act of 1995), which can
be identified by the use of forward-looking terminology such as "believes,"
"expects," "may," "will," "should," or "anticipates" or the negative thereof or
other variations thereon or comparable terminology, or by discussions of
strategy that involve risks and uncertainties.
Because the Company is not yet subject to the reporting requirements
of the Exchange Act, the Company is not permitted to rely on the safe harbor
for forward-looking statements provided by Section 27A(b)(2)(D) of the
Securities Act and Section 21E(b)(2)(D) of the Exchange Act with respect to this
offering.
Such forward-looking statements involve known and unknown risks, uncertainties
and other factors that may cause the actual results, performance or achievements
of the Company or the markets that it serves to be materially different from any
future results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include the timing, costs and scope of
any acquisition, the revenue and profitability levels of any entity acquired by
the Company, the Company's ability to integrate the systems, facilities and
employees of any acquired company into the Company's operations, technological
advances in the industry and other matters contained in this Prospectus. Certain
of these factors are discussed in more detail elsewhere in this Prospectus
including, without limitation, under "Summary," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business." Given
these uncertainties, prospective investors are cautioned not to place undue
reliance on such forward-looking statements. These forward-looking statements
are based on current expectations, and the Company assumes no obligation to
update this information.
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THE COMPANY
Background
The Company, a Delaware limited liability company formed in August 1995, is
the successor to the theatrical production management, scenery construction and
installation and motion control systems businesses founded by Jeremiah J.
Harris, the Company's Chairman and Chief Executive Officer, in 1984.
Until 1995, the Company focused on its two traditional lines of
business: scenery and automation equipment for Broadway shows and production
services for industrial shows. In 1995, the Company commenced operations in the
themed attraction business with its work on Terminator 2-3D for Universal
Studios Florida. The Company has recently decided to discontinue its themed
attraction business. In early 1996, the Company entered the theatrical lighting
business by acquiring the assets of Cinema and Vanco which provide lighting
equipment and related products in Las Vegas and Orlando, respectively. The
Company continued the expansion of its theatrical lighting business with the
acquisition of Bash in 1997. Also in 1997, the Company entered the exhibit
business when it acquired the assets of Design Dynamics in Denver. In early
1998, the Company continued to expand the range of products and services it
makes available to its customers by entering the theatrical audio business with
its acquisition of the assets of Pro-Mix.
The Company has experienced significant growth in revenues and EBITDA in
recent years as it has applied its technical and creative expertise in the live
entertainment market to the other markets it serves. In addition, since January
1996, the Company has completed six acquisitions, which have expanded the
Company's product and service offering, diversified its client base and
substantially increased its revenues.
On March 2, 1998, the Company decided to discontinue its themed attraction
segment and focus its operations on more profitable business segments. This
included the adoption of a formal plan of discontinuance prepared by management
and reviewed and approved by the Board of Advisors (as defined).
The Company's principal executive offices are located at 539 Temple Hill
Road, New Windsor, New York 12553, and its phone number is (914) 567-5700.
Recent Acquisitions
On January 2, 1998, the Company acquired substantially all of the assets
and assumed certain liabilities of Pro-Mix, which provides sound equipment and
acoustical and sound design consulting services primarily to the live theater
market segment through its offices located in the New York metropolitan area and
Orlando. The assets to be acquired include three distribution and sales offices,
inventory, customer lists and tradenames. The purchase price was approximately
$7.8 million, plus a $1.5 million contingent payment based primarily upon
earnings. The purchase price also includes $939,000, representing the
approximate fair value of 79,179 of the Company's Preferred Units issued in
connection with the Pro-Mix acquisition. Two principal shareholders of Pro-Mix
entered into employment agreements with the Company. See "Pro Forma
Consolidated Financial Data."
In August 1997, the Company acquired substantially all of the assets and
assumed certain liabilities of five companies operating under the name of Bash.
Prior to its acquisition by the Company, Bash was one of the largest suppliers
of theatrical lighting systems and related products in the United States through
its offices located in the New York metropolitan area, Las Vegas, Orlando and
Baltimore. The assets acquired included four distribution centers and sales
offices, inventory, customer lists and tradenames. The purchase price for Bash
was $20.0 million, subject to adjustment. In addition, the two shareholders of
Bash were each paid a bonus of $1.0 million upon execution of an employment
agreement with the Company. See "Pro Forma Consolidated Financial Data" and the
audited financial statements of Bash and the notes thereto included elsewhere in
this Prospectus.
In June 1997, the Company acquired substantially all of the assets and
assumed certain liabilities of Design Dynamics, located in Denver, which
specializes in fabricating trade show exhibits. Design Dynamics enabled the
Company to further penetrate the trade show market and cross-sell its products
and services to Design Dynamics' existing clients. The assets acquired included
a fabrication and distribution center, inventory, customer lists and tradenames.
The purchase price was $4.0 million. See "Pro Forma Consolidated Financial
Data."
In March 1997, the Company acquired substantially all of the assets and
assumed certain liabilities of Thoughtful Designs, located in Las Vegas, which
provides technology design and show control systems. The purchase price was
$200,000.
In February 1996, the Company acquired substantially all of the
assets, excluding cash and accounts receivable, and assumed certain
liabilities of Cinema, located in Las Vegas, which established the
Company's theatrical lighting capabilities in the large gaming and
corporate events markets in Las Vegas. The assets acquired included a
distribution center, inventory, customer lists and tradenames. The
purchase price was $1.8 million, plus contingent payments not to exceed
$500,000.
In January 1996, the Company acquired substantially all of the assets and
assumed certain liabilities of Vanco, located in Orlando, which established the
Company's theatrical lighting capabilities in the large theme park and
convention markets in Orlando. The assets acquired included a distribution
center, inventory, customer lists and tradenames. The purchase price was $1.0
million, including a $700,000, ten-year adjustable promissory note bearing
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interest at 9.5%, the principal amount of which was subsequently adjusted to
$468,000 as a result of certain closing adjustments.
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THE EXCHANGE OFFER
The following is a summary of the material terms and conditions of the
Registration Rights Agreement and is subject to the detailed provisions of the
Registration Rights Agreement, which has been filed as an exhibit to the
Registration Statement and a copy of which is available upon request to the
Trustee.
Purpose and Effect
The Old Notes were sold by the Issuers to the Initial Purchasers on
December 24, 1997. The Initial Purchasers subsequently resold the Old Notes in
reliance on Rule 144A under the Securities Act. The Issuers, the Guarantors and
the Initial Purchasers entered into the Registration Rights Agreement, pursuant
to which the Issuers agreed, with respect to the Old Notes and subject to the
Issuers' determination that the Exchange Offer is permitted under applicable
law, to (i) cause to be filed, on or prior to February 22, 1998, a registration
statement with the Commission under the Securities Act concerning the Exchange
Offer, and, (ii) use its best efforts (a) to cause such registration statement
to be declared effective by the Commission on or prior to May 23, 1998, and (b)
to consummate the Exchange Offer on or prior to June 22, 1998. The Company will
keep the Exchange Offer open for a period of not less than 20 business days (or
longer if required by applicable law) after the date the notice of the Exchange
Offer is mailed to the holders of the Old Notes. This Exchange Offer is intended
to satisfy the Company's exchange offer obligations under the Registration
Rights Agreement.
Consequences of Failure to Exchange Old Notes
Following the expiration of the Exchange Offer, holders of Old Notes not
tendered, or not properly tendered will not have any further registration rights
and such Old Notes will continue to be subject to the existing restrictions on
transfer thereof. Accordingly, the liquidity of the market for a holder's Old
Notes could be adversely affected upon expiration of the Exchange Offer if such
holder elects not to participate in the Exchange Offer.
Terms of the Exchange Offer
The Issuers and the Guarantors hereby offer, upon the terms and subject to
the conditions set forth herein and in the accompanying Letter of Transmittal,
to exchange $100 million aggregate principal amount of New Notes for up to $100
million aggregate principal amount of the outstanding Old Notes. The Company
will accept for exchange any and all Old Notes that are validly tendered on or
prior to 5:00 p.m., New York City time, on the Expiration Date. Tenders of the
Old Notes may be withdrawn at any time prior to 5:00 p.m., New York City time,
on the Expiration Date. The Exchange Offer is not conditioned upon any minimum
principal amount of Old Notes being tendered for exchange. However, the Exchange
Offer is subject to the terms and provisions of the Registration Rights
Agreement. See "The Exchange Offer -- Conditions of the Exchange Offer."
As of the date of this Prospectus, $100 million in aggregate principal
amount of the Old Notes is outstanding, the maximum amount authorized by the
Indenture for all Notes. Only a holder of the Old Notes (or such holder's legal
representative or attorney-in-fact) may participate in the Exchange Offer. There
will be no fixed record date for determining holders the Old Notes entitled to
participate in the Exchange Offer. The Issuers believe that, as of the date of
this Prospectus, no such holder is an affiliate (as defined in Rule 405 under
the Securities Act) of the Issuers or the Guarantors.
The Issuers shall be deemed to have accepted validly tendered Old Notes
when, as and if the Issuers have given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering holders
of Old Notes and for the purposes of receiving the New Notes from the Issuers.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, certificates for any such unaccepted Old Notes will be returned,
without expense, to the tendering holder thereof as promptly as practicable
after the Expiration Date.
Expiration Date; Extensions; Amendments
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The Expiration Date shall be ________ [20 business days after effectiveness
of Registration Statement], 1998 at 5:00 p.m., New York City time, unless the
Company, in its sole discretion, extends the Exchange Offer, in which case the
Expiration Date shall be the latest date and time to which the Exchange Offer is
extended.
In order to extend the Exchange Offer, the Company will notify the Exchange
Agent of any extension by oral or written notice and will make a public
announcement thereof, each prior to 9:00 a.m., New York City time, on the next
business day after the previously scheduled Expiration Date.
If the Exchange Offer is amended in a manner determined by the Company to
constitute a material change, the Company will promptly disclose such amendments
by means of a prospectus supplement that will be distributed to the registered
holders of the Old Notes. Modifications of the Exchange Offer, including but not
limited to extension of the period during which the Exchange Offer is open, may
require that at least five business days remain in the Exchange Offer. In order
to extend the Exchange Offer, the Company will notify the Exchange Agent of any
extension by oral or written notice and will make a public announcement thereof,
each prior to 9:00 a.m., New York City time, on the next business day after the
previously scheduled Expiration Date.
Conditions of the Exchange Offer
The Exchange Offer is not conditioned upon any minimum principal amount of
the Old Notes being tendered for exchange. However, the Exchange Offer is
conditioned upon the declaration by the Commission of the effectiveness of the
Registration Statement of which this Prospectus constitutes a part.
Termination of Certain Rights
The Registration Rights Agreement provides that, subject to certain
exceptions, in the event of a Registration Default (as defined below), holders
of Old Notes are entitled to receive Liquidated Damages of 0.5% per annum of the
principal amount of the Old Notes during the first 90 days of a Registration
Default, increasing by an additional 0.5% per annum for each additional 90 day
period of a Registration Default (up to a maximum of 2.0% per annum). A
"Registration Default" with respect to the Exchange Offer shall occur if: (i)
any of the Registration Statements required by the Registration Rights Agreement
is not filed with the Commission on or prior to the date specified for such
filing in the Registration Rights Agreement, (ii) any of such Registration
Statements has not been declared effective by the Commission on or prior to the
date specified for such effectiveness in the Registration Rights Agreement (the
"Effectiveness Target Date"), (iii) the Exchange Offer has not been Consummated
within 30 business days after the Effectiveness Target Date with respect to the
Exchange Offer Registration Statement or (iv) any Registration Statement
required by the Registration Rights Agreement is filed and declared effective
but shall thereafter cease to be effective or fail to be usable for its intended
purpose without being succeeded immediately by a post-effective amendment to
such Registration Statement that cures such failure and that is itself
immediately declared effective. Holders of New Notes will not be and, upon
consummation of the Exchange Offer, holders of Old Notes will no longer be,
entitled to (i) the right to receive the Liquidated Damages or (ii) certain
other rights under the Registration Rights Agreement intended for holders of
Old Notes. The Exchange Offer shall be deemed consummated upon the occurrence
of the delivery by the Company to the Trustee under the Indenture of
New Notes in the same aggregate principal amount as the aggregate principal
amount of Old Notes that are tendered by holders thereof pursuant to the
Exchange Offer.
Accrued Interest
The New Notes will bear interest at a rate equal to 11.50% per annum from
and including their date of issuance. Holders whose Old Notes are accepted for
exchange will have the right to receive interest accrued thereon from the last
date on which interest was paid on the Old Notes, or if no interest had been
paid on such Old Notes, from the date of their original issue, to, but not
including, the date of issuance of the New Notes, such interest to be payable
with the first interest payment on the New Notes. Interest on the Old Notes
accepted for exchange, which interest accrued at the rate of 11.50% per annum,
will cease to accrue on the day prior to the issuance of the New Notes. See
"Description of Notes -- Exchange Offer; Registration Rights."
Procedures For Tendering Old Notes
The tender of a holder's Old Notes as set forth below and the acceptance
thereof by the Company will constitute a binding agreement between the tendering
holder and the Company upon the terms and subject to the
18
<PAGE>
conditions set forth in this Prospectus and in the accompanying Letter of
Transmittal. Except as set forth below, a holder who wishes to tender Old Notes
for exchange pursuant to the Exchange Offer must transmit such Old Notes,
together with a properly completed and duly executed Letter of Transmittal,
including all other documents required by such Letter of Transmittal, to the
Exchange Agent at the address set forth on the back cover page of this
Prospectus prior to 5:00 p.m., New York City time, on the Expiration Date. THE
METHOD OF DELIVERY OF OLD NOTES, LETTERS OF TRANSMITTAL AND ALL OTHER REQUIRED
DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDER. IF SUCH DELIVERY IS BY
MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED, WITH RETURN
RECEIPT REQUESTED, BE USED. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT
THE HOLDER USE AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT
TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
Any financial institution that is a participant in DTC's Book-Entry
Transfer Facility system may make book-entry delivery of the Old Notes by
causing DTC to transfer such Old Notes into the Exchange Agent's account in
accordance with DTC's procedures for such transfer. In connection with a
book-entry transfer, a Letter of Transmittal need not be transmitted to the
Exchange Agent, provided that the book-entry transfer procedure is made in
accordance with DTC's ATOP (as defined) procedures for transfer and such
procedures are complied with prior to 5:00 p.m., New York City time, on the
Expiration Date.
DTC's Automated Tender Offer Program ("ATOP") is the only method of
processing exchange offers through DTC. To accept the Exchange Offer through
ATOP, participants in DTC must send electronic instructions to DTC through DTC's
communication system, prior to 5:00 p.m., New York City time, on the Expiration
Date, in place of sending a signed, hard copy Letter of Transmittal. DTC is
obligated to communicate those electronic instructions to the Exchange Agent by
an "Agent's Message." To tender Old Notes through ATOP, the electronic
instructions sent to DTC and transmitted by DTC to the Exchange Agent must
contain the participant's acknowledgement of its receipt of and agreement to be
bound by the Letter of Transmittal for such Old Notes.
Each signature on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed unless the Old Notes surrendered for exchange
pursuant hereto are tendered (i) by a registered holder of the Old Notes who has
not completed either the box entitled "Special Exchange Instructions" or the box
entitled "Special Delivery Instructions" in the Letter of Transmittal, or (ii)
by an Eligible Institution (as defined below). In the event that a signature on
a Letter of Transmittal or a notice of withdrawal, as the case may be, is
required to be guaranteed, such guarantee must be by a firm which is a member of
a registered national securities exchange or the National Association of
Securities Dealers, Inc., a commercial bank or trust company having an office or
correspondent in the United States or otherwise be an "eligible guarantor
institution" within the meaning of Rule 17Ad-15 under the Exchange Act
(collectively, "Eligible Institutions"). If the Letter of Transmittal is signed
by a person other than the registered holder of the Old Notes, the Old Notes
surrendered for exchange must either (i) be endorsed by the registered holder,
with the signature thereon guaranteed by an Eligible Institution or (ii) be
accompanied by a bond power, in satisfactory form as determined by the Company
in its sole discretion, duly executed by the registered holder, with the
signature thereon guaranteed by an Eligible Institution. The term "registered
holder" as used herein with respect to the Old Notes means any person in whose
name the Old Notes are registered on the books of the Registrar.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of Old Notes tendered for exchange will be
determined by the Issuers in their sole discretion, which determination shall be
final and binding. The Issuers reserve the absolute right to reject any and all
Old Notes not properly tendered and to reject any Old Notes the Issuers'
acceptance of which might, in the judgment of the Issuers or their counsel, be
unlawful. The Issuers also reserve the absolute right to waive any defects or
irregularities or conditions of the Exchange Offer as to particular Old Notes
either before or after the Expiration Date (including the right to waive the
ineligibility of any holder who seeks to tender Old Notes in the Exchange
Offer). The interpretation of the terms and conditions of the Exchange Offer
(including the Letter of Transmittal and the instructions thereto) by the
Issuers shall be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of Old Notes for exchange must be
cured within such period of time as the Issuers shall determine. The Issuers
will use reasonable efforts to give notification of defects or irregularities
with respect to tenders of Old Notes for exchange but shall not incur any
liability for failure to give such
19
<PAGE>
notification. Tenders of the Old Notes will not be deemed to have been made
until such irregularities have been cured or waived.
If any Letter of Transmittal, endorsement, bond power, power of attorney or
any other document required by the Letter of Transmittal is signed by a trustee,
executor, corporation or other person acting in a fiduciary or representative
capacity, such person should so indicate when signing, and, unless waived by the
Issuers, proper evidence satisfactory to the Company, in its sole discretion, of
such person's authority to so act must be submitted.
Any beneficial owner of the Old Notes (a "Beneficial Owner") whose Old
Notes are registered in the name of a broker, dealer, commercial bank, trust
company or other nominee and who wishes to tender Old Notes in the Exchange
Offer should contact such registered holder promptly and instruct such
registered holder to tender on such Beneficial Owner's behalf. If such
Beneficial Owner wishes to tender directly, such Beneficial Owner must, prior to
completing and executing the Letter of Transmittal and tendering Old Notes, make
appropriate arrangements to register ownership of the Old Notes in such
Beneficial Owner's name. Beneficial Owners should be aware that the transfer of
registered ownership may take considerable time.
By tendering, each registered holder will represent to the Issuers that,
among other things, (i) the New Notes to be acquired in connection with the
Exchange Offer by the holder and each Beneficial Owner of the Old Notes are
being acquired by the holder and each Beneficial Owner in the ordinary course of
business of the holder and each Beneficial Owner, (ii) the holder and each
Beneficial Owner are not participating, do not intend to participate, and have
no arrangement or understanding with any person to participate, in the
distribution of the New Notes, (iii) the holder and each Beneficial Owner
acknowledge and agree that any person participating in the Exchange Offer for
the purpose of distributing the New Notes must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with a
secondary resale transaction of the New Notes acquired by such person and cannot
rely on the position of the staff of the Commission set forth in no-action
letters that are discussed herein under "Resales of New Notes," (iv) if the
holder is a broker-dealer that acquired Old Notes as a result of market making
or other trading activities, it will deliver a prospectus in connection with any
resale of New Notes acquired in the Exchange Offer, (v) the holder and each
Beneficial Owner understand that a secondary resale transaction described in
clause (iii) above should be covered by an effective registration statement
containing the selling security holder information required by Item 507 of
Regulation S-K of the Commission, and (vi) neither the holder nor any Beneficial
Owner is an "affiliate," as defined under Rule 405 of the Securities Act, of the
Issuers or Guarantors except as otherwise disclosed to the Company in writing.
In connection with a book-entry transfer, each participant will confirm that it
makes the representations and warranties contained in the Letter of Transmittal.
Guaranteed Delivery Procedures
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available or (ii) who cannot deliver their Old Notes or any other
documents required by the Letter of Transmittal to the Exchange Agent prior to
the Expiration Date (or complete the procedure for book-entry transfer on a
timely basis), may tender their Old Notes according to the guaranteed delivery
procedures set forth in the Letter of Transmittal. Pursuant to such procedures:
(i) such tender must be made by or through an Eligible Institution and a Notice
of Guaranteed Delivery (as defined in the Letter of Transmittal) must be signed
by such Holder, (ii) on or prior to the Expiration Date, the Exchange Agent must
have received from the Holder and the Eligible Institution a properly completed
and duly executed Notice of Guaranteed Delivery (by facsimile transmission, mail
or hand delivery) setting forth the name and address of the Holder, the
certificate number or numbers of the tendered Old Notes, and the principal
amount of tendered Old Notes, stating that the tender is being made thereby and
guaranteeing that, within five New York Stock Exchange trading days after the
date of delivery of the Notice of Guaranteed Delivery, the tendered Old Notes, a
duly executed Letter of Transmittal and any other required documents will be
deposited by the Eligible Institution with the Exchange Agent; and (iii) such
properly completed and executed documents required by the Letter of Transmittal
and the tendered Old Notes in proper form for transfer (or confirmation of a
book-entry transfer of such Old Notes into the Exchange Agent's account at DTC)
must be received by the Exchange Agent within five New York Stock Exchange
trading days after the Expiration Date. Any Holder who wishes to tender Old
Notes pursuant to the guaranteed delivery procedures described above must ensure
that the Exchange Agent receives the Notice of Guaranteed Delivery and Letter of
Transmittal relating to such Old Notes prior to 5:00 p.m., New York City time,
on the Expiration Date. DTC participants may also submit the Notice of
Guaranteed Delivery through ATOP.
20
<PAGE>
Acceptance of Old Notes for Exchange; Delivery of New Notes
Upon satisfaction or waiver of all the conditions to the Exchange Offer,
the Issuers will accept any and all Old Notes that are properly tendered in the
Exchange Offer prior to 5:00 p.m., New York City time, on the Expiration Date.
The New Notes issued pursuant to the Exchange Offer will be delivered promptly
after acceptance of the Old Notes. For purposes of the Exchange Offer, the
Issuers shall be deemed to have accepted validly tendered Old Notes, when, as,
and if the Issuers have given oral or written notice thereof to the Exchange
Agent.
In all cases, issuances of New Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of such Old Notes, a properly completed and duly executed
Letter of Transmittal and all other required documents (or of confirmation of a
book-entry transfer of such Old Notes into the Exchange Agent's account at DTC);
provided, however, that the Issuers reserve the absolute right to waive any
defects or irregularities in the tender or conditions of the Exchange Offer. If
any tendered Old Notes are not accepted for any reason, such unaccepted Old
Notes will be returned without expense to the tendering Holder thereof as
promptly as practicable after the expiration or termination of the Exchange
Offer.
Withdrawal Rights
Tenders of the Old Notes may be withdrawn by delivery of a written notice
(or for DTC participants, transmission of a notice through ATOP) to the Exchange
Agent, at its address set forth on the back cover page of this Prospectus, at
any time prior to 5:00 p.m., New York City time, on the Expiration Date. Any
such notice of withdrawal must (i) specify the name of the person having
deposited the Old Notes to be withdrawn (the "Depositor"), (ii) identify the Old
Notes to be withdrawn (including the certificate number or numbers and principal
amount of such Old Notes, as applicable), (iii) be signed by the Holder in the
same manner as the original signature on the Letter of Transmittal by which such
Old Notes were tendered (including any required signature guarantees) or be
accompanied by a bond power in the name of the person withdrawing the tender, in
satisfactory form as determined by the Company in its sole discretion, duly
executed by the registered holder, with the signature thereon guaranteed by an
Eligible Institution together with the other documents required upon transfer by
the Indenture, and (iv) specify the name in which such Old Notes are to be
re-registered, if different from the Depositor, pursuant to such documents of
transfer. Any questions as to the validity, form and eligibility (including time
of receipt) of such notices will be determined by the Company, in its sole
discretion. The Old Notes so withdrawn will be deemed not to have been validly
tendered for exchange for purposes of the Exchange Offer. Any Old Notes which
have been tendered for exchange but which are withdrawn will be returned to the
Holder thereof without cost to such Holder as soon as practicable after
withdrawal. Properly withdrawn Old Notes may be retendered by following one of
the procedures described under "The Exchange Offer -- Procedures for Tendering
Old Notes" at any time on or prior to the Expiration Date.
The Exchange Agent; Assistance
First Union National Bank is the Exchange Agent. All tendered Old Notes,
executed Letters of Transmittal and other related documents should be directed
to the Exchange Agent. Questions and requests for assistance and requests for
additional copies of the Prospectus, the letter of Transmittal and other related
documents should be addressed to the Exchange Agent as follows:
By Hand, or Overnight Courier:
First Union National Bank
1525 West W.T. Harris Blvd.
Charlotte, NC 28288
Attn: Corporate Trust Operations
Facsimile Transmissions (Eligible Institutions Only):
(704) 590-7628
To confirm by telephone or for information call:
(704) 590-7408
21
<PAGE>
Fees and Expenses
All expenses incident to the Company's consummation of the Exchange
Offer and compliance with the Registration Rights Agreement will be
borne by the Issuers and the Guarantors, including, without limitation:
(i) all registration and filing fees (including, without limitation,
fees and expenses of compliance with state securities or Blue Sky laws);
(ii) printing expenses (including, without limitation, expenses of
printing certificates for the New Notes in a form eligible for deposit
with DTC and of printing Prospectuses); (iii) messenger, telephone and
delivery expenses; (iv) fees and disbursements of counsel for the
Issuers and the Guarantors; (v) fees and disbursements of independent
accountants; and (vi) all application and filing fees in connection with
any listing of the Notes on a national securities exchange or automated
quotation system.
Neither the Issuers nor the Guarantors have retained any dealer-manager in
connection with the Exchange Offer and will not make any payments to brokers,
dealers or others soliciting acceptance of the Exchange Offer. The Issuers,
however, will pay the Exchange Agent reasonable and customary fees for its
services and will reimburse it for its reasonable out-of-pocket expenses in
connection therewith.
Accounting Treatment
The New Notes will be recorded at the same carrying value as the Old Notes,
as reflected in the Company's accounting records on the date of the exchange.
Accordingly, no gain or loss will be recognized by the Company for accounting
purposes. The expenses of the Exchange Offer will be amortized over the term of
the New Notes.
Resales of the New Notes
Based on the position of the staff of the Commission as set forth in
certain interpretive letters issued to third parties in other transactions, the
Issuers believe that the New Notes issued pursuant to the Exchange Offer to any
holder of Old Notes in exchange for Old Notes may be offered for resale, resold
and otherwise transferred by such holder (other than (i) a broker-dealer who
purchased Old Notes directly from the Issuers for resale pursuant to Rule 144A
under the Securities Act or any other available exemption under the Securities
Act, or (ii) a person that is an affiliate of the Issuers or the Guarantors
within the meaning of Rule 405 under the Securities Act) without further
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that such holder is not an affiliate of the Company,
is acquiring the New Notes in the ordinary course of business and is not
participating, and has no arrangement or understanding with any person to
participate, in the distribution of the New Notes. However, the Company has not
sought its own interpretive letter and there can be no assurance that the
Commission would make a similar determination with respect to the Exchange
Offer. The Company and holders of Old Notes are not entitled to rely on
interpretive advice provided by the staff to other persons, which advice was
based on the facts and conditions represented in such letters. However, the
Exchange Offer is being conducted in a manner intended to be consistent with the
facts and conditions represented in such letters. If any holder acquires New
Notes in the Exchange Offer for the purpose of distributing or participating in
a distribution of the New Notes, such holder cannot rely on the position of the
staff of the Commission enunciated in Morgan Stanley & Co. Incorporated
(available June 5, 1991) and Exxon Capital Holdings Corporation (available May
13, 1989), or interpreted in the Commission's letter to Shearman and Sterling
(available July 2, 1993), or similar no-action or interpretive letters and must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with a secondary resale transaction, unless an
exemption from registration is otherwise available. Each broker-dealer that
receives New Notes for its own account in exchange for Old Notes, where such Old
Notes were acquired by such broker-dealer as a result of market making or other
trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. See "Plan of Distribution."
22
<PAGE>
It is expected that the New Notes will be freely transferable by the
holders thereof, subject to the limitations described in the immediately
preceding paragraph. Sales of New Notes acquired in the Exchange Offer by
holders who are "affiliates" of the Issuers and the Guarantors within the
meaning of the Securities Act will be subject to certain limitations on resale
under Rule 144 of the Securities Act. Such persons will only be entitled to sell
New Notes in compliance with the volume limitations set forth in Rule 144, and
sales of New Notes by affiliates will be subject to certain Rule 144
requirements as to the manner of sale, notice and the availability of current
public information regarding the Issuers and the Guarantors. The foregoing is a
summary only of Rule 144 as it may apply to affiliates of the Company. Any such
persons must consult their own legal counsel for advice as to any restrictions
that might apply to the resale of their Notes.
23
<PAGE>
USE OF PROCEEDS
There will be no cash proceeds payable to the Company from the issuance of
the New Notes pursuant to the Exchange Offer. The Company is conducting the
Exchange Offer to satisfy certain of its obligations under the Registration
Rights Agreement executed in connection with the issuance of the Old Notes. The
net proceeds from the issuance of the Old Notes ($96.3 million) were used to (i)
repay indebtedness of $68.3 million under the credit agreement dated as of
July 31, 1997 (the "Credit Facility"), with the Bank of New York, as agent and
the leaders referred to therein and (ii) fund $8.3 million of the purchase price
for the acquisition of the net assets of Pro-Mix. The balance of approximately
$19.7 million is being used to fund working capital requirements and other
general corporate purposes, which may include, subject to satisfaction of
certain conditions, a distribution to the Company's members. See "Description of
Notes--Certain Covenants--Restricted Payments."
The Company regularly reviews the operations of potential acquisition
targets and is currently in various stages of evaluating numerous possible
acquisitions, primarily in the lighting, trade show exhibit and audio businesses
certain of which, if consummated, could be material. See "Risk Factors--Risks
Related to Company's Growth and Acquisitions" and "The Company--Recent and
Proposed Acquisitions."
In connection with the Initial Offering, the Company entered into an
amendment to the Credit Facility (as amended, the "Amended Credit Facility").
Prior to repayment with the proceeds from the Initial Offering, the amounts
outstanding under the Credit Facility bore interest at an average effective rate
of 7.6% and were to mature on June 30, 2003. The borrowings outstanding under
the Credit Facility were incurred to refinance then existing indebtedness,
finance acquisitions, purchase land for a new facility in Las Vegas and fund
working capital requirements. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources"
and "Description of Other Indebtedness--Amended Credit Facility."
24
<PAGE>
CAPITALIZATION
The following table sets forth the actual cash and cash equivalents
and capitalization of the Company at December 31, 1997 and as adjusted
to give effect to the acquisition of the net assets of Pro-Mix and the Real
Estate Transaction. This table should be read in conjunction with "Use
of Proceeds," "Selected Consolidated Financial Data," "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's Consolidated Financial Statements and the
notes thereto included elsewhere in this Prospectus.
December 31, 1997
------------------------
Actual As Adjusted
(In thousands)
Cash and cash equivalents ........................... $ 27,164 $ 19,336
======== ========
Long-term debt, including current maturities:
Amended Credit Facility ............................ -- --(1)
11 1/2% Senior Subordinated Notes due 2008 ......... 100,000 100,000
Other long-term debt(2) ............................ 4,565 939
-------- --------
Total long-term debt, including current maturities 104,565 100,939
Members' equity (deficit)............................ 3,083 (1,827)(3)
-------- --------
Total capitalization ............................. $107,648 $ 99,112
======== ========
(1) Upon consummation of the Initial Offering, the Company had $100 million of
total commitments under the Amended Credit Facility, of which approximately
$14.6 million would have been available as of December 31, 1997, after giving
effect to the Transactions and the terms of the Amended Credit Facility. See
"Description of the Other Indebtedness--Amended Credit Facility."
(2) Other long-term debt includes $3.9 million of mortgage debt and a
$400,000 note payable incurred in connection with the acquisition of the net
assets of Vanco. In connection with the Real Estate Transaction, the Company's
mortgage debt will be reduced by $3.7 million. See "Certain Transactions" and
Note 7 to the Consolidated Financial Statements of the Company included
elsewhere in this Prospectus.
(3) Members' equity (deficit) as adjusted reflects the Real Estate Transaction
(net book value, net of related mortgages, of $5.8 million) and the issuance of
Preferred Units with a value of $939,000 in connection with the Company's
acquisition of the net assets of Pro-Mix.
25
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected historical consolidated financial
data for the Company as of and for each of the five years in the period ended
December 31, 1997. The selected historical consolidated financial data as of and
for each of the three years in the period ended December 31, 1997 were derived
from the consolidated financial statements of the Company, which have been
audited by Ernst & Young LLP, independent auditors, and are included elsewhere
in this Prospectus. The selected historical consolidated financial data as of
and for the years ended December 31, 1993 and 1994 were derived from audited
consolidated financial statements of the Company that are not included herein.
The following table should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the Company's
Consolidated Financial Statements and the notes thereto included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------
1993 1994 1995 1996(2) 1997(3)
Restated(1) Restated(1)
-------- -------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues ....................................... $ 25,726 $ 31,040 $ 37,284 $ 49,434 $ 75,180
Direct production costs ........................ 19,131 22,250 22,564 29,565 46,131
Depreciation expense ........................... 1,410 770 3,342 3,920 6,181
-------- -------- -------- -------- --------
Gross profit ................................... 5,185 8,020 11,378 15,949 22,868
Selling, general and administrative expenses ... 3,018 4,813 5,794 8,676 16,185
Other depreciation and amortization ............ 420 461 445 715 2,182
Non-recurring compensation expense(4) .......... -- -- -- -- 2,125
-------- -------- -------- -------- --------
Operating profit ............................... 1,747 2,746 5,139 6,558 2,376
Loss on impairment of assets(5) ................ -- -- -- 495 --
Interest expense ............................... 103 279 632 1,292 3,956
Interest (income) .............................. (15) (74) (268) (128) (117)
-------- -------- -------- -------- --------
Income (loss) from continuing operations before
taxes and extraordinary item ................ 1,659 2,541 4,775 4,899 (1,463)
Provision for taxes ............................ 50 28 122 206 392
-------- -------- -------- -------- --------
Income (loss) from
continuing operations....................... 1,609 2,513 4,653 4,693 (1,855)
-------- -------- -------- -------- --------
Income (loss) from operations of discontinued
permanent installation themed attraction
business...................................... -- -- 244 1,407 (5,302)
-------- -------- -------- -------- --------
Income (loss) before extraordinary item......... 1,609 2,513 4,897 6,100 7,157
Extraordinary item(6) .......................... -- -- -- -- (614)
-------- -------- -------- -------- --------
Net income (loss) .............................. $ 1,609 $ 2,513 $ 4,897 $ 6,100 $ (7,771)
======== ======== ======== ======== ========
Cash Flow Data:
Net cash provided by (used in) operating
activities .................................. $ 603 $ 3,852 $ 8,974 $ 6,184 $ (2,971)
Net cash used in investing activities .......... (308) (5,641) (9,862) (20,302) (40,538)
Net cash provided by (used in) financing
activities .................................. 283 2,692 (651) 15,098 67,663
Other Financial Data:
EBITDA(7) ...................................... $ 3,577 $ 3,977 $ 8,926 $ 11,193 $ 12,864
Capital expenditures ........................... 2,767 5,467 9,621 17,456 18,452
Ratio of earnings to fixed charges(8) .......... 17.1x 7.7x 6.3x 3.9x --
Balance Sheet Data (at period end):
Working capital (deficiency) ................... $ (260) $ 418 $ (3,164) $ (867) $ 35,232
Total assets ................................... 12,495 20,222 24,876 51,995 128,252
Total debt ..................................... 2,938 7,096 7,379 27,001 104,565
Members' equity ................................ 5,488 8,146 11,908 14,398 3,083
</TABLE>
See accompanying notes to Selected Consolidated Financial Data
26
<PAGE>
NOTES TO SELECTED CONSOLIDATED FINANCIAL DATA
(1) On March 2, 1998, the Company adopted a plan to discontinue its themed
attraction segment. The historical Statement of Operations Data for the
years ended December 31, 1995 and 1996 have been restated to reflect this
segment as a discontinued operation. Revenues of the themed attraction
segment were approximately $2.1 million, $13.1 million and $24.6 million
for the years ended December 31, 1995, 1996 and 1997, respectively.
(2) The statement of operations data, cash flow data and other financial data
for 1996 reflect the results of operations of Vanco and Cinema since they
were acquired by the Company on January 18, 1996 and February 8, 1996,
respectively.
(3) The statement of operations data, cash flow data and other financial data
for the year ended December 31, 1997 reflect the results of operations of
Thoughtful Designs, Design Dynamics and Bash since they were acquired by
the Company on March 7, 1997, June 6, 1997 and August 15, 1997,
respectively.
(4) Non-recurring compensation expense for the year ended December 31, 1997
reflects bonuses of $2.125 million paid to the two shareholders of Bash
and a shareholder of Design Dynamics upon their execution of employment
agreements with the Company.
(5) Loss on impairment of assets for the year ended December 31, 1996 reflects
a writedown of $495,000 of the carrying value of the Company's former
principal fabrication facility in Cornwall-on-Hudson, NY.
(6) Extraordinary item for the year ended December 31, 1997 reflects
the write-off of unamortized deferred financing costs of $614,000 related
to the replacement of the Company's existing credit facility with the
Credit Facility on July 31, 1997. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Liquidity and Capital
Resources."
(7) EBITDA is defined, in accordance with the definition of Consolidated EBITDA
in the Indenture, as the sum of income before interest expense, provision
for taxes, depreciation and amortization, discontinued operations, certain
non-recurring charges and certain non-cash charges. Non-recurring charges
consist of $2.125 million of bonuses paid to the two shareholders of Bash
and a shareholder of Design Dynamics. EBITDA is presented because it is
a widely accepted financial indicator of a company's ability to service
indebtedness. However, EBITDA should not be considered an alternative to
operating income or cash flows from operating activities (as determined
in accordance with generally accepted accounting principles) and
should not be construed as an indication of a company's operating
performance or as a measure of liquidity. In addition, EBITDA may not be
comparable to similarly titled measures reported by other companies.
EBITDA is calculated as follows:
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Operating profit................................ $1,747 $2,746 $5,139 $ 6,558 $ 2,376
Depreciation expense............................ 1,410 770 3,342 3,920 6,181
Other depreciation and amortization............. 420 461 445 715 2,182
Non-recurring compensation expense.............. - - - - 2,125
======= ======= ======= ======= =======
$3,577 $3,977 $8,926 $11,193 $12,864
</TABLE>
(8) For purposes of computing the ratio of earnings to fixed charges, earnings
consist of earnings from continuing operations before taxes plus
fixed charges. Fixed charges consist of interest and related expenses and
an estimated portion of rentals representing interest costs. Earnings
were insufficient to cover fixed charges by approximately $1.5 million
for the year ended December 31, 1997.
27
<PAGE>
PRO FORMA CONSOLIDATED FINANCIAL DATA (UNAUDITED)
The following pro forma consolidated financial data have been derived by
the application of pro forma adjustments to the historical consolidated
financial statements of (i) the Company as of and for the year ended December
31, 1997, (ii) Design Dynamics for the period from January 1, 1997 through June
5, 1997 (date acquired by the Company), (iii) Bash for the period from January
1, 1997 through August 15, 1997 (date acquired by the Company) and (iv) Pro-Mix
as of and for the year ended December 31, 1997. The pro forma consolidated
financial data presented below give effect to (x) the Transactions, in the case
of the Pro Forma Consolidated Statement of Operations and Other Financial Data
as if they had occurred at the beginning of the respective period, and (y) the
acquisition of the net assets of Pro-Mix and the Real Estate Transaction, in the
case of the Pro Forma Consolidated Balance Sheet as if they had occurred at
December 31, 1997. For purposes of the pro forma consolidated financial data,
the Real Estate Transaction also considers the expected sale of at least 51% of
the ownership interests of the Lessor to outside investors. The adjustments
relating to the Transactions are described in the accompanying notes.
The acquisition of the net assets of Design Dynamics has been reflected in
the Pro Forma Consolidated Statements of Operations Data using information
derived from its unaudited historical financial statements for the period prior
to its acquisition on June 6, 1997. The acquisition of the net assets of Bash
has been reflected in the Pro Forma Consolidated Statement of Operations Data
using information derived from its unaudited historical financial statements for
the period ended June 30, 1997 and included elsewhere in this Prospectus.
All of the acquisitions, including the acquisition of the net assets of Pro-Mix
have been reflected in the Pro Forma Consolidated Financial Data using the
purchase method of accounting. The total purchase price for the acquisition of
the net assets of Pro-Mix has been allocated to the assets and liabilities
acquired based upon their fair value at the closing. In the opinion of
management, all adjustments necessary to fairly present this pro forma
information have been made.
The pro forma adjustments are based upon available information and certain
assumptions that the Company believes are reasonable. The pro forma consolidated
financial data presented below should not be considered indicative of actual
results that would have been achieved had the Transactions been consummated on
the date assumed and do not purport to indicate results of operations as of any
future date or for any future period. The pro forma consolidated financial data
presented below should be read in conjunction with "Use of Proceeds,"
"Capitalization," "Selected Consolidated Financial Data" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the historical financial statements and the notes thereto of the Company and
Bash included elsewhere in this Prospectus.
28
<PAGE>
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
AND OTHER FINANCIAL DATA (UNAUDITED)
For the Year Ended December 31, 1997
<TABLE>
<CAPTION>
Design
Dynamics Bash Adjustments
1/1/97- 1/1/97- for the Company
Direct Costs Company 6/5/97 8/14/97 Pro-Mix Transactions Pro Forma
- ------------ --------- --------- --------- --------- -------------- ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues .......................................... $ 75,180 $ 3,024 $ 19,997 $ 9,951 $ -- $ 108,152
Direct production costs ........................... 46,131 2,028 8,680 3,795 -- 60,634
Depreciation expense .............................. 6,181 -- 1,296 1,933 -- 9,410
--------- --------- --------- --------- ------------ ---------
Gross profit ...................................... 22,868 996 10,021 4,223 -- 38,108
Selling, general and administrative expenses ...... 16,185 826 5,796 3,181 (237)(a) 25,751
Other depreciation and amortization ............... 2,182 43 138 88 343 (b) 2,794
Non-recurring compensation expense................. 2,125 -- -- -- (2,125)(c) --
--------- --------- --------- --------- ------------ ---------
Operating profit .................................. 2,376 127 4,087 954 (2,019) 9,563
Loss on impairment of assets ...................... -- -- -- -- -- --
Interest expense .................................. 3,956 20 111 229 7,636 (d) 11,952
Interest (income) ................................. (117) -- (6) (11) -- (134)
--------- --------- --------- --------- ------------ ---------
Income (loss) from continuing operations
before taxes and extraordinary items ........... $ (1,463) $ 107 $ 3,982 $ 736 $ (5,617) $ (2,255)
Provision for taxes ............................... 392 -- 17 6 -- 415
--------- --------- --------- --------- ------------ ---------
Income (loss) from continuing operations........... (1,855) $ 107 $ 3,965 $ 730 $ (5,617) $ (2,670)
========= ========= ========= ========= ============ =========
Other Financial Data:
EBITDA(e) ......................................... $ 21,767
Supplemental pro forma ratio of earnings to
fixed charges(f) ............................... --
Ratio of EBITDA to interest expense ............... 1.8x
Ratio of total debt to EBITDA ..................... 4.6x
</TABLE>
See accompanying notes to Pro Forma Consolidated Statement of
Operations and Other Financial Data
29
<PAGE>
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
AND OTHER FINANCIAL DATA
(a) Reflects the (i) reduction in certain executive compensation of $12,000,
$495,000 and $380,000 from historical levels to amounts payable under
employment contracts entered into in connection with the acquisition of
the net assets of Design Dynamics, Bash and Pro-Mix, respectively, and
(ii) increase in rent expense of $650,000 in connection with the Real
Estate Transaction.
(b) Reflects (i) increased goodwill amortization expense of $602,000 related
to the acquisitions of the net assets of Design Dynamics, Bash and
Pro-Mix, which goodwill is amortized over periods ranging from 15 to 25
years and (ii) a decrease in depreciation expense of $259,000 related to
the Real Estate Transaction.
(c) Reflects elimination of non-recurring compensation expense paid to the two
shareholders of Bash and a shareholder of Design Dynamics upon their
execution of employment agreements with the Company.
(d) Reflects adjustment to interest expense as follows:
<TABLE>
<CAPTION>
(Dollars
in thousands)
-------------
<S> <C>
Interest on the Notes ....................................... $11,500
Elimination of interest expense on credit facility
indebtedness ............................................. (3,551)
Elimination of interest on mortgage debt .................... (323)
Elimination of interest expense related to acquisitions...... (360)
Amortization of deferred financing costs related to the
Initial Offering .................................... 370
-------
Total adjustments ........................................... $ 7,636
=======
</TABLE>
(e) EBITDA is defined, in accordance with the definition of Consolidated EBITDA
in the Indenture, as the sum of income before interest, provision for
taxes, depreciation and amortization, certain non-recurring charges and
certain non-cash charges. Non-recurring charges for the year ended December
31, 1997 consist of $2.125 million of bonuses paid to the two shareholders
of Bash. EBITDA is presented because it is a widely accepted financial
indicator of a company's ability to service indebtedness. However, EBITDA
should not be considered an alternative to operating income or cash flows
from operating activities (as determined in accordance with generally
accepted accounting principles) and should not be construed as an
indication of a company's operating performance or as a measure of
liquidity. In addition, EBITDA may not be comparable to similarly titled
measures reported by other companies.
(f) The supplemental pro forma amounts give effect to the Transactions.
Earnings were insufficient to cover fixed charges by approximately $2.3
million for the year ended December 31, 1997.
<PAGE>
PRO FORMA CONSOLIDATED BALANCE SHEET (UNAUDITED)
December 31, 1997
<TABLE>
<CAPTION>
Adjustments
for the
Acquisition of
Pro-Mix and the
Real Estate Company
Company Pro-Mix Transaction Pro Forma
--------- --------- --------------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents ................................ $ 27,164 $ 520 $ (8,348) (b) $ 19,336
Accounts receivable, net ................................. 23,783 963 -- 24,746
Inventories .............................................. 4,425 97 -- 4,522
Other current assets ..................................... 1,286 144 -- 1,430
--------- --------- --------- ---------
Total current assets ........................................ 56,658 1,724 (8,348) 50,034
Property and equipment, net ................................. 49,236 6,321 (9,475) (c) 46,082
Goodwill, net ............................................... 15,341 -- 638 (a) 15,979
Other assets ................................................ 7,017 42 1,500 (b) 8,559
--------- --------- --------- ---------
Total assets ................................................ $ 128,252 $ 8,087 $ (15,685) $ 120,654
========= ========= ========= =========
Liabilities and Members' Equity (Deficit)
Current liabilities:
Current portion of long-term debt ........................ $ 822 $ 1,037 $ (1,037) (a) $ 152
(670) (c)
Accounts payable and other................................ 17,567 910 -- 18,477
Payroll and sales taxes payable .......................... 918 28 -- 946
Deferred revenue ......................................... 2,119 -- -- 2,119
--------- --------- --------- ---------
Total current liabilities ................................... 21,426 1,975 (1,707) 21,194
Long-term debt .............................................. 103,743 1,953 (2,956) (c) 100,787
(1,953) (a)
Members' equity (deficit).................................... 3,083 4,159 (5,849) (c) (1,827)
(4,159) (a)
939 (b)
--------- --------- --------- ---------
Total liabilities and members' equity (deficit).............. $ 128,252 $ 8,087 $ (15,685) $ 120,654
========= ========= ========= =========
</TABLE>
See accompanying notes to Pro Forma Consolidated Balance Sheet
34
<PAGE>
Notes to Pro Forma Consolidated Balance Sheet:
(a) The acquisition of the net assets of Pro-Mix will be accounted for under
the purchase method of accounting pursuant to which the purchase price will
be allocated to the acquired assets and liabilities based upon their
relative fair values as of the closing date. The following table sets forth
the Company's preliminary allocation of the purchase price of the
acquisition of the net assets of Pro-Mix:
<TABLE>
<CAPTION>
(Dollars in
thousands)
-----------
<S> <C>
Cash and cash equivalents ................................... $ 520
Accounts receivable, net .................................... 963
Inventories ................................................. 97
Other current assets ........................................ 144
Property and equipment ...................................... 6,321
Goodwill .................................................... 638
Other assets ................................................ 42
Accounts payable and other........... ....................... (910)
Payroll and sales taxes payable ............................. (28)
-------
Net purchase price .......................................... $ 7,787
=======
(b) Reflects the cash used and equity issued for the acquisition of Pro-Mix:
<CAPTION>
(Dollars in
thousands)
-----------
<S> <C>
Cash paid for the acquisition................................ $6,848
Cash paid to fund escrow for contingent payments............. 1,500
------
Total cash paid.............................................. 8,348
Fair value of the Company's Preferred Units issued
for the acquisition.......................................... 939
------
$9,287
======
c) Reflects the Real Estate Transaction as follows:
<CAPTION>
(Dollars in
thousands)
-----------
<S> <C>
Net book value of real estate ............................. $(9,475)
Mortgages assumed:
Current portion ..................................... 670
Long-term ........................................... 2,956
-------
$(5,849)
=======
</TABLE>
On December 24, 1997, the Company redeemed 500,000 SPLLC Units held by
Scenic Properties, L.L.C. ("SPLLC") in exchange for its interest in real
property located in New Windsor, NY and Cornwall-on-Hudson, NY, and the
Company's land in Las Vegas, NV subject to mortgage debt aggregating
approximately $3.7 million. The Company believes the fair market value of such
property to be $8.7 million which approximates its book value of $9.5 million.
All of the equity interests of SPLLC are currently owned by officers and
beneficial owners of the Company (Messrs. Harris, Baxley, Gallo, Sears and Wolf
own 38%, 5%, 19%, 19%, and 19%, respectively). The properties transferred to
SPLLC have been leased back to the Company on arm's-length terms. The Company
expects unaffiliated investors to acquire a 51% interest in SPLLC sometime
during the first half of 1998.
35
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in connection with "Selected
Consolidated Financial and Operating Data" and the Company's Consolidated
Financial Statements and the notes thereto included elsewhere in this
Offering Memorandum.
General
The Company is a leading integrator, fabricator and supplier of a broad
range of products and services for the live entertainment (live theater,
concert touring and special events), and corporate events (trade and
industrial shows) markets and themed entertainment (gaming, theme parks and
themed retail) markets.
Discontinued Operations
On March 2, 1998, the Company adopted a plan to discontinue its
themed attraction business segment. The themed attraction segment operated
primarily through a single division, which provided a turn-key approach of
supplying project management, fabrication of scenic elements and show action
equipment and the installation of the attraction at the customers' place of
business. This segment served customers who were primarily owners and
operators of amusement parks and casinos. The Plan included ceasing the
operations of the division responsible for such projects, development of a
list of people who were to be terminated (some were terminated immediately or
transferred to the Company's other segments) and retracting several bids for
Themed Attraction projects that were outstanding.
This business was entered into in 1995 with the fabrication and
installation of the Terminator 2-3D attraction and continued with the Masquerade
in the Sky during 1996-97. In late 1996 and early 1997, the Company began to
broaden that market with attractions such as Cat in the Hat, Twister, Star Trek
and Copperfield's Magic Underground.
<PAGE>
The Company has previously acknowledged the risk associated with such
large projects, noting that the gross profit margins associated with such themed
attraction projects are generally significantly lower than those associated with
its other segments. During the first quarter in 1998, it became apparent that
the Company was not going to realize the margins required to sustain the
increased overhead structure necessary for this type of business. In addition,
managing such large projects was encompassing much of the time and effort of the
Company's senior management. As a result, the Company decided to discontinue the
operations of its themed attraction business and focus on the Company's core
segments which have higher gross margins. The Company believes that it has
provided for any additional estimated losses related to uncompleted themed
attraction projects.
Revenue Recognition
Revenues consist of sales and rentals of the Company's products and
services. Sales of products (primarily scenery for live entertainment and
fabricated exhibits for events) and services to clients (primarily production
management services) for events and live entertainment markets are generally
recognized upon delivery or when services are performed. All rental revenues
(principally on lighting products and show and motion control systems) are
recognized ratably over the lives of the applicable rental agreements.
Revenues related to the projects within the discontinued themed attraction
segment were recognized generally based on the percentage of total costs
incurred to date to total estimated costs.
Direct Production Costs
Direct production costs include costs related to the integration and
fabrication of certain of the Company's products, primarily raw materials and
labor. It also includes costs associated with the preparation and maintenance
of rental equipment, primarily lighting and motion and show control systems,
and the depreciation expense related to such equipment.
Gross Profit Margin
The Company's gross profit margins have been and will continue to be
affected primarily by acquisitions and the product and service mix in the
applicable period. Gross profit margins associated with rental revenue
are typically higher than those associated with sales.
Comparability of Periods
Financial results for the years ended December 31, 1997 and 1996 are
not fully comparable to prior periods due to the acquisitions of the net
assets of Thoughtful Designs, Design Dynamics and Bash during 1997 and of
Vanco and Cinema in the first quarter of 1996. The Company's historical
consolidated financial statements for the years ended December 31, 1997 and
1996 include results of operations from such acquired operations from the dates
of their respective acquisitions. The financial statements for the years ended
December 31, 1996 and 1995 have been restated to reflect the themed attraction
segment as a discontinued operation.
Result of Operations
The Company's operating data for the years ended December 31, 1995, 1996
and 1997 are set forth below as percentages of revenues:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Revenues .......................................................... 100.0% 100.0% 100.0%
===== ===== =====
Direct production costs............................................ 60.5% 59.8% 61.4%
Depreciation expense .............................................. 9.0 7.9 8.2
----- ----- -----
Gross profit ...................................................... 30.5 32.3 30.4
Selling, general and administrative expenses ...................... 15.5 17.6 21.5
Other depreciation and amortization ............................... 1.2 1.4 2.9
Non-recurring compensation expense ................................ -- -- 2.8
----- ----- -----
Operating profit .................................................. 13.8 13.3 3.2
Loss on impairment of assets ...................................... -- 1.0 --
Interest expense .................................................. 1.7 2.6 5.3
Interest (income) ................................................. (0.7) (0.3) (0.2)
----- ----- -----
Income (loss) from continuing operations before taxes and
extraordinary item .............................................. 12.8 10.0 (1.9)
Provision for taxes ............................................... 0.3 0.4 0.5
----- ----- -----
Income (loss) from continuing operations .......................... 12.5 9.6 (2.4)
Income (loss) from discontinued operations......................... 0.7 2.8 (7.1)
----- ----- -----
Income (loss) before extraordinary item ........................... 13.2 12.4 (9.5)
Extraordinary item ................................................ -- -- (0.8)
----- ----- -----
Net income (loss) ................................................. 13.2% 12.4% (10.3)%
===== ===== =====
</TABLE>
<PAGE>
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Revenues. The Company's revenues increased to $75.2 million in
1997, an increase of $25.8 million, or 52.2%, from $49.4 million in 1996. The
increase was primarily attributable to the $16.4 million revenue increase
attributed to the lighting systems and products segment and the $10.2 million
increase in revenues from the event services segment, partially offset by a
$0.8 million decline in revenues from the scenery automation and fabrication
segment. The increase in lighting systems and products revenues is primarily
attributable to the acquisition of Bash in August 1997 ($12.1 million); and
$2.0 million in incremental revenues related to the commencement of lighting
operations in Atlanta in March of 1997. The lighting systems and products
segment also benefited from the full year impact of the acquisition of the net
assets of Vanco in January 1996 and Cinema in February 1996 (combined $2.3
million of incremental revenue). Revenues in the event services segment
increased primarily as a result of the June 1997 acquisition of the net assets
of Design Dynamics ($8.9 million) and an increase in the number of industrial
shows produced.
Gross Profit. The Company's gross profit increased to $22.9
million in 1997, an increase of $7 million, or 44.0%, from $15.9 million in
1996. The increase in gross profit was primarily due to the increase in
revenues. Gross profit margin declined slightly to 30.4% in 1997 from 32.3% in
1996. The decrease was primarily attributable to lower margins resulting from
the increase in revenues related to the event services segment which lack
rental revenue and therefore have lower margins than the lighting systems and
products segment and the scenery automation and fabrication segment.
Selling, general and administrative. Selling, general and
administrative expenses increased to $16.2 million for 1997, an increase of
$7.5 million, or 86%, from $8.7 million in 1996. The increase was primarily
attributable to incremental selling, general and administrative expenses
associated with the acquisitions of Design Dynamics and Bash and the
commencement of lighting operations in Atlanta, as well as increased overhead
related to the hiring of additional senior executives in connection with the
overall growth of the Company. The Company does not expect selling, general and
administrative expenses to increase significantly, as a percentage of sales,
over the next twelve months even if acquisitions are consummated.
Non-recurring compensation expense. Non-recurring compensation
expense, which represents employment incentives paid to the two shareholders
of Bash and a shareholder of Design Dynamics in connection with the signing of
employment contracts with the Company, totaled $2.1 million, or 2.8% of
revenues for the year ended December 31, 1997.
Operating Profit. Operating profit declined to $2.4 million in
1997, a decrease of $4.2 million, or 63.6%, from $6.6 million in 1996.
Operating profit, as a percentage of revenues, declined to 3.2% in 1997 from
13.3% in 1996, primarily attributable to the lower gross profit margin, the
non-recurring compensation expense and higher selling, general and
administrative expenses as a percentage of revenues for the year.
Interest Expense. Interest expense increased to $4.0 million
in 1997 from $1.3 million in 1996. The increase was primarily attributable to
interest expense on additional indebtedness incurred to finance the
acquisitions of the net assets of Design Dynamics and Bash and capital
expenditures.
Discontinued Operations. The Company's loss from discontinued
operations was $5.3 million for 1997 compared to income from discontinued
operations of $1.4 million in 1996. The Company believes that it has provided
for any additional estimated losses related to uncompleted themed attraction
projects.
<PAGE>
Extraordinary item. The Company recorded an extraordinary loss of $0.6
million in 1997 resulting from the write-off of unamortized deferred financing
costs related to the replacement of the Company's then existing revolving
credit facility with the Credit Facility on July 31, 1997.
Net income (loss). The Company had a net loss of $7.8 million for 1997
compared to net income of $6.1 million in 1996. The net loss was primarily due
to the losses related to the discontinued operations and the other factors
discussed above.
Year Ended December 31, 1996 Compared to Year Ended December
31, 1995
Revenues. The Company's revenues increased to $49.4 million in 1996,
an increase of $12.1 million, or 32.4%, from $37.3 million in 1995. The increase
was primarily attributable to the $14.7 million of revenue contributed by the
acquisitions of the net assets of Vanco in January 1996 and Cinema in February
1996. In addition, revenue in the event services segment increased by
approximately $6.1 million primarily the result of increased revenue related
to industrial shows. The above increases were offset by a decline in scenery
automation and fabrication revenues of approximately $8.5 million in 1996.
Gross Profit. The Company's gross profit increased to $15.9 million in
1996, an increase of $4.5 million, or 39.5%, from $11.4 million in 1995. The
increase was primarily due to the increase in revenues. Gross profit margin
increased to 32.3.% in 1996 from 30.5% in 1995. The increase was primarily
attributable to increased margins related to the rental of lighting products
as a result of the acquisition of the net assets of Vanco and Cinema.
Selling, general and administrative. Selling, general and
administrative expenses increased to $8.7 million in 1996, an increase of $2.9
million, or 50%, from $5.8 million in 1995. The increase was due primarily to
incremental selling, general and administrative expense associated with the
commencement of the Company's lighting systems and products segment as well as
increased overhead related to the hiring of additional employees in connection
with the overall growth of the Company. Selling, general and administrative
expense, as a percentage of revenues, increased to 17.5% in 1996 from 15.5% in
1995
Operating Profit. Operating profit increased to $6.6 million in 1996,
an increase of $1.5 million, or 29.4%, from $5.1 million in 1995. Operating
profit, as a percentage of revenues, declined to 13.3% in 1996 from 13.6% in
1995, primarily due to the increased selling, general and administrative
expenses in 1996.
Loss on impairment of assets. The Company recorded a $0.5 million
loss on impairment of assets, which reflects a writedown in the carrying value
of the Company's former principal fabrication facility in Cornwall-on-Hudson,
NY in connection with commencement of the Company's operation at the New
Windsor, NY facility.
Interest Expense. Interest expense increased to $1.3 million in 1996
from $0.6 million in 1995, primarily due to interest expense on additional
indebtedness incurred to finance the acquisitions of the net assets of Vanco
and Cinema and capital expenditures.
Discontinued Operations. Income from discontinued operations increased
to $1.4 million in 1996 from $0.2 million in 1995.
Net income. Net income was $6.1 million in fiscal 1996, an increase of
$1.2 million, or 24.5%, from $4.9 million in 1995. Net income, as a percentage
revenues, declined to 12.4% in 1996 from 13.2% in 1995, due to the factors
explained above.
<PAGE>
Liquidity and Capital Resources
The Company's primary cash needs historically have been for working
capital, capital expenditures including the purchase of rental equipment and
acquisitions. The Company's traditional sources of cash have been cash flows
from operations and borrowings under bank credit facilities. The Company
completed a significant refinancing in July 1997 in connection with the
acquisition of the assets of Design Dynamics and the then anticipated Bash
acquisition (closed on August 15, 1997). As amended, the Credit Facility
provides the Company with a $100 million, five-year, senior secured, reducing
revolving credit facility. Borrowings under the Credit Facility have been used
to refinance existing indebtedness, fund the Design Dynamics and Bash
acquisitions, purchase land for a new facility in Las Vegas, provide working
capital and pay expenses incurred with the establishment of the Credit Facility.
In December 1997, the Company issued $100 million in aggregate principal amount
of 11 1/2% Senior Subordinated Notes due 2008. The net proceeds to the
Company were used to repay existing indebtedness
under the Credit Facility, fund the purchase price for the acquisition of the
net assets of Pro-Mix and for working capital requirements. As a result of the
Initial Offering, the Company did not have any oustanding borrowings under the
Amended Credit Facility as of December 31, 1997. The Company believes that its
sources of financing and amounts available under the Amended Credit Facility,
are adequate to fund its current level of operations and its expected growth,
including acquisitions, for the next twelve months.
The Company had cash flows provided by (used in) operations totaling
$6.2 million and $(3.0) million in 1996 and 1997, respectively. The decline from
1996 to 1997 was primarily attributable the losses sustained in the
aforementioned discontinued themed attraction segment.
The Company's cash flows used in investing activities totaled, $20.3
million and $40.5 million in 1996 and 1997, respectively. The increase was
primarily attributable to the acquisitions of Bash and Design Dynamics. During
1996, the Company had $17.5 million in capital expenditures. During 1997,
investing activities primarily consisted of $18.2 million in capital
expenditures and $24.0 million used in the acquisitions of Bash and Design
Dynamics. For 1998, the Company has budgeted approximately $8.8 million in
capital expenditures, exclusive of acquisitions, primarily for the purchase of
additional equipment to support the Company's operations. The amount actually
spent on capital expenditures may vary significantly depending on a number of
factors, the effect of which the Company cannot accurately predict. Such factors
include, but are not limited to, the amount and timing of acquisitions of
businesses or assets, expansion of facilities, expansion of existing products
and services into new geographic markets and expansion into new product and
services markets.
The Company's cash flows provided by financing activities totaled,
$15.1 million and $67.8 million in 1996 and 1997, respectively. In 1996, $35.4
million in proceeds from long-term debt, offset $16.2 million of debt repayments
and $3.6 million in member distributions. In 1997, $178.4 million in proceeds
from long-term debt, offset the $101.3 million in debt repayments and $3.5
million of member distributions.
Effect of Inflation
The impact of inflation on the Company's operations has not been
significant in recent years. There can be no assurance, however, that a high
rate of inflation in the future will not have an adverse effect on the
Company's results of operations and financial condition.
BUSINESS
General
The Company is a leading integrator, fabricator and supplier of a broad
range of products and services for the live entertainment (live theater, concert
touring and special events), corporate events (trade and industrial shows) and
themed entertainment (gaming, theme parks and themed retail) markets. For a
discussion of the Company's competitive strengths and business strategy, see
"Summary--Company". For financial and accounting purposes, the
Company operated in 1997 through four segments: lighting systems and product;
scenery automation and fabrication; event services and recently discontinued
themed attractions. These segments provide the Company's products and services
(other than than theatrical audio and related products) to the markets that it
serves. See "Selected Consolidated Financial Data," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Company's
Consolidated Financial Statements and the Notes thereto included elsewhere in
this prospectus. On a pro forma basis, after giving effect to the Transactions,
the Company generated revenues and EBITDA from continuing operations of $108.2
million and $21.8 million, respectively, for the twelve months ended December
31, 1997.
41
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Markets Overview
The Company provides its products and services to clients in the live
entertainment, corporate events and themed entertainment markets. The Company
has supplied products and services for many of the visually "spectacular"
Broadway theatrical productions of recent years and an increasing number of
other live productions, corporate events and themed entertainment attractions
and establishments. The following table represents a partial list of the
Company's significant projects by market:
<TABLE>
<CAPTION>
Live Entertainment Corporate Events Themed Entertainment
<S> <C> <C>
Beauty & the Beast(TM) Buick(R)dealer meetings Basketball Hall of Fame(R)
Pocahontas(TM)premiere in Central Chrysler(R)dealer meetings Caesars Magical Empire(TM)
Park Glaxo Welcome(TM)product introduction shop David Copperfield's Magic Underground
EFX! Hewlett Packard(R)Fall Internet World Exhibit Foxwoods Casino
Gloria Estefan concert tour IBM(R)Fall COMDEX exhibit NikeTown(R)flagship store (NYC)
Les Miserables Iomega(R)worldwide tradeshows NikeTown(R)(Las Vegas)
Metallica Concert tour Lexus(R)dealer meetings Masquerade in the Sky(TM)
Miss America(R)Pageant Marlboro(R)Adventure Team Tour Star Trek, The Experience(SM)
Miss Saigon(TM) Mercedes Benz(R)dealer meetings Terminator 2-3D(TM)at Universal Studios
The Phantom of the Opera(TM) Nike(R)Supershow (Atlanta Florida(R)
Ragtime(TM) Volvo(R)Truck dealer meetings Warner Bros.(R)Stores
Titanic(TM)
Wheel of Fortune(R)traveling show
1996 Presidential Debates
</TABLE>
42
<PAGE>
Live Entertainment
The live entertainment market includes the live theater, concert touring
and special events market segments. According to Variety, North American live
theater box office receipts have grown at a 6.4% compound annual growth rate
from approximately $470.8 million in 1982 to approximately $1.2 billion in 1996.
A significant portion of the growth is attributable to the increase in touring
shows which, according to Variety, accounted for approximately two-thirds of
live theater box office receipts in 1996, up from approximately one-half of live
theater box office receipts in 1982. In addition, new entrants such as large
entertainment corporations have begun to use live theater to cross-promote their
movies, television shows and tie-in products. Recent examples of new entrants
include The Walt Disney Company (Beauty & the Beast(TM)), Viacom Inc. (A
Christmas Carol(TM)) and Sony Corporation (That's Christmas(TM)).
According to Amusement Business, an entertainment industry journal, ticket
sales for North American concert tours have grown at a 10% compound annual
growth rate from approximately $321.7 million in 1985 to approximately $922.3
million in 1996. The special events market segment encompasses a diverse array
of events, including sports, such as the Olympics and boxing matches; politics,
such as the Democratic and Republican conventions and Presidential debates;
televised award ceremonies, such as the Tony(R) and Grammy(R) shows; and
religious and other large-scale events, such as the visit of Pope John Paul II
to New York City in 1995. The producers of concert tours, particularly rock
concerts in large football stadium type venues, and special events are
43
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beginning to utilize more sophisticated technology similar to that featured in
live theater. As such, the Company believes that these market segments present
significant growth opportunities.
Corporate Events
The Company believes that the corporate events market for sales of its
products and services is approximately $11 billion based upon its review of
information prepared by the Center for Exhibition Industry Research, and the
Convention Liaison Council. Industrial shows are single corporation events such
as large sales meetings and new product launches. Trade shows are events where
many corporations in a particular industry or market present their products and
services to customers. The Company believes that the corporate events market has
grown significantly in recent years in response to several favorable trends. In
order to deploy their marketing budgets more effectively and counter the
diminished impact of traditional broad-based, mass advertising media,
corporations have been shifting their marketing efforts to more focused, direct
marketing that targets specific audiences, such as trade shows. In addition, in
order to concentrate on their core business competencies, corporations have been
outsourcing their industrial and trade show management activities with an
emphasis on utilizing single-source providers that offer a broad range of
products and services. Domestic corporations have also increased the use of
trade shows for marketing their products internationally. Most significantly for
the Company, corporations are increasingly employing theatrical techniques to
promote their corporate or brand identities, differentiate their product
offerings and attract new customers. The Company believes that these trends, as
well as the overall size of the market, present significant growth
opportunities.
Themed Entertainment
The themed entertainment market consists of gaming, theme parks and themed
retail establishments, including themed restaurants, and is an emerging market
for theatrical technical and creative expertise. The Company believes that the
themed entertainment market will continue to offer short and long-term growth
opportunities.
According to the Las Vegas Convention and Visitors Authority, approximately
30 million people visited Las Vegas in 1996, approximating a 41% increase since
1990, with many people bringing their entire family. Las Vegas hotels and
casinos are seeking to differentiate themselves and attract these new consumers
by offering a visually "spectacular" total environment including themed
attractions. There is approximately $6 billion of casino construction and
remodeling planned in Las Vegas through 1999, according to the Las Vegas
Convention and Visitors Authority.
Theme parks, many of which are owned by large entertainment companies such
as Universal Studios(R) and The Walt Disney Company, have been expanding their
existing theme parks and building new parks. Such growth has created significant
demand for new large themed attractions to attract visitors and cross-promote
movies, television shows and tie-in products. According to Amusement Business,
attendance at the top 50 North American theme parks has grown from approximately
137 million people in 1993 to approximately 160 million people in 1996.
Retailers have begun to use themed attractions to draw new consumers. As
consumers have become less responsive to the standard shopping experience, many
retailers, including restaurants, are seeking unique, dynamic and entertaining
in-store shopping and dining environments. The theme of "retail as
entertainment" is a growing trend as more entertainment companies have entered
the retail marketplace, such as The Walt Disney Company and Warner Bros.(R) and
many well-known manufacturers have developed product tie-ins to the
entertainment and sports industries, such as Nike(R). While the Company will
continue to provide lighting and audio products and scenic elements in the
themed entertainment market, it has discontinued providing permanent
installation of themed attractions.
Products and Services
The Company's principal products and services are (i) scenery and exhibit
fabrication, (ii) computerized motion and show control systems, including its
proprietary Stage Command System(R), (iii) automated lighting systems and
related products, (iv) project management services and (v) upon the
acquisition of Pro-Mix in January 1998, theatrical audio equipment and related
products. The Company's work has been featured in numerous productions and
attractions that have received awards, including the 1997 Tony(R) for scenic
design
44
<PAGE>
awarded to Titanic(TM), for which the Company fabricated the scenery and
provided all the motion and show control systems, including its Stage Command
System(R), and the 1997 TEA ("Themed Entertainment Association") awards for,
among others, the Nike(R) flagship superstore in New York City, Terminator
2-3D(TM) at Universal Studios Florida(R) and Caesars Magical Empire(TM) at
Caesars Palace(R) in Las Vegas. TEA was formed in 1990 by companies that supply
services and custom products to the themed entertainment, leisure, recreation,
retail, resort and restaurant markets. For a discussion of the Company's
revenues by reportable segment, see the Company's Consolidated Financial
Statements and the Notes thereto included elsewhere in this prospectus.
Scenery and Exhibit Fabrication
The Company provides scenery and exhibits for the live entertainment,
corporate events and themed entertainment markets. The Company has created
sophisticated scenery for many well-known Broadway shows and other live
entertainment productions, including the Broadway and touring scenery for
Disney(R)'s Beauty & the Beast(TM), in which the stage is transformed into a
mythical palace, and EFX!(TM), which is one of the largest and most complex
stage productions in the United States. The Company also provides scenery and
exhibits for corporate events, including IBM(R)'s theater structure at its Fall
COMDEX exhibit and Nike(R)'s multimedia theater at the annual Athletic Footwear
Supershow. In addition, the Company through its recently disconintued themed
attraction segment has fabricated and installed themed entertainment attractions
such as Masquerade in the Sky(TM) at the Rio Suite Hotel & Casino(R) in Las
Vegas, Star Trek, The Experience(SM) at the Hilton(R) in Las Vegas and
Terminator 2-3D(TM) at Universal Studios Florida(R). Masquerade in the Sky(TM)
includes three separate parades, 17 different performing areas and 1,250 feet of
elevated track on which five, 22,000 pound floats continuously "sail" above the
casino floor. Terminator 2-3D(TM) at Universal Studios Florida(R) provides for
seamless interaction between live theater and three-dimensional film.
The Company constructs its scenery and exhibits in its three production
facilities located in New York, Las Vegas and Denver. Once a client creates an
initial concept, the Company typically design engineers and fabricates the
scenery or exhibit. The Company has the ability to complete all aspects of a
project in-house through a staff of permanent employees comprised of (i)
technical engineers trained in multiple disciplines, (ii) designers adept in
computer-aided and other sophisticated design techniques, (iii) craftsmen
skilled in scenic artistry, carpentry, steel fabrication, electronics and
lighting and (iv) project managers experienced in supervising projects from
initial concept design to installation and operation. The Company also maintains
relationships with subcontractors experienced in plastics and glass custom
fabrication, machining, steel cutting, fireproof resin coating, upholstery,
fiber optics, pyrotechnics and laser effects.
The period from inception to completion for scenery and exhibit fabrication
generally ranges from one to three months for the live entertainment and
corporate events markets and ranged from six to eighteen months for attractions
in the themed entertainment market. The Company generally sells scenery and
exhibits to its clients. The Company has also begun to rent certain trade show
exhibits to its clients for multiple use. Prices for the Company's scenery and
exhibits vary significantly. Prices for scenery for the live entertainment
market depend upon the size and nature of the production. The prices for large
musicals approximate $1 million. Prices for scenery and exhibits for industrial
and trade shows generally range from $50,000 to more than $1 million for large
complex events. The prices for attractions within the themed entertainment
markets have tended to be substantially higher, frequently between $5 and $15
million, because the attractions were permanent, larger and more complex
installations.
Computerized Motion and Show Control Systems
The Company has developed or acquired proprietary systems that have set the
standard for computerized motion control in the live entertainment market and
can be modified for use in the corporate events and themed entertainment
markets. Stage Command System(R) is a state-of-the-art motion control system for
moving scenery, platforms, lifts, screens and other props. Since 1988, with the
production of The Phantom of the Opera(TM), this technology has been used in
over 55 theatrical productions and themed attractions. Stage Command System(R)
was awarded 1996 Product of the Year at Lighting Dimensions International, a
theater industry trade show. Stage Command System(R) permits the user to achieve
visually "spectacular" effects such as the rotating and pivoting of the
barricades in Les Miserables(TM), the realistic landing and lift-off of the
helicopter in Miss Saigon(TM) and the chandelier swinging over the audience and
crashing on stage in The Phantom of the Opera(TM). For Masquerade in the
Sky(TM), two technicians, using graphical displays of real-time information,
control five floats, 1,250 feet of track and over 50 other automated effects,
including animatronics, hydraulic elevators and giant inflatables. Other
modified uses of Stage Command System(R) include controlling a projection screen
to facilitate the film to live action
45
<PAGE>
transitions in Terminator 2-3D(TM) at Universal Studios Florida(R) as well as
Caesars Magical Empire(TM) in Las Vegas, Star Trek, The Experience(SM) and the
total environment of Nike(R)'s flagship superstore in New York City. In
addition, the Company's acquisition of the net assets of Thoughtful Designs in
March 1997 has provided it with expertise in show control systems, which
synchronize the various physical elements of production, including scenery,
sound, lighting and special effects.
Stage Command System(R) utilizes hardware and proprietary software to offer
a high degree of precision, reliability and flexibility for motion-controlled
applications. The design of the system allows one operator to control
substantially all of the effects in a typical production. Permanent
installations of the Company's Stage Command System(R), such as in Terminator
2-3D(TM) at Universal Studios, Florida(R) and Nike(R)'s flagship superstore,
generally do not require the supervision of an operator since the elements
controlled by the system do not have to respond to unanticipated events or
actors. Stage Command System(R) features include user-friendly interface and
software, closed-loop computerized motion control, time-based or velocity-based
cueing and proven safety and automatic backups. The Company also provides
in-house programming, worldwide service and on-line support. The Company has
recently updated the interface controls (patent pending) of its Stage Command
Systems(R) to include a graphical, real-time display and analysis of the
position of each device, enhancing safety and operation. The system is modular
and can be reprogrammed and reconfigured for new uses at the end of a
production.
The Company purchases hardware and equipment components from third-party
manufacturers, including control systems, terminals, keyboard, motors, winch
components, cables and other rigging components. The Company's principal
supplier of such hardware during 1996 was Allen-Bradley Company, Inc., a
subsidiary of Rockwell International. The Company integrates hardware and
equipment, installs proprietary user-interface software and programs the
software to produce the desired effects.
The Company generally rents its Stage Command System(R) and show control
systems pursuant to run-of-show contracts, payable weekly, monthly or quarterly.
The rental payment depends on the complexity and number of effects controlled by
the system. The Company sells a modified version of its Stage Command System(R)
to the themed entertainment market.
Automated Lighting Systems and Related Products
The Company is one of the largest suppliers of theatrical lighting systems
and related products in the United States, with facilities in the New York
metropolitan area, Las Vegas, Orlando, Atlanta and Baltimore.
The Company supplies a wide variety of lighting products, including
automated theatrical and concert lighting systems, television and film lighting
systems, scenic backdrop projection equipment, grip equipment, special lighting,
sound and smoke systems, lighting dimmers and controllers, computer controlled
moving lights, silent-hush power generators, trusses, rigging and cable, and
perishables such as bulbs and gels. The Company's specialized lighting products
allow a lighting designer to choose the components necessary to design a
Broadway or touring show, an industrial or trade show or a less complex project
such as a school play or church social. The Company also provides lighting
design consultation, programming and installation. The Company's three
fully-equipped, mobile grip trucks in Las Vegas service the remote needs of its
Las Vegas clients 24 hours a day. The Company also provides installation
services using qualified third-party contractors on an as-needed basis.
The Company generally rents theatrical lighting systems to the live
entertainment and corporate events markets pursuant to run-of-show contracts,
which can range from one day to the full run of a Broadway show or concert tour.
The Company sells lighting systems for permanent installations in the themed
entertainment markets.
The Company is also a distributor for certain theatrical lighting
manufacturers, including Altman Stage Lighting Company, Inc., Electronic Theater
Controls, Group One Ltd., High-End Systems, Inc., Martin Professional, Inc.,
Moel-Richardson Co., Rosco Laboratories, Inc., and Strand Lighting Inc. These
manufacturers are also among the Company's principal suppliers of automated
lighting systems.
46
<PAGE>
Project Management
The Company provides a complete, turn-key service whereby it is responsible
for every phase of a production or event, including design engineering,
budgeting, logistical coordination and installation. The Company has served as
project manager and provided products for many productions, events and
attractions including Beauty & the Beast(TM), EFX!(TM), IBM(R)'s Fall COMDEX
exhibit, Masquerade in the Sky(TM), Star Trek, The Experience(SM) and the annual
dealer meetings and new product launches for many multi-national corporations,
including Chrysler(R), Glaxo Wellcome(TM), Mercedes Benz(R) and Toyota(R)/
Lexus(R).
The Company seeks to leverage its role as project manager in order to
cross-sell its other products and services and provide clients with efficient
"one-stop shopping." For example, the Company typically fabricates the scenery
and provides the lighting systems and other equipment for industrial shows where
it serves as project manager. In addition, the Company fabricated all the
scenery and provided the motion control systems for the Beauty & the Beast(TM)
and EFX!(TM) productions. Most recently, the Company's work for IBM(R) at Fall
COMDEX demonstrated its ability to leverage its role as project manager to
cross-sell its products and services.
Prices for the Company's project management services vary by market. The
Company receives periodic payments, usually weekly, for its services as
project manager for the live entertainment and themed entertainment market. The
price for corporate events is typically based upon cost plus.
Clients
The Company provides its products and services to a diverse client base
that includes many large multi-national corporations. The Company also supplies
theatrical lighting systems and related products to schools, hotels, stores,
museums and other small users. The Company has developed strong, long-standing
relationships with many of its clients. For example, in the live entertainment
market, the Company has fabricated scenery and supplied Stage Command System(R)
for such long-running shows as The Phantom of the Opera(TM) and Les
Miserables(TM). In the corporate events market, the Company has managed annual
dealer meetings for Chrysler and Toyota in each of the past ten years. In the
themed entertainment market, the Company's work on Universal Studios
Florida(R)'s Terminator 2-3D(TM) and Nike(R)'s flagship superstore has led to
additional projects for each of these clients.
For the years ended 1996 and 1997, no customer accounted for over 10% of
the Company's consolidated revenues.
Sales and Marketing
Historically, the Company has relied primarily on referrals and its
reputation earned on high profile projects to generate new sales. The Company
also employs salespeople to market certain of its products and services in local
markets. To enhance the overall growth of its business and expansion into new
markets, the Company is developing a nationally focused marketing effort under
the direction of its recently appointed Senior Vice President, Marketing and
Sales. In connection with this effort, the Company plans to target large,
multi-national corporations with significant, recurring events that require
fully-integrated solutions. The Company expects to hire several national
salespeople who will focus on specific market segments and clients. In response
to the trend toward corporate outsourcing and to client demands, the Company
also plans to increase placement of its employees at clients, which will improve
the Company's ability to understand and serve clients needs. The Company is also
creating a management information system that will track the use of its products
and services by client in order to enhance its cross-selling efforts.
Competition
The markets in each of the industry segments for the Company's services
are highly competitive and fragmented. The Company's competitors include
primarily small local or regional firms and, several large national firms, some
of which may have greater financial, management and marketing resources than the
Company. In the corporate events market, the
47
<PAGE>
Company also competes with the in-house communications departments of existing
and potential clients. The primary competitive factors vary by market but
include technological capability, range of products and services, price,
reputation, reliability, responsiveness to client needs and geographic proximity
to the client.
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Properties
The following table sets forth information about the Company's principal
facilities at December 31, 1997:
<TABLE>
<CAPTION>
Number of Square Lease/
Location Facilities Function Feet Own
- -------- ---------- -------- ------ ------
<S> <C> <C> <C> <C>
New Windsor, NY 4 Principal executive offices, fabrication, testing and warehouse 185,000 Own
Orlando, FL 4* Administration, fabrication and lighting rental and sales 150,000 Lease
Las Vegas, NV 4 Administration, fabrication and lighting rental and sales 100,000 Lease
North Bergen, NJ 1 Administration, warehouse and lighting rental and sales 127,000 Lease
Denver, CO 2 Administration, fabrication and warehouse 77,000 Lease
Cornwall-on-Hudson, NY 1 Painting and Storage 62,000 Own
Atlanta, GA 1 Administration, warehouse and lighting rental sales 28,000 Lease
Baltimore, MD 1 Administration, warehouse and lighting rental and sales 18,000 Lease
New York, NY 3 Administration 14,000 Lease
Mount Vernon, NY 1 Administration, warehouse, rental and sales 24,000 Lease
</TABLE>
* Includes a new 80,000 square foot leased facility in Orlando that the Company
moved into in January 1998. The Company plans to vacate or sublease its other
Orlando facilities.
The Real Estate Transaction, pursuant to which the Company's New Windsor,
NY and Cornwall-on-Hudson, NY facilities and its land in Las Vegas, NV were
transferred to a member of the Company as payment for redemption of such
member's equity interests in the Company, and subsequently leased back to the
Company, was consummated on December 24, 1997. See "Certain Transactions." In
addition, the Company is planning the consolidation of its Las Vegas operations
into one 115,000 square foot facility, which is expected to be completed in the
first half of 1998. The Company is also considering the expansion of its
existing facility in Denver and has leased an approximately 127,000 square
feet facility in North Bergen, New Jersey to replace its existing North Bergen
facility. Following completion of these plans, the Company believes that its
facilities will be adequate for its operations for the foreseeable future.
Employees
At March 17, 1998, the Company had approximately 643 full-time
employees. The Company routinely hires a significant number of temporary
employees on a project basis. Approximately 70 of the Company's full-time
employees are members of the International Alliance of Theatrical Stage
Employees. The current union contracts for the Company's New York and Las Vegas
employees expire in August 2001 and December 2001, respectively. The Company has
not experienced any significant labor disputes with its employees. The Company
believes that its relationship with its employees is good.
Legal Proceedings
The Company from time to time is involved in litigation arising in the
ordinary course of business. Although there can be no assurance, the Company
does not believe that any such litigation will, individually or in the
aggregate, have a material adverse effect on its business, results of operations
or financial condition. Michael Crawford, the former star of EFX!(TM) and Entco
Three, Inc. filed an action in the District Court for Clark County, Nevada on
January 30, 1998 against the Company and the other companies involved in
EFX!(TM), alleging negligence and careless conduct in failing to adequately
operate, manage, maintain, control, construct and or supervise the production of
EFX!(TM) and the special effects contained therein resulting in personal injury
to Mr. Crawford while performing therein. While the complaint does not specify
the damages claimed, prior to filing the litigation Mr. Crawford's attorneys
indicated that they would seek damages in exess of the Company's insurance. The
Company has denied liability and continues to vigorously defend such action. The
Company believes it has meritorious defenses to such actions. Although there can
be no assurance as to the outcome of any
49
<PAGE>
litigation, the Company does not believe it would have a material adverse effect
on the Company's business, results of operations or financial condition.
In addition, the Company has recently filed an action in Federal district
court for the Southern District of New York seeking compensatory and punitive
damages against Stonebridge Partners Equity Fund, L.P. of White Plains New York,
Four Star Associates, L.P., and certain affiliated individuals related to breach
of contract and duty of good faith bargaining and securities fraud in connection
with the Company's proposed acquisition of Four Star Holdings, Inc. The action
seeks specific performance and compensatory and punitive damages.
Year 2000 Compliance
The Company is aware of the issues associated with the two-digit-year
programming code in existing computer systems as the year 2000 approaches. The
issue is whether computer systems will correctly recognize date sensitive
information in two-digit-year form when the year changes to 2000. The Company
has created an information management team to explore and analyze year 2000
issues throughout the Company. As a result of preliminary reports from this
ongoing study, although there can be no assurance, the Company currently does
not anticipate that the year 2000 compliance will result in significant
additional operating expenses or require investments that would be expected to
have a material impact on the Company's results of operations or financial
position. The Company is in the process of deploying its first integrated
information system that is designed to be in compliance with year 2000
requirements. Any year 2000 compliance problem of either the Company or its
suppliers or customers could materially adversely affect the Company's business,
results of operations, financial condition and prospects.
50
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MANAGEMENT
The following table sets forth certain information with respect to persons
who are members of the Company's Board of Advisors (each an "Advisor"),
executive officers of the Company and other significant employees.
<TABLE>
<CAPTION>
Board Members and Executive Officers
Name Age Positions(s)
----------------------------- --- -------------------------------------------------------------------
<S> <C> <C>
Jeremiah J. Harris 43 Chairman and Chief Executive Officer
Bradley G. Miller 34 Chief Operating and Financial Officer and Executive Vice President
Robert A. Manners 41 Senior Vice President, Business Affairs, and General Counsel
James M. Mahoney 31 Corporate Controller
Joseph W. Bartlett 64 Advisor
Joseph P. Harris 70 Advisor
Thomas D. Lips 53 Advisor
<CAPTION>
Significant Employees
Name Age Positions(s)
-------------------------------- --- -------------------------------------------------------------------
<S> <C> <C>
Kenneth L. Shearer 42 Senior Vice President, Marketing and Sales
Kevin J. Baxley 47 Executive Vice President, Scenery Operations
Fred J. Gallo 45 Executive Vice President, Scenery Automation
Joseph A. Schenk II 49 Executive Vice President, Nevada Operations
Donald Stern 58 Executive Vice President, Lighting
John Wolf 52 Executive Vice President, Project Management
William Ennis 49 Senior Vice President, Lighting
Roy Sears Jr. 43 Senior Vice President, Manufacturing
</TABLE>
There are no family relationships between any persons identified above,
except that Joseph P. Harris is the father of Jeremiah J. Harris.
Jeremiah J. Harris. Mr. Harris founded the predecessor of Production
Resource Group, L.L.C. in 1984 and has served as the Company's Chairman and
Chief Executive Officer since its formation in 1995. Mr. Harris comes from a
family with four generations of theatrical experience. Since 1970, he has been
involved with production in the live theater market. Mr. Harris developed the
original Stage Command System(R) and other related technological advances. Mr.
Harris is a member of the Board of Directors of Stage Technologies (UK) and F&D
Scene Changes Ltd. (Calgary, Canada). Mr. Harris is also a director of Beachport
Entertainment Corporation, a television production company.
Bradley G. Miller. Mr. Miller joined the Company in July 1997 as Chief
Operating and Financial Officer and Executive Vice President. From July 1988
until June 1997, Mr. Miller was employed at the investment banking firm of
Schroders PLC, most recently as a director in the investment banking department.
Mr. Miller received a BA in economics from Franklin and Marshall College in 1985
and an MBA from Columbia University Business School in 1988. He is a director of
Palomar Technologies, Inc., a privately-held manufacturer of various
technology-based industrial products.
Robert A. Manners. Mr. Manners joined the Company in August 1997 as Senior
Vice President, Business Affairs and General Counsel. From June 1995 to August
1997, Mr. Manners was a partner at Pepe & Hazard LLP in Hartford, Connecticut
where he was instrumental in the formation of the Company and worked primarily
on its matters. Prior to joining Pepe and Hazard LLP, Mr. Manners was Of Counsel
to Gibson, Dunn & Crutcher in New York City for seven years. Mr. Manners
received a BA from the University of Pennsylvania, a JD from Columbia University
Law School and an LLM (in Taxation) from New York University School of Law.
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<PAGE>
James M. Mahoney. Mr. Mahoney joined the Company in March 1997 as the
Corporate Controller. From November 1992 until March 1997 Mr. Mahoney was
employed at Ernst & Young LLP, most recently as an Audit Manager. Prior to that,
Mr. Mahoney was a Senior Accountant with Pannell Kerr Forster CPA's from
1990-1992. Mr. Mahoney received a BBA in accounting from Siena College in 1988
and is a Certified Public Accountant.
Joseph W. Bartlett. Mr. Bartlett has been a partner in the law firm of
Morrison & Foerster LLP since March 1996. From July 1991 until March 1996 he was
a partner in the law firm of Mayer, Brown & Platt. Mr. Bartlett has also been an
Undersecretary of the U.S. Department of Commerce and a law clerk to Chief
Justice Earl Warren. Mr. Bartlett is a member of the Council on Foreign
Relations and is currently a director of Cyrk, Inc., which designs, manufactures
and distributes products for promotional programs and Semele Group, Inc., which
invests in real property and other assets. Mr. Bartlett received a BA from
Harvard University and an LLB from Stanford Law School.
Joseph P. Harris. Joseph P. Harris is a producer of Broadway shows. For
more than forty years, Joseph P. Harris has been associated with more than 200
Broadway productions. He has been general manager for many dramatic and musical
productions. He has co-produced many shows including Chicago, On the Twentieth
Century and The 1940s Radio Hour, and received Tony(R) Awards as co-producer of
Bob Fosse's revival production of Sweet Charity, Dancing at Lughnasa and An
Inspector Calls. He also co-produced the 1993 Tony(R) Award nominee for Best
Play, Someone Who'll Watch Over Me. Joseph P. Harris most recently co-produced
Translations.
Thomas D. Lips. Mr. Lips has been a Senior Vice President--Investments of
PaineWebber, Inc. (and Kidder, Peabody & Co., prior to its acquisition by
PaineWebber, Inc.) in Hartford, Connecticut since 1990. Mr. Lips received a BA
from Dartmouth College in Liberal Arts and a JD from Harvard Law School.
Kenneth L. Shearer. Mr. Shearer joined the Company in June 1997 as Senior
Vice President, Marketing and Sales. Mr. Shearer is responsible for the
development of the Company's nationally focused marketing effort. Prior to
joining the Company, Mr. Shearer was employed in various positions at Design
Dynamics, Inc., an exhibit fabrication company from 1992 to June 1997, most
recently as President. Mr. Shearer received a BS in general engineering and
political science from the United States Naval Academy and an MBA from the
University of Denver.
Kevin J. Baxley. Mr. Baxley joined the Company in May 1988 as Vice
President of Finance and was appointed Executive Vice President, Scenery
Operations in October 1997 where he is responsible for strategic planning and
product development. Prior to joining the Company, he served as a manager at
Ernst & Young LLP and as the Director of Finance at Spectramed, a medical device
manufacturer. Mr. Baxley received an MBA from the New York University Graduate
School of Business in 1976 and is a Certified Public Accountant.
Fred J. Gallo. Mr. Gallo joined the Company upon its founding in 1984 and
was appointed Executive Vice President, Scenery Production in October 1997. He
is responsible for the engineering and mechanical design of all projects. Mr.
Gallo is also a relationship manager for the live theater market. Prior to
joining the Company, he was self-employed as a technical coordinator on
Broadway. Mr. Gallo received a BS degree in architectural engineering from New
York Institute of Technology in 1974 and was instrumental in the design and
development of the Stage Command System(R). Mr. Gallo has been responsible for
the technical production of many successful theatrical productions, including
The Phantom of the Opera(TM), Les Miserables(TM) and Beauty & the Beast(TM).
Joseph A. Schenk II. Mr. Schenk joined the Company in August 1995 as Vice
President of the Las Vegas operations and was appointed Executive Vice
President, Nevada Operations in August 1997. Mr. Schenk has overall
responsibility for the Company's scenery fabrication operations in Las Vegas.
Prior to joining the Company, he was a real estate developer from 1994 to July
1995 and project manager for Showtech U.S.A., a theatrical production at a Las
Vegas hotel from 1992 to 1994. Mr. Schenk received a B.A. from the University of
Nevada, Las Vegas in 1974.
Donald Stern. Mr. Stern joined the Company in August 1997, was appointed
Executive Vice President, Lighting, in October 1997 and is responsible for the
overall management of the Company's lighting operations. Mr. Stern co-founded
Bash in 1976 and was responsible for its operations until it was acquired by the
Company in August 1997.
John Wolf. Mr. Wolf joined the Company upon its founding in 1984 and was
appointed Executive Vice President, Project Management in October, 1997. He is
responsible for the technical supervision of all corporate events. Prior to
joining the Company, he worked at McLean Industries as an ocean freight
consultant. Mr. Wolf
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received a BS in Mechanical Engineering from Kings Point Academy in 1968. Mr.
Wolf has been responsible for many innovative industrial shows including the
touring attraction for the Marlboro Adventure Team Tour.
William Ennis. Mr. Ennis joined the Company in January 1996 as Senior Vice
President, Lighting and is responsible for the strategic planning and financial
reporting of the Company's lighting operations. From July 1995 to December 1995,
Mr. Ennis served as a consultant to the Company, advising the Company with
respect to acquisitions. Prior to joining the Company, Mr. Ennis served as the
Managing Partner at Ennis, Cavuoto & Company, a consulting and accounting firm,
for twenty years. Mr. Ennis received a BBA from the University of Oklahoma in
1973 and is a Certified Public Accountant.
Roy Sears Jr. Mr. Sears joined the Company upon its founding in 1984 and
was appointed Senior Vice President, Manufacturing in October, 1997. He is
responsible for scenery fabrication and the installation and execution of all
projects. Prior to joining the Company, Mr. Sears worked at Theater Techniques
Associates where he was a production manager. Mr. Sears has been responsible for
the installation of productions including Terminator 2-3D(TM) at Universal
Studios Florida(R) in Orlando and Masquerade Show in the Sky(TM).
Compensation of Advisors
The Company does not currently provide cash compensation to Advisors for
services provided in such capacity. However, the Company has granted Capital
Appreciation Units to each of its Advisors. See "Principal Unitholders."
Compensation of Executive Officers
The following summary compensation table includes individual compensation
information for the Company's Chief Executive Officer and to the Company's four
most highly compensated officers other than the Chief Executive Officer whose
total annual salaries and bonuses exceeded $100,000 for services rendered in
all capacities to the Company for the periods indicated.
<TABLE>
<CAPTION>
Annual Compensation
----------------------------------
Name and Principal Position Year Salary($) Bonus($)
- --------------------------- ---- --------- --------
<S> <C> <C> <C>
Jeremiah J. Harris 1997 $ 350,000 --
Chairman and Chief Executive Officer 1996 $ 350,000 $150,000
1995 $ 250,000 $300,000
Bradley G. Miller
Chief Financial and Operating Officer 1997 $ 84,918 $150,000
</TABLE>
Employment Agreements
The following summary of the material terms of certain employment
agreements with executive officers of the Company, does not purport to be
complete and reference is made the provisions of such employment agreements,
which have been filed as an exhibit to the Registration Statement.
Mr. Harris has an employment agreement with the Company, dated January 1,
1996, providing for a base salary of $350,000, which may be increased by
discretionary bonus payments and incentive compensation. The agreement provides
that the Company may terminate employment for cause (as defined) or upon 45 days
prior written notice. If such agreement is terminated without cause, the Company
is obligated to pay Mr. Harris his base salary and benefits for the period equal
to the longer of (i) the remainder of the term or (ii) the sum of (x) six months
from the termination date and (y) one additional month for each year of service
with the Company or a predecessor entity up to a maximum of six additional
months. The agreement has a three-year term and is automatically extendable for
one-year periods unless either party notifies the other, within 30 days of the
anniversary of such period, that the agreement will not be extended. Mr. Harris
has also agreed not to compete with the Company for a period of one year
following termination of his agreement.
Mr. Miller has an employment agreement with the Company, dated as of July
7, 1997, providing for a base salary of $175,000, which may be increased by
discretionary bonus payments. In addition, the agreement provided for a signing
bonus of $150,000. The Company may terminate employment for cause (as defined).
If such agreement is terminated without cause, or Mr. Miller terminates the
agreement for good reason (as defined), the
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Company is obligated to pay him base salary and benefits for the remainder of
the term. The agreement has a five-year term and is automatically extendable for
one-year periods unless either party notifies the other, within six months of
the anniversary of such period, that the agreement will not be extended. Mr.
Miller has agreed not to compete with the Company for a period of two years
following termination of the agreement; provided, however, that if his
employment is terminated by the Company, the covenant not to compete will be
limited to the time in which Mr. Miller receives payment of his base salary. The
employment agreement also provides that Mr. Miller will receive 452,000 Capital
Appreciation Units in the Company, consisting of four tranches of 113,000
Capital Appreciation Units with Threshold Values (as defined) of $55 million,
$70 million, $85 million and $95 million. Each Threshold Value will be reduced
by the amount of the Company's cash distribution to its members with a portion
of the net proceeds from the Initial Offering and the net fair market value of
the real estate transferred in connection with the Real Estate Transaction. See
"Certain Transactions." One-sixth of such units vested at the time of grant and
an additional one-sixth of such units will vest on each of the first through
fifth anniversaries thereof. See "Principal Unitholders."
Mr. Manners has an employment agreement with the Company, dated as of
August 6, 1997, providing for compensation consisting of a base salary of
$175,000, which may be increased by discretionary bonus payments. In addition,
the agreement provides for reimbursement of certain temporary living and moving
expenses associated with Mr. Manners' relocation to New Windsor, NY and a
four-year loan in an amount not to exceed $120,000 in connection with acquiring
a new residence. The Company may terminate employment for cause (as defined). If
such agreement is terminated without cause, or Mr. Manners terminates the
agreement for good reason (as defined), the Company is obligated to pay him base
salary and benefits for the remainder of the term. The agreement has a four-year
term and is automatically extendable for one-year periods unless either party
notifies the other, within six months of the anniversary of such period, that
the agreement will not be extended. Mr. Manners has agreed not to compete with
the Company for a period of two years following termination of the agreement;
provided, however, if his employment is terminated by the Company, the covenant
not to compete will be limited to the time in which Mr. Manners receives payment
of his base salary. The employment agreement also provides that Mr. Manners will
receive 113,000 Capital Appreciation Units in the Company with a Threshold Value
of $55 million, 20% of which were vested at the time of grant and the balance of
which vest 20% on the first, second and third anniversaries of Mr. Manners'
employment with the Company. The Threshold Value will be reduced by the amount
of the Company's cash distribution to its members with a portion of the net
proceeds from the Initial Offering and the net fair market value of the real
estate transferred in connection with the Real Estate Transaction. See "Certain
Transactions." The final 20% of Mr. Manners' units will vest on the fourth
anniversary of Mr. Manners' employment provided that (i) Mr. Manners has not
been terminated for Cause and has not voluntarily departed without good reason
and (ii) the Company has completed an initial public offering and has had a
market capitalization of its outstanding securities of at least $250.0 million
dollars for a ten consecutive trading day period. See "Principal Unitholders."
The other senior executives of the Company also have employment agreements
with the Company on terms similar to those of Mr. Harris, other than
compensation, including agreements not to compete with the Company following
termination of employment.
Unit Plans
The Company maintains the Production Resource Group L.L.C. Restricted
Limited Liability Company Unit Incentive Compensation Plan (the "Restricted
Plan") and the Phantom Limited Liability Company Unit Incentive Compensation
Plan (the "Phantom Plan" and, together with the Restricted Plan, the "Plans").
The Plans were established on January 1, 1996 to optimize profitability and
growth of the Company, to provide rewards for employees and to attract and
retain new employees of the Company. Participation in the Plans is limited to
officers and other key employees who are selected to participate in the Plan. Up
to 750,000 units subject to anti-dilution adjustments may be awarded under each
of the Restricted Plan ("Restricted Units") and the Phantom Plan ("Phantom
Units" and together, with the Restricted Units, the "Units"). The Units, in
addition to any restrictions imposed in the Owners' Agreement are subject to
significant restrictions on transferability, the securities laws and the
Operating Agreement of the Company. Restricted Units entitle the holder to
participate in the appreciation and profits of the Company, but do not allow a
right to participate in management. Phantom Units entitle the holder to receive
a bonus equal to ten dollars per Phantom Unit upon a sale of the Company, or at
such
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<PAGE>
other time as such employee is entitled to receive payments with respect to
such units. In no event shall a participant be entitled to receive duplicate
payments under the Phantom Plan and the Restricted Plan. Restrictions on the
Units lapse ratably over a specified period as set forth in the grant letter
awarding such Units (the "Restriction Period"); provided, however, that the
Purchase Units are subject to a Restriction Period not to exceed ten years. The
holders of Units still subject to the Restriction Period do not have any rights
under the Operating Agreement other than the right to receive distributions with
respect to such Units. Upon a Change in Control or any termination other than
for Cause (each as defined in the Plans) all restrictions on the Units lapse and
the value thereof becomes immediately payable. Phantom Units will be canceled
without any payments being required thereon upon the occurrence of an initial
public offering of the Company or a successor in interest to the Company.
Messrs. Baxley and Ennis have been issued 129,980 and 51,992 Units,
respectively, for which restrictions lapse in five annual installments
commencing January 1, 1997.
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CERTAIN TRANSACTIONS
The Company incurred fees for theatrical management services provided by J.
Harris, Inc., which is owned 50% by Mr. Joseph P. Harris, the father of Jeremiah
J. Harris. In 1996 and 1995, the Company incurred fees and other charges
of approximately $189,000 and $182,000, respectively. In addition, the Company
had revenues from J. Harris, Inc. of approximately $64,000 in 1996. The Company
also subleases approximately 3000 square feet from J. Harris, Inc. at 1500
Broadway, New York, NY, for approximately $109,000 per year, which is equal to
the amount payable by J. Harris, Inc. for its lease on such space. J. Harris,
Inc. ceased all operations at the end of 1997.
In 1997, 1996 and 1995, the Company had revenues of approximately $3.8
million, $1.9 million and $2.0 million, respectively, from an affiliated
advertising and production management company for industrial shows. A majority
of the stock of this company is owned by members of the Company (Messrs. Harris,
Baxley, Gallo, Sears and Wolf own 19%, 2.5%, 9.5%, 9.5%, and 9.5%,
respectively). In addition, the Company receives management fees for
administrative services from this affiliated company for which it was paid
$272,000, $70,500 and $90,000 in 1997, 1996 and 1995, respectively.
The Company retained the legal services of Pepe & Hazard LLP during 1996
and 1997. Mr. Manners was a partner at Pepe & Hazard LLP during such period
until joining the Company in August 1997. In connection with Mr. Manners'
employment agreement, the Company extended a four year limited recourse loan,
bearing interest at 6.1%, with approximately $97,000 outstanding as of the date
hereof.
In 1996 and 1995, the Company paid accounting fees of approximately
$274,000 and $243,000, respectively, to Ennis, Cavuoto & Company, a consulting
and accounting firm of which Mr. Ennis, who joined the Company in January 1996,
was a Partner.
On December 24, 1997, the Company redeemed 500,000 SPLLC Units held by
Scenic Properties, L.L.C. ("SPLLC") in exchange for its interests in real
property located in New Windsor, NY and Cornwall-on-Hudson, NY, and the
Company's land in Las Vegas, NV subject to mortgage debt aggregating
approximately $3.7 million. The Company believes the fair market value of such
property to be $8.7 million which approximates its book value of $9.5 million.
All of the equity interests of SPLLC are currently owned by officers and
beneficial owners of the Company (Messrs. Harris, Baxley, Gallo, Sears and Wolf
own 38%, 5%, 19%, 19% and 19%, respectively). The properties transferred to
SPLLC have been leased back to the Company on arm's-length terms. The Company
expects unaffiliated investors to acquire a 51% interest in SPLLC during 1998.
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PRINCIPAL UNITHOLDERS
The following table sets forth certain information as of the date hereof
with respect to the beneficial ownership of the Company's membership interests.
Unless otherwise indicated in the footnotes, all holders have sole dispositive
power with respect to the membership interests shown as beneficially owned by
such holder.
<TABLE>
<CAPTION>
Capital Convertible Percentage
Regular Appreciation Preferred Preferred of Total
Name of Beneficial Owner Units(1) Units(2) Units(3) Units(4) Units(5) Voting Power
------------------------ -------- ------------ ----------- -------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Harris Production Services, Inc.(6)...... 5,000,200 84.5% 96.2%
Kevin J. Baxley(7)....................... 129,980 2.2 2.5
William Ennis(7)......................... 51,992 * 1.0
Theodore Van Bemmel, Jr.................. 17,241 * *
Bradley G. Miller(8)..................... 452,000 7.6 0.0
Robert A. Manners(9)..................... 113,000 1.9 0.0
Pro-Mix (10)............................. 79,179 1.3 0.0
Kenneth L. Shearer....................... 54,539 * 0.0
Joseph W. Bartlett(11)................... 10,000 * 0.0
Thomas D. Lips(11)....................... 3,000 * 0.0
Joseph P. Harris(12)..................... 3,000 * 0.0
Officers and Advisors (as a group)....... 581,000 11.2 0.0
---------- -------- ----------- -------- ----- -----
Total.................................. 5,199,413 581,000 0 133,718 100.0% 100.0%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Less than 1%.
(1) Regular Units are the only Units entitling the holder to vote in the
Company's business and affairs. Each holder of Regular Units has sole voting
power with respect to such units.
(2) Capital Appreciation Units entitle their holder to an annual return of $0.05
per Unit and upon a sale of the Company, an initial public offering or a similar
event, share in the appreciation of the Company above a specified equity value
(the "Threshold Value").
(3) Convertible Preferred Units have an 8% per annum cumulative distribution
priority. These Units are senior in liquidation preference to the Regular Units
and are convertible into the securities that may be offered to the public by the
Company at the time of any initial public offering at a price equal to 62.5% of
the per share price of any such security. Upon conversion, all accrued
distributions will be eliminated. In addition, holders of Convertible Preferred
Units are entitled to redemption thereof, at the option of holder after the
third anniversary of issuance or notice of an initial public offering, whichever
occurs earlier.
(4) Preferred Units entitle the holder to share in distributions and
appreciation with the Regular Units and have a liquidation preference equal to
the amount paid for such Units ($2,250,000 in the aggregate).
(5) Percentage of Total Units represents the fraction of units held by such
beneficial owner divided by the sum of Regular Units, Capital Appreciation
Units, Convertible Preferred Units and Preferred Units outstanding.
(6) Mr. Jeremiah J. Harris owns 100% of the voting stock of Harris Production
Services, Inc. ("HPS") which owns 96.2% of the voting interests in the Company.
Mr. Harris owns 38% of the economic interests in HPS and the balance of the
economic interests are owned 19% by each of Messrs. Gallo, Sears and Wolf and 5%
by Mr. Baxley.
(7) Restrictions on these units lapse in five annual installments commencing
December 31, 1996. See "Management--Unit Plans."
(8) Mr. Miller has been issued four tranches of Units, each consisting of
113,000 units with Threshold Values, subject to adjustment, of $55 million, $70
million and $85 million and $95 million, respectively. One-sixth of each tranche
was vested at the time of grant with an additional one-sixth of each tranche
vesting on the first through fifth anniversaries of Mr. Miller's employment with
the Company. See "Management--Employment Agreements."
(9) Mr. Manners has been issued units with a $55 million Threshold Value,
subject to adjustment. One-fifth of Mr. Manners' units vested at the time of
grant with an additional one-fifth vesting on the first, second and third
anniversaries of Mr. Manners' employment with the Company. The final one-fifth
of Mr. Manners' units will vest on the fourth anniversary of Mr. Manners'
employment, subject to certain conditions. See "Management--Employment
Agreements."
(10) Pro-Mix was granted 79,179 Preferred Units as partial consideration for the
contribution of a portion of its assets to the Company.
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(11) Mr. Bartlett has been issued Capital Appreciation Units with a $55 million
Threshold Value. Three-quarters of such units were vested at the time of grant
and the final one-quarter will vest on the first anniversary of the date of
grant.
(12) Mr. Lips and Mr. Harris have been issued Capital Appreciation Units with a
$55 million Threshold Value, one-half of such units were vested at the time of
grant and one-quarter will vest on each of the first and second anniversaries of
the date of grant.
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DESCRIPTION OF OPERATING AGREEMENT
The rights and obligations of the equityholders of the Company (the
"Members") are governed by the Limited Liability Company Agreement of Production
Resource Group, L.L.C., dated as of August 7, 1995 and amended and restated by
the Amended and Restated Limited Liability Company Agreement, dated as of
January 1, 1996, further amended by the First Amendment to the Amended and
Restated Operating Agreement, dated as of July 12, 1996, and further amended and
restated by the Second Amended and Restated Limited Liability Company Agreement,
dated as of December 1, 1997 (the "Operating Agreement"). The following is a
summary of the material terms and conditions of the Operating Agreement and is
subject to the detailed provisions of the Operating Agreement, which has
been filed as an exhibit to the Registration Statement.
Members and History
The original members (the "Initial Members") of the Company were Harris
Production Services, Inc., ("HPS"), ECTS, A Scenic Technology Company, Inc.
("STNY"), ECTS Contracting of Las Vegas, Inc. ("SCLV"), Showpay, Inc.
("Showpay"), Scenic Properties, L.L.C. ("SPLLC") and Theatre Techniques
Associates, Inc. ("TTA"). In December 1997, SCLV, STNY and TTA were merged into
HPS and the Units issued to Showpay were transferred to HPS. Each of the Initial
Members contributed all of their assets, subject to their liabilities to the
Company in July 1996. Ownership interests in the Company are represented by
"Units." In connection with the consummation of the Real Estate Transaction on
December 24, 1997, SPLLC no longer holds membership interests in the Company.
See "Certain Transactions."
Limited Liability
As with a corporation, the Members of the Company are not liable for the
debts, liabilities, contracts or other obligations of the Company in excess of
their capital contributions.
Management
The Company is managed by a board of managers (the "Managers"), currently
consisting of a single manager, Jeremiah J. Harris, which has control over the
business and affairs of the Company. The Members can increase the number of
Managers up to a maximum of nine. The Company's officers are appointed by the
Managers. Except for situations in which the approval of the Members or of the
Board of Advisors (as defined) is expressly required by the Operating Agreement
or by non-waivable provisions of applicable law, the Managers have full and
complete authority, power and discretion to manage and control the business,
affairs and properties of the Company. Managers may be appointed by, or removed
by a majority vote of the Members. Currently, Mr. Harris has the ability to
control such election or removal, as he indirectly owns approximately the 96.2%
of the voting interests in the Company. See "Principal Unitholders."
Description of Units
The Company's Units consist of the following classes: Regular Units;
Preferred Units; Capital Appreciation Units; Preferred Capital Appreciation
Units; and Convertible Preferred Units. Regular Units entitle the holder thereof
to share in the profits and losses of the Company, subject to certain
adjustments, and are the only class of voting equity of the Company. Preferred
Units entitle the holder thereof to the same rights and privileges as holders of
Regular Units, except that the holders of Preferred Units have the right to
receive liquidation distributions prior to the holders of Regular Units and the
Preferred Units do not have voting rights. Capital Appreciation Units entitle
the holder thereof to (i) an annual return of $0.05 per Unit and (ii) share in
the appreciation in the value of the Company upon the occurrence of an Initial
Public Offering (as defined in the Operating Agreement), the sale of
substantially all of the assets of the Company or a sale of fifty percent or
more of the interests in the Company held by the Initial Members; provided that
such holder shall only be entitled to share in the appreciation in value above
the designated value provided in the Operating Agreement. Capital Appreciation
Units rank pari passu with Regular Units in right of payment in the event of a
liquidation of the Company. Preferred Capital Appreciation Units entitle the
holder thereof to the same rights and privileges as holders of Capital
Appreciation Units, except that the holders of Preferred Capital Appreciation
Units have the right to receive liquidation distributions prior to the holders
of
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<PAGE>
Regular Units. Convertible Preferred Units entitle the holder thereof to
receive an eight percent per annum cumulative distribution priority. The
Operating Agreement provides that such distribution shall accumulate currently
but not be paid. These Units are senior in liquidation preference to the Regular
Units and are convertible into securities offered by the Company in an Initial
Public Offering at a price equal to 62.5% of the per share price of such
securities. For purposes of such conversion, the Operating Agreement provides
that all accrued distributions will be eliminated. In addition, upon the earlier
of the third anniversary of the issuance of the Convertible Preferred Units or
an Initial Public Offering, the holder of such Units has the option to require
the Company to redeem its Units. The Operating Agreement provides the Managers
with discretion to create other classes or series of Units or other equity
interests in the Company, which Units or other equity interests in the Company
may have voting rights, rights to distributions and allocations, or other rights
that are different from, and superior or inferior to those of, the then-existing
Units. The creation of a new class or classes of Units does not constitute or
require an amendment to the Agreement.
Long-Term Incentive Plan
The Operating Agreement permits the Company to adopt a long-term incentive
plan ("LTIP") under which the Managers are authorized to issue up to 750,000
Units to Managers, officers and employees. Units may also be issued under
employment agreements with the Company's senior managers and to members of the
Company's Board of Advisors. The Managers may authorize the grant of additional
units under the LTIP or otherwise.
Advisory Board
The Company has an advisory board (the "Board of Advisors") to advise it
with respect to the formulation and implementation of the Company's strategic
plan and such other advice as may be requested by the Managers. The current
Board of Advisors consists of Joseph W. Bartlett, Thomas P. Lips and Joseph P.
Harris. With the two exceptions noted below, the Operating Agreement
contemplates that members of the Board of Advisors serve purely an advisory
role. The Company is required to obtain the approval of a majority of the
members of the Board of Advisors for any related party transaction. In addition,
the Managers may, by notice to the Board of Advisors and their written consent,
elect to entrust the Board of Advisors with the rights and responsibilities of a
corporate board established pursuant to the Delaware General Corporation Law.
The members of the Board of Advisors are entitled to compensation for their
services as the Managers deem appropriate, including equity incentives.
Liability, Exculpation and Indemnification
The Operating Agreement provides that no officer, director or other
"Covered Persons" (as defined therein) shall be liable for any act or omission
performed or omitted by such person in good faith on behalf of the Company and
in a manner reasonably believed to be within the scope of such person's
authority, except for acts and omissions involving gross negligence or willful
misconduct. In addition, the Operating Agreement provides that the Company will
indemnify "Covered Persons" for any loss, damage or claim incurred by them by
reason of any act or omission performed or omitted by such person in good faith
on behalf of the Company and in a manner reasonably believed to be within the
scope of authority conferred on such person, unless such loss, damage or claim
was incurred by reason of gross negligence or willful misconduct on behalf of
such "Covered Person."
Assignment
The Operating Agreement, with limited exceptions, prohibits Members from
transferring, assigning or pledging as security for indebtedness its Units, in
whole or in part, except to the Company's senior institutional lender.
Dissolution
The Company shall be dissolved and its affairs shall be wound up upon (i)
the written consent of all Members, (ii) the death, retirement, resignation,
expulsion, bankruptcy or dissolution of a Member who is a Manager or the
occurrence of any other event under the Delaware Limited Liability Company Act
that terminates the continued membership of a Member who is a Manager in the
Company unless, within 90 days after the
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<PAGE>
occurrence of such an event, a majority in interest of the remaining Members
agree in writing to continue the business of the Company and to the appointment,
if necessary or desired, effective as of the date of such event, of one or more
additional Members or (iii) the entry of a decree of judicial dissolution under
Section 18-802 of the Delaware Limited Liability Company Act.
Amendments
The Operating Agreement provides for amendment by a majority of the
Members. However, unanimous consent of the affected Members is required to
subject the Members to additional liability. Furthermore, the amendment of any
provision that materially adversely affects the economic interests of a Member
requires the consent of (i) two-thirds in interest of all Members in the case of
an amendment applying in a substantially similar manner to all classes of Units
or (ii) two-thirds in interest of each affected class of Units in the case of
any other amendment.
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DESCRIPTION OF OTHER INDEBTEDNESS
Amended Credit Facility
The Company is party to the Amended Credit Facility. The following is a
summary of the material terms and conditions of the Amended Credit Facility and
is subject to the detailed provisions of the Amended Credit Facility and various
related documents which have been attached as exhibits to the Registration
Statement.
General
The Amended Credit Facility, a five-year senior reducing revolving credit
facility, provides for borrowings in a principal amount of up to $100 million,
subject to certain covenants and conditions. Borrowings may be used by the
Company for working capital, acquisitions and for general corporate purposes. Up
to $30 million of the amount available under the Amended Credit Facility may be
used for acquisitions without approval of the Required Lenders (as defined in
the Amended Credit Facility). Additional acquisitions are permitted without
approval of the Required Lenders provided the Company's total leverage ratio is
less than 3.5 to 1.0 and certain other conditions are met. The Amended Credit
Facility permits the Company to issue up to $150 million of subordinated debt
which indebtedness would include the Initial Offering of the Notes.
Interest Rates; Fees
Amounts outstanding under the Amended Credit Facility bear interest, at the
Company's option, at certain spreads over LIBOR or the greater of the Federal
Funds rate plus 0.50% or BNY's prime rate. The interest rate spreads are
adjusted based on the Company's total leverage ratio. The Company pays a
commitment fee on unused availability of 0.375% to the extent that the Company's
total leverage ratio is greater than or equal to 1.5 to 1.0, and 0.250% if such
ratio is less than 1.5 to 1.0.
Mandatory Prepayments and Commitment Reductions
Amounts outstanding under the Amended Credit Facility are subject to, among
others, the following mandatory prepayments, which will also permanently reduce
commitments under the Amended Credit Facility: (i) up to $25 million from
proceeds of any permitted indebtedness issuance in excess of $100 million by the
Company, (ii) beginning January 1, 1999, if the Company's total leverage ratio
is greater than 3.5 to 1.0, 50% of annual Excess Cash Flow for the prior fiscal
year (including any net proceeds of an equity issuance, as defined in the
Amended Credit Facility) and (iii) 100% of net cash proceeds from asset or
property dispositions (as defined in the Amended Credit Facility).
Collateral and Guarantees
In order to secure their obligations under the Amended Credit Facility, the
Company and each subsidiary party to the security agreement have granted to the
Lenders a continuing security interest in all of their tangible and intangible
assets. In addition, Members of the Company have pledged to the Lenders
substantially all of the membership interests and capital stock of the Company
and its subsidiaries. All existing and future domestic subsidiaries of the
Company guarantee the indebtedness under the Amended Credit Facility. In
addition, HPS and certain other holders of interests in the Company have
guaranteed the obligations of the Company under the Amended Credit Facility.
Covenants
The obligations of the Lenders to lend under the Amended Credit Facility
are subject to the satisfaction of certain conditions precedent, including the
absence of a material adverse change in the affairs of the Company. The Amended
Credit Facility contains various covenants that, subject to specified
exceptions, restrict the ability of the Company and its subsidiaries with
respect to: (i) the incurrence of additional indebtedness and other obligations
and the granting of additional liens; (ii) mergers, acquisitions, investments
and dispositions of assets; (iii) the declaration or payment of Restricted
Payments (as defined in the Amended Credit Facility); (iv) the declaration or
payment of
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dividends; (v) prepayments or repurchases of other indebtedness and amendments
to certain agreements, including the organizational documents and operating
agreement of the Company, the Indenture and the Notes; (vi) engaging in
transactions with affiliates and formation of subsidiaries; (vii) the making of
Investments (as defined in the Amended Credit Facility); and (viii) changes of
lines of business. There are also covenants relating to compliance with ERISA,
environmental and other laws, payment of taxes, maintenance of corporate
existence and rights, maintenance of insurance and financial reporting. Certain
of these covenants are more restrictive than those set forth in the Indenture.
In addition, the Amended Credit Facility requires the Company to maintain
compliance with certain specified financial covenants, including covenants
relating to minimum interest coverage, minimum fixed charge coverage and maximum
leverage. The Amended Credit Facility also prohibits prepayment or defeasance of
the Notes.
Events of Default
The Amended Credit Facility contains customary events of default,
including, without limitation, payment defaults, the occurrence of a Change of
Control (as defined in the Amended Credit Facility) of the Company or its
subsidiaries, the invalidity of guarantees or security documents under the
Amended Credit Facility, any Material Adverse Change (as defined in the Amended
Credit Facility), breach of any representation or warranty under any Loan
Document in the Amended Credit Facility and any cross-default to other
indebtedness of the Company and its subsidiaries. The occurrence of any such
event of default could result in acceleration of the Company's obligations under
the Amended Credit Facility and foreclosure on the collateral securing such
obligations, which could have a material adverse effect on holders of the Notes.
Mortgage Debt
The Company has three mortgages in the principal amount of approximately
$3.9 million, which are collateralized by its properties. The mortgages require
monthly payments of both principal and interest at varying rates ranging from
7.4% to 8.7%. Maturity dates on these mortgages expire on various dates from
June 30, 1997 through June 1, 2025. In connection with the Real Estate
Transaction, the Company's mortgage debt was reduced by $3.7 million.
Treasury Rate Lock
On October 27, 1997 the Company entered into a Treasury Rate Lock agreement
("T-Lock") with Bankers Trust Company (the "Counterparty"), an affiliate of BT
Alex. Brown Incorporated, to hedge against the impact of rising interest rates
on the 10-year Treasury Note (the "Reference Security"). The T-Lock has a
notional amount of $100.0 million. On December 15, 1997, ("Settle Date"), the
rate on the 10-year Reference Security (the "Reference Rate") is compared to the
predetermined Lock Rate (5.863%). If the Reference Rate is above the Lock Rate,
the Counterparty will make a payment to the Company equal to the present value
of the difference between the Reference Rate and the Lock Rate to the maturity
of the reference security. If the Reference Rate is below the Lock Rate, the
Company will make a payment to the Counterparty equal to the present value
difference. On December 5, 1997, the Company elected to terminate the T-Lock and
received payment of $425,000 from the Counterparty.
Interest Rate Swap Agreement
On September 25, 1996, in connection with the Credit Agreement (as defined
in the notes to the Consolidated Financial Statements included elsewhere in this
Prospectus), the Company entered into an interest rate swap agreement ("IRSA")
with The Bank of New York to hedge the impact of fluctuations in interest rates
on its floating rate credit facilities. At December 31, 1996, the IRSA had a
notional amount of $8.75 million, which was subsequently increased to $22.5
million. The estimated fair value of the IRSA at December 31, 1996 was
approximately $58,000, which was based on dealer quoted market prices, and
generally reflected the estimated amount that the Company would have to pay to
terminate the contract. Gains and losses pertaining to the IRSA are recorded
over its life as an adjustment to interest expense. The Company terminated the
IRSA on January 8, 1998, recording a loss of $33,360.
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DESCRIPTION OF NOTES
General
The following is a summary of the material terms and conditions of the New
Notes. The New Notes will be issued under the Indenture among the Issuers, the
Guarantors and the Trustee. This summary does not purport to be complete and
reference is made to the provisions of the Indenture, which has been filed as an
exhibit to the Registration Statement and a copy of the Indenture may be
obtained by contacting the Office of the Secretary and General Counsel at the
principal executive offices of the Company, 539 Temple Road, New Windsor, NY
12553, telephone (914) 567-5700.
The terms of the New Notes include those stated in the Indenture and those
made part of the Indenture by reference to the Trust Indenture Act of 1939, as
amended (the "Trust Indenture Act"), as in effect on the date of the Indenture.
The New Notes are subject to all such terms, and holders of the New Notes (the
"Holders") are referred to the Indenture and the Trust Indenture Act for a
statement of those terms. The statements under this caption relating to the
Notes and the Indenture are summaries and do not purport to be complete. Such
summaries may make use of certain terms defined in the Indenture and are
qualified in their entirety by express reference to the Indenture.
Except as otherwise indicated below, the following summary applied to both
the Old Notes and the New Notes. As used herein, the term "Notes" means the Old
Notes and the New Notes, unless otherwise indicated.
The form and term of the New Notes will be identical in all material
respects to the form and terms of the Old Notes, except that the New Notes will
be registered under the Securities Act, and therefore such New Notes will not be
subject to certain transfer restrictions, registration rights and related
Liquidated Damages provisions applicable to the Old Notes. See "The Exchange
Offer."
The Notes were issued pursuant to the Indenture among the Issuers, the
Guarantors and First Union National Bank, as trustee (the "Trustee"), in a
private transaction that was not subject to the registration requirements of the
Securities Act. Copies of the proposed form of Indenture and Registration Rights
Agreement will be made available to prospective investors as set forth under the
caption "--Additional Information." The definitions of certain terms used in the
following summary are set forth below under the caption "--Certain Definitions."
For purposes of this "Description of Notes," the term "Company" refers only to
Production Resource Group, L.L.C. and not to any of its Subsidiaries.
The Notes are general unsecured obligations of the Issuers and are
subordinated in right of payment to all existing and future Senior Debt of the
Issuers. As of December 31, 1997, after giving effect to the Transactions, the
Issuers would have had approximately $0.9 million of consolidated Senior Debt
outstanding. In addition, after consummation of the Initial Offering, the
Company had $100 million of total commitments under the Amended Credit Facility,
of which $14.6 million would have been available as of December 31, 1997, after
giving effect to the Transactions and the terms of the Amended Credit Facility.
The Company and its Subsidiaries would have had additional liabilities
(including trade payables) aggregating approximately $20.6 million. The
Indenture permits the incurrence of additional indebtedness, including
additional Senior Debt, subject to certain restrictions. See "--Certain
Covenants--Incurrence of Indebtedness and Issuance of Disqualified Stock."
Finance Corp. will have no outstanding indebtedness other than the Notes.
PRG Finance Corporation ("Finance Corp."), a wholly-owned subsidiary of the
Company incorporated in Delaware, was formed for the purpose of serving as a
co-issuer of the Notes in order to facilitate the Initial Offering. The Company
believes that certain prospective purchasers of the Notes may be restricted in
their ability to purchase debt securities of limited liability companies, such
as the Company, unless such debt securities are jointly issued by a corporation.
Finance Corp. will not have any substantial operations or assets and will not
have any revenues. As a
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result, prospective purchasers of the Notes should not expect Finance Corp. to
participate in servicing the interest and principal obligations on the Notes.
As of the date of the Indenture, all of the Company's Subsidiaries
(including Finance Corp.) were Restricted Subsidiaries. However, under certain
circumstances, the Company is allowed to designate current or future
Subsidiaries (other than Finance Corp.) as Unrestricted Subsidiaries.
Unrestricted Subsidiaries will not be subject to many of the restrictive
covenants set forth in the Indenture. The Issuers' payment obligations under the
Notes are jointly and severally guaranteed, on a senior subordinated basis, by
all of the Company's Restricted Subsidiaries (other than Finance Corp.). See
"--Subsidiary Guarantees."
Principal, Maturity and Interest
The Notes are limited in aggregate principal amount to $100 million and
mature on January 15, 2008. Interest on the Notes accrues at the rate of 11 1/2%
per annum and is payable semi-annually in arrears on January 15 and July 15 of
each year, commencing on July 15, 1998, to Holders of record on the immediately
preceding January 1 and July 1. Interest on the Notes accrues from the most
recent date to which interest has been paid or, if no interest has been paid,
from the date of original issuance. Interest is computed on the basis of a
360-day year comprised of twelve 30-day months.
Principal of and premium, interest and Liquidated Damages, if any, on the
Notes is payable at the office or agency of the Issuers maintained for such
purpose within the City and State of New York or, at the option of the Issuers,
payment of interest and Liquidated Damages, if any, may be made by check mailed
to the Holders of the Notes at their respective addresses set forth in the
register of Holders of Notes; provided that all payments of principal, premium,
interest and Liquidated Damages, if any, with respect to Notes the Holders of
which have given wire transfer instructions to the Company will be required to
be made by wire transfer of immediately available funds to the accounts
specified by the Holders thereof. Until otherwise designated by the Issuers, the
Issuers' office or agency in New York will be the office of the Trustee
maintained for such purpose. The Notes have been issued in denominations of
$1,000 and integral multiples thereof.
Subordination
The payment of principal of and premium, interest and Liquidated Damages,
if any, on the Notes is subordinated in right of payment, as set forth in the
Indenture, to the prior payment in full of all Senior Debt of the Issuers,
whether outstanding on the date of the Indenture or thereafter incurred.
Upon any distribution to creditors of either Issuer in a liquidation or
dissolution of such Issuer or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to such Issuer or its property, an
assignment for the benefit of creditors or any marshalling of either Issuer's
assets and liabilities, the holders of Senior Debt of such Issuer will be
entitled to receive payment in full of all Obligations due in respect of such
Senior Debt (including interest after the commencement of any such proceeding at
the rate specified in the applicable Senior Debt) before the Holders of Notes
will be entitled to receive any payment with respect to the Notes, and until all
Obligations with respect to Senior Debt are paid in full, any distribution to
which the Holders of Notes would be entitled shall be made to the holders of
Senior Debt (except that Holders of Notes may receive Permitted Junior
Securities and payments made from the trust described under the caption "--Legal
Defeasance and Covenant Defeasance").
The Issuers also may not make any payment upon or in respect of the Notes
(except in Permitted Junior Securities or from the trust described under the
caption "--Legal Defeasance and Covenant Defeasance") if (i) a default in the
payment of the principal of or premium, or interest on any Designated Senior
Debt occurs and is continuing beyond any applicable period of grace or (ii) any
other default occurs and is continuing with respect to any Designated Senior
Debt that permits holders of the Designated Senior Debt as to which such default
relates to accelerate its maturity and the Trustee receives a notice of such
default (a "Payment Blockage Notice") from the holders of such Designated Senior
Debt. Payments on the Notes may and shall be resumed (a) in the case of a
payment default, upon the date on which such default is cured or waived and (b)
in case of a nonpayment default, the earlier of the date on which such
nonpayment default is cured or waived or 179 days after the date on which the
applicable Payment Blockage Notice is received, unless the maturity of any
Designated Senior Debt has been
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accelerated. No new period of payment blockage may be commenced unless and until
360 days have elapsed since the effectiveness of the immediately prior Payment
Blockage Notice. No nonpayment default that existed or was continuing on the
date of delivery of any Payment Blockage Notice to the Trustee shall be, or be
made, the basis for a subsequent Payment Blockage Notice unless such nonpayment
default shall have been cured or waived for a period of not less than 90
consecutive days.
The Indenture requires that the Trustee or the Holders of the Notes
promptly notify holders of Senior Debt if payment of the Notes is accelerated
because of an Event of Default.
As a result of the subordination provisions described above, in the event
of a liquidation or insolvency, Holders of Notes may recover less ratably than
creditors of the Issuers who are holders of Senior Debt. As of December 31,
1997, after giving effect to the Transactions, the Issuers would have had
approximately $0.9 million of consolidated Senior Debt outstanding. The Issuers
are able to incur additional Senior Debt in the future, subject to certain
limitations. See "--Certain Covenants--Incurrence of Indebtedness and Issuance
of Disqualified Stock."
"Designated Senior Debt" means (i) any Indebtedness outstanding under the
Amended Credit Facility and (ii) any other Senior Debt or Guarantor Senior Debt
permitted under the Indenture the principal amount of which is $25.0 million or
more and that has been designated by the Company as "Designated Senior Debt."
"Guarantor Senior Debt" means with respect to any Guarantor (i) all
Indebtedness of such Guarantor outstanding under Credit Agreements and all
Hedging Obligations with respect thereto, (ii) any other Indebtedness of such
Guarantor permitted to be incurred under the terms of the Indenture, unless the
instrument under which such Indebtedness is incurred expressly provides that it
is subordinated in right of payment to the Subsidiary Guarantee of such
Guarantor and (iii) all Obligations of such Guarantor with respect to the
foregoing.
Notwithstanding anything to the contrary in the foregoing, Guarantor Senior Debt
will not include (a) any liability for federal, state, local or other taxes owed
or owing by such Guarantor, (b) any Indebtedness of such Guarantor to any of its
Subsidiaries or other Affiliates, (c) any trade payables or (d) any Indebtedness
that is incurred in violation of the Indenture.
"Permitted Junior Securities" means Equity Interests in the Company or debt
securities of the Company or the relevant Guarantor that are subordinated to all
Senior Debt (and any debt securities issued in exchange for Senior Debt) or
Guarantor Senior Debt (and any debt securities issued in exchange for Guarantor
Senior Debt), as applicable, to substantially the same extent as, or to a
greater extent than, the Notes are subordinated to Senior Debt or the Subsidiary
Guarantees are subordinated to Guarantor Senior Debt, as applicable, pursuant to
the Indenture.
"Senior Debt" of an Issuer means (i) all Indebtedness of such Issuer
outstanding under Credit Agreements and all Hedging Obligations with respect
thereto, (ii) any other Indebtedness of such Issuer permitted to be incurred
under the terms of the Indenture, unless the instrument under which such
Indebtedness is incurred expressly provides that it is subordinated in right of
payment to the Notes and (iii) all Obligations of such Issuer with respect to
the foregoing. Notwithstanding anything to the contrary in the foregoing, Senior
Debt of an Issuer does not include (a) any liability for federal, state, local
or other taxes owed or owing by such Issuer, (b) any Indebtedness of such Issuer
to any of its Subsidiaries or other Affiliates, (c) any trade payables or (d)
any Indebtedness that is incurred in violation of the Indenture.
Subsidiary Guarantees
The Issuers' payment obligations under the Notes are jointly and severally
guaranteed (the "Subsidiary Guarantees") by each of the Company's current and
future domestic Restricted Subsidiaries other than Finance Corp. (the
"Guarantors"). The Subsidiary Guarantee of each Guarantor is subordinated in
right of payment to all existing and future Guarantor Senior Debt of such
Guarantor to the same extent as the Notes are subordinated to Senior Debt of the
Issuers. See "--Subordination." As of December 31, 1997, after giving effect to
the Initial Offering and the application of net proceeds therefrom, the
Guarantors would have had no Guarantor Senior Debt outstanding. The Indenture
permits the Guarantors to incur additional indebtedness, including additional
Guarantor Senior Debt, subject to certain restrictions. See "--Certain
Covenants--Incurrence of Indebtedness and Issuance of
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Disqualified Stock." The obligations of each Guarantor under its Subsidiary
Guarantee is limited so as not to constitute a fraudulent conveyance under
applicable law. See "Risk Factors--Fraudulent Conveyance Matters."
The Indenture provides that no Guarantor may consolidate with or merge with
or into (whether or not such Guarantor is the surviving Person), another
corporation, Person or entity whether or not affiliated with such Guarantor
unless (i) subject to the provisions of the following paragraph, the Person
formed by or surviving any such consolidation or merger (if other than such
Guarantor) assumes all the obligations of such Guarantor pursuant to a
supplemental indenture in form and substance reasonably satisfactory to the
Trustee, under the Notes, the Indenture and the Registration Rights Agreement;
(ii) immediately after giving effect to such transaction, no Default or Event of
Default exists; and (iii) the Company would be permitted by virtue of the
Company's pro forma Fixed Charge Coverage Ratio, immediately after giving effect
to such transaction, to incur at least $1.00 of additional Indebtedness pursuant
to the Fixed Charge Coverage Ratio test set forth in the covenant described
below under the caption "--Certain Covenants--Incurrence of Indebtedness and
Issuance of Disqualified Stock;" provided that the merger of any Guarantor with
or into the Company or another Guarantor under circumstances where the Company
or such Guarantor, as applicable, is the surviving Person shall not be subject
to the foregoing provisions.
The Indenture provides that in the event of a sale or other disposition of
all of the assets of any Guarantor, by way of merger, consolidation or
otherwise, or a sale or other disposition of all of the capital stock of any
Guarantor, then such Guarantor (in the event of a sale or other disposition, by
way of such a merger, consolidation or otherwise, of all of the capital stock of
such Guarantor) or the corporation acquiring the property (in the event of a
sale or other disposition of all of the assets of such Guarantor) will be
released and relieved of any obligations under its Subsidiary Guarantee;
provided that the Net Proceeds of such sale or other disposition are applied in
accordance with the applicable provisions of the Indenture. See "--Repurchase at
the Option of Holders--Asset Sales."
Optional Redemption
The Notes are not redeemable at the Issuers' option prior to January 15,
2003. Thereafter, the Notes are subject to redemption at any time at the option
of the Issuers, in whole or in part, upon not less than 30 nor more than 60
days' notice, at the redemption prices (expressed as percentages of principal
amount) set forth below, plus accrued and unpaid interest and Liquidated
Damages, if any, thereon to the date fixed for redemption, if redeemed during
the twelve-month period beginning on January 15 of the years indicated below:
Year Percentage
---- -----------
2003........................................................ 105.750%
2004........................................................ 103.834%
2005........................................................ 101.917%
2006 and thereafter......................................... 100.000%
Notwithstanding the foregoing, prior to January 15, 2001, the Issuers may
redeem up to 35% of the aggregate principal amount of the Notes originally
issued at a redemption price of 110% of the principal amount thereof, plus
accrued and unpaid interest and Liquidated Damages, if any, thereon to the date
fixed for redemption, with the net cash proceeds of one or more public offerings
of Capital Stock of the Company (other than Disqualified Stock), provided that
(i) at least 65% of the aggregate principal amount of the Notes originally
issued remains outstanding immediately after the occurrence of such redemption
and (ii) each such redemption shall occur within 90 days after the date of the
closing of any such offering of Capital Stock of the Company.
In addition, at any time prior to January 15, 2003, the Issuers may, at
their option, redeem the Notes, in whole or in part, at a redemption price equal
to 100% of the principal amount thereof plus the applicable Make-Whole Premium.
Selection and Notice
If less than all of the Notes are to be redeemed at any time, selection of
Notes for redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which the
Notes are listed, or, if the Notes are not so listed, on a pro rata basis, by
lot or by such method as the Trustee
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shall deem fair and appropriate; provided that no Notes of $1,000 or less shall
be redeemed in part. Notices of redemption shall be mailed by first class mail
at least 30 but not more than 60 days before the date fixed for redemption to
each Holder of Notes to be redeemed at its registered address. Notices of
redemption may not be conditional. If any Note is to be redeemed in part only,
the notice of redemption that relates to such Note shall state the portion of
the principal amount thereof to be redeemed. A new Note in principal amount
equal to the unredeemed portion thereof will be issued in the name of the Holder
thereof upon cancellation of the original Note. Notes called for redemption
become due on the date fixed for redemption. On and after the date fixed for
redemption, interest ceases to accrue on Notes or portions of them called for
redemption.
Mandatory Redemption
Except as set forth below under the caption "--Repurchase at the Option of
Holders," the Issuers are not required to make mandatory redemption or sinking
fund payments with respect to the Notes.
Repurchase at the Option of Holders
Change of Control
Upon the occurrence of a Change of Control, the Issuers are obligated to
make an offer (a "Change of Control Offer") to each Holder of Notes to
repurchase all or any part (equal to $1,000 or an integral multiple thereof) of
such Holder's Notes at an offer price in cash equal to 101% of the principal
amount thereof, plus accrued and unpaid interest and Liquidated Damages, if any,
thereon to the date fixed for repurchase (the "Change of Control Payment").
Within ten business days following a Change of Control, the Issuers will mail a
notice to each Holder describing the transaction or transactions that constitute
the Change of Control and offering to repurchase Notes on the date specified in
such notice, which date shall be no earlier than 30 days and no later than 60
days from the date such notice is mailed (the "Change of Control Payment Date"),
pursuant to the procedures required by the Indenture and described in such
notice. The Issuers must comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of the Notes as a result of a Change of Control.
On the Change of Control Payment Date, the Issuers will, to the extent
lawful, (i) accept for payment all Notes or portions thereof properly tendered
pursuant to the Change of Control Offer, (ii) deposit with the Paying Agent an
amount equal to the Change of Control Payment in respect of all Notes or
portions thereof so tendered and (iii) deliver or cause to be delivered to the
Trustee the Notes so accepted together with an Officers' Certificate stating the
aggregate principal amount of Notes or portions thereof being purchased by the
Issuers. The Paying Agent will promptly mail to each Holder of Notes so tendered
the Change of Control Payment for such Notes, and the Trustee will promptly
authenticate and mail (or cause to be transferred by book entry) to each Holder
a new Note equal in principal amount to any unpurchased portion of the Notes
surrendered, if any; provided that each such new Note will be in a principal
amount of $1,000 or an integral multiple thereof. The Indenture provides that,
prior to complying with the provisions of this covenant, but in any event within
90 days following a Change of Control, the Issuers will either repay all
outstanding Senior Debt or obtain the requisite consents, if any, under all
agreements governing outstanding Senior Debt to permit the repurchase of Notes
required by this covenant. The Issuers will publicly announce the results of the
Change of Control Offer on or as soon as practicable after the Change of Control
Payment Date.
The Change of Control provisions described above are applicable whether or
not any other provisions of the Indenture are applicable. Except as described
above with respect to a Change of Control, the Indenture does not contain
provisions that permit the Holders of the Notes to require the Issuers to
repurchase or redeem the Notes in the event of a takeover, recapitalization or
similar transaction.
The Amended Credit Facility prohibits, and future Credit Agreements or
other agreements relating to Senior Debt to which the Issuers become a party may
prohibit, the Issuers from purchasing any Notes following a Change of Control
and provide that certain change of control events with respect to the Company
would constitute a default thereunder. In the event a Change of Control occurs
at a time when the Issuers are prohibited from purchasing Notes, the Issuers
could seek the consent of its lenders to the purchase of Notes or could attempt
to refinance the indebtedness that contain such prohibition. If the Issuers do
not obtain such a consent or repay such
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indebtedness, the Issuers will remain prohibited from purchasing Notes. The
Issuers' failure to purchase tendered Notes following a Change of Control would
constitute an Event of Default under the Indenture which would, in turn,
constitute as default under the Amended Credit Facility. In such circumstances,
the subordination provisions in the Indenture would likely restrict payments to
the Holders of Notes. See "--Subordination."
The Issuers are not required to make a Change of Control Offer following a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the Indenture applicable to a Change of Control Offer made by the Issuers and
purchases all Notes validly tendered and not withdrawn under such Change of
Control Offer.
Asset Sales
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, consummate an Asset Sale unless (i) the
Company or such Restricted Subsidiary, as the case may be, receives
consideration at the time of such Asset Sale at least equal to the fair market
value (evidenced by a resolution of the Board of Directors set forth in an
Officers' Certificate delivered to the Trustee) of the assets or Equity
Interests issued or sold or otherwise disposed of and (ii) at least 75% of the
consideration therefor received by the Company or such Restricted Subsidiary is
in the form of cash; provided that the amount of (a) any liabilities (as shown
on the Company's or such Restricted Subsidiary's most recent balance sheet) of
the Company or such Restricted Subsidiary (other than contingent liabilities and
liabilities that are by their terms subordinated to the Notes or any guarantee
thereof) that are assumed by the transferee of any such assets pursuant to a
customary novation agreement that releases the Company or such Restricted
Subsidiary from further liability and (b) any securities, notes or other
obligations received by the Company or such Restricted Subsidiary from such
transferee that are substantially concurrently converted by the Company or such
Restricted Subsidiary into cash (to the extent of the cash received) shall be
deemed to be cash for purposes of this provision.
Within 270 days of the receipt of any Net Proceeds from an Asset Sale, the
Company may apply such Net Proceeds, at its option, (i) to repay Senior Debt
(and to correspondingly reduce commitments with respect thereto in the case of
revolving borrowings) or (ii) to the acquisition of a controlling interest in a
Permitted Business, the making of a capital expenditure or the acquisition of
other long-term assets, in each case, used or useful in a Permitted Business.
Pending the final application of any such Net Proceeds, the Company may
temporarily reduce Senior Debt or otherwise invest such Net Proceeds in any
manner that is not prohibited by the Indenture. Any Net Proceeds from Asset
Sales that are not applied or invested as provided in the first sentence of this
paragraph will be deemed to constitute "Excess Proceeds." When the aggregate
amount of Excess Proceeds exceeds $5.0 million, the Issuers will be required to
make an offer to all Holders of Notes (an "Asset Sale Offer") to purchase the
maximum principal amount of Notes that may be purchased out of the Excess
Proceeds at an offer price in cash in an amount equal to 100% of the principal
amount thereof, plus accrued and unpaid interest and Liquidated Damages, if any,
thereon to the date fixed for purchase, in accordance with the procedures set
forth in the Indenture. To the extent that the aggregate amount of Notes
tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds, the
Company may use any remaining Excess Proceeds for any purpose not otherwise
prohibited by the Indenture. If the aggregate principal amount of Notes
surrendered by Holders thereof exceeds the amount of Excess Proceeds, the
Trustee shall select the Notes to be purchased as provided above under the
caption "Selection and Notice." Upon completion of an Asset Sale Offer, the
amount of Excess Proceeds shall be reset at zero.
Certain Covenants
Restricted Payments
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly: (i) declare or pay
any dividend or make any other payment or distribution on account of the
Company's or any of its Restricted Subsidiary's Equity Interests (including,
without limitation, any payment in connection with any merger or consolidation
involving the Company or any Restricted Subsidiary) or to any direct or indirect
holders of the Company's Equity Interests in their capacity as such (other than
dividends or distributions (a) payable in Equity Interests (other than
Disqualified Stock) of the Company or (b) to the Company or any Wholly Owned
Restricted Subsidiary of the Company); (ii) purchase, redeem or otherwise
acquire or retire for value (including, without limitation, in connection with
any merger or consolidation involving the Company) any Equity
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Interests of the Company or any direct or indirect parent of the Company (other
than any such Equity Interests owned by the Company or any Wholly Owned
Restricted Subsidiary of the Company); (iii) make any payment on or with respect
to, or purchase, redeem, defease or otherwise acquire or retire for value any
Indebtedness of the Company or any Restricted Subsidiary that is subordinated to
the Notes, except a payment of interest or principal at Stated Maturity; or (iv)
make any Restricted Investment (all such payments and other actions set forth in
clauses (i) through (iv) above being collectively referred to as "Restricted
Payments"), unless, at the time of and after giving effect to such Restricted
Payment:
(a) no Default or Event of Default shall have occurred and be continuing or
would occur as a consequence thereof; and
(b) the Company would, at the time of such Restricted Payment and after
giving pro forma effect thereto as if such Restricted Payment had been made at
the beginning of the applicable four-quarter period, have been permitted to
incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge
Coverage Ratio test set forth in the first paragraph of the covenant described
below under the caption "--Incurrence of Indebtedness and Issuance of
Disqualified Stock;" and
(c) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by the Company and its Restricted Subsidiaries
after the date of the Indenture (excluding Restricted Payments permitted by
clause (ii) through (v) of the next succeeding paragraph), is less than the sum
of (i) 50% of the Consolidated Net Income of the Company for the period (taken
as one accounting period) from the beginning of the first fiscal quarter
commencing after the date of the Indenture to the end of the Company's most
recently ended fiscal quarter for which internal financial statements are
available at the time of such Restricted Payment (or, if such Consolidated Net
Income for such period is a deficit, less 100% of such deficit), plus (ii) 100%
of the aggregate net cash proceeds received by the Company as a contribution to
its common equity capital or from the issue or sale since the date of the
Indenture of Equity Interests of the Company (other than Disqualified Stock) or
of Disqualified Stock or debt securities of the Company that have been converted
into such Equity Interests (other than Equity Interests (or Disqualified Stock
or convertible debt securities) sold to a Subsidiary of the Company and other
than Disqualified Stock or convertible debt securities that have been converted
into Disqualified Stock), plus (iii) 50% of any dividends received by the
Company or a Wholly Owned Restricted Subsidiary after the date of the Indenture
from an Unrestricted Subsidiary of the Company, to the extent that such
dividends were not otherwise included in Consolidated Net Income of the Company
for such period, plus (iv) to the extent that any Restricted Investment that was
made after the date of the Indenture is sold for cash or otherwise liquidated or
repaid for cash, the lesser of (A) the cash return of capital with respect to
such Restricted Investment (less the cost of disposition, if any) and (B) the
initial amount of such Restricted Investment, plus (v) $5.0 million.
The foregoing provisions do not prohibit (i) the payment of any dividend
within 60 days after the date of declaration thereof, if at the date of
declaration such payment would have complied with the provisions of the
Indenture; (ii) the redemption, repurchase, retirement, defeasance or other
acquisition of any Equity Interests of the Company or subordinated Indebtedness
of the Company or any Guarantor in exchange for, or out of the net cash proceeds
of the substantially concurrent sale (other than to a Subsidiary of the Company)
of, other Equity Interests of the Company (other than any Disqualified Stock);
provided that the amount of any such net cash proceeds that are utilized for any
such redemption, repurchase, retirement, defeasance or other acquisition shall
be excluded from clause (c)(ii) of the preceding paragraph; (iii) the
defeasance, redemption, repurchase or other acquisition of subordinated
Indebtedness with the net cash proceeds from an incurrence of Permitted
Refinancing Indebtedness; (iv) the payment of any dividend by a Restricted
Subsidiary of the Company to the holders of its Equity Interests on a pro rata
basis; (v) the repurchase, redemption or other acquisition or retirement for
value of any Equity Interests of the Company or any Restricted Subsidiary of the
Company held by any member of the Company's (or any of its Restricted
Subsidiaries") management or board of directors pursuant to any management
equity subscription agreement, stock option agreement or other similar agreement
or any successor arrangement entered into in connection with the reorganization
of the Company as a corporation (provided that such successor arrangement is on
terms substantially similar to the arrangement so replaced); provided that the
aggregate price paid for all such repurchased, redeemed, acquired or retired
Equity Interests shall not exceed $500,000 in any twelve-month period and no
Default or Event of Default shall have occurred and be continuing immediately
after such transaction; (vi) Investments in non-Wholly Owned Restricted
Subsidiaries of the Company in an aggregate amount at any time outstanding not
to exceed $5.0 million; (vii) cash distributions to members of the Company as
described under "Use
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of Proceeds" and the distribution of real estate in connection with the Real
Estate Transaction; (viii) so long as the Company is treated as a partnership
for United States federal income tax purposes, payments by the Company to
members of the Company to satisfy tax obligations to the extent such obligations
are then due and owing, and in accordance with the Tax Sharing Agreement as in
effect on the date of the Indenture; provided that such amounts do not exceed
the amounts that would otherwise be due and owing if the Company and its
Subsidiaries were an independent taxpayer; and (ix) at any time the Company has
$15.0 million of availability under the Amended Credit Facility, a one-time cash
distribution by the Company to its members not to exceed $10.0 million; provided
that the Company shall have delivered to the Trustee, at the time of such
distribution, an Officers' Certificate stating that, in management's reasonable
judgment, based on the Company's operations and cash flow projections the
Company will continue to have $15.0 million of availability under the Credit
Facility for at least the succeeding four quarters.
The amount of all Restricted Payments (other than cash) shall be the fair
market value on the date of the Restricted Payment of the asset(s) or securities
proposed to be transferred or issued by the Company or such Restricted
Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair
market value of any non-cash Restricted Payment shall be determined in good
faith by the Board of Directors whose resolution with respect thereto shall be
delivered to the Trustee (which shall certify that such valuation has been
approved by a majority of the Independent Directors). Not later than the date of
making any Restricted Payment, the Company shall deliver to the Trustee an
Officers' Certificate stating that such Restricted Payment is permitted and
setting forth the basis upon which the calculations required by the covenant
"Restricted Payments" were computed.
The Board of Directors may designate any Restricted Subsidiary (other than
Finance Corp.) to be an Unrestricted Subsidiary if such designation would not
cause a Default. For purposes of making such determination, all outstanding
Investments by the Company and its Restricted Subsidiaries (except to the extent
repaid in cash) in the Subsidiary so designated will be deemed to be Restricted
Payments at the time of such designation and will reduce the amount available
for Restricted Payments under the first paragraph of this covenant. All such
outstanding Investments will be deemed to constitute Investments in an amount
equal to the greatest of (i) the net book value of such Investments at the time
of such designation, (ii) the fair market value of such Investments at the time
of such designation and (iii) the original fair market value of such Investments
at the time they were made. Such designation will only be permitted if such
Restricted Payment would be permitted at such time and if such Restricted
Subsidiary otherwise meets the definition of an Unrestricted Subsidiary.
Any such designation by the Board of Directors shall be evidenced to the
Trustee by filing with the Trustee a certified copy of the Board Resolution
giving effect to such designation and an Officers' Certificate certifying that
such designation complied with the foregoing conditions. If, at any time, any
Unrestricted Subsidiary would fail to meet the definition of an Unrestricted
Subsidiary, it shall thereafter cease to be an Unrestricted Subsidiary for
purposes of the Indenture and any Indebtedness of such Subsidiary shall be
deemed to be incurred by a Restricted Subsidiary of the Company as of such date
(and, if such Indebtedness is not permitted to be incurred as of such date under
the covenant described under the caption "--Incurrence of Indebtedness and
Issuance of Disqualified Stock," the Issuers shall be in default of such
covenant). The Board of Directors of the Company may at any time designate any
Unrestricted Subsidiary to be a Restricted Subsidiary; provided that such
designation shall be deemed to be an incurrence of Indebtedness by a Restricted
Subsidiary of the Company of any outstanding Indebtedness of such Unrestricted
Subsidiary and such designation shall only be permitted if (i) such Indebtedness
is permitted under the covenant described under the caption "--Incurrence of
Indebtedness and Issuance of Disqualified Stock," calculated on a pro forma
basis as if such designation had occurred at the beginning of the four-quarter
reference period, and (ii) no Default or Event of Default would be in existence
immediately following such designation.
Incurrence of Indebtedness and Issuance of Disqualified Stock
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, directly or indirectly, create, incur, issue, assume,
guarantee or otherwise become directly or indirectly liable, contingently or
otherwise, with respect to (collectively, "incur") any Indebtedness (including
Acquired Debt) or issue any shares of Disqualified Stock; provided, however,
that, so long as no Default or Event of Default has occurred and is continuing,
the Company and any Guarantor may incur Indebtedness (including Acquired Debt)
or issue shares of Disqualified Stock if the Fixed Charge Coverage Ratio for the
Company's most recently ended four full fiscal quarters for which internal
financial statements are available immediately preceding the date on which such
additional Indebtedness is incurred or such Disqualified Stock is issued would
have been at least 2.0 to 1,
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determined on a pro forma basis (including a pro forma application of the net
proceeds therefrom), as if the additional Indebtedness had been incurred or the
Disqualified Stock had been issued at the beginning of such four-quarter period.
The provisions of the first paragraph of this covenant will not apply to
the incurrence of any of the following (collectively, "Permitted Debt"):
(i) the incurrence by the Company and the Guarantors of Indebtedness under
Credit Agreements in an aggregate amount not to exceed $75 million at any time
outstanding (with letters of credit being deemed to have a principal amount
equal to the maximum potential liability of the Company and the Guarantors
thereunder), less the aggregate amount of all Net Proceeds of Asset Sales
applied to repay any such Indebtedness pursuant to clause (i) of the second
paragraph of the covenant described above under the caption "--Repurchase at the
Option of Holders--Asset Sales;"
(ii) the incurrence by the Company and the Guarantors of Indebtedness
represented by the Notes and the Subsidiary Guarantees;
(iii) the incurrence by the Company and its Restricted Subsidiaries of the
Existing Indebtedness;
(iv) the incurrence of Indebtedness between or among the Company and any of
its Wholly Owned Restricted Subsidiaries; provided, however, that (a) if the
Company is the obligor on such Indebtedness, such Indebtedness is expressly
subordinated to the prior payment in full of all Obligations with respect to the
Notes and (b) any subsequent issuance or transfer of Equity Interests that
results in any such Indebtedness being held by a Person other than the Company
or a Wholly Owned Restricted Subsidiary, and any sale or other transfer of any
such Indebtedness to a Person that is not either the Company or a Wholly Owned
Restricted Subsidiary, shall be deemed, in each case, to constitute an
incurrence of such Indebtedness by the Company or such Restricted Subsidiary, as
the case may be;
(v) the incurrence by the Company or any of its Restricted Subsidiaries of
Hedging Obligations that are incurred for the purpose of fixing or hedging
interest rate risk with respect to any floating rate Indebtedness that is
permitted by the terms of this Indenture to be outstanding;
(vi) the guarantee by the Company or any of the Guarantors of Indebtedness
that was permitted to be incurred by another provision of this covenant;
(vii) the incurrence by the Company or any of its Restricted Subsidiaries
of additional Indebtedness in an aggregate principal amount (or accreted value,
as applicable) at any time outstanding under this clause (vii), including all
Permitted Refinancing Indebtedness incurred pursuant to clause (ix) below to
refund, refinance or replace any Indebtedness incurred pursuant to this clause
(vii), not to exceed $15 million;
(viii) the incurrence by the Company's Unrestricted Subsidiaries of
Non-Recourse Debt, provided, however, that if any such Indebtedness ceases to be
Non-Recourse Debt of an Unrestricted Subsidiary, such event shall be deemed to
constitute an incurrence of Indebtedness by a Restricted Subsidiary of the
Company that was not permitted by this clause (viii); and
(ix) the incurrence by the Company or any of its Restricted Subsidiaries of
Permitted Refinancing Indebtedness in exchange for, or the net proceeds of which
are used to refund, refinance or replace Indebtedness (other than intercompany
Indebtedness) that was permitted by the Indenture to be incurred by the first
paragraph of this covenant, or by clauses (ii), (iii), (v), (vi) and (vii) of
this covenant.
For purposes of determining compliance with this covenant, in the event
that an item of Indebtedness meets the criteria of more than one of the
categories of Permitted Debt described in clauses (i) through (ix) above or is
entitled to be incurred pursuant to the first paragraph of this covenant, the
Company shall, in its sole discretion, classify such item of Indebtedness in any
manner that complies with this covenant and such item of Indebtedness will be
treated as having been incurred pursuant to only one of such clauses or pursuant
to the first paragraph hereof.
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Accrual of interest, the accretion of accreted value and the payment of interest
in the form of additional Indebtedness will not be deemed to be an incurrence of
Indebtedness for purposes of this covenant.
Limitation on Other Senior Subordinated Debt
The Indenture provides that (i) the Company will not directly or indirectly
incur any Indebtedness that is subordinate or junior in right of payment to any
Senior Debt and senior in any respect in right of payment to the Notes and (ii)
no Guarantor will incur any Indebtedness that is subordinate or junior in right
of payment to its Guarantor Senior Debt and senior in any respect in right of
payment to such Guarantor's Subsidiary Guarantee.
Liens
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, create, incur, assume
or suffer to exist any Lien securing Indebtedness or trade payables on any asset
now owned or hereafter acquired, or any income or profits therefrom or assign or
convey any right to receive income therefrom, except Permitted Liens.
Sale and Leaseback Transactions
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, enter into any sale and leaseback
transaction; provided that the Company and the Guarantors may enter into a sale
and leaseback transaction if (i) the Company or such Guarantor could have (a)
incurred Indebtedness in an amount equal to the Attributable Debt relating to
such sale and leaseback transaction pursuant to the Fixed Charge Coverage Ratio
test set forth in the first paragraph of the covenant described above under the
caption "--Incurrence of Indebtedness and Issuance of Disqualified Stock" and
(b) incurred a Lien to secure such Indebtedness pursuant to the covenant
described above under the caption "--Liens," (ii) the gross cash proceeds of
such sale and leaseback transaction are at least equal to the fair market value
(as determined in good faith by the Board of Directors and set forth in an
Officers' Certificate delivered to the Trustee, which shall certify that such
valuation has been approved by a majority of the Independent Directors) of the
property that is the subject of such sale and leaseback transaction and (iii)
the transfer of assets in such sale and leaseback transaction is permitted by,
and the proceeds of such transaction are applied in compliance with, the
covenant described above under the caption "--Repurchase at the Option of
Holders--Asset Sales." The foregoing provisions did not prohibit the sale and
leaseback of real estate in connection with the Real Estate Transaction.
Dividend and Other Payment Restrictions Affecting Subsidiaries
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, create or otherwise
cause or suffer to exist or become effective any encumbrance or restriction on
the ability of any Restricted Subsidiary to (i)(a) pay dividends or make any
other distributions to the Company or any of its Restricted Subsidiaries (1) on
its Capital Stock or (2) with respect to any other interest or participation in,
or measured by, its profits, or (b) pay any indebtedness owed to the Company or
any of its Restricted Subsidiaries, (ii) make loans or advances to the Company
or any of its Restricted Subsidiaries or (iii) transfer any of its properties or
assets to the Company or any of its Restricted Subsidiaries, except for such
encumbrances or restrictions existing under or by reason of (a) Existing
Indebtedness as in effect on the date of the Indenture, (b) the Amended Credit
Facility as in effect as of the date of the Indenture, and any amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacements or refinancings thereof, provided that such amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacement or refinancings are no more restrictive with respect to such
dividend and other payment restrictions than those contained in the Amended
Credit Facility as in effect on the date of the Indenture, (c) the Indenture,
the Notes and the Subsidiary Guarantees, (d) applicable law, (e) any instrument
governing Indebtedness or Capital Stock of a Person acquired by the Company or
any of its Restricted Subsidiaries as in effect at the time of such acquisition
(except to the extent such Indebtedness was incurred in connection with or in
contemplation of such acquisition), which encumbrance or restriction is not
applicable to any Person, or the properties or assets of any Person, other than
the Person, or the property or assets of the Person, so acquired, provided that,
in the case of Indebtedness, such Indebtedness was permitted by the terms of the
Indenture to be incurred, (f) by reason of customary non-assignment provisions
in leases entered into in the ordinary course of business and consistent with
past practices, (g) purchase money obligations for property acquired
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in the ordinary course of business that impose restrictions of the nature
described in clause (iii) above on the property so acquired, or (h) Permitted
Refinancing Indebtedness, provided that the restrictions contained in the
agreements governing such Permitted Refinancing Indebtedness are no more
restrictive than those contained in the agreements governing the Indebtedness
being refinanced.
Merger, Consolidation or Sale of Assets
The Indenture provides that neither the Company nor Finance Corp. may
consolidate or merge with or into (whether or not the Company or Finance Corp.,
as the case may be, is the surviving corporation), or sell, assign, transfer,
lease, convey or otherwise dispose of all or substantially all of its properties
or assets in one or more related transactions, to another corporation, Person or
entity unless (i) the Company or Finance Corp., as the case may be, is the
surviving corporation or the entity or the Person formed by or surviving any
such consolidation or merger (if other than the Company or Finance Corp.) or to
which such sale, assignment, transfer, lease, conveyance or other disposition
shall have been made is a corporation organized or existing under the laws of
the United States, any state thereof or the District of Columbia; (ii) the
entity or Person formed by or surviving any such consolidation or merger (if
other than the Company or Finance Corp.) or the entity or Person to which such
sale, assignment, transfer, lease, conveyance or other disposition shall have
been made assumes all the obligations of the Company or Finance Corp., as the
case may be, under the Notes and the Indenture pursuant to a supplemental
indenture in a form reasonably satisfactory to the Trustee; (iii) immediately
after such transaction no Default or Event of Default exists; and (iv) except in
the case of a merger of the Company with or into a Wholly Owned Restricted
Subsidiary of the Company (including the merger of Finance Corp. with or into
the Company at any time when the Company is a corporation), the Company or the
entity or Person formed by or surviving any such consolidation or merger (if
other than the Company), or to which such sale, assignment, transfer, lease,
conveyance or other disposition shall have been made (a) will have Consolidated
Net Worth immediately after the transaction equal to or greater than the
Consolidated Net Worth of the Company immediately preceding the transaction and
(b) will, at the time of such transaction and after giving pro forma effect
thereto as if such transaction had occurred at the beginning of the applicable
four-quarter period, be permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the
first paragraph of the covenant described above under the caption "--Incurrence
of Indebtedness and Issuance of Disqualified Stock."
Notwithstanding the foregoing, the Indenture permits the Company to
reorganize as a corporation in accordance with the procedures established in the
Indenture provided that such reorganization is not materially adverse to holders
of Notes (it being recognized that such reorganization shall not be considered
materially adverse to holders of Notes solely because (i) of the accrual of
deferred tax liabilities resulting from such reorganization or (ii) the
successor or surviving corporation (a) is subject to income taxation as an
entity or (b) is considered to be an "includible corporation" of an affiliated
group of corporations within the meaning of Section 1504(a)(1) of the Code or
any similar state or local law) and certain other conditions are satisfied.
Transactions with Affiliates
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, make any payment to, or sell, lease, transfer
or otherwise dispose of any of its properties or assets to, or purchase any
property or assets from, or enter into or make or amend any transaction,
contract, agreement, understanding, loan, advance or guarantee with, or for the
benefit of, any Affiliate (each of the foregoing, an "Affiliate Transaction"),
unless (i) such Affiliate Transaction is on terms that are no less favorable to
the Company or such Restricted Subsidiary than those that would have been
obtained in a comparable transaction by the Company or such Restricted
Subsidiary with an unrelated Person and (ii) the Company delivers to the Trustee
(a) with respect to any Affiliate Transaction or series of related Affiliate
Transactions involving aggregate consideration in excess of $1.0 million, a
resolution of the Board of Directors set forth in an Officers' Certificate
certifying that such Affiliate Transaction complies with clause (i) above and
that such Affiliate Transaction has been approved by a majority of the
disinterested members of the Board of Directors and a majority of the
Independent Directors and (b) with respect to any Affiliate Transaction or
series of related Affiliate Transactions involving aggregate consideration in
excess of $7.5 million, an opinion as to the fairness to Company of such
Affiliate Transaction from a financial point of view issued by an accounting,
appraisal or investment banking firm of national standing. The foregoing
provisions will not prohibit (i) any employment agreement entered into by the
Company or any of its Restricted Subsidiaries in the ordinary course of business
and consistent with the past practice of the Company or such Restricted
Subsidiary, (ii)
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transactions between or among the Company and/or its Restricted Subsidiaries
and/or Finance Corp.; and (iii) any Restricted Payment that is permitted by the
provisions of the Indenture described above under the caption "--Restricted
Payments."
Independent Directors
From and after the earlier of 30 days after the consummation of the
Exchange Offer or 180 days after the Closing Date, so long as any of the Notes
are outstanding, the Company shall have at least two-thirds of its Board of
Directors who are neither an officer nor an employee of the Company or any of
its Affiliates (the "Independent Directors"). Any transaction requiring the
approval of the majority of the Independent Directors shall be prohibited at any
time that at least two-thirds of the Company's Board of Directors are not
Independent Directors.
Additional Subsidiary Guarantees
The Indenture provides that if the Company or any of its Restricted
Subsidiaries shall acquire or create another Restricted Subsidiary after the
date of the Indenture, or any Unrestricted Subsidiary shall cease to be an
Unrestricted Subsidiary, then such Subsidiary shall execute a Subsidiary
Guarantee of the Notes and deliver an opinion of counsel, in accordance with the
terms of the Indenture.
Payments for Consent
The Indenture provides that neither the Company, Finance Corp. nor any of
the Company's Restricted Subsidiaries will, directly or indirectly, pay or cause
to be paid any consideration, whether by way of interest, fee or otherwise, to
any Holder of any Notes for or as an inducement to any consent, waiver or
amendment of any of the terms or provisions of the Indenture or the Notes unless
such consideration is offered to be paid or is paid to all Holders of the Notes
that consent, waive or agree to amend in the time frame set forth in the
solicitation documents relating to such consent, waiver or agreement.
Business Activities
The Company will not, and will not permit any Restricted Subsidiary to,
engage in any business other than Permitted Businesses.
Reports
The Indenture provides that upon the consummation of the Exchange Offer or
the effectiveness of the Shelf Registration Statement, as the case may be,
whether or not required by the rules and regulations of the Commission, so long
as any Notes are outstanding, the Company will furnish to the Holders of Notes
(i) all quarterly and annual financial information that would be required to be
contained in a filing with the Commission on Forms 10-Q and 10-K if the Company
were required to file such Forms, including a "Management's Discussion and
Analysis of Financial Condition and Results of Operations" that describes the
financial condition and results of operations of the Company and its
consolidated Subsidiaries (showing in reasonable detail, either on the face of
the financial statements or in the footnotes thereto and in Management's
Discussion and Analysis of Financial Condition and Results of Operations, the
financial condition and results of operations of the Company and its Restricted
Subsidiaries separate from the financial information and results of operations
of the Unrestricted Subsidiaries of the Company) and, with respect to the annual
information only, a report thereon by the Company's certified independent
accountants and (ii) all current reports that would be required to be filed with
the Commission on Form 8-K if the Company were required to file such reports. In
addition, whether or not required by the rules and regulations of the
Commission, the Company will file a copy of all such information and reports
with the Commission for public availability (unless the Commission will not
accept such a filing) and make such information available to securities analysts
and prospective investors upon request. In addition, the Issuers will agree
that, for so long as any Notes remain outstanding, they will furnish to the
Holders and to securities analysts and prospective investors, upon their
request, the information required to be delivered pursuant to Rule 144A(d)(4)
under the Act.
Activities of Finance Corp.
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The Indenture provides that Finance Corp. may not hold any material assets,
become liable for any material obligations or engage in any significant business
activities; provided, however, that Finance Corp. may be a co-obligor or
guarantor with respect to Indebtedness of which the Company is an obligor.
Notwithstanding the foregoing, Finance Corp. shall at all times prior to the
reorganization of the Company as a corporation remain a Wholly Owned Restricted
Subsidiary of the Company.
Events of Default and Remedies
The Indenture provides that each of the following constitutes an Event of
Default: (i) default for 30 days in the payment when due of interest on, or
Liquidated Damages, if any, with respect to, the Notes (whether or not
prohibited by the subordination provisions of the Indenture), (ii) default in
payment when due of the principal of or premium, if any, on the Notes (whether
or not prohibited by the subordination provisions of the Indenture); (iii)
failure by the Company or any Restricted Subsidiary to comply with the
provisions described under the captions "--Repurchase at the Option of
Holders--Change of Control," "--Repurchase at the Option of Holders--Asset
Sales," "--Certain Covenants--Restricted Payments," "--Certain
Covenants--Incurrence of Indebtedness and Issuance of Disqualified Stock" or
"--Certain Covenants--Merger, Consolidation or Sale of Assets;" (iv) failure by
the Company or any Restricted Subsidiary for 30 days after written notice by the
Trustee or the Holders of at least 25% in principal amount of the then
outstanding Notes to comply with any of its other agreements in the Indenture or
the Notes; (v) default under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Company or any of its Restricted
Subsidiaries (or the payment of which is guaranteed by the Company or any of its
Restricted Subsidiaries), whether such Indebtedness or guarantee now exists or
is created after the date of the Indenture, which default (a) is caused by a
failure to pay principal of or premium, if any, or interest on such Indebtedness
prior to the expiration of the grace period provided in such Indebtedness on the
date of such default (a "Payment Default") or (b) results in the acceleration of
such Indebtedness prior to its express maturity and, in each case, the principal
amount of any such Indebtedness, together with the principal amount of any other
such Indebtedness under which there has been a Payment Default or the maturity
of which has been so accelerated, aggregates $5.0 million or more; (vi) failure
by the Company or any of its Restricted Subsidiaries to pay final judgments
aggregating in excess of $5.0 million, which judgments are not paid, discharged
or stayed for a period of 60 days; (vii) except as permitted by the Indenture,
any Subsidiary Guarantee shall be held in any judicial proceeding to be
unenforceable or invalid or shall cease for any reason to be in full force and
effect or any Guarantor, or any Person acing on behalf of any Guarantor, shall
deny or disaffirm its obligations under its Subsidiary Guarantee; and (viii)
certain events of bankruptcy or insolvency with respect to the Issuers or any of
the Company's Restricted Subsidiaries that constitutes a Significant Subsidiary
or any group of Restricted Subsidiaries of the Company that, taken together,
would constitute a Significant Subsidiary.
If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the then outstanding Notes may
declare all the Notes to be due and payable immediately. Notwithstanding the
foregoing, in the case of an Event of Default arising from certain events of
bankruptcy or insolvency, with respect to the Issuers, any Restricted Subsidiary
of the Company that constitutes a Significant Subsidiary or any group of
Restricted Subsidiaries of the Company that, taken together, would constitute a
Significant Subsidiary, all outstanding Notes will become due and payable
without further action or notice. Holders of the Notes may not enforce the
Indenture or the Notes except as provided in the Indenture. Subject to certain
limitations, Holders of a majority in principal amount of the then outstanding
Notes may direct the Trustee in its exercise of any trust or power. The Trustee
may withhold from Holders of the Notes notice of any continuing Default or Event
of Default (except a Default or Event of Default relating to the payment of
principal or interest) if it determines that withholding notice is in their
interest.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Issuers with
the intention of avoiding payment of the premium that the Issuers would have had
to pay if the Issuers then had elected to redeem the Notes pursuant to the
optional redemption provisions of the Indenture, an equivalent premium shall
also become and be immediately due and payable to the extent permitted by law
upon the acceleration of the Notes. If an Event of Default occurs prior to
January 15, 2003 by reason of any willful action (or inaction) taken (or not
taken) by or on behalf of the Issuers with the intention of avoiding the
prohibition on redemption of the Notes prior to such date, then the premium
specified in the Indenture shall also become immediately due and payable to the
extent permitted by law upon the acceleration of the Notes.
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The Holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may on behalf of the Holders of all of the
Notes waive any existing Default or Event of Default and its consequences under
the Indenture except a continuing Default or Event of Default in the payment of
interest on, or the principal of, the Notes.
The Issuers are required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Issuers are required upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
No Personal Liability of Directors, Advisors, Managers, Officers, Employees,
Incorporators, Members and Stockholders
No director, advisor, manager, officer, employee, incorporator, member or
stockholder of either Issuer or any Guarantor, as such, shall have any liability
for any obligations of the Issuers or any Guarantor under the Notes, the
Subsidiary Guarantees, the Indenture or for any claim based on, in respect of,
or by reason of, such obligations or their creation. Each Holder of Notes by
accepting a Note waives and releases all such liability. The waiver and release
are part of the consideration for issuance of the Notes. Such waiver may not be
effective to waive liabilities under the federal securities laws and it is the
view of the Commission that such a waiver is against public policy.
Legal Defeasance and Covenant Defeasance
The Issuers may, at their option and at any time, elect to have all of
their obligations discharged with respect to the outstanding Notes and to have
each Guarantor's obligation discharged with respect to its Subsidiary Guarantee
("Legal Defeasance") except for (i) the rights of Holders of outstanding Notes
to receive payments in respect of the principal of and premium, interest and
Liquidated Damages, if any, on the Notes when such payments are due from the
trust referred to below, (ii) the Issuers' obligations with respect to the Notes
concerning issuing temporary Notes, registration of Notes, mutilated, destroyed,
lost or stolen Notes and the maintenance of an office or agency for payment and
money for security payments held in trust, (iii) the rights, powers, trusts,
duties and immunities of the Trustee, and the Issuers' obligations in connection
therewith and (iv) the Legal Defeasance provisions of the Indenture. In
addition, the Issuers may, at their option and at any time, elect to have the
obligations of the Issuers and each Guarantor released with respect to certain
covenants that are described in the Indenture ("Covenant Defeasance") and
thereafter any omission to comply with such obligations shall not constitute a
Default or Event of Default with respect to the Notes. In the event Covenant
Defeasance occurs, certain events (not including non-payment, bankruptcy,
receivership, rehabilitation and insolvency events) described under the caption
"Events of Default" will no longer constitute an Event of Default with respect
to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
the Issuers must irrevocably deposit with the Trustee, in trust, for the benefit
of the Holders of the Notes, cash in U.S. dollars, non-callable Government
Securities, or a combination thereof, in such amounts as will be sufficient, in
the opinion of a nationally recognized firm of independent public accountants,
to pay the principal of and premium, interest and Liquidated Damages, if any, on
the outstanding Notes on the stated maturity or on the applicable date fixed for
redemption, as the case may be, and the Issuers must specify whether the Notes
are being defeased to maturity or to a particular date fixed for redemption;
(ii) in the case of Legal Defeasance, the Issuers shall have delivered to the
Trustee an opinion of counsel in the United States reasonably acceptable to the
Trustee confirming that (a) the Issuers have received from, or there has been
published by, the Internal Revenue Service a ruling or (b) since the date of the
Indenture, there has been a change in the applicable federal income tax law, in
either case to the effect that, and based thereon, such opinion of counsel shall
confirm that, the Holders of the outstanding Notes will not recognize income,
gain or loss for federal income tax purposes as a result of such Legal
Defeasance and will be subject to federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such Legal
Defeasance had not occurred; (iii) in the case of Covenant Defeasance, the
Issuers shall have delivered to the Trustee an opinion of counsel in the United
States reasonably acceptable to the Trustee confirming that the Holders of the
outstanding Notes will not recognize income, gain or loss for federal income tax
purposes as a result of such Covenant Defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such Covenant Defeasance had not occurred; (iv) no
Default or Event of Default shall have occurred and be continuing on the date of
such deposit (other than a Default or Event of Default resulting from the
borrowing of funds to be applied to such deposit) or insofar as Events of
Default from
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bankruptcy or insolvency events are concerned, at any time in the period ending
on the 91st day after the date of deposit; (v) such Legal Defeasance or Covenant
Defeasance will not result in a breach or violation of, or constitute a default
under any material agreement or instrument (other than the Indenture) to which
the Company or any of its Subsidiaries is a party or by which the Company or any
of its Subsidiaries is bound; (vi) the Issuers shall have delivered to the
Trustee an opinion of counsel to the effect that after the 91st day following
the deposit, the trust funds will not be subject to the effect of any applicable
bankruptcy, insolvency, reorganization or similar laws affecting creditors'
rights generally; (vii) the Issuers shall have delivered to the Trustee an
Officers' Certificate stating that the deposit was not made by the Issuers with
the intent of preferring the Holders of Notes over the other creditors of the
Issuers with the intent of defeating, hindering, delaying or defrauding
creditors of the Issuers or others; and (viii) the Issuers shall have delivered
to the Trustee an Officers' Certificate and an opinion of counsel, each stating
that all conditions precedent provided for relating to the Legal Defeasance or
the Covenant Defeasance have been complied with.
Transfer and Exchange
A Holder may transfer or exchange Notes in accordance with the Indenture.
The Registrar and the Trustee may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and the Issuers may
require a Holder to pay any taxes and fees required by law or permitted by the
Indenture. The Issuers are not required to transfer or exchange any Note
selected for redemption. Also, the Issuers are not required to transfer or
exchange any Note for a period of 15 days before a selection of Notes to be
redeemed. The registered Holder of a Note will be treated as the owner of it for
all purposes.
Amendment, Supplement and Waiver
Except as provided in the next two succeeding paragraphs, the Indenture,
the Notes and the Subsidiary Guarantees may be amended or supplemented with the
consent of the Holders of at least a majority in principal amount of the Notes
then outstanding (including, without limitation, consents obtained in connection
with a purchase of, or tender offer or exchange offer for, Notes), and any
existing default or compliance with any provision of the Indenture, the Notes or
the Subsidiary Guarantees may be waived with the consent of the Holders of a
majority in principal amount of the then outstanding Notes (including consents
obtained in connection with a tender offer or exchange offer for Notes).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Notes held by a non-consenting Holder): (i) reduce the
principal amount of Notes whose Holders must consent to an amendment, supplement
or waiver, (ii) reduce the principal of or change the fixed maturity of any Note
or alter the provisions with respect to the redemption of the Notes (other than
provisions relating to the covenants described above under the caption
"--Repurchase at the Option of Holders"), (iii) reduce the rate of or change the
time for payment of interest on any Note, (iv) waive a Default or Event of
Default in the payment of principal of or premium, interest or Liquidated
Damages, if any, on the Notes (except a rescission of acceleration of the Notes
by the Holders of at least a majority in aggregate principal amount of the Notes
and a waiver of the payment default that resulted from such acceleration), (v)
make any Note payable in money other than that stated in the Notes, (vi) make
any change in the provisions of the Indenture relating to waivers of past
Defaults or the rights of Holders of Notes to receive payments of principal of
or premium, interest or Liquidated Damages, if any, on the Notes, (vii) waive a
redemption payment with respect to any Note (other than a payment required by
one of the covenants described above under the caption "--Repurchase at the
Option of Holders"), (viii) release any Guarantor from its Subsidiary Guarantee
or (ix) make any change in the foregoing amendment and waiver provisions. In
addition, any amendment to the provisions of Article 10 of the Indenture (which
relate to subordination) will require the consent of the Holders of at least 75%
in aggregate principal amount of the Notes then outstanding if such amendment
would adversely affect the rights of Holders of Notes, and the written consent
of holders of Designated Senior Debt.
Notwithstanding the foregoing, without the consent of any Holder of Notes,
the Issuers, a Guarantor (with respect to a Subsidiary Guarantee or the
Indenture to which it is a party) and the Trustee may amend or supplement the
Indenture, the Notes or any Subsidiary Guarantee to cure any ambiguity, defect
or inconsistency, to provide for uncertificated Notes in addition to or in place
of certificated Notes, to provide for the assumption of the Company's, Finance
Corp.'s or any Guarantor's obligations to Holders of Notes in the case of a
merger or consolidation, to make any change that would provide any additional
rights or benefits to the Holders of Notes or that does not adversely
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affect the legal rights under the Indenture of any such Holder or to comply with
requirements of the Commission in order to effect or maintain the qualification
of the Indenture under the Trust Indenture Act.
Concerning the Trustee
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Issuers, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest it must eliminate
such conflict within 90 days, apply to the Commission for permission to continue
or resign.
The Holders of a majority in principal amount of the then outstanding Notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
shall occur (which shall not be cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent person in the
conduct of his or her own affairs. Subject to such provisions, the Trustee will
be under no obligation to exercise any of its rights or powers under the
Indenture at the request of any Holder of Notes, unless such Holder shall have
offered to the Trustee security and indemnity satisfactory to it against any
loss, liability or expense.
Additional Information
Anyone who receives this Prospectus may obtain a copy of the Indenture and
Registration Rights Agreement without charge by writing to Production Resource
Group, L.L.C., 539 Temple Hill Road, New Windsor, New York 12553, Attention:
Chief Financial Officer.
Book-Entry, Delivery and Form
The Notes are being offered and sold (a) to "qualified institutional
buyers" (as defined in Rule 144A under the Securities Act) in reliance on the
exemption from the registration requirements of the Securities Act provided by
Rule 144A ("Rule 144A Notes") and (b) outside the United States in reliance on
Regulation S under the Securities Act ("Regulation S Notes"). Except as set
forth below, Notes will be issued in registered, global form without interest
coupons in minimum denominations of $1,000 and integral multiples of $1,000 in
excess thereof. The Old Notes were issued at the closing of the Initial Offering
only against payment in immediately available funds.
Rule 144A Notes initially will be represented by one or more Notes in
registered, global form without interest coupons (collectively, the "Rule 144A
Global Notes"). The Rule 144A Global Notes will be deposited upon issuance with
the Trustee as custodian for The Depository Trust Company ("DTC"), in New York,
New York, and registered in the name of DTC or its nominee, in each case for
credit to an account of a direct or indirect participant in DTC as described
below.
Regulation S Notes initially will be represented by one or more temporary
Notes in registered, global form without interest coupons (collectively, the
Regulation S Temporary Global Notes"). The Regulation S Temporary Global Notes
will be deposited on behalf of the subscribers thereof with a custodian for DTC.
The Regulation S Temporary Global Notes will be registered in the name of a
nominee of DTC for credit to the subscribers' respective accounts at the
Euroclear System ("Euroclear") and Cedel Bank, S.A. ("Cedel Bank"). Beneficial
interests in the Regulation S Temporary Global Notes may be held only through
Euroclear or Cedel Bank.
After the occurrence of (i) the expiration of a 40-day restricted period,
as defined under Regulation S (the "Restricted Period"), or (ii) the exchange of
a beneficial interest in the Regulation S Global Notes for a beneficial interest
in a global note representing Exchange Notes upon consummation of the Exchange
Offer and upon delivery of certification that the beneficial owners thereof are
not U.S. persons (as defined in Rule 902(o) under the Securities Act) or that
such beneficial owners purchased such Notes in a transaction that did not
require registration under the Securities Act and are in the process of
obtaining a beneficial interest in the Rule 144A Global Note in exchange for
their beneficial interest in the Regulation S Temporary Global Note, a
beneficial interest in the Regulation S Temporary Global Note may be exchanged
for an interest in one or more permanent Notes in
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registered, global form without interest coupons (collectively, the "Regulation
S Permanent Global Notes" and, together with the Regulation S Temporary Global
Notes, the "Regulation S Global Note") (the Regulation S Global Note and the
144A Global Note collectively, the "Global Notes") which is expected to be
deposited with the Trustee as custodian for, and registered in the name of, a
nominee of DTC. Investors may hold beneficial interests in the Regulation S
Permanent Global Note through organizations other than Euroclear and Cedel Bank
that are Participants in DTC's system. Euroclear and Cedel Bank will hold
interests in the Regulation S Global Note on behalf of their Participants
through customers' securities accounts in their respective names on the books of
their respective depositaries, which are Morgan Guaranty Trust Company of New
York, Brussels office, as operator of Euroclear, and Citibank, N.A., as operator
of Cedel Bank. In turn, each of Euroclear and Cedel Bank will hold such
interests in the Regulation S Global Note in customers' securities accounts in
its name on the books of DTC.
The Notes that are issued as described below under the caption
"--Certificated Securities" will be issued in the form of registered definitive
certificates (the "Certificated Securities"). Such Certificated Securities may,
unless the Global Notes have previously been exchanged for Certificated
Securities, be exchanged for an interest in a Global Note representing the
principal amount of Notes being transferred.
DTC is a limited-purpose trust company that was created to hold securities
for its participating organizations (collectively, the "Participants" or the
"Depositary's Participants") and to facilitate the clearance and settlement of
transactions in such securities between Participants through electronic
book-entry changes in accounts of its Participants. The Depositary's
Participants include securities brokers and dealers (including the Initial
Purchasers), banks and trust companies, clearing corporations and certain other
organizations. Access to the DTC's system is also available to other entities
such as banks, brokers, dealers and trust companies (collectively, the "Indirect
Participants" or the "Depositary's Indirect Participants") that clear through or
maintain a custodial relationship with a Participant, either directly or
indirectly. Persons who are not Participants may beneficially own securities
held by or on behalf of DTC only thorough the Depositary's Participants or the
Depositary's Indirect Participants.
The Issuers expect that, pursuant to procedures established by DTC, (i)
upon deposit of the Global Notes, DTC will credit the accounts of Participants
designated by the Initial Purchasers with portions of the principal amount of
the Global Notes and (ii) ownership of the Notes evidenced by the Global Notes
will be shown on, and the transfer of ownership thereof will be effected only
through, records maintained by DTC (with respect to the interests of the
Depositary's Participants), the Depositary's Participants and the Depositary's
Indirect Participants. Prospective purchasers are advised that the laws of some
states require that certain persons take physical delivery in definitive form of
securities that they own. Consequently, the ability to transfer Notes evidenced
by the Global Notes will be limited to such extent.
Beneficial interests in one Global Note may be transferred to a person who
takes delivery in the form of a beneficial interest in another Global Note only
upon receipt by the Trustee of a written certification (in the form provided in
the Indenture) to the effect that such transfer is being made in accordance with
the Indenture and with the Securities Act and any applicable securities laws of
any state of the United States or any other jurisdiction. Any beneficial
interest in one of the Global Notes that is transferred to a person who takes
delivery in the form of a beneficial interest in another Global Note will, upon
transfer, cease to be a beneficial interest in such Global Note and become a
beneficial interest in the other Global Note and accordingly, will thereafter be
subject to all transfer restrictions, if any, and other procedures applicable to
beneficial interests in such other Global Note for as long as it remains such a
beneficial interest.
So long as the Global Note Holder is the registered owner of any Notes, the
Global Note Holder will be considered the sole Holder under the Indenture of any
Notes evidenced by the Global Notes. Beneficial owners of Notes evidenced by the
Global Notes will not be considered the owners or Holders thereof under the
Indenture for any purpose, including with respect to the giving of any
directions, instructions or approvals to the Trustee thereunder. Neither the
Issuers nor the Trustee will have any responsibility or liability for any aspect
of the records of DTC or for maintaining, supervising or reviewing any records
of DTC relating to the Notes.
Payments in respect of the principal of and premium, interest and
Liquidated Damages, if any, on any Notes registered in the name of the Global
Note Holder on the applicable record date will be payable by the Trustee to or
at the direction of the Global Note Holder in its capacity as the registered
Holder under the Indenture. Under
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the terms of the Indenture, the Issuers and the Trustee may treat the persons in
whose names Notes, including the Global Notes, are registered as the owners
thereof for the purpose of receiving such payments. Consequently, neither the
Issuers nor the Trustee has or will have any responsibility or liability for the
payment of such amounts to beneficial owners of Notes. The Issuers believe,
however, that it is currently the policy of DTC to immediately credit the
accounts of the relevant Participants with such payments, in amounts
proportionate to their respective holdings of beneficial interests in the
relevant security as shown on the records of DTC. Payments by the Depositary's
Participants and the Depositary's Indirect Participants to the beneficial owners
of Notes will be governed by standing instructions and customary practice and
will be the responsibility of the Depositary's Participants or the Depositary's
Indirect Participants.
Additional Information Concerning Euroclear and Cedel Bank
Euroclear and Cedel Bank hold securities for participating organizations
and facilitate the clearance and settlement of securities transactions between
their respective participants through electronic book-entry changes in accounts
of such participants. Euroclear and Cedel Bank provide to their participants,
among other things, services for safekeeping, administration, clearance and
settlement of internationally traded securities and securities lending and
borrowing. Euroclear and Cedel Bank interface with domestic securities markets.
Euroclear and Cedel Bank participants are financial institutions such as
underwriters, securities brokers and dealers, banks, trust companies and certain
other organizations. Indirect access to Euroclear and Cedel Bank is also
available to others such as banks, brokers, dealers and trust companies that
clear through or maintain a custodian relationship with a Euroclear or Cedel
Bank participant, either directly or indirectly.
When beneficial interests are to be transferred from the account of a
Participant (other than Morgan Guaranty Trust Company of New York and Citibank,
N.A., as depositaries for Euroclear and Cedel Bank, respectively) to the account
of a Euroclear participant or a Cedel Bank participant, the purchaser must send
instructions to Euroclear or Cedel Bank through a participant at least one
business day prior to settlement. Euroclear or Cedel Bank, as the case may be,
will instruct Morgan Guaranty Trust Company of New York or Citibank, N.A. to
receive the beneficial interests against payment. Payment will include interest
attributable to the beneficial interest from and including the last payment date
to and excluding the settlement date, on the basis of a calendar year consisting
of twelve 30-day calendar months. For transactions settling on the 31st day of
the month, payment will include interest accrued to and excluding the first day
of the following month. Payment will then be made by Morgan Guaranty Trust
Company of New York or Citibank, N.A., as the case may be, to the Participant's
account against delivery of the beneficial interests. After settlement has been
completed, the beneficial interests will be credited to the respective clearing
systems and by the clearing system, in accordance with its usual procedures, to
the Euroclear participants' or Cedel Bank participants' account. Credit for the
beneficial interests will appear on the next business day (European time) and
the cash debit will be back-valued to, and interest attributable to the
beneficial interests will accrue from, the value date (which would be the
preceding business day when settlement occurs in New York). If settlement is not
completed on the intended value date (i.e., the trade fails), the Euroclear or
Cedel Bank cash debit will instead be valued as of the actual settlement date.
Euroclear participants and Cedel Bank participants will need to make
available to the respective clearing systems the funds necessary to process
same-day funds settlement. The most direct means of doing so is to pre-position
funds for settlement, either from cash on hand or existing lines of credit, as
they would for any settlement occurring within Euroclear or Cedel Bank. Under
this approach, such participants may take on credit exposure to Euroclear or
Cedel Bank until the beneficial interests are credited to their accounts one day
later. Finally, day traders that use Euroclear or Cedel Bank and that purchase
beneficial interests from Participants for credit to Euroclear participants or
Cedel Bank participants should note that these trades would automatically fall
on the sale side unless affirmative action were taken to avoid these potential
problems.
Due to time zone differences in their favor, Euroclear participants and
Cedel Bank participants may employ their customary procedures for transactions
in which beneficial interests are to be transferred by the respective clearing
system, through Morgan Guaranty Trust Company of New York or Citibank, N.A., to
another Participant. The seller must send instructions to Euroclear or Cedel
Bank through a participant at least one business day prior to settlement. In
these cases, Euroclear or Cedel Bank will instruct Morgan Guaranty Trust Company
of New York or Citibank, N.A., as the case may be, to credit the beneficial
interests to the Participant's account against payment. Payment will include
interest attributable to the beneficial interest from and including the last
payment date to and
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excluding the settlement date on the basis of a calendar year consisting of
twelve 30-day calendar months. For transactions settling on the 31st day of the
month, payment will include interest accrued to and excluding the first day of
the following month. The payment will then be reflected in the account of the
Euroclear participant or Cedel Bank participant the following business day, and
receipt of the cash proceeds in the Euroclear or Cedel Bank participant's
account will be back-valued to the value date (which would be the preceding
business day, when settlement occurs in New York). If the Euroclear participant
or Cedel Bank participant has a line of credit with its representative clearing
system and elects to draw on such line of credit in anticipation of receipt of
the sale proceeds in its account, the back-valuation may substantially reduce or
offset any overdraft charges incurred over that one-day period. If settlement is
not completed on the intended value date (i.e., if trade fails), receipt of the
cash proceeds in the Euroclear or Cedel Bank participant's account would instead
be valued as of the actual settlement date.
Certificated Securities
Subject to certain conditions, any person having a beneficial interest in a
Global Note may, upon request to the Trustee, exchange such beneficial interest
for Notes in the form of Certificated Securities. Upon any such issuance, the
Trustee is required to register such Certificated Securities in the name of, and
cause the same to be delivered to, such person or persons (or the nominee of any
thereof). All such certificated Notes are subject to the legend requirements
described in the Offering Memorandum under the caption "Notice to Investors." In
addition, if (i) the Issuers notify the Trustee in writing that DTC is no longer
willing or able to act as a depositary and the Issuers are unable to locate a
qualified successor within 90 days or (ii) the Issuers, at their option, notify
the Trustee in writing that they elect to cause the issuance of Notes in the
form of Certificated Securities under the Indenture, then, upon surrender by the
Global Note Holder of the Global Notes, Notes in such form will be issued to
each person that the Global Note Holder and DTC identify as being the beneficial
owner of the related Notes.
Neither the Issuers nor the Trustee will be liable for any delay by the
Global Note Holder or DTC in identifying the beneficial owners of Notes and the
Issuers and the Trustee may conclusively rely on, and will be protected in
relying on, instructions from the Global Note Holder or DTC for all purposes.
Same-Day Settlement and Payment
The Indenture requires that payments in respect of the Notes represented by
the Global Notes (including principal, premium, interest and Liquidated Damages,
if any) be made by wire transfer of immediately available funds to the accounts
specified by the Global Note Holder. With respect to Certificated Securities,
the Issuers will make all payments of principal, premium, interest and
Liquidated Damages, if any, by wire transfer of immediately available funds to
the accounts specified by the Holders thereof or, if no such account is
specified, by mailing a check to each such Holder's registered address.
The Notes represented by the Global Notes are expected to be eligible to
trade in the PORTAL market and to trade in DTC's Same-Day Funds Settlement
System, and any permitted secondary market trading activity in such Notes will,
therefore, be required by DTC to be settled in immediately available funds. The
Issuers expect that secondary trading in the Certificated Securities will also
be settled in immediately available funds.
Registration Rights; Liquidated Damages
The Issuers, the Guarantors and the Initial Purchasers entered into the
Registration Rights Agreement on December 24, 1997. Pursuant to the Registration
Rights Agreement, the Issuers and the Guarantors agreed to file with the
Commission the Exchange Offer Registration Statement on the appropriate form
under the Securities Act with respect to the Exchange Notes. Upon the
effectiveness of the Exchange Offer Registration Statement, the Issuers will
offer to the Holders of Transfer Restricted Securities pursuant to the Exchange
Offer who are able to make certain representations the opportunity to exchange
their Transfer Restricted Securities for Exchange Notes. If (i) the Issuers and
the Guarantors are not required to file the Exchange Offer Registration
Statement or permitted to consummate the Exchange Offer because the Exchange
Offer is not permitted by applicable law or Commission policy or (ii) any Holder
of Transfer Restricted Securities notifies the Company prior to the 20th day
following consummation of the Exchange Offer that (a) it is prohibited by law or
Commission policy from participating in the Exchange Offer or (b) that it may
not resell the Exchange Notes acquired by it in the Exchange Offer to the public
without delivering a prospectus and the prospectus contained in the Exchange
Offer Registration Statement is not
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appropriate or available for such resales or (c) that it is a broker-dealer and
owns Notes acquired directly from the Issuers or an affiliate of the Issuers,
the Issuers and the Guarantors will file with the Commission a Shelf
Registration Statement to cover resales of the Notes by the Holders thereof who
satisfy certain conditions relating to the provision of information in
connection with the Shelf Registration Statement. The registration statement to
be declared effective as promptly as possible by the Commission. For purposes of
the foregoing, "Transfer Restricted Securities" means each Note until (i) the
date on which such Note has been exchanged by a person other than a
broker-dealer for an Exchange Note in the Exchange Offer, (ii) following the
exchange by a broker-dealer in the Exchange Offer of Old Note for a New Note,
the date on which such New Note is sold to a purchaser who receives from such
broker-dealer on or prior to the date of such sale a copy of the prospectus
contained in the Exchange Offer Registration Statement, (iii) the date on which
such Old Note has been effectively registered under the Securities Act and
disposed of in accordance with the Shelf Registration Statement or (iv) the date
on which such Old Note is distributed to the public pursuant to Rule 144 under
the Act.
The Registration Rights Agreement provides that (i) the Issuers and the
Guarantors will file an Exchange Offer Registration Statement with the
Commission on or prior to 60 days after the date of the original issuance of the
Old Note, (ii) the Issuers and the Guarantors will use their best efforts to
have the Exchange Offer Registration Statement declared effective by the
Commission on or prior to 150 days after the date of the original issuance of
the Old Note, (iii) unless the Exchange Offer would not be permitted by
applicable law or Commission policy, the Issuers will commence the Exchange
Offer and use its best efforts to issue, on or prior to 30 business days after
the date on which the Exchange Offer Registration Statement was declared
effective by the Commission, New Notes in exchange for all Old Notes tendered
prior thereto in the Exchange Offer and (iv) if obligated to file the Shelf
Registration Statement, the Issuers and the Guarantors will use their best
efforts to file the Shelf Registration Statement with the Commission on or prior
to 60 days after such filing obligation arises and to cause the Shelf
Registration to be declared effective by the Commission on or prior to 150 days
after such obligation arises. If (a) the Issuers and the Guarantors fail to file
any of the Registration Statements required by the Registration Rights Agreement
on or before the date specified for such filing, (b) any of such Registration
Statements is not declared effective by the Commission on or prior to the date
specified for such effectiveness (the "Effectiveness Target Date"), (c) the
Issuers fail to consummate the Exchange Offer within 30 business days of the
Effectiveness Target Date with respect to the Exchange Offer Registration
Statement or (d) the Shelf Registration Statement or the Exchange Offer
Registration Statement is declared effective but thereafter ceases to be
effective or usable in connection with resales of Transfer Restricted Securities
during the periods specified in the Registration Rights Agreement (each such
event referred to in clauses (a) through (d) above a "Registration Default"),
then the Issuers and the Guarantors will pay Liquidated Damages to each Holder
of Notes, with respect to the first 90-day period immediately following the
occurrence of the first Registration Default, in an amount equal to one-half of
one percentage point (0.5%) per annum of the principal amount of Notes held by
such Holder. The amount of the Liquidated Damages will increase by an additional
one-half of one percent (0.5%) per annum for each subsequent 90-day period until
all Registration Defaults have been cured, up to a maximum amount of Liquidated
Damages of two percent (2.0%) per annum. All accrued Liquidated Damages will be
paid by the Issuers on each Damages Payment Date to the Global Note Holder by
wire transfer of immediately available funds or by federal funds check and to
Holders of Certificated Securities by wire transfer to the accounts specified by
them or by mailing checks to their registered addresses if no such accounts have
been specified. Following the cure of all Registration Defaults, the accrual of
Liquidated Damages will cease.
Holders of Old Notes will be required to make certain representations to
the Issuers (as described in the Registration Rights Agreement) in order to
participate in the Exchange Offer and will be required to deliver information to
be used in connection with the Shelf Registration Statement and to provide
comments on the Shelf Registration Statement within the time periods set forth
in the Registration Rights Agreement in order to have their Old Notes included
in the Shelf Registration Statement and benefit from the provisions regarding
Liquidated Damages set forth above.
Certain Definitions
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
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"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person, including,
without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided that
beneficial ownership of 10% or more of the Voting Equity Interests of a Person
shall be deemed to be control.
"Amended Credit Facility" means that certain Credit Facility, dated as of
July 31, 1997, by and among the Company, the lenders party thereto and Bank of
New York, as Agent, as amended by Amendment No. 1, dated as of December 18,
1997, as amended, restated, modified, renewed, refunded, replaced or refinanced
in whole or in part from time to time.
"Asset Sale" means (i) the sale, lease, conveyance or other disposition of
any assets or rights (including, without limitation, by way of a sale and
leaseback), excluding sales of services and products in the ordinary course of
business consistent with past practices (provided that the sale, lease,
conveyance or other disposition of all or substantially all of the assets of the
Company and its Restricted Subsidiaries taken as a whole will be governed by the
provisions of the Indenture described above under the caption "--Repurchase at
the Option of Holders--Change of Control" and/or the provisions described above
under the caption "--Certain Covenants-- Merger, Consolidation or Sale of
Assets" and not by the provisions of the Asset Sale covenant), and (ii) the
issue or sale by the Company or any of its Subsidiaries of Equity Interests of
any of the Company's Subsidiaries, in the case of either clause (i) or (ii),
whether in a single transaction or a series of related transactions (a) that
have a fair market value in excess of $1.0 million or (b) for net proceeds in
excess of $1.0 million. Notwithstanding the foregoing: (i) a transfer of assets
by the Company to a Wholly Owned Restricted Subsidiary or by a Wholly Owned
Restricted Subsidiary to the Company or to another Wholly Owned Restricted
Subsidiary, (ii) an issuance of Equity Interests by a Wholly Owned Restricted
Subsidiary to the Company or to another Wholly Owned Restricted Subsidiary,
(iii) the transfer of obsolete equipment in the ordinary course of business,
(iv) the sale and leaseback of any assets within 90 days of the acquisition of
such assets and (v) a Restricted Payment that is permitted by the covenant
described above under the caption "--Certain Covenants--Restricted Payments"
will not be deemed to be Asset Sales. Notwithstanding the foregoing, the Real
Estate Transaction will not be deemed to be an Asset Sale.
"Attributable Debt" in respect of a sale and leaseback transaction means,
at the time of determination, the present value (discounted at the rate of
interest implicit in such transaction, determined in accordance with GAAP) of
the obligation of the lessee for net rental payments during the remaining term
of the lease included in such sale and leaseback transaction (including any
period for which such lease has been extended or may, at the option of the
lessor, be extended).
"Board of Directors" means (i) in respect of a limited liability company,
the board of advisors of the Company, (ii) in respect of a corporation, the
board of directors of the Company, or any authorized committee thereof, and
(iii) in respect of any other Person, the board or committee of the Company
serving a similar function.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on a balance sheet in accordance with
GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership or limited liability
company, partnership or membership interests (whether general or limited) and
(iv) any other interest or participation that confers on a Person the right to
receive a share of the profits and losses of, or distributions of assets of, the
issuing Person.
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"Cash Equivalents" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof having maturities of not more than six
months from the date of acquisition, (iii) certificates of deposit and
eurodollar time deposits with maturities of six months or less from the date of
acquisition, bankers' acceptances with maturities not exceeding six months and
overnight bank deposits, in each case with any domestic commercial bank having
capital and surplus in excess of $500.0 million and a Thompson Bank Watch Rating
of "B" or better, (iv) repurchase obligations with a term of not more than seven
days for underlying securities of the types described in clauses (ii) and (iii)
above entered into with any financial institution meeting the qualifications
specified in clause (iii) above and (v) commercial paper having the highest
rating obtainable from Moody's Investors Service, Inc. or Standard & Poor's
Corporation and in each case maturing within six months after the date of
acquisition.
"Change of Control" means the occurrence of any of the following: (i) the
sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all or
substantially all of the assets of the Company and its Subsidiaries taken as a
whole to any "person" (as such term is used in Section 13(d)(3) of the Exchange
Act) other than one or more Principals or Related Parties, (ii) the adoption of
a plan relating to the liquidation or dissolution of the Company, (iii) the
consummation of any transaction (including, without limitation, any merger or
consolidation) the result of which is that any "person" (as defined above),
other than the Principals and their Related Parties, becomes the "beneficial
owner" (as such term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange
Act, except that a person shall be deemed to have "beneficial ownership" of all
securities that such person has the right to acquire, whether such right is
currently exercisable or is exercisable only upon the occurrence of a subsequent
condition), directly or indirectly, of more than 35% of the Voting Equity
Interests of the Company (measured by voting power rather than number of shares)
or (iv) the first day on which a majority of the members of the Board of
Directors of the Company are not Continuing Directors. Notwithstanding the
foregoing, the reorganization of the Company as a corporation shall not be
deemed to constitute a Change of Control, so long as such reorganization does
not result in any of the occurrences described above under clauses (i) through
(iv).
"Consolidated EBITDA" means, with respect to any Person for any period, the
Consolidated Net Income of such Person for such period plus, to the extent
deducted in computing such Consolidated Net Income, (i) an amount equal to any
extraordinary loss plus any net loss realized in connection with an Asset Sale,
(ii) provision for taxes based on income or profits, (iii) consolidated interest
expense whether paid or accrued and whether or not capitalized (including,
without limitation, amortization of debt issuance costs and original issue
discount, non-cash interest payments, the interest component of any deferred
payment obligations, the interest component of all payments associated with
Capital Lease Obligations, commissions, discounts and other fees and charges
incurred in respect of letter of credit or bankers' acceptance financings, and
net payments (if any) pursuant to Hedging Obligations); (iv) depreciation,
amortization (including amortization of goodwill and other intangibles but
excluding amortization of prepaid cash expenses that were paid in a prior
period) and other non-cash charges (including non-cash equity based compensation
charges but excluding any such non-cash charge to the extent that it represents
an accrual of or reserve for cash charges in any future period or amortization
of a prepaid cash expense that was paid in a prior period); (v) an amount equal
to all premiums paid on prepayments of Indebtedness; and (vi) in the case of
calculations with respect to the Company, the amount of any tax payments to its
members pursuant to clause (viii) of the second paragraph of the covenant
described above under the caption "--Certain Covenants--Restricted Payments" or,
following the reorganization of the Company as a corporation, any tax sharing
payment made pursuant to a tax sharing agreement executed in connection
therewith, in each case, on a consolidated basis and determined in accordance
with GAAP. Notwithstanding the foregoing, the provision for taxes based on the
income or profits of, and the depreciation and amortization of, a Restricted
Subsidiary of a Person shall be added to Consolidated Net Income to compute
Consolidated EBITDA only to the extent (and in the same proportion) that the Net
Income of such Restricted Subsidiary was included in calculating the
Consolidated Net Income of such Person and only if a corresponding amount would
be permitted at the date of determination to be dividended to the Company by
such Restricted Subsidiary without prior approval (that has not been obtained)
pursuant to the terms of its charter and all agreements, instruments, judgments,
decrees, orders, statutes, rules and governmental regulations applicable to such
Restricted Subsidiary or its stockholders.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP;
provided that (i) the Net Income (but not loss) of any Person that is not a
Restricted
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Subsidiary or that is accounted for by the equity method of accounting shall be
included only to the extent of the amount of dividends or distributions paid in
cash to the referent Person or a Wholly Owned Restricted Subsidiary thereof,
(ii) the Net Income of any Restricted Subsidiary shall be excluded to the extent
that the declaration or payment of dividends or similar distributions by that
Restricted Subsidiary of that Net Income is not at the date of determination
permitted without any prior governmental approval (that has not been obtained)
or, directly or indirectly, by operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to that Restricted Subsidiary or its stockholders, (iii)
the Net Income of any Person acquired in a pooling of interests transaction for
any period prior to the date of such acquisition shall be excluded, (iv) the
cumulative effect of a change in accounting principles shall be excluded, (v)
the Net Income (but not loss) of any Unrestricted Subsidiary shall be excluded,
whether or not distributed to the Company or one of its Restricted Subsidiaries
and (vi) in the case of calculations with respect to the Company, the amount of
any tax payments to its members pursuant to clause (viii) of the second
paragraph of the covenant described above under the caption "--Certain
Covenants--Restricted Payments" shall be excluded.
"Consolidated Net Worth" means, with respect to any Person as of any date,
the sum of (a) the consolidated equity of the common stockholders or members, as
applicable, of such Person and its consolidated Subsidiaries as of such date,
plus (b) the respective amounts reported on such Person's balance sheet as of
such date with respect to any series of preferred stock (other than Disqualified
Stock) that by its terms is not entitled to the payment of dividends unless such
dividends may be declared and paid only out of net earnings in respect of the
year of such declaration and payment, but only to the extent of any cash
received by such Person upon issuance of such preferred stock, less (i) all
write-ups (other than write-ups resulting from foreign currency translations and
write-ups of tangible assets of a going concern business made within 12 months
after the acquisition of such business) subsequent to the date of the Indenture
in the book value of any asset owned by such Person or a consolidated Subsidiary
of such Person, (ii) all investments as of such date in unconsolidated
Subsidiaries and in Persons that are not Subsidiaries and (iii) all unamortized
debt discount and expense and unamortized deferred charges as of such date, in
each case, determined in accordance with GAAP.
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors of the Company who (i) was a member of such Board of
Directors on the date of the Indenture or (ii) was nominated for election or
elected to such Board of Directors with the approval of a majority of the
Continuing Directors who were members of such Board at the time of such
nomination or election.
"Credit Agreements" means one or more debt facilities (including, without
limitation, the Amended Credit Facility) or commercial paper facilities with
banks or other institutional lenders providing for revolving credit loans, term
loans, receivables financing (including through the sale of receivables to such
lenders or to special purpose entities formed to borrow from such lenders
against such receivables) or letters of credit, in each case, as amended,
restated, modified, renewed, refunded, replaced or refinanced in whole or in
part from time to time. Indebtedness under Credit Agreements outstanding on the
date on which Notes are first issued and authenticated under the Indenture shall
be deemed to have been incurred on such date in reliance on the exception
provided by clause (i) of the definition of Permitted Debt.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable
at the option of the Holder thereof, in whole or in part, on or prior to the
date that is 91 days after the date on which the Notes mature.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Existing Indebtedness" means Indebtedness in existence on the date of the
Indenture (other than Indebtedness under the Amended Credit Facility), until
such Indebtedness is repaid.
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"Fixed Charges" means, with respect to any Person for any period, the sum,
without duplication, of (i) the consolidated interest expense of such Person and
its Restricted Subsidiaries for such period, whether paid or accrued (including,
without limitation, amortization of debt issuance costs and original issue
discount, non-cash interest payments, the interest component of any deferred
payment obligations, the interest component of all payments associated with
Capital Lease Obligations, commissions, discounts and other fees and charges
incurred in respect of letter of credit or bankers' acceptance financings, and
net payments (if any) pursuant to Hedging Obligations), (ii) the consolidated
interest expense of such Person and its Restricted Subsidiaries that was
capitalized during such period, (iii) any interest expense on Indebtedness of
another Person that is guaranteed by such Person or one of its Restricted
Subsidiaries or secured by a Lien on assets of such Person or one of its
Restricted Subsidiaries (whether or not such guarantee or Lien is called upon)
and (iv) the product of (a) all dividend payments, whether or not in cash, on
any series of preferred stock of such Person or any of its Restricted
Subsidiaries, other than dividend payments on Equity Interests payable solely in
Equity Interests of the Company, times (b) a fraction, the numerator of which is
one and the denominator of which is one minus the then current combined federal,
state and local statutory tax rate of such Person, expressed as a decimal, in
each case, on a consolidated basis and in accordance with GAAP.
"Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated EBITDA of such Person for such period to
the Fixed Charges of such Person and its Restricted Subsidiaries for such
period. In the event that the Company or any of its Restricted Subsidiaries
incurs, assumes, guarantees or redeems any Indebtedness (other than revolving
credit borrowings) or issues preferred stock subsequent to the commencement of
the period for which the Fixed Charge Coverage Ratio is being calculated but
prior to the date on which the event for which the calculation of the Fixed
Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge
Coverage Ratio shall be calculated giving pro forma effect to such incurrence,
assumption, guarantee or redemption of Indebtedness, or such issuance or
redemption of preferred stock, as if the same had occurred at the beginning of
the applicable four-quarter reference period. In addition, for purposes of
making the computation referred to above, (i) acquisitions that have been made
by the Company or any of its Restricted Subsidiaries, including through mergers
or consolidations and including any related financing transactions, during the
four-quarter reference period or subsequent to such reference period and on or
prior to the Calculation Date shall be deemed to have occurred on the first day
of the four-quarter reference period and Consolidated EBITDA for such reference
period shall be calculated without giving effect to clause (iii) of the proviso
set forth in the definition of Consolidated Net Income, (ii) the Consolidated
EBITDA attributable to discontinued operations, as determined in accordance with
GAAP, and operations or businesses disposed of prior to the Calculation Date,
shall be excluded and (iii) the Fixed Charges attributable to discontinued
operations, as determined in accordance with GAAP, and operations or businesses
disposed of prior to the Calculation Date, shall be excluded, but only to the
extent that the obligations giving rise to such Fixed Charges will not be
obligations of the referent Person or any of its Restricted Subsidiaries
following the Calculation Date.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the date of the Indenture.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements and (ii) other agreements or
arrangements designed to protect such Person against fluctuations in interest
rates.
"Indebtedness" means, with respect to any Person, (i) any indebtedness of
such Person, whether or not contingent, in respect of borrowed money or
evidenced by bonds, notes, debentures or similar instruments or letters of
credit (or reimbursement agreements in respect thereof) or banker's acceptances
or representing Capital Lease Obligations or the balance deferred and unpaid of
the purchase price of any property or representing any Hedging Obligations,
except any such balance that constitutes an accrued expense or trade payable, if
and to the extent any of
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the foregoing indebtedness (other than letters of credit and Hedging
Obligations) would appear as a liability upon a balance sheet of such Person
prepared in accordance with GAAP, (ii) all indebtedness of others secured by a
Lien on any asset of such Person (whether or not such indebtedness is assumed by
such Person) and (iii) to the extent not otherwise included, the guarantee by
such Person of any indebtedness of any other Person.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, together with all items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP
(excluding equity in undistributed earnings). If the Company or any Subsidiary
of the Company sells or otherwise disposes of any Equity Interests of any direct
or indirect Subsidiary of the Company such that, after giving effect to any such
sale or disposition, such Person is no longer a Subsidiary of the Company, the
Company shall be deemed to have made an Investment on the date of any such sale
or disposition equal to the fair market value of the Equity Interests of such
Subsidiary not sold or disposed of in an amount determined as provided in the
third paragraph of the covenant described above under the caption "--Certain
Covenants--Restricted Payments."
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction).
"Make-Whole Premium" means, with respect to a Note, an amount equal to the
greater of (i) 5.75% of the outstanding principal amount of such Note and (ii)
the excess of (a) the present value of the remaining interest, premium and
principal payments due on such Note as if such Note was redeemed on January 15,
2003, computed using a discount rate equal to the Treasury Rate plus 50 basis
points, over (b) the outstanding principal amount of such Note.
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain (but not
loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (a) any Asset Sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions) or (b) the
disposition of any securities by such Person or any of its Restricted
Subsidiaries or the extinguishment of any Indebtedness of such Person or any of
its Restricted Subsidiaries and (ii) any extraordinary or nonrecurring gain (but
not loss), together with any related provision for taxes on such extraordinary
or nonrecurring gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of any
non-cash consideration received in any Asset Sale), net of the direct costs
relating to such Asset Sale (including, without limitation, legal, accounting
and investment banking fees, and sales commissions) and any relocation expenses
incurred as a result thereof, taxes paid or payable as a result thereof (after
taking into account any available tax credits or deductions and any tax sharing
arrangements), amounts required to be applied to the repayment of Indebtedness
secured by a Lien on the asset or assets that were the subject of such Asset
Sale and any reserve for adjustment in respect of the sale price of such asset
or assets established in accordance with GAAP.
"Non-Recourse Debt" means Indebtedness: (i) as to which neither the Company
nor any of its Restricted Subsidiaries (a) provides credit support of any kind
(including any undertaking, agreement or instrument that would constitute
Indebtedness), (b) is directly or indirectly liable (as a guarantor or
otherwise) or (c) constitutes the lender; (ii) no default with respect to which
(including any rights that the holders thereof may have to take enforcement
action against an Unrestricted Subsidiary) would permit (upon notice, lapse of
time or both) any holder of any other Indebtedness (other than the Notes being
offered hereby) of the Company or any of its Restricted Subsidiaries to declare
a default on such other Indebtedness or cause the payment thereof to be
accelerated or payable prior to its
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stated maturity; and (iii) as to which the lenders have been notified in writing
that they will not have any recourse to the stock or assets of the Company or
any of its Restricted Subsidiaries.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Permitted Business" shall mean and include products and services furnished
in the live entertainment (live theater, concert touring and special events),
corporate events (trade and industrial shows) and themed entertainment (gaming,
theme parks and themed retail) markets, including but not limited to (i) scenery
and exhibit fabrication, (ii) computerized motion and show control systems,
including the Company's proprietary Stage Command System(R), (iii) theatrical
lighting systems and related products, and (iv) project management, which
encompasses design engineering, budgeting, logistical coordination and
installation. Without limiting the foregoing, "Permitted Business" shall include
lines of businesses which are related or complementary to any of the above,
including the acquisition and ownership of firms which are principally but not
exclusively engaged in one or more of the above lines, and any businesses which
are, in the reasonable judgment of the Board of Directors, logical extensions of
any of the above.
"Permitted Investments" means (i) any Investment in the Company or in a
Wholly Owned Restricted Subsidiary of the Company; (ii) any Investment in Cash
Equivalents; (iii) any Investment by the Company or any Restricted Subsidiary of
the Company in a Person, if as a result of such Investment (a) such Person
becomes a Wholly Owned Restricted Subsidiary of the Company or (b) such Person
is merged, consolidated or amalgamated with or into, or transfers or conveys
substantially all of its assets to, or is liquidated into, the Company or a
Wholly Owned Restricted Subsidiary of the Company; (iv) any Restricted
Investment made as a result of the receipt of non-cash consideration from an
Asset Sale that was made pursuant to and in compliance with the covenant
described above under the caption "--Repurchase at the Option of Holders--Asset
Sales;" (v) any acquisition of assets solely in exchange for the issuance of
Equity Interests (other than Disqualified Stock) of the Company; (vi) advances
and loans to employees of the Company and its Restricted Subsidiaries in the
ordinary course of business; (vii) Investments acquired by the Company or any of
its Restricted Subsidiaries in exchange for any other Investments or accounts
receivable held by the Company or such Restricted Subsidiary in connection with
or as result of a bankruptcy, workout, reorganization or recapitalization of the
issuer of such Investment or accounts receivable; (viii) any Hedging Obligation;
and (ix) other Investments in any Person, when taken together with all other
Investments made pursuant to this clause (ix) that are at the time outstanding,
not to exceed $5.0 million.
"Permitted Liens" means (i) Liens securing Senior Debt or Guarantor Senior
Debt of the Company and its Restricted Subsidiaries that was permitted by the
terms of the Indenture to be incurred; (ii) Liens in favor of the Company or any
of its Restricted Subsidiaries; (iii) Liens on property of a Person existing at
the time such Person is merged into or consolidated with the Company or any
Restricted Subsidiary of the Company; provided that such Liens were in existence
prior to the contemplation of such merger or consolidation and do not extend to
any assets other than those of the Person merged into or consolidated with the
Company; (iv) Liens on property existing at the time of acquisition thereof by
the Company or any Restricted Subsidiary of the Company, provided that such
Liens were in existence prior to the contemplation of such acquisition; (v)
Liens to secure the performance of statutory obligations, surety or appeal
bonds, performance bonds or other obligations of a like nature incurred in the
ordinary course of business; (vi) Liens to secure Indebtedness (including
Capital Lease Obligations) incurred in connection with the acquisition of assets
by the Company or its Restricted Subsidiaries permitted by the covenant
described under the caption "--Certain Covenants--Incurrence of Indebtedness and
Issuance of Disqualified Stock;" provided that (a) such Indebtedness was
incurred by the prior owner of such assets prior to such acquisition and was not
incurred in connection with, or in contemplation of, such acquisition and (b)
such Lien covers only the assets acquired with such Indebtedness; (vii) Liens
existing on the date of the Indenture; (viii) Liens for taxes, assessments or
governmental charges or claims that are not yet delinquent or that are being
contested in good faith by appropriate proceedings promptly instituted and
diligently concluded, provided that any reserve or other appropriate provision
as shall be required in conformity with GAAP shall have been made therefore;
(ix) Liens of landlords or of mortgagees of landlords arising by operation of
law, provided that the rental payments secured thereby are not yet due and
payable; (x) Liens incurred or deposits made in the ordinary course of business
in connection with workers' compensation, unemployment insurance and other types
of social security; (xi) easements, rights-of-way, restrictions, minor defects
or irregularities in title and other similar charges or encumbrances not
interfering in any material respect with the business of the Company or any of
its Restricted Subsidiaries; (xii) judgment or attachment
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Liens not giving rise to an Event of Default; (xiii) Liens arising out of the
purchase, consignment, shipment or storage of inventory or other goods in the
ordinary course of business; (xiv) any interest or title of a lessor in property
subject to any Capital Lease Obligation or other lease; (xv) Liens arising from
filing Uniform Commercial Code financing statements regarding leases; (xvi)
leases or subleases permitted by the Indenture that are granted to others and do
not interfere in any material respect with the business of the Company or any
Restricted Subsidiary, (xvii) any interest or title of a lessor in the property
subject to any lease, whether characterized as capitalized or operating other
than any such interest or title resulting from or arising out of a default by
the company or any Restricted Subsidiaries of its obligations under such lease;
and (xviii) Liens incurred in the ordinary course of business of the Company or
any Restricted Subsidiary of the Company with respect to obligations that do not
exceed $2.0 million at any one time outstanding and that (a) are not incurred in
connection with the borrowing of money or the obtaining of advances or credit
(other than trade credit in the ordinary course of business) and (b) do not in
the aggregate materially detract from the value of the property or materially
impair the use thereof in the operation of business by the Company or such
Restricted Subsidiary.
"Permitted Refinancing Indebtedness" means any Indebtedness of the Company
or any of its Restricted Subsidiaries issued in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness of the Company or any of its Restricted Subsidiaries;
provided that: (i) the principal amount (or accreted value, if applicable) of
such Permitted Refinancing Indebtedness does not exceed the principal amount of
(or accreted value, if applicable), plus accrued interest on, the Indebtedness
so extended, refinanced, renewed, replaced, defeased or refunded (plus the
amount of reasonable expenses incurred in connection therewith); (ii) such
Permitted Refinancing Indebtedness has a final maturity date later than the
final maturity date of, and has a Weighted Average Life to Maturity equal to or
greater than the Weighted Average Life to Maturity of, the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded; (iii) if the
Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded
is subordinated in right of payment to the Notes, such Permitted Refinancing
Indebtedness is subordinated in right of payment to the Notes on terms at least
as favorable to the Holders of Notes as those contained in the documentation
governing the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded; and (iv) such Indebtedness is incurred either by the
Company or by the Restricted Subsidiary that is the obligor on the Indebtedness
being extended, refinanced, renewed, replaced, defeased or refunded.
"Principals" means Jeremiah J. Harris, his spouse, his issue and any of
their respective spouses, including any trust with respect to which any such
individual is a beneficiary, and the descendants and heirs of Jeremiah J.
Harris.
"Related Party" with respect to any Principal means (i) any controlling
stockholder or member, 80% (or more) owned Subsidiary, or spouse or immediate
family member (in the case of an individual) of such Principal or (ii) any
trust, corporation, partnership or other entity, the beneficiaries,
stockholders, partners, owners or Persons beneficially holding an 80% or more
controlling interest of which consist of such Principal and/or such other
Persons referred to in the immediately preceding clause (i).
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Act, as such Regulation is in effect on the date
hereof.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations to
repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence
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<PAGE>
of any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person (or a combination
thereof) and (ii) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or (b)
the only general partners of which are such Person or of one or more
Subsidiaries of such Person (or any combination thereof).
"Treasury Rate" means the yield to maturity at the time of computation of
United States Treasury securities with a constant maturity (as compiled and
published in the most recent Federal Reserve Statistical Release H.15(519))
which has become publicly available at least two business days prior to the date
fixed for redemption (or, if such Statistical Release is no longer published,
any publicly available source of similar market data)) most nearly equal to the
then remaining average life to the first date on which the Notes as subject to
optional redemption by the Issuers; provided, however, that, if such period is
not equal to the constant maturity of a United States Treasury security for
which a weekly average yield is given, the Treasury Rate shall be obtained by
linear interpolation (calculated to the nearest one-twelfth of a year) from the
weekly average yields of United States Treasury securities for which such yields
are given, except that if the average life of such Notes is less than one year,
the weekly average yield on actually traded United States Treasury securities
adjusted to a constant maturity of one year shall be used.
"Unrestricted Subsidiary" means (i) any Subsidiary (other than Finance
Corp.) that is designated by the Board of Directors as an Unrestricted
Subsidiary pursuant to a Board Resolution, but only to the extent that such
Subsidiary: (a) has no Indebtedness other than Non-Recourse Debt; (b) is not
party to any agreement, contract, arrangement or understanding with the Company
or any Restricted Subsidiary unless the terms of any such agreement, contract,
arrangement or understanding are no less favorable to the Company or such
Restricted Subsidiary than those that might be obtained at the time from Persons
who are not Affiliates of the Company; (c) is a Person with respect to which
neither the Company nor any of its Restricted Subsidiaries has any direct or
indirect obligation (1) to subscribe for additional Equity Interests or (2) to
maintain or preserve such Person's financial condition or to cause such Person
to achieve any specified levels of operating results; (d) has not guaranteed or
otherwise directly or indirectly provided credit support for any Indebtedness of
the Company or any of its Restricted Subsidiaries; and (e) has at least one
director on its board of directors that is not a director or executive officer
of the Company or any of its Restricted Subsidiaries and has at least one
executive officer that is not a director or executive officer of the Company or
any of its Restricted Subsidiaries.
"Voting Equity Interests" of any Person as of any date means the Equity
Interests of such Person that is at the time, or would be if such Person were a
Delaware corporation, entitled to vote in the election of the board of
directors, executive committee or other governing body of such Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person, 99% or more of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall at
the time be owned by such Person or by one or more Wholly Owned Restricted
Subsidiaries of such Person and one or more Wholly Owned Restricted Subsidiaries
of such Person.
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is a summary of the material U.S. federal income
tax considerations relevant to the purchase, ownership and disposition of the
Notes, but does not purpose to be a complete analysis of all potential tax
effects. The discussion is based upon the Internal Revenue Code of 1986, as
amended (the "Code"), U.S. Treasury Regulations, Internal Revenue Service
("IRS") rulings and pronouncements and judicial decisions all in effect as of
the date hereof, all of which are subject to change at any time, and any such
change may be applied retroactively in a manner that could adversely affect a
holder of the Notes. The discussion does not address all of the
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<PAGE>
U.S. federal income tax consequences that may be relevant to a holder in light
of such holder's particular circumstances or to holders subject to special
rules, such as certain financial institutions, insurance companies, dealers in
securities, tax-exempt organizations and persons holding the Notes as part of a
"straddle," "hedge" or "conversion transaction." In addition, this discussion is
limited to persons purchasing the Notes for cash at original issue. Moreover,
the effect of any applicable state, local or foreign tax laws is not discussed.
The discussion deals only with Notes held as "capital assets" within the meaning
of Section 1221 of the Code.
As used herein, "U.S. holder" means a beneficial owner of the Notes who or
that (i) is a citizen or resident of the United States, (ii) is a corporation,
partnership or other entity taxable as a corporation created or organized in or
under the laws of the United States or political subdivision thereof, (iii) is
an estate the income of which is subject to U.S. federal income taxation
regardless of its source, (iv) is a trust if (A) a U.S. court is able to
exercise primary supervision over the administration of the trust and (B) one or
more U.S. persons have authority to control all substantial decisions of the
trust, or (v) is otherwise subject to U.S. federal income tax on a net income
basis in respect of the Notes. As used herein, a "non-U.S. holder" means a
holder who or that is not a U.S. holder.
The Company has not sought and will not seek any rulings from the IRS with
respect to the matters discussed below. There can be no assurance that the IRS
will not take a different position concerning the tax consequences of the
purchase, ownership or disposition of the Notes or that any such position would
not be sustained.
PROSPECTIVE INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH REGARD TO
THE APPLICATION OF THE TAX CONSIDERATIONS DISCUSSED BELOW TO THEIR PARTICULAR
SITUATIONS AS WELL AS THE APPLICATION OF ANY STATE, LOCAL, FOREIGN OR OTHER TAX
LAWS, INCLUDING GIFT AND ESTATE TAX LAWS.
U.S. Holders
Exchange Offer. The exchange of Old Notes for New Notes pursuant to the
Exchange Offer will not constitute a taxable exchange. As a result, (i) a U.S.
holder will not recognize taxable gain or loss as a result of exchanging Old
Notes for New Notes pursuant to the Exchange Offer; (ii) the holding period of
the New Notes will include the holding period of the Old Notes exchanged
therefore; and (iii) the adjusted tax basis of the New Notes will be the same as
the adjusted tax basis of the Old Notes exchanged therefore immediately before
such exchange. The Exchange Offer will not have any U.S. Federal income tax
consequences to a non-exchanging Holder.
Interest. The stated interest on the Notes generally will be taxable to a
U.S. holder as ordinary income at the time that it is paid or accrued, in
accordance with the U.S. holder's method of accounting for U.S. federal income
tax purposes.
Sale, Retirement or Redemption of a Note. A U.S. holder of a New Note will
recognize gain or loss upon the sale, retirement, redemption or other taxable
disposition of such Note in an amount equal to the difference between (a) the
amount of cash and the fair market value of other property received in exchange
therefor (other than amounts attributable to accrued but unpaid stated interest)
and (b) the U.S. holder's adjusted tax basis in such Note. The recently enacted
Taxpayer Relief Act of 1997 made certain changes to the Code with respect to
taxation of capital gains of noncorporate taxpayers. In general, the maximum tax
rate for noncorporate taxpayers on long-term capital gain has been lowered to
20% from the previous 28% rate with respect to capital assets (including the
Notes), but only if they have been held for more than 18 months at the time of
disposition. Capital gain on assets sold on or after July 29, 1997, having a
holding period of more than one year but not more than 18 months will be taxed
as "mid-term gain" at a maximum 28% rate.
U.S. holders should be aware that the resale of the Notes may be affected
by the "market discount" rules of the Code under which a purchaser of a New Note
acquiring the New Note at a market discount generally would be required to
include as ordinary income a portion of the gain realized upon the disposition
or retirement of such Note, to the extent of the market discount that has
accrued but not been included in income while the debt instrument was held by
such purchaser.
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Liquidated Damages. The Company intends to take the position that the
Liquidated Damages described above under "Description of Notes; Registration
Rights; Liquidated Damages" will be taxable to a U.S. holder as ordinary income
in accordance with such holder's method of accounting for tax purposes. The IRS,
however, may take a different position, which could affect the timing of both a
U.S. holder's income and the timing of the Company's deduction with respect to
such Liquidated Damages.
Non-U.S. Holders
U.S. Withholding Tax
Interest paid to non-U.S. holders of the New Notes will not be subject to
U.S. income or withholding tax, provided that (i) the non-U.S. holder does not
actually or constructively own 10% or more of the capital or profit of the
Company, (ii) the non-U.S. holder is not (a) a controlled foreign corporation as
to the United States that is related to the Company through stock ownership or
(b) a bank that received the New Note on an extension of credit made pursuant to
a loan agreement entered into in the ordinary course of its trade or business,
and (iii) the beneficial owner of the New Note provides a statement signed under
penalties of perjury that includes its name and address and certifies that it is
not a U.S. person in compliance with applicable requirements or an exemption is
otherwise established. If these requirements cannot be met, a non-U.S. holder
will be subject to U.S. withholding tax at a rate of 30% (or lower treaty rate,
if applicable) on interest payments on the Notes.
In general, any gain realized by any non-U.S. holder upon the sale,
exchange or redemption of a Note will not be subject to U.S. income or
withholding tax. However, such gain will be subject to U.S. withholding tax if
(i) a non-U.S. holder is an individual who is present in the United States for a
total of 183 days or more during the taxable year in which the gain is realized
and certain other conditions are satisfied or (ii) the non-U.S. holder is
subject to tax pursuant to the provisions of U.S. tax law applicable to certain
U.S. expatriates.
If interest on the New Notes is exempt from withholding of U.S. federal
income tax under the rules described above, the New Notes will not be included
in the estate of a deceased non-U.S. holder for U.S. federal estate tax
purposes.
Information Reporting and Backup Withholding
Certain noncorporate U.S. persons may be subject to backup withholding at a
rate of 31% on payments of principal and interest on the New Notes, and the
proceeds from a disposition of the New Notes. Backup withholding will only be
imposed where the holder (i) fails to furnish its taxpayer identification number
("TIN"), which, for an individual, would ordinarily be his or her social
security number, (ii) furnishes an incorrect TIN, (iii) is notified by the IRS
that he or she has failed to properly report payments of interest or dividends,
or (iv) under certain circumstances, fails to certify, under penalties of
perjury, that he or she has furnished a correct TIN and has not been notified by
the IRS that he or she is subject to backup withholding. Notwithstanding the
foregoing, the Company will institute backup withholding with respect to
payments made on a Note to a holder if instructed to do so by the IRS. Holders
of the Notes should consult their own tax advisors regarding their qualification
for exemption from backup withholding and the procedure for obtaining such an
exemption, if applicable. However, interest paid with respect to a Note and
received by a non-U.S. holder will not be subject to information reporting or
backup withholding if the payor has received appropriate certification
statements and provided that the payor does not have actual knowledge that the
holder is a U.S. person.
The payment of the proceeds from the disposition of New Notes to or through
the U.S. office of any U.S. or foreign broker will be subject to information
reporting and possible backup withholding unless the owner certifies as to its
non-U.S. status under penalties of perjury or otherwise establishes an
exemption, provided that the broker does not have actual knowledge that the
holder is a U.S. person or that the conditions of any other exemption are not,
in fact, satisfied. The payment of the proceeds from the disposition of a New
Note to or through a non-U.S. broker that is not a U.S. related person will not
be subject to information reporting or backup withholding. For this purpose, a
"U.S. related person" is (i) a "controlled foreign corporation" for U.S. federal
income tax purposes or (ii) a foreign person 50% or more of whose gross income
from all sources for the three-year period ending with the close of its taxable
year preceding the payment (or for such part of the period that the broker has
been in existence) is derived from activities that are effectively connected
with the conduct of a U.S. trade or business.
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In the case of the payment of proceeds from the disposition of Notes to or
through a non-U.S. office of a broker that is a U.S. related person, U.S.
Treasury Regulations require information reporting on the payment unless the
broker has documentary evidence in its files that the owner is a non-U.S. holder
and the broker has no knowledge to the contrary. Backup withholding will not
apply to payments made through foreign offices of a broker that is a U.S. person
or a U.S. related person (absent actual knowledge that the payee is a U.S.
person).
Any amounts withheld under the backup withholding rates from a payment to a
non-U.S. holder will be allowed as a refund or a credit against such non-U.S.
holders' U.S. federal income tax liability, provided that the requisite
procedures are followed.
Prospective Final Regulations
On October 6, 1997, new U.S. Treasury Regulations ("New Regulations") were
issued that modify the requirements imposed on a non-U.S. holder and certain
intermediaries for establishing the recipient's status as a non-U.S. holder
eligible for exemption from or reduction in U.S. withholding tax and backup
withholding described above. In general, the New Regulations do not
significantly alter the substantive withholding and information reporting
requirements but rather unify current certification procedures and forms and
clarify reliance standards. The New Regulations are generally effective for
payments made after December 31, 1998, subject to certain transition rules. In
addition, the New Regulations impose more stringent conditions on the ability of
financial intermediaries acting for a non-U.S. holder to provide certifications
on behalf of the non-U.S. holder, which may include entering into an agreement
with the IRS to audit certain documentation with respect to such certifications.
Non-U.S. holders should consult their tax advisors to determine the effects of
the application on the New Regulations to their particular circumstances.
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PLAN OF DISTRIBUTION
Each broker-dealer that received New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes received in exchange for Old Notes where
such Old Notes were acquired as a result of market-making activities or other
trading activities. The Issuers have agreed that, starting of the Expiration
Date and ending of one year after the Expiration Date, it will make this
Prospectus, as amended or supplemented, available to any broker-dealer for use
in connection with any such resale. In addition, until such date, all dealers
effecting transactions in the New Notes may be required to deliver a prospectus.
The Issuers will not receive any proceeds from any sales of New Notes by
broker-dealers or others. New Notes received by broker-dealers for their own
account pursuant to the Exchange Offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the New Notes or a combination of such methods
of resale, at market prices prevailing at the time of resale, at prices related
to such prevailing market prices or negotiated prices. Any such resale may be
made directly to purchasers or to or through brokers or dealer who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such New Notes. Any broker-dealer
that resells New Notes that were received by it for its own account pursuant to
the Exchange Offer and any broker or dealer that participates in a distribution
of such New Notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit from any such resale of New Notes and any
commissions received by any such persons may be deemed to be underwriting
compensation under the Securities Act. The Letter of Transmittal states that by
acknowledging that it will deliver and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
For a period one year after the Expiration Date, the Issuers will promptly
send additional copies of this Prospectus and any amendment or supplement to
this Prospectus to any broker-dealer that requests such documents in the Letter
of Transmittal. The Issuers have agreed to pay all expenses incident to the
Exchange Offer (including the expenses of one counsel for the holders of the
Notes) other that commissions or concessions of any brokers or dealers and will
indemnify the holders of the Notes (including any broker-dealers) against
certain liabilities, including liabilities under the Securities Act.
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LEGAL MATTERS
The validity of the New Notes will be passed upon for the Company by
Morrison & Foerster LLP, New York, New York. Certain other legal matters will be
passed upon for the Company by Pepe & Hazard LLP. Joseph W. Bartlett, an advisor
of the Company, is a partner of Morrison & Foerster LLP and owns Units of the
Company.
EXPERTS
The consolidated financial statements and schedule of Production Resource
Group, L.L.C. at December 31, 1995, 1996 and 1997 and for each of the three
years in the period ended December 31, 1997, and the combined financial
statements of Bash Theatrical Lighting, Inc. and Affiliates at December 31, 1996
and for the year then ended, appearing in this Registration Statement, have been
audited by Ernst & Young LLP, independent auditors, as set forth in their
reports thereon appearing elsewhere herein, and are included in reliance upon
such reports given upon the authority of such firm as experts in accounting and
auditing.
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Index to Consolidated Financial Statements
Production Resource Group, L.L.C.
Report of Independent Auditors........................................... F-2
Consolidated Balance Sheets as of December 31, 1996 and 1997............. F-3
Consolidated Statements of Operations and Member's Equity for the
years ended December 31, 1995, 1996 and 1997.......................... F-4
Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1996 and 1997...................................... F-5
Notes to Consolidated Financial Statements............................... F-6
Bash Theatrical Lighting, Inc. and Affiliates
Report of Independent Auditors........................................... F-30
Combined Balance Sheets as of December 31, 1996 and
June 30, 1997 (Unaudited)........................................... F-31
Combined Statements of Income and Retained Earnings for the
Year Ended December 31, 1996 and the Six Months Ended
June 30, 1996 and 1997 (Unaudited).................................. F-32
Combined Statements of Cash Flows for the Year Ended
December 31, 1996 and the Six Months Ended June 30, 1996
and 1997 (Unaudited)................................................ F-33
Notes to Combined Financial Statements................................... F-34
<PAGE>
Report of Independent Auditors
Members
Production Resource Group, L.L.C.
We have audited the accompanying consolidated balance sheets of Production
Resource Group, L.L.C. (the "Company") as of December 31, 1996 and 1997, and the
related consolidated statements of operations and members' equity and cash flows
for each of the three years in the period ended December 31, 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, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Production Resource Group, L.L.C. as of December 31, 1996 and 1997, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 1997 in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
New York, New York
March 16, 1998
F-2
<PAGE>
Production Resource Group, L.L.C.
Consolidated Balance Sheets
(In thousands)
December 31
1996 1997
-------- --------
Assets
Current assets:
Cash and cash equivalents $ 3,010 $ 27,164
Accounts receivable, net of allowance of $323 in 1996
and $2,572 in 1997 10,787 23,783
Inventories 3,346 4,425
Other current assets 817 1,286
-------- --------
Total current assets 17,960 56,658
Property and equipment--net 31,189 49,236
Goodwill--net of accumulated amortization of
$55 in 1996 and $540 in 1997 845 15,341
Other assets 2,001 7,017
-------- --------
$ 51,995 $128,252
======== ========
Liabilities and members' equity
Current liabilities:
Current portion of long-term debt $ 8,231 $ 822
Accounts payable 5,337 15,809
Payroll and sales taxes payable 1,172 918
Deferred revenue 3,879 2,119
Other current liabilities 208 1,758
-------- --------
Total current liabilities 18,827 21,426
Long-term debt:
Senior Subordinated Notes -- 100,000
Credit facilities 15,000 --
Other long-term debt 3,770 3,743
Commitments
Members' equity 14,398 3,083
-------- --------
$ 51,995 $128,252
======== ========
See accompanying notes.
F-3
<PAGE>
Production Resource Group, L.L.C.
Consolidated Statements of Operations and Members' Equity
(In thousands)
<TABLE>
<CAPTION>
Year ended December 31
1995 1996 1997
-------- -------- --------
(Restated)
<S> <C> <C> <C>
Revenues $ 37,284 $ 49,434 $ 75,180
Direct costs:
Direct production costs 22,564 29,565 46,131
Depreciation expense 3,342 3,920 6,181
-------- -------- --------
25,906 33,485 52,312
-------- -------- --------
Gross profit 11,378 15,949 22,868
Selling, general and administrative expenses 5,794 8,676 16,185
Other depreciation and amortization 445 715 2,182
Nonrecurring compensation expense -- -- 2,125
-------- -------- --------
Operating profit 5,139 6,558 2,376
Loss on impairment of assets -- 495 --
Interest expense 632 1,292 3,956
Interest (income) (268) (128) (117)
-------- -------- --------
Income (loss) from continuing operations before
taxes and extraordinary item 4,775 4,899 (1,463)
Provision for taxes 122 206 392
-------- -------- --------
Income (loss) from continuing operations 4,653 4,693 (1,855)
Discontinued operations (Note 8):
Income (loss) from operations of discontinued
Themed Attraction Permanent Installation
business 244 1,407 (5,302)
-------- -------- --------
Income (loss) before extraordinary item 4,897 6,100 (7,157)
Extraordinary item -- -- (614)
-------- -------- --------
Net income (loss) 4,897 6,100 (7,771)
Members' equity--beginning of period 8,146 11,908 14,398
Less distributions (1,135) (3,610) (3,544)
-------- -------- --------
Members' equity--end of period $ 11,908 $ 14,398 $ 3,083
======== ======== ========
</TABLE>
See accompanying notes.
F-4
<PAGE>
Production Resource Group, L.L.C.
Consolidated Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Year ended December 31
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Operating activities
Net income (loss) $ 4,897 $ 6,100 $ (7,771)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Extraordinary item -- -- 614
Depreciation 3,787 4,459 7,419
Amortization of goodwill and other -- 114 787
Amortization of debt-related costs -- 62 157
Provision for doubtful accounts -- 311 2,512
Gain on sale of property and equipment -- (239) (1,645)
Loss on impairment of assets -- 495 --
Changes in operating assets and liabilities:
Accounts receivable (903) (6,644) (11,979)
Inventories 577 (1,864) 22
Other current assets 8 (548) (460)
Accounts payable 597 670 7,837
Payroll and sales taxes payable (114) 854 (254)
Deferred revenue (16) 2,465 (1,760)
Other current liabilities 141 (51) 1,550
--------- --------- ---------
Net cash provided by (used in) operating activities 8,974 6,184 (2,971)
--------- --------- ---------
Investing activities
Acquisition of net assets of Vanco Lighting Services, net of
cash acquired -- (274) --
Acquisition of net assets of Cinema Services of Las Vegas, Inc. -- (1,800) --
Acquisition of net assets of Design Dynamics, Inc., net of cash
acquired -- -- (3,980)
Acquisition of net assets of Bash Theatrical Lighting, Inc. -- -- (20,000)
Purchases of property and equipment (9,621) (17,456) (18,151)
Proceeds from sale of rental equipment -- 419 2,453
Additions to software development costs -- (586) --
Organizational costs incurred -- (536) --
Other assets (241) (69) (860)
--------- --------- ---------
Net cash used in investing activities (9,862) (20,302) (40,538)
--------- --------- ---------
Financing activities
Proceeds from long-term debt 4,799 35,400 178,400
Additions to deferred financing costs -- (446) (2,110)
Additions to bond offering costs -- -- (3,752)
Repayments of long-term debt (4,315) (16,246) (101,331)
Distributions to members (1,135) (3,610) (3,544)
--------- --------- ---------
Net cash (used in) provided by financing activities (651) 15,098 67,663
--------- --------- ---------
Net (decrease) increase in cash and cash equivalents (1,539) 980 24,154
Cash and cash equivalents--beginning of year 3,569 2,030 3,010
--------- --------- ---------
Cash and cash equivalents--end of year $ 2,030 $ 3,010 $ 27,164
========= ========= =========
</TABLE>
See accompanying notes.
F-5
<PAGE>
Production Resource Group, L.L.C.
Notes to Consolidated Financial Statements
December 31, 1997
1. Organization and Basis of Consolidation
Production Resource Group, L.L.C. (the "Company") was formed as a Delaware
limited liability company in August 1995 and began operations on July 25, 1996,
when the accounts of the following entities under common control were
transferred to the Company in exchange for membership units in the Company:
Harris Production Services, Inc. ("HPS"), ECTS, A Scenic Technology Company,
Inc. ("ECTS"), Showpay, Inc. ("Showpay"), Theatre Techniques Associates, Inc.
("TTA"), ECTS Contracting of Las Vegas, Inc. ("STLV") and Scenic Properties, LLC
("SPLLC"). The exchange was accounted for in a manner similar to a pooling of
interests and has been retroactively reflected in the accompanying financial
statements. In December 1997, STLV, ECTS and TTA were merged into HPS and the
units issued to Showpay were transferred to HPS.
The accompanying consolidated financial statements include the accounts of the
Company and its subsidiaries, three of which are wholly-owned and the other in
which the Company owns 99% of the outstanding membership interests. These
subsidiaries have no material assets, liabilities or operations. Intercompany
transactions and balances among all of the related entities have been eliminated
in consolidation.
The Company is an integrator, fabricator and supplier of a broad range of
products and services for the live entertainment (theatre, concert touring and
special events), corporate events (trade and industrial shows) and themed
entertainment (gaming, theme parks and themed retail) markets. The Company
operated in 1997 through four segments: lighting systems and products, scenery
automation and fabrication, event services and themed attraction permanent
installation ("Themed Attraction"). The Company's Themed Attraction segment has
been discontinued during 1998 and, accordingly, the consolidated statements of
operations and members' equity for the years ended December 31, 1995 and 1996
have been restated to reflect the Themed Attraction segment as a discontinued
operation (see Note 8).
The lighting systems and products segment provides automated lighting systems
and related products for sale and rental. The scenery automation and fabrication
segment fabricates scenery for sale and provides computerized motion and show
control equipment for rental. The Company's event services segment provides a
variety of services for corporate clients, including unique exhibit fabrication
and production management for trade shows and events.
Members of the Company are not personally liable for any indebtedness, liability
or obligation of the Company.
F-6
<PAGE>
Production Resource Group, L.L.C.
Notes to Consolidated Financial Statements (continued)
1. Organization and Basis of Consolidation (continued)
In accordance with the Company's operating agreement, the Company will terminate
in 2094.
2. Acquisitions
On January 18, 1996, the Company acquired substantially all of the assets and
assumed certain liabilities of Vanco Lighting Services, Inc. ("Vanco"), a
provider of theatrical lighting systems and related products for the rental and
retail marketplace. The purchase price of the acquisition was $1,000,000, which
was satisfied through the payment of $300,000 in cash and the issuance of an
adjustable $700,000 ten year promissory note. Such note was subsequently
adjusted to approximately $468,000 to reflect certain adjustments arising from
the finalization of the purchase price for Vanco (see Note 7).
On February 8, 1996, the Company acquired substantially all of the assets,
excluding cash and accounts receivable, and assumed certain liabilities of
Cinema Services of Las Vegas, Inc. ("Cinema"), a provider of theatrical lighting
systems and related products for the rental and retail marketplace. The purchase
price of the acquisition was $1,800,000 in cash plus contingent payments not to
exceed $500,000. The Company is required to make annual payments equal to 20% of
the net profits of Cinema, as defined, for each calendar year through 2000,
payable within 30 days of the determination of such profit up to a cumulative
maximum payment of $500,000. As of December 31, 1997, no contingent payments
have been made. The Company will record any future payments as an addition to
goodwill and will amortize such additional amounts over the remaining life of
the goodwill originally recorded. The Company recorded goodwill of approximately
$900,000 related to the Cinema acquisition.
On June 6, 1997, the Company acquired substantially all of the assets and
assumed certain liabilities of Design Dynamics, Inc. ("Design Dynamics") for
$3,985,000 in cash. Design Dynamics specializes in fabricating trade show
exhibits. The Company recorded goodwill of approximately $3,134,000 related to
the Design Dynamics acquisition. A former shareholder of Design Dynamics has
entered into an employment agreement with the Company (see Note 13).
F-7
<PAGE>
Production Resource Group, L.L.C.
Notes to Consolidated Financial Statements (continued)
2. Acquisitions (continued)
On August 15, 1997, the Company acquired substantially all of the assets and
assumed certain liabilities of Bash Theatrical Lighting, Inc. and four
affiliated companies (collectively "Bash"), a supplier of theatrical lighting
systems and related products for the rental and retail marketplace. The purchase
price of the acquisition was $20,000,000 which may be modified for certain
purchase price adjustments that could be claimed by the Company. Currently,
management does not anticipate any such adjustments to the purchase price. The
Company recorded goodwill of approximately $11,214,000 related to the Bash
acquisition. The two shareholders of Bash have an option to acquire an aggregate
amount of up to $3,000,000 of 8% Convertible Preferred Units of the Company for
a payment of $3,000,000. The fair value of such option is not significant and,
therefore, is not included in the purchase price of Bash. The former
shareholders of Bash have entered into employment agreements with the Company
(see Note 13).
The above acquisitions were accounted for under the purchase method.
Accordingly, results relating to the acquired operations are included in the
Company's results of operations from their respective dates of acquisition.
The pro forma unaudited consolidated results of operations for the years ended
December 31, 1997 and 1996, assuming consummation of the above-mentioned
acquisitions as of the beginning of the respective year, is as follows (in
thousands):
1996 1997
--------------------------------
Total revenue from continuing operations $ 83,318 $ 98,201
Income (loss) from continuing operations 8,157 (4,298)
Net income (loss) 9,564 (1,618)
F-8
<PAGE>
Production Resource Group, L.L.C.
Notes to Consolidated Financial Statements (continued)
2. Acquisitions (continued)
On January 2, 1998, the Company acquired substantially all of the assets and
assumed certain liabilities of Pro-Mix, Inc. ("Pro-Mix"), a provider of sound
equipment and acoustical and sound design consulting services primarily to the
live theatre market. The purchase price was approximately $7,800,000 plus a
$1,500,000 contingent payment (based upon a multiple of earnings, as defined).
The purchase price also includes $939,000, representing the approximate fair
value of 79,179 of the Company's Preferred Units (with a liquidation preference
of $1,500,000) issued in connection with the Pro-Mix acquisition. The Company
recorded goodwill of approximately $638,000 related to the Pro-Mix acquisition
and any contingent payments will be recorded as an addition thereto.
3. Summary of Significant Accounting Policies
Cash and Cash Equivalents
All highly liquid investments with a maturity of three months or less when
purchased are considered to be cash equivalents. At December 31, 1996 and 1997,
substantially all of the Company's cash and cash equivalents were held in one
financial institution.
Supplementary Cash Flow Information
Interest paid amounted to approximately $652,000, $1,095,000 and $3,859,000 for
the years ended December 31, 1995, 1996 and 1997, respectively. Taxes
paid amounted to approximately $14,000, $330,000 and $391,000 for the years
ended December 31, 1995, 1996 and 1997, respectively.
Inventories
Raw materials and work-in-process inventories are stated at the lower of cost or
market. Raw materials consist of steel, aluminum, wood and electronic automation
parts. Work-in-process includes direct materials, direct labor and a ratable
share of manufacturing overhead on partially completed items. Cost is determined
by the specific identification method. Also included in inventories are certain
lighting products. Cost for such inventory is determined using the average cost
method which approximates the first-in, first-out method. Inventories consist of
the following (in thousands):
F-9
<PAGE>
Production Resource Group, L.L.C.
Notes to Consolidated Financial Statements (continued)
3. Summary of Significant Accounting Policies (continued)
December 31
1996 1997
------------------------------
Raw materials $ 1,277 $ 1,603
Work-in-process 1,611 412
Lighting products 458 2,410
------------------------------
$ 3,346 $ 4,425
==============================
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets, which range
from five to 39 years. Rental equipment, including show and motion control and
lighting systems, are included in property and equipment and are being
depreciated by the straight-line method over periods ranging from five to seven
years.
Goodwill
Goodwill represents the excess of the cost of assets acquired over the fair
market value of assets received and is being amortized using the straight-line
method over periods ranging from 15 to 25 years.
Intangible Assets
Intangible assets, which include organization, deferred financing and bond
offering costs, are stated at cost and are being amortized using the
straight-line method over (i) five years for organization costs and (ii) over
the term of the related debt for deferred financing and bond offering costs (see
Note 6).
F-10
<PAGE>
Production Resource Group, L.L.C.
Notes to Consolidated Financial Statements (continued)
3. Summary of Significant Accounting Policies (continued)
Software Development Costs
In accordance with Statement of Financial Accounting Standards ("SFAS") No. 86,
"Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise
Marketed," all software development costs are charged to expense as incurred
until technological feasibility has been established for the product. Software
development costs incurred after technological feasibility has been established
have been capitalized and included in other assets (see Note 6). Such costs are
amortized, commencing with product use, using the straight-line method over
three years.
Income Taxes
Effective July 25, 1996, the Company began operations as a limited liability
company and, therefore, is not subject to federal, state and local income taxes
except for certain unincorporated business income taxes. Income taxes payable
by the individual members of the Company for the year ended December 31, 1997
and for the period from July 25, 1996 through December 31, 1996, based on their
respective shares of the Company's income, have not been reflected in the
accompanying consolidated financial statements.
Effective January 1, 1989, HPS and ECTS elected by consent of their shareholders
to be taxed under the provisions of Subchapter S of the Internal Revenue Code
for federal income tax purposes. Under these provisions, these members did not
pay federal corporate income taxes on their taxable income. Instead, such
members' shareholders were liable for individual federal income taxes on their
share of the respective members' taxable income.
The provision for taxes reflected in the accompanying consolidated financial
statements includes amounts due to various states in which income was subject to
reduced corporate income taxes because of Subchapter S status for the period
from January 1, 1996 through July 24, 1996 and for the year ended December 31,
1995 and other state and local taxes.
F-11
<PAGE>
Production Resource Group, L.L.C.
Notes to Consolidated Financial Statements (continued)
3. Summary of Significant Accounting Policies (continued)
Revenue Recognition and Deferred Revenue
Revenues consist of sales and rentals of the Company's products and services.
Sales of products (primarily scenery for live entertainment and fabricated
exhibits for events) and services to clients (primarily production management
services) for the events and live entertainment markets are generally recognized
upon delivery or when services are performed. All rental revenues (principally
on lighting products and show and motion control systems) are recognized ratably
over the lives of the applicable rental agreements.
Revenues related to the projects within the discontinued Themed Attraction
segment were recognized generally based on the percentage of total costs
incurred to date to total estimated costs. Management reviewed estimated total
project costs on individual projects and made adjustments accordingly. Losses
expected to be incurred on projects in progress were charged to income as soon
as such losses were known. Amounts received in advance on sales which exceeded
revenue recognized to date were recorded as deferred revenue and recognized when
earned. Amounts reflected as revenue which exceeded billings to date were
included in accounts receivable and amounted to approximately $722,000 and
$390,000 at December 31, 1996 and 1997, respectively (see Note 8).
Unit-Based Compensation
SFAS No. 123, "Accounting for Stock-Based compensation," prescribes accounting
and reporting standards for all stock-based compensation. SFAS No. 123 requires
compensation expense to be recorded (i) using the fair value method or (ii)
using accounting rules prescribed by Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25"), with pro forma disclosure
of what net income would have been had the Company adopted the fair value
method. The Company accounts for its unit-based compensation in accordance with
the provisions of APB 25.
F-12
<PAGE>
Production Resource Group, L.L.C.
Notes to Consolidated Financial Statements (continued)
3. Summary of Significant Accounting Policies (continued)
Use of Estimates
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 assets and liabilities at the date of the financial statements and
the reported amount of revenue and expenses during the reporting period. The
principal area of estimation relates to determining total project costs. Actual
results could differ from those estimates.
Impairment of Long-Lived Assets
Long-lived assets to be held and used are reviewed for impairment whenever
events or changes of circumstances indicate that the related carrying amounts
may not be recoverable, such as a change in expected future undiscounted cash
flows. When required, impairment losses on assets to be held and used are
recognized based on the excess of the asset's carrying amount over its fair
value as determined by selling prices for similar assets or application of other
appropriate valuation techniques. Long-lived assets to be disposed of are
reported at the lower of their carrying amount or fair value less disposal
costs.
Fair Value of Financial Instruments
The fair value of financial instruments is determined by reference to market
data and other valuation techniques as appropriate. The Company's financial
instruments consist of cash and cash equivalents, long-term debt, and an
interest rate swap agreement. Unless otherwise disclosed, the fair values of
financial instruments approximate their recorded values.
Recently Issued Accounting Standards
SFAS No. 130, "Reporting Comprehensive Income," will be effective for the
Company's financial statements for the year ended December 31, 1998. SFAS No.
130 establishes standards for the reporting and display of comprehensive income
and its components in a full set of general purpose financial statements. This
statement requires that all items that are required to be recognized as
components of comprehensive income be reported in a financial statement with the
same prominence as other financial statements. The Company has not determined
the effects, if any, that SFAS No. 130 will have on its consolidated financial
statements.
F-13
<PAGE>
Production Resource Group, L.L.C.
Notes to Consolidated Financial Statements (continued)
3. Summary of Significant Accounting Policies (continued)
In March 1998, the AICPA issued SOP 98-1, "Accounting For the Costs of Computer
Software Developed For or Obtained For Internal-Use." The SOP is effective for
the Company beginning on January 1, 1999. The SOP will require the
capitalization of certain costs incurred after the date of adoption in
connection with developing or obtaining software for internal-use. The Company
intends to adopt SOP 98-1 in 1998, as such costs related to the development of
internal-use software are anticipated.
4. Reportable Segments
In 1997, the Company elected to adopt SFAS No. 131 "Disclosures about Segments
of an Enterprise and Related Information." The statement requires certain
descriptive information to be provided about an enterprise's reportable
segments. This information includes the factors that management uses to identify
the reportable segments of the Company, the types of products and services from
which each reportable segment derives its revenues, and how management measures
segment profit or loss and assets.
The Company's continuing operations include three reportable segments: scenery
automation and fabrication, lighting systems and products and event services.
The Company's scenery automation and fabrication division consists of two
operating units that fabricate scenery and rent computerized automation
equipment that controls the motion of such scenery. Sales of this division are
primarily to live theatrical concerns. The Company's lighting systems and
products division has three primary operating units that provide lighting
equipment and systems to a highly diversified client base. The Company's event
services division provides a variety of services primarily for corporate
clients, including unique exhibit fabrication and production management for
trade shows and events. During 1998, with the acquisition of Pro-Mix, the
Company established an audio segment. Also during 1998, the Company discontinued
its Themed Attraction business. This segment had one primary operating unit
which designed, built and installed on a turn-key basis themed attractions
primarily for amusement parks and casinos (see Note 8).
F-14
<PAGE>
Production Resource Group, L.L.C.
Notes to Consolidated Financial Statements (continued)
4. Reportable Segments (continued)
The Company evaluates performance and allocates resources based on the
reportable segments' profit or loss from operations before interest, provision
for taxes, depreciation and amortization. The accounting policies of the
reportable segments are the same as those described in the summary of
significant accounting policies (see Note 3). Intersegment sales and transfers
are recorded at the Company's cost; there is no intercompany profit or loss on
intersegment sales or transfers.
The Company's reportable segments are distinct business units that offer
different products and services. The reportable segments are each managed
separately because they manufacture and distribute distinct products with
different production processes. The customers of the Company's reportable
segments are located principally in the United States.
<TABLE>
<CAPTION>
Year ended or as of December 31, 1995
-----------------------------------------------
Scenery
Automation Lighting
Event and Systems and
Services Fabrication Products Total
-------- ----------- ----------- --------
<S> <C> <C> <C> <C>
Revenues from external customers $ 7,540 $ 29,744 $ -- $ 37,284
Intersegment revenues -- -- -- --
Segment profit 240 12,522 -- 12,762
Segment assets 7,861 13,451 -- 21,312
Expenditures for long-lived assets -- 9,621 -- 9,621
</TABLE>
<TABLE>
<CAPTION>
Year ended or as of December 31, 1996
-----------------------------------------------
Scenery
Automation Lighting
Event and Systems and
Services Fabrication Products Total
-------- ----------- ----------- --------
<S> <C> <C> <C> <C>
Revenues from external customers $ 13,586 $ 21,242 $ 14,606 $ 49,434
Intersegment revenues -- 544 1,283 1,837
Segment profit 839 11,744 2,434 15,017
Segment assets 9,369 21,250 11,639 42,258
Expenditures for long-lived assets -- 4,534 6,702 11,236
</TABLE>
F-15
<PAGE>
Production Resource Group, L.L.C.
Notes to Consolidated Financial Statements (continued)
4. Reportable Segments (continued)
<TABLE>
<CAPTION>
Year ended or as of December 31, 19987
-----------------------------------------------
Scenery
Automation Lighting
Event and Systems and
Services Fabrication Products Total
-------- ----------- ----------- --------
<S> <C> <C> <C> <C>
Revenues from external customers $ 23,759 $ 20,382 $ 31,039 $ 75,180
Intersegment revenues -- 7,675 2,319 9,994
Segment profit 2,762 10,063 6,828 19,653
Segment assets 7,988 19,929 33,515 61,432
Expenditures for long-lived assets 1,726 3,570 7,390 12,686
</TABLE>
<TABLE>
<CAPTION>
Year ended December 31
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Revenues
Total external revenues from reportable segments $ 37,284 $ 49,434 $ 75,180
Intersegment revenues for reportable segments -- 1,837 9,994
Elimination of intersegment revenues -- (1,837) (9,994)
--------- --------- ---------
Total Revenues $ 37,284 $ 49,434 $ 75,180
========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Year ended December 31
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Profit (loss)
Total profit for reportable segments $ 12,762 $ 15,017 $ 19,653
Unallocated amounts:
Corporate selling, general and administrative expenses (3,836) (3,824) (6,789)
Depreciation and amortization (3,787) (4,635) (8,363)
Nonrecurring compensation -- -- (2,125)
Interest expense (364) (1,164) (3,839)
Loss on impairment of assets -- (495) --
--------- --------- ---------
Total income (loss) from continuing operations before
taxes and extraordinary item $ 4,775 $ 4,899 $ (1,463)
========= ========= =========
</TABLE>
F-16
<PAGE>
Production Resource Group, L.L.C.
Notes to Consolidated Financial Statements (continued)
4. Reportable Segments (continued)
<TABLE>
<CAPTION>
Year ended December 31
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Assets
Total assets for reportable segments $ 21,312 $ 42,258 $ 61,432
Unallocated amounts:
Goodwill -- 879 15,341
Corporate property and equipment 2,942 5,820 14,215
Corporate other assets -- -- 32,207
Elimination of intercompany receivables -- -- (407)
--------- --------- ---------
Total consolidated assets related to continuing operations $ 24,254 $ 48,957 $ 123,288
========= ========= =========
</TABLE>
5. Property and Equipment
The following is a summary of property and equipment at December 31, 1996 and
1997 (in thousands):
1996 1997
-------------- ---------------
Land and buildings $ 7,981 $ 10,173
Building improvements 319 1,470
Rental equipment 28,887 46,692
Machinery and equipment 828 1,297
Furniture and fixtures and office equipment 1,492 5,208
Transportation equipment 208 552
Construction in progress - 483
-------------- ---------------
39,715 65,875
Less accumulated depreciation 8,526 16,639
-------------- ---------------
Property and equipment--net $ 31,189 $ 49,236
============== ===============
During 1996, the Company transferred certain of its operations to a new facility
and placed the old facility up for sale. This circumstance called into question
the recoverability of the carrying amounts of the former building and related
improvements. Pursuant to SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of," an impairment
loss was recognized related to these assets. In calculating the impairment loss,
fair value was determined by reviewing quoted market prices for current sales of
similar building facilities. During 1997, as a result of the Company's growth,
the old facility was returned to service.
F-17
<PAGE>
Production Resource Group, L.L.C.
Notes to Consolidated Financial Statements (continued)
6. Other Assets
The following is a summary of other assets at December 31, 1996 and 1997 (in
thousands):
<TABLE>
<CAPTION>
1996 1997
-------------- --------------
<S> <C> <C>
Organization costs, net of accumulated amortization
of $59 in 1996 and $166 in 1997 $ 483 $ 371
Deferred financing costs, net of accumulated amortization
of $62 in 1996 and $150 in 1997 384 1,735
Bond offering costs, net of accumulated amortization
of $7 in 1997 - 3,745
Software development costs, net of accumulated amortization
of $195 in 1997 586 391
Other 548 775
-------------- -------------
$ 2,001 $ 7,017
============== ==============
</TABLE>
7. Long-Term Debt
Long-term debt consisted of the following at December 31, 1996 and 1997 (in
thousands):
1996 1997
------------------------------
Senior Subordinated Notes $ - $ 100,000
Credit facilities 22,500 -
Mortgages payable 4,066 3,820
Other 435 745
------------------------------
27,001 104,565
Less current portion 8,231 822
------------------------------
Long-term debt $ 18,770 $ 103,743
==============================
Senior Subordinated Notes
On December 24, 1997, the Company and PRG Finance Corporation, a Delaware
Corporation ("Finance Corp." and together with the Company, the "Issuers")
issued $100,000,000 of 11-1/2% Senior Subordinated Notes (the "Notes") due
January 15, 2008. Finance Corp., a wholly-owned subsidiary of the Company,
incorporated in Delaware, was formed for the purpose of serving as a co-issuer
of the Notes in order to facilitate the Offering. Finance Corp.
F-18
<PAGE>
Production Resource Group, L.L.C.
Notes to Consolidated Financial Statements (continued)
7. Long-Term Debt (continued)
will not have any substantial operations, assets or revenues. Interest on the
Notes is payable semiannually in arrears on January 15 and July 15 of each year,
commencing on July 15, 1998, to holders of record on the immediately preceding
January 1 and July 1, respectively.
The Notes are not redeemable, except in certain circumstances, prior to January
15, 2003. Thereafter, the Notes are subject to redemption at prices decreasing
from 105.75% to 100.00% of the face amount through 2006.
The Notes are fully and unconditionally guaranteed by the Company's domestic
subsidiaries other than Finance Corp. (the "Guarantors") on a joint and several
basis. The Notes place certain restrictions on the Guarantors, including
restrictions on their ability to merge or consolidate operations with another
entity. Three of the Guarantors are wholly-owned subsidiaries of the Company and
the remaining Guarantor is 99% owned by the Company (with the remaining 1%
interest owned by a member of the Company). Financial statements of the
Guarantors have not been presented because management has determined that such
information is not material to investors.
The Company received proceeds from the offering of $97,000,000. Such proceeds
were used to repay the borrowings under the existing credit facility of
$68,300,000. Costs incurred related to the issuance of the Notes approximated
$3,752,000 and are being amortized over the life of the Notes.
Credit Facilities
At December 31, 1995, the Company had credit facilities which consisted of
several loans under a term loan agreement with maturity dates ranging from July
1996 to October 1997, bearing interest at various rates ranging from 8.49% to
9%. These amounts were refinanced during 1996.
F-19
<PAGE>
Production Resource Group, L.L.C.
Notes to Consolidated Financial Statements (continued)
7. Long-Term Debt (continued)
On June 30, 1996, the Company entered into a credit agreement (the "Credit
Agreement") with a bank to borrow funds in the amount of $17,500,000. Such funds
were used to refinance existing bank debt. The Credit Agreement consisted of a
revolving credit facility (the "Revolving Loan") and a term loan facility (the
"Term Loan") in the amount of $7,500,000 and $10,000,000, respectively, maturing
on December 31, 2000. The Term Loan was payable in equal quarterly payments of
$625,000, which commenced on March 31, 1997. All such borrowings were
collateralized by a first lien on substantially all of the Company's assets and
were guaranteed by the Company's members.
Borrowings under the Credit Agreement bore interest, payable quarterly, at .5%
plus (i) the higher of the bank's prime rate and the federal funds rate plus .5%
or (ii) LIBOR plus 1.75%.
On December 13, 1996, the Company received additional funds, under similar terms
as the Credit Agreement, from the bank in the amount of $5,000,000 ("Bridge
Note"). The Bridge Note matured on June 30, 1997.
In connection with the Credit Agreement, the Company entered into an interest
rate swap agreement ("IRSA") with The Bank of New York to hedge the impact of
fluctuations in interest rates on its floating rate credit facilities. The IRSA
had an original notional amount of $8,750,000, which was subsequently increased
to $22,500,000. Gains and losses pertaining to the IRSA were recorded over its
life as an adjustment to interest expense. In January 1998, the Company
terminated the IRSA and recorded a loss of approximately $33,000.
On July 31, 1997, the Company entered into a credit agreement (the "Credit
Facility") with a syndicate of financial institutions that provided for a
reducing revolver for borrowings in a principal amount up to $100,000,000
through December 31, 2002 (as amended). The borrowings were used to refinance
the Credit Agreement and Bridge Note and finance working capital requirements,
including acquisitions.
F-20
<PAGE>
Production Resource Group, L.L.C.
Notes to Consolidated Financial Statements (continued)
7. Long-Term Debt (continued)
The refinancing of the Credit Agreement was treated as an early extinguishment
of debt and, accordingly, unamortized financing costs of approximately $614,000
were written off and included as an extraordinary item in the consolidated
statement of operations and members' equity for the year ended December 31,
1997.
Amounts outstanding under the Credit Facility bear interest, at the Company's
option, at (i) certain spreads over the Eurodollar rate, or (ii) certain spreads
over the higher of (a) the Federal Funds rate plus .50%, or (b) the agent's
prime rate. The interest rate spreads are adjusted based on the Company's total
leverage ratio. In addition, during the commitment period, the Company is
obligated to pay a fee on the unused availability ranging from .25% to .375%
based on its total leverage ratio.
The Credit Facility contains certain restrictive financial covenants, including
the maintenance of a minimum pro forma interest coverage ratio and fixed charge
coverage ratio, a maximum leverage ratio and limitations on the issuance of
additional indebtedness. Borrowings under the Credit Facility are secured by a
security interest in all of the Company's tangible and intangible personal
property and fixtures and are guaranteed by the members and subsidiaries of the
Company. All such guarantees are collateralized by a security interest in the
tangible and intangible personal property and fixtures of the respective
guarantor. In addition, the members of the Company have pledged their equity
interests in the Company and in each of the subsidiaries as additional
collateral. As of December 31, 1997, the Company was in compliance with the
covenants of the Credit Facility. As of December 31, 1997, there were no
borrowings outstanding under the Credit Facility.
In connection with the Credit Facility, the Company incurred approximately
$1,885,000 of loan organization and syndication costs, which are being amortized
over the life of such agreement.
F-21
<PAGE>
Production Resource Group, L.L.C.
Notes to Consolidated Financial Statements (continued)
7. Long-Term Debt (continued)
Mortgages Payable
The Company has three mortgages, which are collateralized by its properties.
The mortgages require monthly payments of both principal and interest at varying
rates ranging from 7.4% to 8.7%. Maturity dates on these mortgages expire on
various dates through June 1, 2025.
Other
In January 1996, the Company issued an adjustable promissory note payable for
$700,000 as partial payment for the purchase of the net assets of Vanco. The
principal balance of such note was adjusted to approximately $468,000 to reflect
certain adjustments arising from the finalization of the purchase price for
Vanco. The note is payable quarterly, bears interest at a rate of 9.5% per annum
and matures on December 31, 2006. The balance of the note payable as of December
31, 1996 and 1997 was approximately $435,000 and $386,000, respectively.
The following are future maturities of long-term debt outstanding at December
31, 1997 (in thousands):
1998 $ 822
1999 381
2000 385
2001 388
2002 312
Thereafter 102,277
------------------
$ 104,565
==================
Interest expense excludes capitalized interest in 1995 and 1996 of $134,000 and
$255,000, respectively.
F-22
<PAGE>
Production Resource Group, L.L.C.
Notes to Consolidated Financial Statements (continued)
8. Discontinued Operations
On March 2, 1998, the Company adopted a plan to discontinue its Themed
Attraction business. The Themed Attraction business operated primarily through a
single division, which utilized a turn-key approach of supplying project
management, fabrication of scenic elements and show action equipment and
installation of such projects at a customer's place of business. This division
served customers who were primarily owners and operators of amusement parks and
casinos. The Company has restated the consolidated statements of operations for
the years ended December 31, 1995 and 1996 to reflect the results of the Themed
Attraction business as a discontinued operation.
The Company anticipates that the remaining Themed Attraction projects will be
completed during 1998 at which time the Company will abandon this business.
There are no significant elements of the Company's property and equipment which
are used exclusively by this division. At December 31, 1997, the principal
components of the net assets of the Company's Themed Attraction business are
accounts receivable ($4,964,000) and deferred revenues ($534,000). The Company
has provided for any estimated additional losses related to uncompleted existing
Themed Attraction contracts. The revenues of the Themed Attraction business
since its inception in 1995 were approximately $2,100,000 in 1995, $13,100,000
in 1996 and $24,600,000 in 1997.
9. Membership Units
Description of Units
The Company's membership units consist of the following classes: Regular Units,
Preferred Units, Capital Appreciation Units, Preferred Capital Appreciation
Units, Convertible Preferred Units and SPLLC Units. Regular Units entitle the
holder thereof to share in the profits and losses of the Company, subject to
certain adjustments, and are the only class of voting equity of the Company.
Preferred Units entitle the holder thereof to the same rights and privileges as
holders of Regular Units, except that the holders of Preferred Units have the
right to receive liquidation distributions prior to the holders of Regular Units
and the Preferred Units do not have voting rights. Capital Appreciation Units
entitle the holder thereof to (i) an annual return of $0.05 per unit and (ii)
share in the appreciation in the value of the Company upon the occurrence of an
Initial Public Offering (as defined in the Operating Agreement), the sale of
substantially all of the assets of the Company or a sale of fifty percent or
more of the interests
F-23
<PAGE>
Production Resource Group, L.L.C.
Notes to Consolidated Financial Statements (continued)
9. Membership Units (continued)
in the Company held by the Initial Members, as defined; provided that such
holder shall only be entitled to share in the appreciation in value above the
designated value provided in the Operating Agreement. Capital Appreciation Units
rank pari passu with Regular Units in right of payment in the event of a
liquidation of the Company. Preferred Capital Appreciation Units entitle the
holder thereof to the same rights and privileges as holders of Capital
Appreciation Units, except that the holders of Preferred Capital Appreciation
Units have the right to receive liquidation distributions prior to the holders
of Regular Units. Convertible Preferred Units entitle the holder thereof to
receive an 8% per annum cumulative distribution priority. The Operating
Agreement provides that such distribution shall accumulate currently but not be
paid. These units are senior in liquidation preference to the Regular Units and
are convertible into securities offered by the Company in an Initial Public
Offering at a price equal to 62.5% of the per share price of such securities.
For purposes of such conversion, the Operating Agreement provides that all
accrued distributions will be eliminated. In addition, upon the earlier of the
third anniversary of the issuance of the Convertible Preferred Units or an
Initial Public Offering, the holders of such units have the option to require
the Company to redeem their units upon the occurrence of certain events.
At December 31, 1997, the Company had outstanding the following membership
units: (i) 5,199,413 Regular Units, including those units issued under the Units
Plan, (ii) 581,000 Capital Appreciation Units, including approximately 483,000
units which will vest at various times over the next five years and (iii) 54,539
Preferred Units. As discussed in Note 2, the Company has granted the two
shareholders of Bash an option to acquire up to $3 million of Convertible
Preferred Units. There are no Preferred Capital Appreciation Units outstanding.
Subsequent to December 31, 1997 and as discussed in Note 2, an additional 79,179
Preferred Units were issued in connection with the Pro-Mix acquisition.
On December 24, 1997, the Company redeemed the SPLLC Units held by SPLLC in
exchange for its interests in real property located in New Windsor, N.Y.,
Cornwall-on Hudson, N.Y., and the Company's land in Las Vegas, N.V., subject to
related mortgage debt. All of the equity interests of SPLLC are owned by
officers and beneficial owners of the Company, and SPLLC's assets and
liabilities which consist primarily of the aforementioned real estate and
related mortgages, are therefore consolidated into the Company.
F-24
<PAGE>
Production Resource Group, L.L.C.
Notes to Consolidated Financial Statements (continued)
9. Membership Units (continued)
Units Plan
On January 1, 1996, the Company established the Production Resource Group,
L.L.C. Restricted Limited Liability Company Unit Incentive Compensation Plan
(the "Restricted Plan") and the Phantom Limited Liability Company Unit Incentive
Compensation Plan (the "Phantom Plan" and, together with the Restricted Plan,
the "Plans"). Participation in the Plans is limited to officers and other key
employees who are selected to participate in the Plans. Up to 750,000 Units
subject to anti-dilution adjustments may be awarded under each of the Restricted
Plan ("Restricted Units") and the Phantom Plan ("Phantom Units") and, together
with the Restricted Units, the "Units"). Units granted under the Plans are
subject to significant restrictions on transferability, the securities laws and
the Operating Agreement of the Company. Restricted Units entitle the holder to
participate in the appreciation and profits of the Company but do not allow a
right to participate in management. Phantom Units entitle the holder to receive
a bonus equal to ten dollars per Phantom Unit upon a sale of the Company or at
certain other defined times. In no event shall a participant be entitled to
receive duplicate payments under the Phantom Plan and the Restricted Plan.
Restrictions on the Units lapse ratably over specified periods. Upon a Change in
Control or any termination other than for Cause (each as defined in the Plans),
all restrictions on the Units lapse and the value thereof becomes immediately
payable. Phantom Units will be canceled without any payments being required
thereon upon the occurrence of an initial public offering by the Company or a
successor in interest to the Company.
At December 31, 1996 and 1997, 181,972 Units have been issued with restrictions
that lapse in five annual installments commencing January 1, 1997. The Company
has included in Members' Equity approximately $258,000, representing the fair
value of these Units. Compensation to employees of a similar amount has been
recorded as a reduction of Members' Equity and will be charged to income as the
restrictions on these Units lapse. In 1997, compensation expense of
approximately $52,000 was recorded with respect to these Units.
F-25
<PAGE>
Production Resource Group, L.L.C.
Notes to Consolidated Financial Statements (continued)
9. Membership Units (continued)
Other Unit Transactions
During 1997, the Company entered into employment agreements with two of its
officers. In connection with these agreements, the Company issued 565,000 of its
Capital Appreciation Units (the "CAU's"). These units vest over periods ranging
from three to five years and were determined to have an insignificant value at
the time of issuance and, accordingly, no charge was recorded in connection with
these transactions. The pro forma compensation costs for the CAU's determined in
accordance with SFAS No. 123 is not significant.
During 1997, the Company issued 16,000 of its CAU's in connection with advisory
services provided to the Company. These units vest within two years and were
determined to have an insignificant value at the time of issuance and,
accordingly, no charge was recorded in connection with these transactions.
10. Commitments and Other
Collective Bargaining Agreement
The Company is a party to various collective bargaining agreements of limited
duration concerning its labor union employees. The terms of those agreements
require contributions by the Company to a number of union employee defined
contribution, defined benefit and health and welfare plans. Contributions to all
plans totaled approximately $412,000, $621,000 and $783,000 for the years ended
December 31, 1995, 1996 and 1997, respectively.
F-26
<PAGE>
Production Resource Group, L.L.C.
Notes to Consolidated Financial Statements (continued)
10. Commitments and Other (continued)
Benefit Plans
The Company has a defined contribution plan which qualifies under section 401(k)
of the Internal Revenue Code. The plan covers all employees who are not subject
to a collective bargaining agreement and have met the plan's age and service
requirements. The Company's 401(k) plan provides that eligible employees may
make contributions subject to Internal Revenue Code limitations. The Company
matches each employee's contributions up to a maximum of 3% of their salary.
Such contributions aggregated approximately $85,000, $150,000 and $260,000 for
the years ended December 31, 1995, 1996 and 1997, respectively. The Company also
has a profit sharing plan that covers certain employees of the Company.
Contributions to the plan, which are determined by the members, are based on the
amount of an eligible employee's wages. Total contributions may not exceed 15%
of the annual compensation of all of the plan's participants. The Company's last
contribution to the plan was in 1995 and amounted to approximately $75,000.
Operating Leases
The Company leases certain property and equipment under leases that expire at
various dates through 2008. As of December 31, 1997, future minimum lease
payments under noncancelable leases are as follows (in thousands):
December 31:
1998 $ 1,603
1999 1,279
2000 1,204
2001 1,132
2002 1,112
Thereafter 5,170
---------------
$ 11,500
===============
Rent expense was approximately $311,000, $671,000 and $1,286,000 for the years
ended December 31, 1995, 1996 and 1997, respectively.
F-27
<PAGE>
Production Resource Group, L.L.C.
Notes to Consolidated Financial Statements (continued)
11. Related Party Transactions
The Company contracts work from an entity that is partially owned by related
parties. In connection therewith, the Company earned revenues of approximately
$1,959,000, $1,929,000 and $3,833,000 for the years ended December 31, 1995,
1996 and 1997, respectively. The Company incurred fees and other charges
amounting to $50,000 from this entity during the year ended December 31, 1996.
The Company had a receivable from this entity amounting to approximately
$366,000 and $272,000 at December 31, 1996 and 1997, respectively. Additionally,
the entity paid management fees for administrative services of approximately
$70,000, $90,000 and $60,000 to the Company during 1995, 1996 and 1997,
respectively.
The Company also conducted business with a related entity that provided
theatrical management services. In connection therewith, the Company incurred
fees and other charges amounting to approximately $182,000 and $199,000 for the
years ended December 31, 1995 and 1996, respectively. Additionally, the Company
earned revenues of approximately $64,000 from this entity in the year ended
December 31, 1996. There was no activity with this Company for the year ended
December 31, 1997.
12. Major Customers
Two of the Company's customers accounted for approximately 33% and 15% of the
Company's 1995 revenues. Such revenues were included in the Company's scenery
automation and fabrication segment. One customer accounted for 33% of the
Company's 1996 accounts receivable. Revenues from such customer were part of the
discontinued Themed Attraction segment (see Note 8).
13. Nonrecurring Compensation Expense
The nonrecurring compensation expense of $2,125,000 represents employment
incentives paid to the two shareholders of Bash and a shareholder of Design
Dynamics, in connection with their signing of employment agreements with the
Company.
F-28
<PAGE>
Production Resource Group, L.L.C.
Notes to Consolidated Financial Statements (continued)
14. Treasury Rate Lock
On October 27, 1997, in anticipation of the Company's offering of the Notes (see
Note 7), the Company entered into a Treasury Rate Lock agreement ("T-Lock") with
Bankers Trust Company (the "Counterparty") to hedge against the impact of rising
interest rates on the 10 year Treasury Note ("Reference Security"). The interest
rate on the Notes was to be based on the rate on the Reference Security plus a
market-determined spread thereon. The T-Lock had a notional amount of
$100,000,000. Upon the earlier of the Company's election to terminate the T-Lock
or December 15, 1997 ("Settle Date"), the rate on the 10 year Treasury Note
would be compared to the predetermined Lock Rate (5.863%). If the reference rate
was above the Lock Rate, the Counterparty would make a payment to the Company
equal to the present value of the difference between the reference rate and the
Lock Rate to the maturity of the Reference Security. If the reference rate was
below the Lock Rate, the Company would make a payment to the Counterparty equal
to the present value of the difference. On December 5, 1997, the Company elected
to terminate the T-Lock and received payment from the Counterparty of
approximately $425,000 which is being reflected as an adjustment to interest
expense over the life of the Notes.
15. Legal Proceedings
The Company from time to time is involved in litigation arising in the ordinary
course of business. The Company does not believe that any such litigation will,
individually or in the aggregate, have a material adverse effect on its
business, results of operations or financial condition. The Company, together
with other companies involved in the live entertainment production EFX! ((TM)),
was sued by Michael Crawford, the former star of EFX! ((TM)), with an action
related to personal injury claims. The Company has denied liability and
continues to vigorously defend such action. The Company believes it has
meritorious defenses to such actions. Although there can be no assurance as to
the outcome of any litigation, the Company does not believe it would have a
material adverse effect on the Company's results of operations or financial
condition.
F-29
<PAGE>
Report of Independent Auditors
To The Board of Directors
Bash Theatrical Lighting, Inc.
We have audited the accompanying combined balance sheet of Bash Theatrical
Lighting, Inc. and affiliated companies (the "Company") as of December 31, 1996,
and the related combined statements of income and retained earnings and cash
flows for the year then ended. 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of the Company
as of December 31, 1996, and the combined results of its operations and its cash
flows for the year then ended in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
New York, New York
September 19, 1997
F-30
<PAGE>
BASH THEATRICAL LIGHTING, INC. AND AFFILIATES
COMBINED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
December 31, June 30,
1996 1997
-------- --------
(unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents ........................................... $ 719 $ 718
Accounts receivable, net of allowances of $55 in 1996 and $73 in 1997 2,160 2,865
Inventories ......................................................... 863 1,015
Prepaid expenses and other current assets ........................... 116 111
-------- --------
Total current assets .................................................. 3,858 4,709
Property and equipment--net ........................................... 7,784 8,350
Goodwill--net of accumulated amortization of $3 in 1996 and $4 in 1997 22 23
Due from shareholder .................................................. 271 --
Other assets .......................................................... 34 17
-------- --------
Total assets .......................................................... $ 11,969 $ 13,099
======== ========
Liabilities and shareholders' equity
Current liabilities:
Accounts payable .................................................... $ 1,275 $ 2,354
Accrued expenses .................................................... 83 299
Line of credit--bank ................................................ 285 --
Current portion of long-term debt ................................... 995 866
Deferred revenue .................................................... 682 --
-------- --------
Total current liabilities ............................................. 3,320 3,519
Long-term debt ........................................................ 1,113 787
Commitments
Shareholders' equity:
Capital stock ....................................................... 94 94
Retained earnings ................................................... 7,485 8,742
Treasury stock, at cost ............................................. (43) (43)
-------- --------
Total shareholders' equity ............................................ 7,536 8,793
-------- --------
Total liabilities and shareholders' equity ............................ $ 11,969 $ 13,099
======== ========
</TABLE>
See accompanying notes.
F-31
<PAGE>
BASH THEATRICAL LIGHTING, INC. AND AFFILIATES
COMBINED STATEMENTS OF INCOME AND RETAINED EARNINGS
(In thousands)
<TABLE>
<CAPTION>
Year Ended Six Months Ended
December 31, June 30,
------------ --------------------
1996 1996 1997
-------- -------- --------
(unaudited)
<S> <C> <C> <C>
Revenues .......................................................... $ 25,408 $ 10,575 $ 17,632
Cost of sales (including depreciation expense of $2,670 in 1996
and $795 and $1,252 in the six months ended June 30, 1996 and
1997, respectively) ............................................. 12,935 4,797 9,411
-------- -------- --------
Gross profit ...................................................... 12,473 5,778 8,221
Selling, general and administrative expenses ...................... 10,932 4,186 5,172
Other depreciation and amortization ............................... 147 75 115
-------- -------- --------
Operating profit .................................................. 1,394 1,517 2,934
Interest expense .................................................. 304 171 111
Interest (income) ................................................. (9) (7) (6)
-------- -------- --------
Income before income taxes ........................................ 1,099 1,353 2,829
Provision for income taxes ........................................ 99 154 --
-------- -------- --------
Net income ........................................................ 1,000 1,199 2,829
Retained earnings--beginning of period ............................ 6,750 6,750 7,485
Less distributions to shareholders ................................ (265) (265) (1,572)
-------- -------- --------
Retained earnings--end of period .................................. $ 7,485 $ 7,684 $ 8,742
======== ======== ========
</TABLE>
See accompanying notes.
F-32
<PAGE>
BASH THEATRICAL LIGHTING, INC. AND AFFILIATES
COMBINED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Year Ended Six Months Ended
December 31, June 30,
------------ ------------------
1996 1996 1997
------- ------- -------
(unaudited)
<S> <C> <C> <C>
Operating activities
Net income ......................................... $ 1,000 $ 1,199 $ 2,829
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for bad debts .......................... 150 60 115
Depreciation and amortization .................... 2,817 870 1,367
Changes in operating assets and liabilities:
Accounts receivable ........................... (19) (138) (821)
Inventories ................................... (178) (11) (152)
Prepaid expenses and other current assets ..... 12 (98) 5
Other assets .................................. 114 9 17
Accounts payable .............................. (43) 18 1,079
Accrued expenses .............................. (88) 19 216
Deferred revenue .............................. 682 -- (682)
------- ------- -------
Net cash provided by operating activities .......... 4,447 1,928 3,973
------- ------- -------
Investing activities
Purchases of property and equipment, net ........... (2,406) (1,020) (1,933)
Due from shareholder ............................... (238) 33 271
------- ------- -------
Net cash used in investing activities .............. (2,644) (987) (1,662)
------- ------- -------
Financing activities
Repayments of long-term debt ....................... (1,344) (607) (455)
Net borrowings under line of credit ................ 185 (26) (285)
Distributions paid to shareholders ................. (515) (315) (1,572)
------- ------- -------
Net cash used in financing activities .............. (1,674) (948) (2,312)
------- ------- -------
Net increase (decrease) in cash and cash equivalents 129 (7) (1)
Cash and cash equivalents--beginning of period ..... 590 590 719
------- ------- -------
Cash and cash equivalents--end of period ........... $ 719 $ 583 $ 718
======= ======= =======
</TABLE>
See accompanying notes.
F-33
<PAGE>
BASH THEATRICAL LIGHTING, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
(Information as of June 30, 1997 and for the Six Months ended
June 30, 1996 and 1997 is Unaudited)
1. Summary of Significant Accounting Policies
Organization and Basis of Combination
The combined financial statements include the accounts of Bash Theatrical
Lighting, Inc. and its affiliated companies; Bash Theatrical Lighting,
Inc.--West Coast, Bash Exposition Services, Inc., Bash Lighting Services, Inc.
and Bash Lighting Services--Mid-Atlantic, Inc., collectively the "Company." All
significant intercompany balances and transactions have been eliminated in
combination.
On August 15, 1997, the Company sold substantially all of its net assets to
Production Resource Group, L.L.C. The accompanying financial statements do not
give effect to the sale.
The Company is in the business of renting, selling and installing lighting
systems and related products to the live entertainment, corporate events and
themed entertainment markets. Its operations are located in; (i) North Bergen,
New Jersey, (ii) Las Vegas, Nevada, (iii) Orlando, Florida, and (iv) Baltimore,
Maryland.
Cash and Cash Equivalents
All highly liquid investments with a maturity of three months or less when
purchased are considered to be cash equivalents. At December 31, 1996,
substantially all of the Company's cash and cash equivalents were held in four
financial institutions.
Supplementary Cash Flow Information
Interest paid amounted to approximately $305,000 and income taxes paid
amounted to approximately $266,000 during the year ended December 31, 1996.
Inventories
Inventories consist of lighting products and supplies held for sale and are
stated at the lower of cost or market. Cost for such inventory is determined
using the first-in, first-out method.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets, which
range from three to 39 years. Lighting systems and other rental equipment is
included in property and equipment and is being depreciated by the straight-line
method over five years.
Goodwill
Goodwill represents the excess of cost of assets acquired over the fair
market value of such assets and is being amortized using the straight-line
method over 15 years.
Income Taxes
The Company, with the consent of its shareholders, has elected to be taxed
as an S Corporation pursuant to the Internal Revenue Code and certain state tax
laws. As such, the Company has not been subject to federal and certain state
income taxes because the shareholders have consented to include the Company's
taxable income or loss in their individual income tax returns. Income taxes
represents certain state and local corporate income taxes.
F-34
<PAGE>
The Company provides for income taxes pursuant to SFAS No. 109, "Accounting
for Income Taxes." There are no significant temporary differences as of December
31, 1996.
F-35
<PAGE>
BASH THEATRICAL LIGHTING, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
(Information as of June 30, 1997 and for the Six Months ended
June 30, 1996 and 1997 is Unaudited)
1. Summary of Significant Accounting Policies--(Continued)
Revenue Recognition and Deferred Revenue
Revenue from the rental of lighting systems and related products is
recognized ratably over the lives of the rental contracts. Revenue from the
sales of lighting equipment and supplies is recognized when the buyer takes
possession of the items.
Installation sales revenue is recognized generally based on contractual
milestones achieved. Amounts received in advance which exceed revenue
recognized to date are recorded as deferred revenue and recognized upon
achievement of contractual milestones.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the combined financial
statements and accompanying notes. Actual results could differ from those
estimates.
Impairment of Long-Lived Assets
Long-lived assets to be held and used are reviewed for impairment whenever
events or changes of circumstances indicate that the related carrying amount may
not be recoverable. When required, impairment losses on assets to be held and
used are recognized based on the excess of the asset's carrying amount over its
fair value. Long-lived assets to be disposed of are reported at the lower of
their carrying amount or fair value less disposal costs.
Unaudited Information
The unaudited financial statements at June 30, 1997 and for the six months
ended June 30, 1996 and 1997 reflect adjustments, all of which are of a normal
recurring nature, which are, in the opinion of management, necessary to a fair
presentation. The results of the interim periods are not necessarily indicative
of full year results.
2. Property and Equipment
The following is a summary of property and equipment at December 31, 1996
(in thousands):
Land, building and building improvements ........................ $ 1,212
Rental equipment, principally lighting equipment ................ 16,309
Furniture, fixtures and office equipment ........................ 126
Leasehold improvements .......................................... 79
Transportation equipment ........................................ 239
-------
17,965
Less accumulated depreciation and amortization .................. 10,181
-------
Property and equipment--net ..................................... $ 7,784
=======
F-36
<PAGE>
BASH THEATRICAL LIGHTING, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
(Information as of June 30, 1997 and for the Six Months ended
June 30, 1996 and 1997 is Unaudited)
3. Line of Credit--Bank
The Company entered into a credit agreement ("Credit Agreement") which
provides for borrowings of up to $1,000,000. Borrowings under the Credit
Agreement bear interest at 8.25%. The Credit Agreement expired on May 31, 1997.
4. Long-Term Debt
Long-term debt consisted of the following at December 31, 1996 (in
thousands):
Notes payable ............................................. $1,775
Mortgage payable .......................................... 243
Other ..................................................... 90
------
2,108
Less current portion ...................................... 995
------
Long-term debt ............................................ $1,113
======
Notes Payable
The Company entered into various promissory notes with a bank with
aggregate borrowings of $4,500,000 expiring between March 1998 and August 2000.
Each note is for a period of 60 months with principal paid in equal monthly
installments. Interest is paid monthly on the outstanding balance and is based
on various rates including fixed rates ranging from 7.75% to 9.70% per annum and
variable rates at the prime rate plus 0.25% per annum.
Mortgage
The Company has a mortgage payable, which is collateralized by certain of
its properties. The mortgage requires monthly payments of both principal and
interest at 6.44%. The mortgage matures in December 2003.
Current maturities of long-term debt as of December 31, 1996 are
approximately as follows (in thousands):
1997 ................................................... $ 995
1998 ................................................... 586
1999 ................................................... 274
2000 ................................................... 151
2001 ................................................... 35
Thereafter ............................................. 67
------
$2,108
======
5. Stock Options
The Company has granted several key employees stock options exercisable on
the earlier of August 1999 or the occurrence of a major transaction defined as
the public offering of the Company's shares, a sale of substantially all the
assets of the Company, or a merger or consolidation of the Company.
The shares held in treasury were purchased by the Company from a former
shareholder and have been set aside for exercise of the aforementioned options.
In conjunction with the sale of the Company's assets in 1997 (see Note 1), such
options were terminated in exchange for a cash settlement of approximately
$862,000 plus an additional amount not to exceed $78,000, as defined in the
termination agreement.
F-37
<PAGE>
BASH THEATRICAL LIGHTING, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
(Information as of June 30, 1997 and for the Six Months ended
June 30, 1996 and 1997 is Unaudited)
6. Capital Stock
The common stock of each of the individual affiliated companies comprising
the Company as of December 31, 1996 are as follows (dollars in thousands):
<TABLE>
<CAPTION>
Common Treasury
Stock Stock
----- -----
<S> <C> <C>
Bash Theatrical Lighting, Inc.
100,000 shares of no par value common stock authorized and issued; 80,000 shares
outstanding; 20,000 shares held in treasury ....................................................... $ 15 $ (5)
Bash Lighting Services, Inc.
200 shares of no par value common stock authorized and issued; 100 shares
outstanding; 100 shares held in treasury ......................................................... 75 (38)
Bash Exposition Services, Inc.
200 shares of no par value common stock authorized; 100 shares issued and outstanding ................ 2 --
Bash Theatrical Lighting, Inc.--West Coast
200 shares of no par value common stock authorized, issued and outstanding ........................... 2 --
Bash Lighting Services--Mid-Atlantic, Inc.
200 shares of no par value common stock authorized; 100 shares issued and outstanding ................ -- --
---- ----
$ 94 $(43)
==== ====
</TABLE>
7. Benefit Plans
The Company is a party to a collective bargaining agreement expiring on
December 31, 1998. The terms of this agreement require contributions by the
Company to a union pension fund. Contributions to the pension fund totaled
approximately $92,000 for the year ended December 31, 1996.
The Company has a defined contribution plan covering all eligible
employees, which qualifies under section 401(k) of the Internal Revenue Code.
The Company's 401(k) plan provides that eligible employees may make
contributions subject to Internal Revenue Service limitations. The Company
contributes an amount equal to 50% of each employee's contributions up to 4% of
an eligible employee's compensation. Such contributions aggregated approximately
$64,000 for the year ended December 31, 1996.
8. Commitments
Operating Leases
The Company leases certain property and equipment under leases that expire
at various dates through 2001. As of December 31, 1996, future minimum lease
payments under noncancelable leases are as follows (in thousands):
1997 ................................................... $366
1998 ................................................... 279
1999 ................................................... 119
2000 ................................................... 107
2001 ................................................... 26
----
$897
====
Rent expense was approximately $399,000 for the year ended December 31,
1996.
F-38
<PAGE>
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus in connection with the Exchange Offer covered by this Prospectus
and, if given or made, such information or representations must not be relied
upon as having been authorized by the Company. Neither the delivery of this
Prospectus nor any sale made hereunder shall, under circumstances, create any
implication that there has been no change in the affairs of the Company since
the dates as of which information is given in this Prospectus. This Prospectus
does not constitute an offer or solicitation is not authorized or in which the
person making such offer of solicitation is not qualified to do so or to any
person to whom it is unlawful to make such offer of solicitations.
___________________________________
Until _______, 1999 (one year after the date of this Exchange Offer) all Dealers
effecting transactions in the New Notes, whether or not participating in this
Exchange Offer, may be required to deliver a Prospectus.
All tendered Old Notes, executed Letters of Transmittal and other related
documents should be directed to the Exchange Agent. Questions and requests for
assistance and request for additional copies of the Prospectus, the Letter of
Transmittal and other related documents should be addressed to the Exchange
Agent as follows:
The Exchange Agent for thge Exchange Offer is:
FIRST UNION NATIONAL BANK
Corporate Trust Operations
1525 West W.T. Harris Blvd.
Charlotte, NC 28288
Facsimile Transmissions
(Eligible Institutions Only)
(704) 590-7628
To confirm by telephone
or for information call:
(704) 590-7408
(Originals of all documents submitted by facsimile should be sent promptly by
hand, overnight courier, or registered or certified mail.)
OFFER TO EXCHANGE ALL OUTSTANDING
11.50% Senior Subordinated
Notes Due 2008
($100,000,000 Principal Amount)
for
11.50% Senior Subordinated
Notes Due 2008
PRODUCTION RESOURCE GROUP, L.L.C.
PRG FINANCE CORPORATION
PRG PLANNING & DEVELOPMENT, L.L.C.
ECTS, A SCENIC TECHNOLOGY COMPANY, INC.
SHOWPAY, LLC
ATTRACTION MANAGEMENT LLC
----------------------------------
Prospectus
----------------------------------
Dated ___________________
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
Reference is made to Section 18-108 ("Section 18-108") of the Delaware
Limited Liability Company Act which provides for indemnification of members and
managers in certain circumstances and Section 145 ("Section 145") of the General
Corporation Law of the State of Delaware (the "DGCL") which provides for
indemnification of directors and officers in certain circumstances.
The Company's Operating Agreement provides that no Covered Person (as
defined therein) shall be obligated personally for any debt, obligation or
liability of the Company solely by reason of being a Covered Person. In
addition, the Operating Agreement provides that a Covered Person shall not be
personally liable to the Company for acts taken on behalf of the Company except
for liability for any loss damage or claim incurred by reason of such Covered
Person's gross negligence or willful misconduct. The Operating Agreement
provides that the Company shall indemnify any Covered Person to the full extent
permitted by law, except that no Covered Person will be entitled to
indemnification in respect of any loss, damage or claim incurred by such Covered
Person by reason of gross negligence or willful misconduct with respect to such
acts or omissions.
Finance Corp.'s Bylaws provide that the Company shall indemnify its
directors and officers to the full extent permitted by law. Further, Finance
Corp. is empowered by Section 145 of the DGCL, subject to the procedures and
limitations stated therein, to indemnify any person against expenses (including
attorney's fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in the defense of any threatened, pending or
competed action, suit or proceeding in which such person is made a party by
reason of his or her being or having been a director or officer of the Company.
The statute provides that indemnification pursuant to its provisions is not
exclusive of other rights of indemnification to which a person may be entitled
under any bylaw, agreement, vote of stockholders or disinterested directors, or
otherwise.
The Company has entered into agreements with certain managers and officers
that require the Company to indemnity such persons against expenses, judgments,
fines, settlements and other amounts to the fullest extent permitted by law
incurred in connection with any proceeding to which any such person may be made
a party by reason of the fact that such person is or was a manager or officer of
the Company or any of its affiliated enterprises, provided such person acted
honestly and in good faith with a view to the best interests of the corporation.
The Company is in the process of procuring directors', officers' and
managers' liability insurance policies to insure directors, officers and
managers of the Company and its subsidiaries.
Item 21. Exhibits and Financial Statement Schedules
(a) Exhibits:
Exhibit
Number Description
------- -----------
1.1 Purchase Agreement, dated as of December 19, 1997, by and among the
Issuers, Finance Corp., the Guarantors and the Initial Purchasers.
3.1 Certificate of Formation of the Company
3.2 Second Amended and Restated Limited Liability Company Agreement of the
Company
3.3 Certificate of Incorporation of Finance Corp.
3.4 Bylaws of Finance Corp.
II-1
<PAGE>
4.1 Registration Rights Agreements, dated December 24, 1997, among the
Issuers, the Guarantors and the Initial Purchasers
4.2 Indenture, dated December 24, 1997 relating to $100,000,000 aggregate
principal amount 11% Senior Subordinated Notes due 2008 between the
Issuers and First Union National Bank, as trustee, including the Form
of Note
5.1 Opinion of Morrison & Foerster LLP+
10.1 Acquistion Agreement dated as of July 3, 1997 among the Company and
Bash Theatrical Lighting, Inc. Bash Theatrical Lighting Services,
Inc., Bash Lighting Services, Inc., Bash Lighting Services
Mid-Atlantic, Inc., Bash Exposition Services, Inc. and Donald Stern
and Robert Cannon.
10.2 Employment Agreement dated as of January 1, 1996 between Jeremiah J.
Harris and the Company.
10.3 Employment Agreement dated as of June 6, 1997 between Kenneth L.
Shearer and the Company.*
10.4 Employment Agreement dated as of June 7, 1997 between Bradley G.
Miller and the Company.
10.5 Employment Agreement dated as of August 6, 1997 between Robert A.
Manners and the Company.*
10.6 Agreement of Lease dated September 11, 1997 between Danis Properties
Limited Partnership and the Company.
10.7 Credit Agreement, dated as of July 31, 1997, by and among the Company,
the lenders party thereto and the Bank of New York, as agent.*
10.8 First Amendment to Credit Agreement, dated as of December 12, 1997, by
and among the Company, the lenders party thereto and the Bank of New
York, as agent.*
12.1 Computation of Ratio of Earnings to Fixed Charges*
21.1 Subsidiaries of the Company
23.1 Consent of Ernst & Young LLP
23.2 Consent of Morrison & Foerster LLP (Included in Exhibit 5.1)+
24 Powers of Attorney (included in Part II to the Registration Statement)
(previously filed)
25.1 Statement Regarding Eligibility of Trustee
27.1 Financial Data Schedule*
99.1 Form of Letter of Transmittal*
99.2 Form of Notice of Guaranteed Delivery
- ----------
* Filed herewith
+ To be filed by amendment
(b) Financial Statement Schedule:
II - Valuation and Qualifying Accounts
II-2
<PAGE>
Item 22. Undertakings
(a) The undersigned hereby undertakes that, for purposes of determining any
liability under the Securities Act, each filing of the registrants's annual
report pursuant to Section 13(a) or Section 15(d) of the Exchange Act (and, were
applicable, each filing of an employee benefit plan's annual report pursuant to
Section 15(d) of the Exchange Act) that is incorporated by reference in the
Registration Statement 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.
(b) Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the registrant
pursuant to the provisions described in Item 20 above, or otherwise, the
registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any 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 Act and will be governed by the final adjudication of
such issue.
(c) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in the form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the 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 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 tie shall be deemed to
be the initial bona fide offering thereof.
(d) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the Prospectus pursuant to
Items 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration Statement through the
date of responding to the request.
(e) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and
the company being acquired involved herein, that was not the subject
of and included in the Registration Statement when it became
effective.
(f) The undersigned registrant hereby undertakes
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include a prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually, or in the aggregate,
represent a fundamental change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high and of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b)if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at the time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this amendment to Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized in the City of New York, State of New
York on April 22, 1998.
PRODUCTION RESOURCE GROUP, L.L.C.
By: /s/ Robert A. Manners
----------------------
Robert A. Manners
Title: Executive Vice President and General Counsel
Pursuant to the requirements of the Securities Act, this amendment to
Registration Statement has been signed below by the following persons and in the
capacities indicated on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
PRODUCTION RESOURCE GROUP, L.L.C.:
By: * Chief Executive Officer, sole Manager of the Board of April 22, 1998
---------------------- Managers (Principal Executive Officer)
Jeremiah J. Harris
By: * Executive Vice President, Chief Operating and April 22, 1998
--------------------- Financial Officer and Director (Principal Financial
Bradley G. Miller Officer)
By: /s/ Robert A. Manners Senior Vice President and General Counsel (Principal April 22, 1998
--------------------- Executive Officer)
Robert A. Manners
By: * Corporate Controller (Principal Accounting Officer April 22, 1998
--------------------
James M. Mahoney
/s/ Robert A. Manners
- ----------------------
*By Robert A. Manners,
as Attorney-in-fact
</TABLE>
II-4
<PAGE>
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this amendment to Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized in the City of New York, State of New
York on April 22, 1998.
PRG FINANCE CORPORATON
By: /s/ Robert A. Manners
-----------------------
Robert A. Manners
Title: Vice President
Pursuant to the requirements of the Securities Act, this amendment to
Registration Statement has been signed below by the following persons and in the
capacities indicated on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
PRG FINANCE CORPORATION:
By: * Chairman, Chief Executive Officer, President and April 22, 1998
---------------------- Director (Principal Executive Officer)
Jeremiah J. Harris
By: * Vice President and Director (Principal Financial April 22, 1998
--------------------- Officer and Principal Accounting Officer)
Bradley G. Miller
By: /s/ Robert A. Manners Vice President and Director (Principal Executive April 22, 1998
--------------------- Officer)
Robert A. Manners
/s/ Robert A. Manners
- ----------------------
*By Robert A. Manners,
as Attorney-in-fact
</TABLE>
II-5
<PAGE>
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this amendment to Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized in the City of New York, State of New
York on April 22, 1998.
PRG PLANNING & DEVELOPMENT, L.L.C.
By: /s/ Robert A. Manners
----------------------
Robert A. Manners
Title: Vice President
Pursuant to the requirements of the Securities Act, this amendment to
Registration Statement has been signed below by the following persons and in the
capacities indicated on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
PRG PLANNING & DEVELOPMENT LLC:
By: * Chief Executive Officer (Principal Executive Officer) April 22, 1998
----------------------
Jeremiah J. Harris
By: Production Resource Group,
L.L.C., sole member Sole Member April 22, 1998
By: *
----------------------
Jeremiah J. Harris,
Chairman
By: * President (Principal Executive Officer) April 22, 1998
-------------------
Kevin J. Baxley
By: * Vice President (Principal Financial Officer) April 22, 1998
---------------------
Bradley G. Miller
By: /s/ Robert A. Manners Vice President (Principal Executive Officer) April 22, 1998
---------------------
Robert A. Manners
/s/ Robert A. Manners
- ----------------------
*By Robert A. Manners,
as Attorney-in-fact
</TABLE>
II-6
<PAGE>
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this amendment to Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized in the City of New York, State of New
York on April 22, 1998.
ECTS, A SCENIC TECHNOLOGY COMPANY, INC.
By: /s/ Robert A. Manners
----------------------
Robert A. Manners
Title: Vice President
Pursuant to the requirements of the Securities Act, this amendment to
Registration Statement has been signed below by the following persons and in the
capacities indicated on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
ECTS, A SCENIC TECHNOLOGY COMPANY, INC.:
By: * President and Director (Principal Executive Officer) April 22, 1998
----------------------
Jeremiah J. Harris
By: * Treasurer and Director (Principal Accounting Officer) April 22, 1998
-------------------
Kevin J. Baxley
By: * Vice President (Principal Financial Officer) April 22, 1998
---------------------
Bradley G. Miller
By: /s/ Robert A. Manners Vice President (Principal Executive Officer) April 22, 1998
---------------------
Robert A. Manners
By: * Director April 22, 1998
-----------------
William Ennis
/s/ Robert A. Manners
- ----------------------
*By Robert A. Manners,
as Attorney-in-fact
</TABLE>
II-7
<PAGE>
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this amendment to Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized in the City of New York, State of New
York on April 22, 1998.
SHOWPAY, L.L.C.
By: /s/ Robert A. Manners
----------------------
Robert A. Manners
Title: Vice President
Pursuant to the requirements of the Securities Act, this amendment to
Registration Statement has been signed below by the following persons and in the
capacities indicated on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
SHOWPAY, L.L.C..:
By: * President (Principal Executive Officer) April 22, 1998
----------------------
Jeremiah J. Harris
By: Production Resource Group,
L.L.C., sole member Sole Member April 22, 1998
By: *
----------------------
Jeremiah J. Harris, Chairman
By: * Vice President (Principal Financial Officer and April 22, 1998
--------------------- Principal Accounting Officer)
Bradley G. Miller
By: /s/ Robert A. Manners Vice President (Principal Executive Officer) April 22, 1998
---------------------
Robert A. Manners
/s/ Robert A. Manners
- ----------------------
*By Robert A. Manners,
as Attorney-in-fact
</TABLE>
II-8
<PAGE>
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this amendment to Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized in the City of New York, State of New
York on April 22, 1998.
ATTRACTION MANAGEMENT LLC
By: /s/ Robert A. Manners
----------------------
Robert A. Manners
Title: Vice President
Pursuant to the requirements of the Securities Act, this amendment to
Registration Statement has been signed below by the following persons and in the
capacities indicated on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
ATTRACTION MANAGEMENT LLC:
By: * President and Chairman of Majority Member (Principal April 22, 1998
---------------------- Executive Officer)
Jeremiah J. Harris
By: Production Resource Group,
L.L.C., majority member Majority Member April 22, 1998
By: *
----------------------
Jeremiah J. Harris, Chairman
By: * Vice President (Principal Financial Officer and April 22, 1998
--------------------- Principal Accounting Officer)
Bradley G. Miller
By: /s/ Robert A. Manners Vice President (Principal Executive Officer) April 22, 1998
---------------------
Robert A. Manners
/s/ Robert A. Manners
- ----------------------
*By Robert A. Manners,
as Attorney-in-fact
</TABLE>
II-9
<PAGE>
Report of Independent Auditors on Schedule
Members
Production Resource Group, L.L.C.
We have audited the consolidated balance sheets of Production Resource Group,
L.L.C. as of December 31, 1996 and 1997, and the related consolidated statements
of operations and members' equity and cash flows for each of the three years in
the period ended December 31, 1997, and have issued our report thereon dated
March 16, 1998 (included elsewhere in this Registration Statement). Our audits
also included the financial statement schedule listed in Item 21(b) of this
Registration Statement. This schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion on this schedule based
on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein for
the periods stated above.
ERNST & YOUNG LLP
New York, New York
March 16, 1998
S-1
<PAGE>
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
PRODUCTION RESOURCE GROUP, L.L.C.
(Dollar in thousands)
<TABLE>
<CAPTION>
- -------------------------------------------------------------- ------------------------------- ---------------- ----------------
COL. A COL. B COL. C COL. D COL. E
- -------------------------------------------------------------- ------------------------------- ---------------- ----------------
Additions
-------------------------------
Balance at Charged to Charged to
Beginning of Costs and Other Accounts Deductions- Balance at End
Description Period Expenses - Describe Describe of Period
- -------------------------------------------------------------- -------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1997:
Reserve and allowances deducted from
asset accounts:
Allowance for uncollectible accounts $323 $2,512 ($263)(1) $2,572
YEAR ENDED DECEMBER 31, 1996:
Reserve and allowances deducted from
asset accounts:
Allowance for uncollectible accounts $100 $311 $(88)(1) $323
YEAR ENDED DECEMBER 31, 1995:
Reserve and allowances deducted from
asset accounts:
Allowance for uncollectible accounts $136 - ($36)(1) $100
</TABLE>
(1) Uncollectible accounts written off, net of recoveries.
S-2
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
- ------- -----------
1.1 Purchase Agreement, dated as of December 19, 1997, by and among the
Issuers, Finance Corp., the Guarantors and the Initial Purchasers.
3.1 Certificate of Formation of the Company
3.2 Second Amended and Restated Limited Liability Company Agreement of the
Company
3.3 Certificate of Incorporation of Finance Corp.
3.4 Bylaws of Finance Corp.
4.1 Registration Rights Agreements, dated December 24, 1997, among the
Issuers, the Guarantors and the Initial Purchasers
4.2 Indenture, dated December 24, 1997 relating to $100,000,000 aggregate
principal amount 11% Senior Subordinated Notes due 2008 between the
Issuers and First Union National Bank, as trustee, including the Form
of Note
5.1 Opinion of Morrison & Foerster LLP+
10.1 Acquistion Agreement among the Company and Bash Theatrical Lighting,
Inc. Bash Theatrical Lighting Services, Inc., Bash Lighting Services,
Inc., Bash Lighting Services Mid-Atlantic, Inc., Bash Exposition
Services, Inc. and Donald Stern and Robert Cannon.
10.2 Employment Agreement dated as of January 1, 1996 between Jeremiah J.
Harris and the Company.
10.3 Employment Agreement dated as of June 6, 1997 between Kenneth L.
Shearer and the Company.*
10.4 Employment Agreement dated as of June 7, 1997 between Bradley G.
Miller and the Company.
10.5 Employment Agreement dated as of August 6, 1997 between Robert A.
Manners and the Company.*
10.6 Agreement of Lease dated September 11, 1997 between Danis Properties
Limited Partnership and the Company.
10.7 Credit Agreement, dated as of July 31, 1997, by and among the Company,
the lenders party thereto and the Bank of New York, as agent.*
10.8 First Amendment to Credit Agreement, dated as of December 12, 1997, by
and among the Company, the lenders party thereto and the Bank of New
York, as agent.*
12.1 Computation of Ratio of Earnings to Fixed Charges*
21.1 Subsidiaries of the Company
23.1 Consent of Ernst & Young LLP
23.2 Consent of Morrison & Foerster LLP (Included in Exhibit 5.1)+
24 Powers of Attorney (included in Part II to the Registration Statement)
25.1 Statement Regarding Eligibility of Trustee
27.1 Financial Data Schedule*
99.1 Form of Letter of Transmittal*
99.2 Form of Notice of Guaranteed Delivery
- ----------
* Filed herewith
+ To be filed by amendment
<PAGE>
EXHIBIT 10.3
KENNETH L. SHEARER
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") dated as of June 6, 1997 is
between PRODUCTION RESOURCE GROUP, L.L.C., a Delaware Limited Liability Company
with its principal place of business at 4170 West Harmon Avenue, Las Vegas,
Nevada (the "Company"), and Kenneth L. Shearer, an individual residing at 8751
Blue Creek Road, Evergreen, Colorado 80439 (the "Employee").
RECITALS
The Company is engaged in business as an integrated provider of goods and
services in a variety of related markets, including production management,
theatrical rental, scenery, rigging, supply of physical production elements
(including lighting, scenery, sound and costumes), promotion, themed
attractions, Broadway and touring shows, special events and exhibits and film
and television production.
The Company has recently expressed its intent to acquire the assets of
Design Dynamics, Inc. (the "Target") and several of its affiliates by letter
dated March 27, 1997 (the "Acquisition"). A condition precedent to the parties'
obligations to consummate the Acquisition is the Company's employment of the
Employee effective upon the closing of the Acquisition.
The Employee has special knowledge and expertise in the exhibit business is
being employed as President of the Company's exhibit division (the "Division")
because of his special experience as President and Chief Operating Officer of
the Target, and to provide a smooth transition with minimal interruptions in
integrating the acquired assets into the Division. Employee will be expected to
work closely on a "project team" basis with the other managers of the Company
and its divisions.
NOW, THEREFORE in consideration of the mutual and dependent promises
hereinafter set forth, the parties, intending to be legally bound, do hereby
agree as follows:
ARTICLE I
Employment and Term
1.1 Employment/Duties. The Company hereby agrees to employ the Employee and
the Employee hereby accepts employment as President of the Division under the
terms and conditions set forth in this Agreement. Employee initially shall be
responsible to the Chairman of the Company for the performance of his duties.
Employee shall have responsibility for such duties as are customarily associated
with the position of President and such other duties and responsibilities as
- 1 -
<PAGE>
may be assigned by the Company's Chairman. During the Term, Employee shall
devote substantially all of his working time, attention and skill to the
business affairs of the Division and the Company. Employee's office will be in
the Company's or Division's Denver, Colorado location or such other office of
the Company or Division as is mutually determined between the parties.
1.2 Effective Date. Employee will commence work immediately upon the
closing of the Acquisition (the "Closing"), such date being referred to as the
"Effective Date". Notwithstanding any other provision of this Agreement to the
contrary, this Agreement is conditioned upon the Closing and shall have no force
and effect until such event occurs.
1.3 Term. This Agreement is effective from the Effective Date and shall run
for a period of three (3) years or until terminated as provided in Article VI
(the "Term").
ARTICLE II
Compensation
1.4 Base Salary. For each twelve (12) month period during the Term of this
Agreement, the Employee shall be paid an annual base salary of no less than one
hundred seventy-five thousand dollars ($175,000) in a manner consistent with the
usual pay practices of the Company. Base salary will be reviewed annually.
1.5 Incentive Compensation
(1) Subject to the approval of the Company's senior lender, the Company
will make Employee a loan in the principal amount of $456,250 which, together
with $293,750 in cash from the Employee's share of the proceeds of the
Acquisition, will be invested in Preferred Units of the Company. The number of
Preferred Units will be based on a value to be determined when the current Bank
of New York financing is closed and there has been a determination of which of
the currently-anticipated acquisitions will occur but will represent a minimum
of one percent (1%) of the issued and outstanding Units of the Company at the
time of issuance. Preferred Units entitle their holder to receive distributions
equal to those received with respect to Regular Units and to share in the
appreciation in the value of the Company above the aggregate capital account
balances on the date such Units are issued. Preferred Units will have a
liquidation preference equal to the amount paid therefor. The loan will be
substantially in the form of Exhibit A, and will have a term of 5 years, be
secured by a pledge of Employee's interest in PRG and will bear interest at the
minimum rate necessary to avoid the imputation of interest for federal income
tax purposes. Except for mandatory prepayments as described below, the note will
require payments of interest only prior to maturity. Units issued to Employee
will also be pledged to the Company's senior lender if requested by such lender.
(2) The loan will be repaid out of the after-tax proceeds of any bonuses
paid to Employee pursuant to sections 2.2(c) and (d) hereof. Employee will also
be required to make
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mandatory prepayments equal to 50% of the after-tax proceeds of any
distributions made with respect to the Units held by Employee or other
securities exchanged therefor.
(3) In addition to any discretionary bonuses based on the performance of
Employee, the Division, and the Company, Employee will be entitled to receive a
bonus of $18,250 no later than December 31st of each of 1997, 1998 and 1999.
(4) In addition to the units acquired as described above, Employee will be
entitled to receive Capital Appreciation Units entitling him to share in the
appreciation in the value of the Company subsequent to the issuance of such
Units based on the extent to which he is able to exceed mutually agreed-upon
annual budgets for the Division as set forth in Exhibit B. This paragraph 2.2(d)
will, notwithstanding the Term hereof, have a term of three (3) years and will
not be affected by the conversion of the Company to a corporation or by an
initial public offering of the Company.
(5) As a condition of the grant of any Units to Employee, Employee will be
required to enter into an Owners' Agreement among the direct and indirect owners
of the Company containing restrictions on the transfer of his Units and granting
the Company an option to acquire the Units under circumstances specified therein
and to become a party to the Company's Operating Agreement. It is anticipated
that section 4.3 of the Owners' Agreement will be amended (or PRG will otherwise
provide that) (i) upon a termination for "Cause," Employee's Units will be
purchased for their fair market value, (ii) if Employee voluntarily leaves his
employment with the Company, the Company will have the option to purchase all of
his Units for their then fair market value and (iii) if Employee is terminated
other than for "Cause" the Company will have the option to acquire Employee's
Units for their fair market value determined as of the first anniversary of
Employee's termination, in each case with fair market value, determined as set
forth in such agreement. It is further anticipated that, for these purposes,
"Cause" will be defined to include only:
(1) Falsification of the accounts of the Company, embezzlement of
funds of the Company or other material dishonesty with respect to the
Company or any of its affiliates;
(2) Conduct engaged in or action taken or omitted to be taken by an
employee which is in material breach of any employment agreement to which
such employee is bound, which breach continues for more than seven (7) days
after written notice of such breach to employee; or (1)
(3) Gross or willful misconduct with respect to the Company or any
subsidiary or affiliate thereof which breach continues for more than ten
(10) days after
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written notice of such breach to employee.
1.6 Benefits. The Company shall during the Term provide the Employee with
such standard benefits as are generally provided by the Company to other
full-time senior executives of the Company, including but not limited to
pension, health, dental, life and disability insurance. Participation shall be
subject to the terms of the applicable plan documents. The Company may alter,
modify, add to or delete its employee benefit plans as they apply to the
Company's management at such times and in such manner as the Company determines
appropriate, without recourse by Employee.
1.7 Vacation. Employee shall be entitled to receive annual vacation in
accordance with the Company's policies applicable to its senior managers.
1.8 Business Expenses. The Company will pay or reimburse Employee for all
reasonable business expenses incurred or paid by him in the performance of his
duties and responsibilities hereunder subject to and in accordance with a
pre-approved budget, subject to any restrictions on such expenses set by the
Managers or Chairman to such reasonable substantiation requirements as may be
specified by the Company from time to time.
1.9 Insurance. In addition to any life insurance provided by the Company to
the Employee, the Company may, at its discretion and at any time after the
execution of this Agreement, apply for and procure, as owner and for its own
benefit, insurance on the life of the Employee, in such amounts and in such form
or forms as the Company may choose. Unless otherwise agreed, the Employee shall
have no interest whatsoever in any such policy or policies, but shall, at the
request of the Company, subject himself to such medical examinations, supply
such information and execute such documents as may be required by the insurance
company or companies to which it has applied for such insurance.
ARTICLE III
Proprietary Information
1.10 Confidential and Proprietary Information. Employee acknowledges that
the Company possesses or will come into possession of information that has been
created, discovered, developed, acquired or otherwise become known to the
Company (including, without limitation, information that is created, discovered,
developed, acquired or made known by Employee in the course of his employment)
and in which the Company has rights of indeterminable commercial value (all of
the aforementioned information is hereinafter collectively referred to as
"Proprietary Information"). By way of illustration, Proprietary Information
includes, but is not limited to, trade secrets, processes, formulas, data and
know-how, marketing plans, strategies, forecasts, market information, contacts,
customer lists, business plans, financial information, and all information
collected from the Company's clients and customers. Employee acknowledges that
such Proprietary Information is
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critical to the success of the Company, was acquired in part by the Company upon
the acquisition of the assets of Design Dynamics, Inc., (the "Acquisition") and
constitutes the trade secrets of the Company. Employee further acknowledges that
Proprietary Information is in part set forth in the Company's manuals,
memoranda, drawings and designs, specifications, accounting and sales records,
and other documents and records of the Company whether or not otherwise
identified as "Proprietary," some of which documents may be actually prepared in
full or in part by Employee. Proprietary Information shall exclude information
that has become public, except (i) when and to the extent that such public
information, when applied to or combined with other information, is non-public
and proprietary or (ii) where such information became public through disclosure
by Employee.
1.11 Non-Disclosure. Employee acknowledges that all Proprietary Information
shall be the sole property of the Company and its successors and assigns. At all
times, both during the course of employment by the Company and for the two year
period after Employee ceases to be employed by the Company, whether such
cessation of employment shall be for any reason or for no reason, with or
without cause, voluntary or involuntary, or by termination, resignation,
disability, retirement or otherwise, Employee agrees to keep in confidence and
trust all Proprietary Information, and not to use, disclose, disseminate,
publish, copy, or otherwise make available, directly or indirectly, any
Proprietary Information except as expressly authorized in writing by the
Company, provided Employee shall be relieved of his obligation of nondisclosure
hereunder if Proprietary Information is required to be disclosed by any
applicable judgment, order or decree of any court or governmental body or agency
having jurisdiction or by any law, rule or regulation, provided that in
connection with any such disclosure, Employee shall give the Company reasonable
prior written notice of the disclosure of such information pursuant to this
exception and shall obtain, to the maximum extent possible, confidential
treatment for such information by any authority requiring delivery of such
information.
1.12 Return of Proprietary Information. Employee agrees that when he ceases
to be employed by the Company, whether such cessation of employment shall be for
any reason or for no reason, with or without cause, voluntary or involuntary, or
by termination, resignation, disability, retirement or otherwise, Employee shall
(i) deliver to the Company all documents and data of any nature owned by the
Company pertaining either to the Proprietary Information or to Employee's work
with the Company and (ii) abstain from taking or removing any documents, data or
information, or any reproduction thereof, containing or pertaining to the
Proprietary Information or to Employee's work for the Company.
1.13 Disclosure and Assignment of Information. Employee agrees promptly to
disclose to the Company all information pertaining to the Company's business and
collected or learned by Employee, either alone or jointly with others, in the
course of his employment with the Company. In addition, Employee hereby assigns
to the Company any rights he may have or acquire in the information referred to
in Section 3.1, and promises that during the duration of his employment with the
Company and thereafter, he will assist the Company in the enforcement and
protection of the Proprietary Information. The Company shall promptly reimburse
Employee for any reasonable expenses incurred in complying with the provisions
of this Section 3.4.
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1.14 Innovations and Improvements. Employee agrees that all inventions,
innovations or improvements in the Company's method of conducting its business
conceived by him during his employment with the Company belong to the Company.
Employee will promptly disclose such inventions, innovations or improvements to
the Company, and perform all actions reasonably requested by the Company to
establish and confirm such ownership. Any such actions required to be performed
by Employee shall be at the expense of the Company. Without limiting the
foregoing, Employee agrees that:
(1) It is the intention of the parties hereto that all rights,
including without limitation copyright, in any product, software (including
source code, object code, models and algorithms) reports, surveys,
marketing, promotional and collateral materials prepared by Employee
pursuant to the terms of this Agreement, or otherwise for Company
(hereinafter the "Work") vest in Company. The parties expressly acknowledge
that the Work was specially ordered or commissioned by Company, and further
agree that it shall be considered a "Work Made for Hire" within the meaning
of the patent and copyright laws of the United States and that Company is
entitled, as author, to the copyright and all other rights therein,
throughout the world, including, but not limited to, the right to make such
changes therein and such uses thereof, as it may determine in its sole and
absolute discretion.
(2) If for any reason the Work is not considered a work made for hire
under the copyright law, then Employee grants and assigns to Company, its
successors and assigns, all of his rights, title, and interest in and to
the Work, including, but not limited to, the patent or copyright therein
throughout the world (and any renewal, extension or reversion copyright now
or hereafter provided), and all other rights therein of any nature
whatsoever, whether now known or hereafter devised, including, but not
limited to the right to make such changes therein, and such uses thereof,
as Company may determine in its sole and absolute discretion.
ARTICLE IV
Competition
1.15 Noncompetition Covenant. Employee covenants and agrees with the
Company that during the "Noncompete Term" as hereinafter defined he will not in
any geographic area in which the Company does business or makes sales during the
Term engage in any of the following activities: (i) either directly or
indirectly, solely or jointly with any person or persons, as an employee,
consultant, or advisor (whether or not engaged in business for profit) or as an
individual proprietor, owner, partner, shareholder, director, officer, joint
venturer, investor, lender or in any other capacity, compete with the Company
in, or engage in, the exhibit or scenery business including, without limitation,
the business of theatrical rental, lighting, scenery, rigging, supply of
physical product elements, or any other business which directly competes with
any other business conducted by the Company or any of its affiliates or any
other business if the Company or such affiliate took substantial steps in
anticipation of commencing such business prior to the termination of the
Employee and the Employee was aware of such steps; provided, Employee may own up
to one percent (1%) of the stock of any publicly traded company which may be
engaged in such business;
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(ii) request or advise any past or present customer or customer prospect of the
Company to withdraw, curtail or cancel its business with the Company; (iii) sell
any products or services which compete with any Company products or services to
any customer who has purchased products or services from the Company in the two
year period prior to the commencement of the Noncompete Term; or (iv) directly
or indirectly recruit or hire or attempt to recruit or hire any employee of the
Company or assist any person or persons in recruiting or hiring or soliciting
any employee of the Company or any person who was an employee of the Company in
the two year period prior to the commencement of the Noncompete Term.
1.16 Noncompete Term. The "Noncompete Term" shall commence on the Effective
Date and end two years following expiration or termination of the Employee's
employment; provided, however, if termination of the Employee is by the Company,
subsection (i) of Section 4.1 shall apply only for such portion of the
Noncompete Term, if any, during which the Company pays Employee on a monthly
basis the Employee's base salary as of the effective date of termination. The
Company shall notify the Employee in writing of its election to extend the
Noncompete Term as provided in Section 4.1(i) above, and monthly payments shall
be made on the first day of each month in arrears (partial months will be paid
on a per diem basis).
1.17 Blue Pencil Rule. The Employee and the Company desire that the
provisions of this Article IV be enforced to the fullest extent permissible
under the laws and public policies applied in each jurisdiction in which
enforcement is sought. The parties agree that Employee is a key executive of the
Company. If a court of competent jurisdiction, however, determines that any
restrictions imposed on the Employee in this Article IV are unreasonable or
unenforceable because of duration, geographic area or otherwise, the Employee
and Company agree and intend that the court shall enforce this Article IV to the
maximum extent the court deems reasonable and that the court shall have the
right to strike or change any provisions of this Article IV and substitute
therefore different provisions to effect the intent of this Article IV to the
maximum extent possible.
ARTICLE V
Indemnification
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1.18 Indemnification of Employee. The Company agrees to indemnify Employee
in connection with the performance of his duties and obligations hereunder to
the maximum extent permitted by applicable law. In addition, expenses of defense
which may be indemnifiable under applicable law shall be paid by the Company in
advance of the final disposition of a proceeding, provided Employee agrees to
repay such amount if he is later found not entitled to be indemnified as
authorized by applicable law. A condition to the Company's obligation of
indemnification hereunder is that Employee provide the Company immediate written
notice of any claim for which indemnification will be sought, stating the
identity of the claimant, the nature and basis of the claim and the amount
thereof, and copies of all notices and documents received by Employee in
connection with the claim. Thereafter Employee, as a condition of the Company's
obligation of indemnification, shall cooperate in the defense of the claim by
the Company, and shall provide the Company with all additional information and
copies of documents received by him, or otherwise in his possession, related to
the claim. The Company will notify Employee of its election to assume the
defense of a claim against Employee, in which event the Company will defend
utilizing counsel of the Company's choice, reasonably acceptable to Employee,
and at the Company's sole expense, and in the event the Company makes such
election, Employee may also participate in the defense utilizing his own counsel
at Employee's sole expense. In the event the Company does not elect to defend,
the Company will advance Employee's reasonable expenses of counsel, subject to
Employee's contingent obligation to repay such expenses as provided above.
Employee will not independently consent to the settlement of any claim without
the prior written consent of the Company, which will not be unreasonably
withheld.
ARTICLE VI
Termination of Employment and Severance Benefits
1.19 Events of Termination by the Company.
(1) Death or Disability. In the event Employee dies or becomes permanently
disabled during the term of this Agreement, his employment hereunder shall
automatically terminate. In such case, the Company shall pay to Employee or his
beneficiary, as the case may be, in addition to such amounts as may be payable
to Employee pursuant to Article II of this Agreement, any earned but unpaid
salary as of the date of his death or disability. For the purpose of this
Agreement, "permanent disability" or "permanently disabled" shall mean the
inability of the Employee, due to physical or mental illness or disease, to
perform the functions then performed by such Employee for one hundred eighty
(180) substantially consecutive days, accompanied by the likelihood, in the
opinion of a physician chosen by the Company, that the disabled Employee will be
unable to perform such functions within the reasonably foreseeable future;
provided, however, that the foregoing definition shall not include a disability
for which the Company is required to provide reasonable accommodation pursuant
to the Americans with Disabilities Act or other similar statute or regulation.
If any question shall arise as to whether during any period Employee has
suffered disability, Employee may, and at the request of the Company will,
submit to the Company a certification in reasonable detail by a physician
selected by Employee or his guardian to whom the Company has no reasonable
objection as to whether Employee was so disabled and such certification shall
for the purposes of this Agreement be conclusive of the issue. If such question
shall arise and
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Employee shall fail to submit such certification, the Company's determination of
such issue shall be binding on Employee.
(2) By the Company. The Company may terminate Employee's employment
hereunder for "Cause" at any time upon notice to Employee setting forth in
reasonable detail the nature of such cause. The following shall constitute
"Cause" for termination.
(1) Employee's falsification of the accounts of the Company,
embezzlement of funds of the Company or other material dishonesty with
respect to the Company or any of its affiliates; or
(2) Conviction of, or plea of nolo contendere to, a felony or other
crime involving moral turpitude (it being understood that violation of a
motor vehicle code does not constitute such a crime); or
(3) Conduct engaged in or action taken or omitted to be taken by
Employee which is in material breach of this Agreement, which breach
continues for more than seven (7) days after written notice of such breach
is given to Employee; or
(4) Material failure satisfactorily to perform a substantial portion
of Employee's duties and responsibilities hereunder which failure continues
for more than thirty (30) days after written notice of such failure is
given to Employee; or
(5) Gross or willful misconduct of Employee with respect to the
Company or any subsidiary or affiliate thereof which misconduct continues
for more than ten (10) days after written notice of such misconduct is
given to Employee.
Upon the giving of notice of termination of Employee's employment hereunder
for cause, the Company shall have no further obligation or liability to
Employee, other than the payment of salary earned and bonus earned (pursuant to
Section 2.2(c)) but unpaid at the date of termination and the contribution by
the Company to the cost of Employee's participation (subject to any required
employee contribution by Employee under the terms of the applicable plans) in
the Company's group medical and dental insurance plans as the same are in effect
from time to time for so long as Employee is entitled to continue such
participation under applicable law and plan terms. Provided further, if Employee
is terminated pursuant to Section 6.1(b)(iv), Employee shall be entitled to
receive severance in the amount of six (6) months base salary in addition to the
amounts, if any, payable pursuant to Section 4.2 hereof.
1.20 Survival. Notwithstanding termination of this Agreement as provided in
this Article VI, the obligations of Employee and the Company under Article III,
Article IV and Article V shall survive termination.
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ARTICLE VII
Concluding Provisions
1.21 Entire Agreement. This Agreement contains the entire understanding of
the parties with respect to the matters contained herein. There are no oral
understandings, terms, or conditions, and no party has relied upon any
representation, express or implied, not contained in this Agreement.
1.22 Amendments. This Agreement may not be amended in any respect
whatsoever, nor may any provision hereof be waived by any party, except by a
further agreement, in writing, fully executed by each of the parties.
1.23 Successors. This Agreement shall be binding upon and inure to the
benefit of the parties and to their respective heirs, personal representatives,
successors and assigns, executors and/or administrators, provided that Employee
may not assign his rights hereunder (except by will or the laws of descent)
without the prior written consent of the Company.
1.24 Captions. The captions of this Agreement are for convenience and
reference only and in no way define, describe, extend or limit the scope or
intent of this Agreement or the intent of any provision contained in this
Agreement.
1.25 Notice. Any notice, demand, offer or other written instrument
("Notice") required or permitted to be given shall be in writing signed by the
party giving such Notice and shall be hand delivered or sent, postage prepaid,
by Certified or Registered Mail, Return Receipt Requested, to the parties at the
addresses as set forth in this Agreement. Any Notice to be given to the estate
of any deceased person shall be addressed to the personal representative of such
deceased person at his address as set forth in this Agreement. Any party shall
have the right to change the place to which such Notice shall be sent or
delivered by similar notice sent in like manner to all other parties hereto.
1.26 Effective Date of Notice. The effective date of any offer, demand,
notice or instrument shall be the date of delivery to the addressee.
1.27 Counterparts. This Agreement may be executed in one or more copies,
each of which shall be deemed an original. This Agreement may be executed by
facsimile signature and each party may fully rely upon facsimile execution; this
agreement shall be fully enforceable against a party which has executed the
agreement by facsimile.
1.28 Partial Invalidity. The invalidity of one or more of the phrases,
sentences, clauses, sections or Articles contained in this Agreement shall not
affect the validity of the remaining portions so long as the material purposes
of this Agreement can be determined and effectuated.
1.29 Applicable Law. This Agreement shall be governed by, construed and
enforced in accordance with the laws of the State of Colorado.
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1.30 Resolution of Disputes.
(1) Subject to the provisions of Section 7.11(b), any dispute, difference
or controversy arising under this Agreement regarding the payment of money shall
be settled by arbitration. Any arbitration pursuant to this Section 7.11 shall
be held before a panel of three arbitrators, one of which shall be selected by
each of the Employee and the Company and the third of which shall be selected by
the mutual election of such two arbitrators. Except as otherwise set forth
herein, each party shall bear its own expenses for counsel and other
out-of-pocket costs in connection with any resolution of a dispute, difference
or controversy. Any arbitration shall take place in Denver, Colorado or at such
other location as the parties may agree upon, according to the American
Arbitration Association's Commercial Arbitration Rules now in force and
hereafter adopted. The parties agree that, in any arbitration the parties shall,
to the maximum extent possible, have such rights as to the scope and manner of
discovery as are permitted in the Federal Rules of Civil Procedure and consent
to the entry of any order of any court of competent jurisdiction necessary to
enforce such discovery. The arbitrators shall make their award in accordance
with and based upon all the provisions of this Agreement and judgment upon any
award rendered by the arbitrators shall be entered in any court having
jurisdiction thereof. The fees and disbursements of such arbitrators shall be
borne equally by the parties, with each party bearing its own expenses for
counsel and other out-of-pocket costs. The arbitrators are specifically
authorized to award costs and attorney's fees to the party substantially
prevailing in the arbitration and shall do so in any case in which they believe
the arbitration was not commenced in good faith.
(2) The parties acknowledge that in the case of disputes regarding matters
other than the payment of money, damages may be insufficient to remedy a breach
of this Agreement and that irreparable harm will result from a breach of this
Agreement. Accordingly, the parties consent to the award of preliminary and
permanent injunctive relief and specific performance to remedy any breach of
this Agreement, regarding disputes other than the payment of money, without
limiting any other rights or remedies to which the parties may be entitled under
law or equity. Either party may pursue injunctive relief or specific performance
in any court of competent jurisdiction.
1.31 Genders. Any reference to the masculine gender shall be deemed to
include feminine and neuter genders, and vice versa, and any reference to the
singular shall include the plural, and vice versa, unless the context otherwise
requires.
1.32 Initialing. Each page which contains handwritten or typewritten
changes and each exhibit which is not attached to this Agreement shall be
initialed or signed by each party.
1.33 No Conflicts. The parties represent and warrant that the terms of this
Agreement do not violate any existing agreements with other parties.
1.34 Withholding. All payments made by Company to Employee hereunder shall
be subject to applicable withholding.
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1.35 Conversion of Form; Public Offering. In the event Company converts its
structure from a limited liability company to a stock corporation, and/or in the
event the Company subsequently registers its securities pursuant to the
Securities Act of 1933, as amended (the "Securities Act") (other than in
connection with a transaction contemplated by Rule 145(a) promulgated under the
Securities Act or pursuant to Form S-8 or successor forms), Employee shall (i)
be entitled to convert a proportionate number of Units as are converted by other
other employee owners of the Company and (ii) be entitled to register a
proportionate number of shares of stock as the other employee owners of the
Company with respect to their interest, if any, in the Company, subject to the
provisions of the Company's Operating Agreement and the Owners' Agreement
referred to in Section 2.2(e) hereof.
[Remainder of page intentionally left blank.]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first set forth above.
THE COMPANY:
Production Resource Group, L.L.C.
By:___________________________________________
Name:
Title:
THE EMPLOYEE:
______________________________________________
Kenneth L. Shearer
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EXHIBIT A
To be provided.
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EXHIBIT B
- --------------------------------------------------------------------------------
If EBITDA is: Employee shall receive:
- --------------------------------------------------------------------------------
1997 $1.1 to $1.6M 10.0% of up to $500K
- ---- $1.6 to $3.0M 17.5% of up to $1.4M
EBITDA $3.0M and above 25% of excess
- --------------------------------------------------------------------------------
1998 $2.0 to $3.0M 10.0% of up to $1M
- ---- $3.0 to $4.0M 15.0% of up to $1M
EBITDA $4.0 to $5.0M 20.0% of up to $1M
$5.0M and above 25% of excess
- --------------------------------------------------------------------------------
1999 $3.2 to $4.0M 10.0% of up to $800K
- ---- $4.0 to $6.0M 15.0% of up to $2.0M
EBITDA $6.0 to $8.0M 20.0% of up to $2.0M
$8.0M and above 25% of excess
- --------------------------------------------------------------------------------
EBITDA shall be calculated without any deduction for compensation to Jan
Speiczny and is adjusted for capital charges at 20%.
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ROBERT A. MANNERS
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") dated as of August
6, 1997 is between PRODUCTION RESOURCE GROUP, L.L.C., a Delaware Limited
Liability Company with its principal place of business at 4170 West
Harmon Avenue, Las Vegas, Nevada (the "Company"), and Robert A. Manners,
an individual residing at 30 Aspen Drive, SOuth Glastonbury, CT 06073
(the "Employee").
RECITALS
The Company is engaged in business as an integrated provider of
goods and services in a variety of related markets, including production
management, theatrical rental, scenery, rigging, supply of physical
production elements (including lighting, scenery, sound and costumes),
promotion, themed attractions, Broadway and touring shows, special events
and exhibits and film and television production.
The Employee is being employed as Senior Vice President,
Business Affairs and General Counsel of the Company (the "Company").
Employee will be expected to work closely on a "project team" basis with
the other managers of the Company and its divisions.
NOW, THEREFORE in consideration of the mutual and dependent
promises hereinafter set forth, the parties, intending to be legally
bound, do hereby agree as follows:
ARTICLE I
Employment and Term
1.l Employment/Duties. The Company hereby agrees to employ the
Employee and the Employee hereby accepts employment as the Senior Vice
President, Business Affairs and General Counsel of the Company under the
terms and conditions set forth in this Agreement. Employee shall be
responsible to the Chairman of the Company or his designee for the
performance of his duties. Employee shall have responsibility for such
duties as are customarily associated with the position of Senior Vice
President, Business Affairs and General Counsel including providing
general legal advice, supervising outside lawyers, providing general
business and strategic advice and planning and such other duties and
responsibilities as my be assigned by the Company's Chairman. Employee
will be invited to attend all meetings of the Company's board of
advisors. During the Term, Employee shall devote substantially all of his
working time, attention and skill to the business affairs of the Company.
Employee's office will be in the Company's New Windsor, New York location
or such other office within the New York Metropolitan area of the Company
as is mutually determined between the parties; provided, however, that
Employee may work part time from home or at an office at Pepe & Hazard
prior to his relocating to the New York metropolitan area.
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1.2 Effective Date. This Agreement will commence on the date
Employee commences full-time work for the Company, anticipated to be on
or about August 11, 1997, such date being referred to as the "Effective
Date".
1.3 Term. This Agreement is effective from the Effective Date
and shall run for an initial period of four (4) years or until terminated
as provided in Article VI. Thereafter, the Agreement will be
automatically renewed for successive one-year terms unless the Company
gives Employee a minimum of six month notice of non-renewal The initial
term and any renewal terms are collectively referred to as the "Term".
ARTICLE II
Compensation
2.1 Base Salary. For each twelve (12) month period during the
Term of this Agreement, the Employee shall be paid an annual base salary
of no less than one hundred seventy-five thousand dollars ($175,000) in a
manner consistent with the usual pay practices of the Company. Base
salary will be reviewed annually but may not be reduced during the Term.
2.2 Bonuses. Employee will be eligible for a bonus in accordance
with the customary practice of the Company. The payment of bonuses will
be based on the performance of the Company and or the performance of
Employee, and shall be solely within the discretion of the Chairman or
the Compensation Committee of the Company but will generally be
representative of bonuses paid to other senior executives except for
non-performance by Employee or extraordinary performance by other senior
executives.
2.3 Equity Provisions
(a) The Company currently has 10,000,000 units
authorized and 5,199,213 issued and outstanding LLC units on a
fully diluted basis. Employee will receive 113,000 Company LLC
Capital Appreciation Units which will entitle Employee to
receive annual distributions of $0.05 per year per Unit when
payable pursuant to the terms of the Company's limited liability
company agreement and which will entitle Employee to share in
the appreciation of the Company upon a sale of the Company, an
initial public offering or a similar event above an equity value
of $55 million, such $55 million figure referred to as the
"Threshold." The Company agrees to negotiate in good faith with
Employee regarding the mechanics for realization of value upon a
change of control, death, disability or termination without
"Cause" or with "Good Reason" (as defined in Sections 2.9 and
Section 6.1 hereof respectively).
(b) Twenty-two thousand six hundred (22,600) of
Employee's Units will be fully vested at the time of grant, and
an additional twenty-two thousand six hundred (22,600) Units
will vest on each of the first, second and third anniversaries
of the Effective Date provided that Employee has not been
terminated for Cause and has not voluntarily departed his
employment without Good Reason. The final twenty-two thousand
six
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hundred (22,600) Units will vest on the fourth anniversary
of the Effective Date provided (i) that Employee has not been
terminated for Cause and has not voluntarily departed his
employment without Good Reason and (ii) the Company has
completed an initial public offering and has had a market
capitalization of its outstanding equity securities (whether or
not registered under the securities laws of the United States)
of at least two hundred fifty million dollars for a ten
consecutive trading day period.
(c) The Threshold will be reduced on a dollar for
dollar basis for extraordinary distributions of funds to the Founders if
Employee does not receive his pro rata share of such distributions. For
purposes of this Agreement, the term "Founders" means jeremiah J. harris,
Roy Sears, John Wolf, Fred Sallo and Kevin Baxley.
2.4 Relocation Expenses
(a) The Company shall pay reasonable temporary living
expenses pending sale of Employee's house including the rental of
suitable temporary quarters if necessary. During the period, if any, that
Employee is responsible for carrying costs on the both a new house and
Employee's South Glastonbury house, the Company will pay the carrying
costs on the less expensive of the two houses. The Company shall pay all
direct moving expenses incurred by Employee, sales costs incident to
selling Employee's South Glastonbury house including brokerage fees,
attorney's fees, if any, and transfer taxes and shall pay closing costs
on new house purchased by Employee including title insurance, mortgage
recording tax and up to 2 points on mortgage provided that the amount
payable pursuant to this sentence shall not exceed seventy thousand
dollars ($70,000). All taxable benefits will be grossed up. Employee
agrees that if his employment is terminated with Cause or he voluntarily
terminates his employment without Good Reason prior to the third
anniversary of the Effective Date he shall repay the relocation costs
paid by the Company pursuant to this Section 2.4(a) as follows:
If termination occurs: Employee will repay
the following percent of
costs paid by the Company:
Prior to the first anniversary of the Effective Date 100%
Prior to the second anniversary of the Effective Date 66-2/3%
Prior to the third anniversary of the Effective Date 33-1/3%
Thereafter 0%
(b) The Company will make Employee a four-year term
loan in an amount equal to the difference between the cash sales proceeds
from the sale of Employee's South Glastonbury house and a twenty percent
(20%) down payment on new house. This loan will bear interest at the
minimum rate necessary to avoid the imputation of interest, shall have a
term of four years, and be payable solely from 50% of after-tax bonus
proceeds over the four year initial Term hereof. The loan is anticipated
to have a principal amount of forty to sixty thousand dollars plus the
loss realized by Employee on the sale of his South Glastonbury house and
will in no event exceed one
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hundred twenty thousand dollars ($120,000). Employee agrees that if his
employment is terminated with Cause or he voluntarily terminates his
employment without Good Reason prior to the fourth anniversary of the
Effective Date he shall repay the outstanding portion of the loan made
pursuant to this Section 2.4(b).
2.5 Automobile Expenses The Company shall reimburse Employee for
all costs including without limitation, insurance, gasoline and
maintenance associated with the lease of and operation of a mutually
agreeable automobile. Reimbursable lease costs will not exceed five
hundred dollar per month.
2.6 Adjustment if Bash Transaction Does Not Occur. The Threshold
will be adjusted as agreed by the parties if the Company's acquisition of
the assets of Bash Theatrical Lighting Inc. and its affiliated entities
has not occurred on or before September 30, 1997 or such later date as
the parties may agree.
2.7 Reclassification, Etc.
(a) In case of: (i) any reclassification or change of
outstanding securities by the Company; (ii) any consolidation or merger
of the Company with or into another limited liability, corporation (other
than a merger with another limited liability company or limited
partnership in which the Company is a continuing limited liability
company and which does not result in any reclassification, change or
exchange of its outstanding securities); or (iii) any sale or transfer to
another entity of all, or substantially all, of the property of the
Company, then, and in each such event, the Company or such successor or
purchasing entity, as the case may be, shall adjust the rights and
privileges of the Capital Appreciation Units in a manner designed to make
Employee as nearly as may be practicable economically indifferent to such
change. The provisions of this subparagraph shall similarly apply to
successive reclassifications, changes, consolidations, mergers, sales and
transfers.
(b) If the Company shall at any time while Employee's
Capital Appreciation Units remain outstanding in whole or in part: (i)
divide its limited liability company Units, the Thresholds shall be
proportionately reduced; or (ii) combine its limited liability company
Units, the Thresholds shall be proportionately increased
2.8 Founders' Interests. The grant of units pursuant to this
Agreement shall not affect in any way the right or power of the Company
(i) to make adjustments, reclassifications, spin offs, reorganizations or
changes of its capital or business structure, to merge or consolidate or
to dissolve, liquidate, sell or transfer all or any part of its business
or assets; (ii) to issue, redeem or repurchase units or securities
convertible into or exchangeable for units, including units preferred in
rights of liquidation, dividends, etc., to the Employee's units; (iii)
otherwise to deal in interests in its equity or profits, provided that
the Employee's units shall be appropriately adjusted in case equity
securities of any nature (including interests in profits) are issued to
the Founders, or any of them, in such a way as to dilute the Employee's
interest vis a vis such Founder or Founders by more than five percent.
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2.9 Owners' and Operating Agreements. Employee will be required
to become a party to, and agree to be bound by the terms of the operating
agreement of the Company and the "Owners' Agreement" among the direct and
indirect owners of PRG; provided that notwithstanding anything to the
contrary in section 4.3 of the Owners' Agreement: (i) upon a termination
for "Cause", Employee's unvested Units will be repurchased by the Company
at a price of $1.00 per Unit and PRG will have the option to purchase his
vested Units for their fair market value as of the date of termination,
(ii) if Employee voluntarily leaves his employment with PRG, Employee's
unvested Units will be repurchased by the Company at a price of $1.00 per
Unit and PRG will have the option to purchase all of his Units for their
fair market value as of the date of termination and (iii) if Employee is
terminated other than for "Cause" PRG will have the option to acquire
Employee's Units for their fair market value as of the first anniversary
of such termination. Fair market value will be determined as set forth in
the Owners' Agreement. It is further anticipated that, for these
purposes, "Cause" will be defined to include only:
(a) Falsification of the accounts of PRG, embezzlement
of funds of PRG or other material dishonesty with respect to PRG or any
of its affiliates;
(b) Conduct engaged in or action taken or omitted to be
taken by an employee which is in material breach of any employment
agreement to which such employee is bound, which breach continues for
more than thirty (30) days after written notice of such breach to
employee; or
(c) Gross or willful misconduct with respect to PRG or
any subsidiary or affiliate thereof which breach continues for more than
ten (10) days after written notice of such breach to employee.
2.10 Leveraged Recapitalization. If PRG effects a "leveraged
recapitalization" transaction, Employee will be entitled to buy stock of
the "Newco" formed to effect the transaction at the price paid by other
investors on terms designed to preserve the economic arrangements set
forth in paragraph 2.3(a) adjusted for any reduction in the aggregate
ownership interest of the Founders; provided, that up to one-half of the
shares or options acquired by Employee may be subject to a vesting or
similar schedule over a three-year period commencing on the date the
stock is first acquired. The parties agree to negotiate the terms of such
buy-in in good faith consistent with the foregoing principles.
2.11 Conversion to C Corporation. If PRG is converted to a C
corporation, Employee will receive options to the extent necessary to
preserve his proportionate interest in PRG adjusted for any reduction in
the aggregate ownership interest of the Founders or will receive other
securities designed to maintain (but not to improve or reduce) such
economic terms on a tax-efficient basis.
2.12 Benefits. The Company shall during the Term provide the
Employee with such standard benefits as are generally provided by the
Company to other full-time senior executives of the Company, including
but not limited to pension, health, dental, life and disability
insurance.
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Participation shall be subject to the terms of the applicable plan
documents. To the extent, if any, that there is a waiting period before
Employee is entitled to participate in the Company's medical plan, the
Company shall reimburse COBRA payments made by Employee to Pepe & Hazard.
The Company may alter, modify, add to or delete its employee benefit
plans as they apply to the Company's management at such times and in such
manner as the Company determines appropriate, without recourse by
Employee.
2.13 Vacation. Employee shall be entitled to receive four weeks
of annual vacation in accordance with the Company's policies applicable
to its senior managers.
2.14 Business Expenses. The Company will pay or reimburse
Employee for all reasonable business expenses incurred or paid by him in
the performance of his duties and responsibilities hereunder subject to
any restrictions on such expenses set by the Managers or Chairman to such
reasonable substantiation requirements as may be specified by the Company
from time to time.
2.15 Insurance. In addition to any life insurance provided by
the Company to the Employee, the Company may, at its discretion and at
any time after the execution of this Agreement, apply for and procure, as
owner and for its own benefit, insurance on the life of the Employee, in
such amounts and in such form or forms as the Company may choose. Unless
otherwise agreed, the Employee shall have no interest whatsoever in any
such policy or policies, but shall, at the request of the Company,
subject himself to such medical examinations, supply such information and
execute such documents as may be required by the insurance company or
companies to which it has applied for such insurance.
ARTICLE III
Proprietary Information
3.1 Confidential and Proprietary Information. Employee
acknowledges that the Company possesses or will come into possession of
information that has been created, discovered, developed, acquired or
otherwise become known to the Company (including, without limitation,
information that is created, discovered, developed, acquired or made
known by Employee in the course of his employment) and in which the
Company has rights of indeterminable commercial value (all of the
aforementioned information is hereinafter collectively referred to as
"Proprietary Information"). By way of illustration, Proprietary
Information includes, but is not limited to, trade secrets, processes,
formulas, data and know-how, marketing plans, strategies, forecasts,
market information, contacts, customer lists, business plans, financial
information, and all information collected from the Company's clients and
customers. Employee acknowledges that such Proprietary Information is
critical to the success of the Company and constitutes the trade secrets
of the Company. Employee further acknowledges that Proprietary
Information is in part set forth in the Company's manuals, memoranda,
drawings and designs, specifications, accounting and sales records, and
other documents and records of the Company whether or not otherwise
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identified as "Proprietary," some of which documents may be actually
prepared in full or in part by Employee. Proprietary Information shall
exclude information that has become public, except (i) when and to the
extent that such public information, when applied to or combined with
other information, is non-public and proprietary or (ii) where such
information became public through disclosure by Employee.
3.2 Non-Disclosure. Employee acknowledges that all Proprietary
Information shall be the sole property of the Company and its successors
and assigns. At all times, both during the Term of employment by the
Company and for the two year period after Employee ceases to be employed
by the Company, whether such cessation of employment shall be for any
reason or for no reason, with or without cause, voluntary or involuntary,
or by termination, resignation, disability, retirement or otherwise,
Employee agrees to keep in confidence and trust all Proprietary
Information, and not to use, disclose, disseminate, publish, copy, or
otherwise make available, directly or indirectly, any Proprietary
Information except as expressly authorized in writing by the Company,
provided Employee shall be relieved of his obligation of nondisclosure
hereunder if Proprietary Information is required to be disclosed by any
applicable judgment, order or decree of any court or governmental body or
agency having jurisdiction or by any law, rule or regulation, provided
that, in connection with any such disclosure, Employee shall give the
Company reasonable prior written notice of the disclosure of such
information pursuant to this exception and shall obtain, to the maximum
extent possible, confidential treatment for such information by any
authority requiring delivery of such information.
3.3 Return of Proprietary Information. Employee agrees that when
he ceases to be employed by the Company, whether such cessation of
employment shall be for any reason or for no reason, with or without
cause, voluntary or involuntary, or by termination, resignation,
disability, retirement or otherwise, Employee shall (i) deliver to the
Company all documents and data of any nature owned by the Company
pertaining either to the Proprietary Information or to Employee's work
with the Company and (ii) abstain from taking or removing any documents,
data or information, or any reproduction thereof, containing or
pertaining to the Proprietary Information or to Employee's work for the
Company.
3.4 Disclosure and Assignment of Information. Employee agrees
promptly to disclose to the Company all information pertaining to the
Company's business and collected or learned by Employee, either alone or
jointly with others, in the course of his employment with the Company. In
addition, Employee hereby assigns to the Company any rights he may have
or acquire in the Proprietary Information referred to in Section 3.1, and
promises that during the duration of his employment with the Company and
thereafter, he will assist the Company in the enforcement and protection
of the Proprietary Information. The Company shall promptly reimburse
Employee for any reasonable expenses incurred in complying with the
provisions of this Section 3.4.
3.5 Innovations and Improvements. Employee agrees that all
inventions, innovations or improvements in the Company's method of
conducting its business conceived by him during his
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employment with the Company belong to the Company. Employee will promptly
disclose such inventions, innovations or improvements to the Company, and
perform all actions reasonably requested by the Company to establish and
confirm such ownership. Any such actions required to be performed by
Employee shall be at the expense of the Company. Without limiting the
foregoing, Employee agrees that:
(a) It is the intention of the parties hereto that all
rights, including without limitation copyright, in any product, software
(including source code, object code, models and algorithms) reports,
surveys, marketing, promotional and collateral materials prepared by
Employee pursuant to the terms of this Agreement, or otherwise for
Company (hereinafter the "Work") vest in Company. The parties expressly
acknowledge that the Work was specially ordered or commissioned by
Company, and further agree that it shall be considered a "Work Made for
Hire" within the meaning of the patent and copyright laws of the United
States and that Company is entitled, as author, to the copyright and all
other rights therein, throughout the world, including, but not limited
to, the right to make such changes therein and such uses thereof, as it
may determine in its sole and absolute discretion.
(b) If for any reason the Work is not considered a Work
Made for Hire under the copyright law, then Employee grants and assigns
to Company, its successors and assigns, all of his rights, title, and
interest in and to the Work, including, but not limited to, the patent or
copyright therein throughout the world (and any renewal, extension or
reversion copyright now or hereafter provided), and all other rights
therein of any nature whatsoever, whether now known or hereafter devised,
including, but not limited to the right to make such changes therein, and
such uses thereof, as Company may determine in its sole and absolute
discretion.
ARTICLE IV
Competition
4.1 Noncompetition Covenant. Employee covenants and agrees with
the Company that during the "Noncompete Term" as hereinafter defined he
will not in any geographic area in which the Company does business or
makes sales during the Term engage in any of the following activities:
(i) either directly or indirectly, solely or jointly with any person or
persons, as an employee, consultant, or advisor (whether or not engaged
in business for profit) or as an individual proprietor, owner, partner,
shareholder, director, officer, joint venturer, investor, lender or in
any other capacity, compete with the Company in, or engage in, the
scenery or exhibit business including, without limitation, the business
of theatrical rental, lighting, scenery, rigging, supply of physical
product elements, or any other business which directly competes with any
other business conducted by the Company or any of its affiliates or any
other business if the Company or such affiliate took substantial steps in
anticipation of commencing such business prior to the termination of the
Employee and the Employee was aware of such steps; provided, Employee may
own up to one percent (1%) of the stock of any publicly traded company
which may be engaged in such business; (ii) request or advise any past or
present customer or customer prospect
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of the Company to withdraw, curtail or cancel its business with the
Company; (iii) sell any products or services which compete with any
Company products or services to any customer who has purchased products
or services from the Company in the two year period prior to the
commencement of the Noncompete Term; or (iv) directly or indirectly
recruit or hire or attempt to recruit or hire any employee of the Company
or assist any person or persons in recruiting or hiring or soliciting any
employee of the Company or any person who was an employee of the Company
in the two year period prior to the commencement of the Noncompete Term.
4.2 Noncompete Term. The "Noncompete Term" shall commence on
the Effective Date and end two years following expiration or termination
of the Employee's employment; provided, however, if termination of the
Employee is by the Company, subsection (i) of Section 4.1 shall apply
only for such portion of the Noncompete Term, if any, during which the
Company pays Employee on a monthly basis the Employee's base salary as of
the effective date of termination. The Company shall notify the Employee
in writing of its election to extend the Noncompete Term as provided in
Section 4.1(i) above, and monthly payments shall be made on the first day
of each month in arrears (partial months will be paid on a per diem
basis).
4.3 Blue Pencil Rule. The Employee and the Company desire that
the provisions of this Article IV be enforced to the fullest extent
permissible under the laws and public policies applied in each
jurisdiction in which enforcement is sought. The parties agree that
Employee is a key executive of the Company. If a court of competent
jurisdiction, however, determines that any restrictions imposed on the
Employee in this Article IV are unreasonable or unenforceable because of
duration, geographic area or otherwise, the Employee and Company agree
and intend that the court shall enforce this Article IV to the maximum
extent the court deems reasonable and that the court shall have the right
to strike or change any provisions of this Article IV and substitute
therefor different provisions to effect the intent of this Article IV to
the maximum extent possible.
ARTICLE II
Indemnification
5.1 Indemnification of Employee. The Company agrees to indemnify
Employee in connection with the performance of his duties and obligations
hereunder to the maximum extent permitted by applicable law. In addition,
expenses of defense which may be indemnifiable under applicable law shall
be paid by the Company in advance of the final disposition of a
proceeding, provided Employee agrees to repay such amount if he is later
found not entitled to be indemnified as authorized by applicable law. A
condition to the Company's obligation of indemnification hereunder is
that Employee provide the Company immediate written notice of any claim
for which indemnification will be sought, stating the identity of the
claimant, the nature and basis of the claim and the amount thereof, and
copies of all notices and documents received by Employee in connection
with the claim. Thereafter Employee, as a condition of the Company's
obligation of indemnification, shall cooperate in the defense of the
claim by the Company, and shall provide the
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Company with all additional information and copies of documents received
by him, or otherwise in his possession, related to the claim. The Company
will notify Employee of its election to assume the defense of a claim
against Employee, in which event the Company will defend utilizing
counsel of the Company's choice, reasonably acceptable to Employee, and
at the Company's sole expense, and in the event the Company makes such
election, Employee may also participate in the defense utilizing his own
counsel at Employee's sole expense. In the event the Company does not
elect to defend, the Company will advance Employee's reasonable expenses
of counsel, subject to Employee's contingent obligation to repay such
expenses as provided above. Employee will not independently consent to
the settlement of any claim without the prior written consent of the
Company, which consent will not be unreasonably withheld.
ARTICLE III
Termination of Employment and Severance Benefits
6.1 Events of Termination by the Company.
(a) Death or Disability. In the event Employee dies or
becomes permanently disabled during the term of this Agreement, his
employment hereunder shall automatically terminate. In such case, the
Company shall pay to Employee or his beneficiary, as the case may be, any
earned but unpaid base salary as of the date of his death or disability.
For the purpose of this Agreement, "permanent disability" or "permanently
disabled" shall mean the inability of the Employee, due to physical or
mental illness or disease, to perform the functions then performed by
such Employee for one hundred eighty (180) substantially consecutive
days, accompanied by the likelihood, in the opinion of a physician chosen
by the Company, that the disabled Employee will be unable to perform such
functions within the reasonably foreseeable future; provided, however,
that the foregoing definition shall not include a disability for which
the Company is required to provide reasonable accommodation pursuant to
the Americans with Disabilities Act or other similar statute or
regulation. If any question shall arise as to whether during any period
Employee has suffered disability, Employee may, and at the request of the
Company will, submit to the Company a certification in reasonable detail
by a physician selected by Employee or his guardian to whom the Company
has no reasonable objection as to whether Employee was so disabled and
such certification shall for the purposes of this Agreement be conclusive
of the issue. If such question shall arise and Employee shall fail to
submit such certification, the Company's determination of such issue
shall be binding on Employee.
(b) By the Company. The Company may terminate
Employee's employment hereunder for "Cause" at any time upon notice to
Employee setting forth in reasonable detail the nature of such cause. For
purposes of this Agreement, "Cause" shall have the meaning given in
Section 2.6 hereof.
(c) By Employee for Good Reason. Employee may terminate
his employment by the Company for "Good Reason" at any time upon notice
to the Company setting forth in
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reasonable detail the nature of such good reason. The following shall
constitute "Good Reason" for Employee to terminate his employment:
(i) any act or omission by the Company which
constitutes a material breach of any term or provision
of this Agreement or which results in the assignment to
Employee of any duties inconsistent with, or in
diminution of, the positions, duties, responsibilities
and status of Employee hereunder or any change in
Employee's titles or duties with the same intent or
effect which breach continues for more than ten days
after written notice of such breach to Company; or
(ii) the transfer of Employee's office outside
of the New Windsor, New York or metropolitan New York
area without Employee's consent.
(d) In the event of termination or cessation by the
Company of Employee's employment with the Company other than for "Cause"
as defined above or the termination of the Employee's employment with the
Company by Employee for "Good Reason" as defined above, Employee shall be
entitled to receive from the Company payment of all salary and bonus and
continuation of all benefits which Employee would have been entitled to
receive through the end of the Term had his employment not terminated, at
the same times as such payments would otherwise have been made. Upon the
giving of notice of termination of Employee's employment hereunder for
Cause, and the passing of any applicable notice period, except as
specifically provided herein, the Company shall have no further
obligation or liability to Employee, other than the payment of base
salary earned but unpaid at the date of termination and the contribution
by the Company to the cost of Employee's participation (subject to any
required employee contribution by Employee under the terms of the
applicable plans) in the Company's group medical and dental insurance
plans as the same are in effect from time to time for so long as Employee
is entitled to continue such participation under applicable law and plan
terms.
6.2 Survival. Notwithstanding termination of this Agreement as
provided in this Article VI, the obligations of Employee and the Company
under Article III, Article IV and Article V shall survive termination.
ARTICLE IV
Concluding Provisions
7.1 Entire Agreement. This Agreement contains the entire
understanding of the parties with respect to the matters contained
herein. There are no oral understandings, terms, or conditions, and no
party has relied upon any representation, express or implied, not
contained in this Agreement.
7.2 Amendments. This Agreement may not be amended in any respect
whatsoever, nor may any provision hereof be waived by any party, except
by a further agreement, in writing, fully executed by each of the
parties.
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7.3 Successors. This Agreement shall be binding upon and inure
to the benefit of the parties and to their respective heirs, personal
representatives, successors and assigns, executors and/or administrators,
provided that Employee may not assign his rights hereunder (except by
will or the laws of descent) without the prior written consent of the
Company.
7.4 Captions. The captions of this Agreement are for convenience
and reference only and in no way define, describe, extend or limit the
scope or intent of this Agreement or the intent of any provision
contained in this Agreement.
7.5 Notice. Any notice, demand, offer or other written
instrument ("Notice") required or permitted to be given shall be in
writing signed by the party giving such Notice and shall be hand
delivered or sent, postage prepaid, by Certified or Registered Mail,
Return Receipt Requested, to the parties at the addresses as set forth in
this Agreement. Any Notice to be given to the estate of any deceased
person shall be addressed to the personal representative of such deceased
person at his address as set forth in this Agreement. Any party shall
have the right to change the place to which such Notice shall be sent or
delivered by similar notice sent in like manner to all other parties
hereto.
7.6 Effective Date of Notice. The effective date of any offer,
demand, notice or instrument shall be the date of delivery to the
addressee.
7.7 Counterparts. This Agreement may be executed in one or more
copies, each of which shall be deemed an original. This Agreement may be
executed by facsimile signature and each party may fully rely upon
facsimile execution; this agreement shall be fully enforceable against a
party which has executed the agreement by facsimile.
7.8 Partial Invalidity. The invalidity of one or more of the
phrases, sentences, clauses, sections or Articles contained in this
Agreement shall not affect the validity of the remaining portions so long
as the material purposes of this Agreement can be determined and
effectuated.
7.9 Applicable Law. This Agreement shall be governed by,
construed and enforced in accordance with the laws of the State of New
York.
7.10 Resolution of Disputes.
(a) Subject to the provisions of Section 7.11(b), any
dispute, difference or controversy arising under this Agreement regarding
the payment of money shall be settled by arbitration. Any arbitration
pursuant to this Section 7.11 shall be held before a panel of three
arbitrators, one of which shall be selected by each of the Employee and
the Company and the third of which shall be selected by the mutual
election of such two arbitrators. Except as otherwise set forth herein,
each party shall bear its own expenses for counsel and other
out-of-pocket costs in connection with any resolution of a dispute,
difference or controversy. Any arbitration shall take place in New York,
New York or at such other location as the parties may agree upon,
according to the American Arbitration Association's Commercial
Arbitration Rules now in force and hereafter adopted. The parties agree
that, in any arbitration the parties shall, to the maximum
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extent possible, have such rights as to the scope and manner of discovery
as are permitted in the Federal Rules of Civil Procedure and consent to
the entry of any order of any court of competent jurisdiction necessary
to enforce such discovery. The arbitrators shall make their award in
accordance with and based upon all the provisions of this Agreement and
judgment upon any award rendered by the arbitrators shall be entered in
any court having jurisdiction thereof. The fees and disbursements of such
arbitrators shall be borne equally by the parties, with each party
bearing its own expenses for counsel and other out-of-pocket costs. The
arbitrators are specifically authorized to award costs and attorney's
fees to the party substantially prevailing in the arbitration and shall
do so in any case in which they believe the arbitration was not commenced
in good faith.
(b) The parties acknowledge that in the case of
disputes regarding matters other than the payment of money, damages may
be insufficient to remedy a breach of this Agreement and that irreparable
harm will result from a breach of this Agreement. Accordingly, the
parties consent to the award of preliminary and permanent injunctive
relief and specific performance to remedy any breach of this Agreement,
regarding disputes other than the payment of money, without limiting any
other rights or remedies to which the parties may be entitled under law
or equity. Either party may pursue injunctive relief or specific
performance in any court of competent jurisdiction.
7.11 Genders. Any reference to the masculine gender shall be
deemed to include feminine and neuter genders, and vice versa, and any
reference to the singular shall include the plural, and vice versa,
unless the context otherwise requires.
7.12 Initialing. Each page which contains handwritten or
typewritten changes and each exhibit which is not attached to this
Agreement shall be initialed or signed by each party.
7.13 No Conflicts. The parties represent and warrant that the
terms of this Agreement do not violate any existing agreements with other
parties.
7.14 Withholding. All payments made by Company to Employee
hereunder shall be subject to applicable withholding.
7.15 Conversion of Form; Public Offering. In the event Company
converts its structure from a limited liability company to a stock
corporation, and/or in the event the Company subsequently registers its
securities pursuant to the Securities Act of 1933, as amended (the
"Securities Act") (other than in connection with a transaction
contemplated by Rule 145(a) promulgated under the Securities Act or
pursuant to Form S-8 or successor forms), Employee shall (i) be entitled
to convert a proportionate number of Units as are converted by other
employee owners of the Company and (ii) be entitled to register a
proportionate number of shares of stock as the other employee owners of
the Company with respect to their interest, if any, in the Company,
subject to the provisions of the Company's Operating Agreement and the
Owners' Agreement referred to in Section 2.6 hereof. The Company will use
reasonable best efforts to structure the conversion of capital
appreciation units in the event of a conversion of the Company to a C
corporation in a manner which will maximize Employee's ability to obtain
capital gains treatment.
- 13 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the date first set forth above.
THE COMPANY:
PRODUCTION RESOURCE GROUP, L.L.C.
By:_____________________________________
Name: Jeremiah J. Harris
Title: Chairman
THE EMPLOYEE:
________________________________________
Robert A. Manners
<PAGE>
================================================================================
CREDIT AGREEMENT
by and among
PRODUCTION RESOURCE GROUP, L.L.C.,
THE LENDERS PARTY HERETO,
AND
THE BANK OF NEW YORK, AS AGENT
with
BNY CAPITAL MARKETS, INC., AS ARRANGER
----------------
$130,000,000
----------------
Dated as of July 31, 1997
================================================================================
<PAGE>
CREDIT AGREEMENT, dated as of July 31, 1997, by and among PRODUCTION
RESOURCE GROUP, L.L.C., a Delaware limited liability company (the "Borrower"),
the lenders party hereto (together with their respective assigns, the "Lenders",
each a "Lender"), and THE BANK OF NEW YORK, as agent for the Lenders (in such
capacity, the "Agent").
1. DEFINITIONS AND PRINCIPLES OF CONSTRUCTION
1.1. Definitions
As used in this Agreement, terms defined in the preamble have
the meanings therein indicated, and the following terms have the following
meanings:
"ABR Advances": the Revolving Credit Loans (or any portions
thereof), at such time as they (or such portions) are made and/or being
maintained at a rate of interest based upon the Alternate Base Rate.
"Accountants": Ernst & Young LLP (or any successor thereto),
or such other firm of certified public accountants of recognized national
standing selected by the Borrower and reasonably satisfactory to the Agent.
"Accumulated Funding Deficiency": as defined in Section 302 of
ERISA.
"Acquisition": with respect to any Person, the purchase or
other acquisition by such Person, by any means whatsoever (including through a
merger, dividend or otherwise and whether in a single transaction or in a series
of related transactions), of (i) any Capital Stock of any other Person if,
immediately thereafter, such other Person would be either a Subsidiary of such
Person or otherwise under the control of such Person, (ii) any business, going
concern or division or segment of any other Person, or (iii) any Property of any
other Person other than in the ordinary course of business, provided, however,
that no acquisition of all or substantially all of the assets of such other
Person shall be deemed to be in the ordinary course of business.
"Acquisition Cost": with respect to any Acquisition by any
Person, the sum of (i) all cash consideration paid or agreed to be paid by such
Person to make such Acquisition (inclusive of all fees in connection therewith,
including without limitation payments by such Person of the seller's
professional fees and expenses and other out-of-pocket expenses in connection
therewith), plus (ii) the fair market value of all non-cash consideration paid
by such Person in connection therewith, plus (iii) an amount equal to the
principal or stated amount of all liabilities assumed or incurred by such Person
in connection therewith. The principal or stated amount of any liability assumed
or incurred by a Person in connection with an Acquisition which is a contingent
liability shall be an amount equal to the stated amount of such liability or, if
the same is not stated, the maximum reasonably anticipated amount payable by
such Person in respect thereof as determined by such Person in good faith.
<PAGE>
"Advance": an ABR Advance or a Eurodollar Advance, as the case
may be.
"Affected Advance": as defined in Section 3.9.
"Affected Principal Amount": in the event that (i) the
Borrower shall fail for any reason to borrow a Revolving Credit Loan in respect
of which it shall have requested a Eurodollar Advance or convert an Advance to a
Eurodollar Advance after it shall have notified the Agent of its intent to do
so, an amount equal to the principal amount of such Eurodollar Advance; (ii) a
Eurodollar Advance shall terminate for any reason prior to the last day of the
Interest Period applicable thereto, an amount equal to the principal amount of
such Eurodollar Advance; and (iii) the Borrower shall prepay or repay all or any
part of the principal amount of a Eurodollar Advance prior to the last day of
the Interest Period applicable thereto, an amount equal to the principal amount
of such Advance so prepaid or repaid.
"Affiliate": as to any Person, any other Person which,
directly or indirectly, is in control of, is controlled by, or is under common
control with, such Person. For purposes of this definition, control of a Person
shall mean the power, direct or indirect, (i) to vote 5% or more of the
securities or other interests having ordinary voting power for the election of
directors or other managing Persons thereof or (ii) to direct or cause the
direction of the management and policies of such Person, whether by contract or
otherwise.
"Aggregate Commitment Amount": at any time, the sum at such
time of the Commitment Amounts of all Lenders.
"Aggregate Credit Exposure": at any time, the sum at such time
of the outstanding principal balance of the Revolving Credit Loans of all
Lenders.
"Agreement": this Credit Agreement, as the same may be
amended, supplemented or otherwise modified from time to time.
"Alternate Base Rate": on any date, a rate of interest per
annum equal to the higher of (i) the Federal Funds Rate in effect on such date
plus 1/2 of 1% or (ii) the BNY Rate in effect on such date.
"Applicable Fee Percentage": with respect to the Commitment
Fee, at all times during which the applicable Pricing Level set forth below is
in effect, the appropriate applicable percentages corresponding to the Leverage
Ratio in effect as set forth below next to such Pricing Level and under the
applicable column:
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<PAGE>
Pricing Applicable
Level Leverage Ratio Fee Percentage
----- -------------- --------------
I Greater than or equal to 3.00:1.00 0.375%
II Greater than or equal to 2.50:1.00 but 0.375%
less than 3.00:1.00
III Greater than or equal to 2.00:1.00 but 0.375%
less than 2.50:1.00
IV Greater than or equal to 1.50:1.00 but 0.375%
less than 2.00:1.00
V Less than 1.50:1.00 0.250%
Changes in the Applicable Fee Percentage resulting from a change in a Pricing
Level shall become effective upon the due date (the 45th day after the end of
the first three fiscal quarters or the 90th day after the end of the last fiscal
quarter) of delivery by the Borrower to the Agent of a Compliance Certificate
pursuant to Section 7.1(c) evidencing a change in the Leverage Ratio which would
affect the Pricing Level. If the Borrower shall fail to deliver a Compliance
Certificate within 45 days after the end of each of the first three fiscal
quarters (or 90 days after the end of the last fiscal quarter) as required by
Section 7.1(c), Pricing Level I shall apply from and including the 46th day (the
91st day in the case of the last quarter) after the end of such fiscal quarter
to the date of the delivery by the Borrower to the Agent of a Compliance
Certificate demonstrating that a different Pricing Level is applicable, which
different Pricing Level shall apply from the date of delivery of such Compliance
Certificate. Notwithstanding the foregoing, no reduction in the Applicable Fee
Percentage shall become effective if an Event of Default shall have occurred and
be continuing.
"Applicable Lending Office": in respect of any Lender, (i) in
the case of such Lender's ABR Advances, its Domestic Lending Office and (ii) in
the case of such Lender's Eurodollar Advances, its Eurodollar Lending Office.
"Applicable Margin": with respect to the unpaid principal
balance of ABR Advances and Eurodollar Advances, in each case at all times
during which the applicable Pricing Level set forth below is in effect, the
appropriate applicable percentages corresponding to the Leverage Ratio in effect
as set forth below next to such Pricing Level and under the applicable column:
-3-
<PAGE>
<TABLE>
<CAPTION>
Applicable Applicable Margin
Pricing Margin for ABR for
Level Leverage Ratio Advances Eurodollar Advances
----- -------------- -------- -------------------
<S> <C> <C> <C>
I Greater than or equal to 1.125% 2.250%
3.00:1.00
II Greater than or equal to 0.750% 1.875%
2.50:1.00 but less than
3.00:1.00
III Greater than or equal to 0.500% 1.625%
2.00:1.00 but less than
2.50:1.00
IV Greater than or equal to 0.250% 1.375%
1.50:1.00 but less than
2.00:1.00
V Less than 1.50:1.00 0.000% 1.125%
</TABLE>
Changes in the Applicable Margin resulting from a change in the Pricing Level
shall become effective upon the due date (the 45th day after the end of the
first three fiscal quarters or the 90th day after the end of the last fiscal
quarter) of delivery by the Borrower to the Agent of a Compliance Certificate
pursuant to Section 7.1(c) evidencing a change in the Leverage Ratio which would
affect the Pricing Level. If the Borrower shall fail to deliver a Compliance
Certificate within 45 days after the end of each of the first three fiscal
quarters (or 90 days after the end of the last fiscal quarter) as required by
Section 7.1(c), Pricing Level I shall apply from and including the 46th day (the
91st day in the case of the last quarter) after the end of such fiscal quarter
to the date of the delivery by the Borrower to the Agent of a Compliance
Certificate demonstrating that a different Pricing Level is applicable, which
different Pricing Level shall apply from the date of delivery of such Compliance
Certificate. Notwithstanding the foregoing, no reduction in the Applicable
Margin shall become effective if an Event of Default shall have occurred and be
continuing.
"Approved Bank": any bank whose (or whose parent company's)
unsecured non-credit supported short-term commercial paper rating from (i)
Standard & Poor's is at least A-1 or the equivalent thereof or (ii) Moody's is
at least P-1 or the equivalent thereof.
"Assignment and Acceptance Agreement": an assignment and
acceptance agreement executed by an assignor and an assignee, substantially in
the form of Exhibit H.
"Assignment Fee": as defined in Section 11.7(b).
-4-
<PAGE>
"Authorized Signatory": as to (i) any Person which is a
corporation, the chairman of the board, the president, any vice president, the
chief financial officer or any other officer (acceptable to the Agent) thereof
and (ii) any Person which is not a corporation, a general partner, Managing
Person or other appropriate appointed officer (acceptable to the Agent) thereof.
"Available Commitment Amount": at any time, an amount equal to
the Aggregate Commitment Amount at such time minus the Aggregate Credit Exposure
at such time.
"Bash Acquisition": shall mean the acquisition evidenced by an
acquisition agreement, dated July 3, 1997 by and among Bash Theatrical Lighting,
Inc., Bash Theatrical Lighting Inc. - West Coast, Bash Lighting Services, Inc.,
Bash Lighting Services Mid-Atlantic, Inc., Bash Exposition Services, Inc.,
Donald Stern, Robert Cannon and the Borrower.
"Benefited Lender": as defined in Section 11.11(a).
"BNY": The Bank of New York.
"BNY Capital Markets": BNY Capital Markets, Inc.
"BNY Rate": a rate of interest per annum equal to the rate of
interest publicly announced in New York City by BNY from time to time as its
prime commercial lending rate, such rate to be adjusted automatically (without
notice) on the effective date of any change in such publicly announced rate.
"Borrowing Date": any Business Day on which the Lenders make
Revolving Credit Loans to the Borrower.
"Borrowing Request": a request for Revolving Credit Loans in
the form of Exhibit C.
"Business Day": for all purposes other than as set forth in
clause (ii) below, (i) any day other than a Saturday, a Sunday or a day on which
commercial banks located in New York City are authorized or required by law or
other governmental action to close, and (ii) with respect to all notices and
determinations in connection with, and payments of principal and interest on,
Eurodollar Advances, any day which is a Business Day described in clause (i)
above and which is also a day on which eurodollar funding between banks may be
carried on in London, England.
"Capital Expenditures": with respect to any Person for any
period, the aggregate of all expenditures incurred by such Person during such
period which, in accordance with GAAP, are required to be included in "Additions
to Property, Plant or Equipment" or similar items reflected on the balance sheet
of such Person or are required to be included in increases in
-5-
<PAGE>
deferred production costs, provided, however, that "Capital Expenditures" shall
not include (i) Capital Lease Obligations, or (ii) expenditures of proceeds of
insurance settlements in respect of lost, destroyed or damaged assets, equipment
or other property to the extent such expenditures are made to replace or repair
such lost, destroyed or damaged assets, equipment or other property within six
months of the receipt of such proceeds or (iii) Acquisition Costs incurred in
connection with Permitted Acquisitions.
"Capital Lease Obligations": with respect to any Person,
obligations of such Person with respect to leases which are required to be
capitalized for financial reporting purposes in accordance with GAAP.
"Capital Stock": as to any Person, all shares, interests,
partnership interests, limited liability company interests, membership units,
participations, rights in or other equivalents (however designated) of such
Person's equity (however designated) and any rights, warrants or options
exchangeable for or convertible into such shares, interests, units,
participations, rights or other equity.
"Cash Equivalents": (i) securities issued or directly and
fully guaranteed or insured by the United States of America or any agency or
instrumentality thereof (provided that the full faith and credit of the United
States of America is pledged in full support thereof) having maturities of not
more than twelve months from the date of acquisition, (ii) Dollar denominated
time deposits, certificates of deposit and bankers acceptances of (x) any Lender
or (y) any Approved Bank, in any such case with maturities of not more than
twelve months from the date of acquisition, (iii) commercial paper issued by any
Approved Bank or by the parent company of any Approved Bank and commercial paper
issued by, or guaranteed by, any industrial or financial company with an
unsecured non-credit supported short-term commercial paper rating of at least
A-1 or the equivalent by Standard & Poor's or at least P-1 or the equivalent by
Moody's, or guaranteed by any industrial or financial company with a long term
unsecured non-credit supported senior debt rating of at least A or A-2, or the
equivalent, by Standard & Poor's or Moody's, as the case may be, and in each
case maturing within twelve months after the date of acquisition, (iv)
marketable direct obligations issued by any state of the United States of
America or any political subdivision of any such state or any public
instrumentality thereof maturing within twelve months from the date of
acquisition thereof and, at the time of acquisition, having one of the two
highest ratings obtainable from either Standard & Poor's or Moody's, (v)
investments in money market funds substantially all the assets of which are
comprised of securities of the types described in clauses (i) through (iv) above
and (vi) fully collateralized repurchase agreements with a term of not more than
twelve months for securities described in clause (i) above and entered into with
any Lender, any Approved Bank or primary dealers in U.S. Government securities;
in each case so long as the same (x) provide for the payment of principal and
interest (and not principal alone or interest alone) and (y) are not subject to
any contingency regarding the payment of principal or interest.
-6-
<PAGE>
"Change of Control": any one or more of the following events:
(a) the Harris Group shall fail to own, beneficially and of record, directly or
indirectly 80% of the issued and outstanding voting Capital Stock of the
Borrower and of each of the Guarantors owning, beneficially and of record any
Capital Stock of the Borrower or (b) the Harris Group shall fail to own,
beneficially and of record, directly or indirectly 25% of the issued and
outstanding Capital Stock of the Borrower and each of the Guarantors owning,
beneficially and of record any Capital Stock of the Borrower.
"Code": the Internal Revenue Code of 1986, as the same may be
amended from time to time, or any successor thereto, and the rules and
regulations issued thereunder, as from time to time in effect.
"Collateral": collectively, the Property in which a security
interest is granted under the Collateral Documents.
"Collateral Documents": collectively, (i) the Pledge
Agreements, the Security Agreement, the Guaranty, and (ii) all documents
executed or delivered in connection with any of the foregoing.
"Commitment": in respect of any Lender, such Lender's
undertaking during the Commitment Period to make Revolving Credit Loans, subject
to the terms and conditions hereof, in an aggregate outstanding principal amount
not exceeding the Commitment Amount of such Lender.
"Commitment Amount": as of any date and with respect to any
Lender, the amount set forth adjacent to its name under the heading "Commitment
Amount" in Exhibit A on such date or, in the event that such Lender is not
listed in Exhibit A, the "Commitment Amount" which such Lender shall have
assumed from another Lender in accordance with Section 11.7 on or prior to such
date, in each case as the same may be adjusted from time to time pursuant to
Sections 2.4 and 11.7.
"Commitment Fee": as defined in Section 3.2(a).
"Commitment Percentage": as to any Lender in respect of such
Lender's Commitment, the percentage equal to such Lender's Commitment Amount
divided by the Aggregate Commitment Amount (or, if no Commitments then exist,
the percentage equal to such Lender's Commitment Amount on the last day upon
which Commitments did exist divided by the Aggregate Commitment Amount on such
day).
"Commitment Period": the period from the Effective Date until
the Commitment Termination Date.
-7-
<PAGE>
"Commitment Termination Date": the earlier of the Business Day
immediately preceding the Maturity Date or such other date upon which the
Commitments shall have been terminated in accordance with Section 2.4 or Section
9.2.
"Compensatory Interest Payment": as defined in Section 3.1(c).
"Compliance Certificate": a certificate substantially in the
form of Exhibit E.
"Consolidated": the Borrower and its Subsidiaries which are
consolidated for financial reporting purposes.
"Contingent Obligation": as to any Person ( a "secondary
obligor"), any obligation of such secondary obligor (i) guaranteeing or in
effect guaranteeing any return on any investment made by another Person, or (ii)
guaranteeing or in effect guaranteeing any Indebtedness, lease, dividend or
other obligation (a "primary obligation") of any other Person (a "primary
obligor") in any manner, whether directly or indirectly, including any
obligation of such secondary obligor, whether contingent, (A) to purchase any
primary obligation or any Property constituting direct or indirect security
therefor, (B) to advance or supply funds (x) for the purchase or payment of any
primary obligation or (y) to maintain working capital or equity capital of the
primary obligor or otherwise to maintain the net worth or solvency of a primary
obligor, (C) to purchase Property, securities or services primarily for the
purpose of assuring the beneficiary of any primary obligation of the ability of
a primary obligor to make payment of a primary obligation, (D) otherwise to
assure or hold harmless the beneficiary of a primary obligation against loss in
respect thereof, and (E) in respect of the liabilities of any partnership in
which a secondary obligor is a general partner, except to the extent that such
liabilities of such partnership are nonrecourse to such secondary obligor and
its separate Property, provided, however, that the term "Contingent Obligation"
shall not include the indorsement of instruments for deposit or collection in
the ordinary course of business. The amount of any Contingent Obligation of a
Person shall be deemed to be an amount equal to the stated or determinable
amount of a primary obligation in respect of which such Contingent Obligation is
made or, if not stated or determinable, the maximum reasonably anticipated
liability in respect thereof as determined by such Person in good faith.
"Control Person": as defined in Section 3.6.
"Conversion Date": the date on which: (i) a Eurodollar Advance
is converted to an ABR Advance, (ii) an ABR Advance is converted to a Eurodollar
Advance or (iii) a Eurodollar Advance is converted to a new Eurodollar Advance.
"Credit Exposure": with respect to any Lender as of any date,
the sum as of such date of the outstanding principal balance of such Lender's
Revolving Credit Loans.
-8-
<PAGE>
"Credit Party": the Borrower and each other party (other than
the Agent and the Lenders) to a Loan Document.
"Default": any event or condition which constitutes an Event
of Default or which, with the giving of notice, the lapse of time, or any other
condition, would, unless cured or waived, become an Event of Default.
"Disposition": with respect to any Person, any sale,
assignment, transfer or other disposition by such Person, by any means, of (i)
the Capital Stock of any other Person, (ii) any business, going concern or
division or segment thereof, or (iii) any other Property of such Person other
than in the ordinary course of business, provided, however, that no such sale,
assignment, transfer or other disposition of Property (other than Property sold
in the ordinary course of business) shall be deemed to be in the ordinary course
of business (a) if the fair market value thereof is in excess of $250,000, or
(b) to the extent the fair market value thereof, when aggregated with all other
sales, assignments, transfers and other dispositions made by such Person within
the same fiscal year exceeds $500,000 or (c) if it is the sale, assignment,
transfer or disposition of (1) all or substantially all of the Property of such
Person, or (2) any Operating Entity.
"Dollars" and "$": lawful currency of the United States.
"Domestic Lending Office": in respect of (i) any Lender listed
on the signature pages hereof, initially, the office or offices of such Lender
designated as such on Schedule 1.1; thereafter, such other office of such
Lender, through which it shall be making or maintaining ABR Advances, as
reported by such Lender to the Agent and the Borrower and (ii) in the case of
any other Lender, initially, the office or offices of such Lender designated as
such on Schedule 2 of the Assignment and Acceptance Agreement or other document
pursuant to which it became a Lender; thereafter, such other office of such
Lender, through which it shall be making or maintaining ABR Advances, as
reported by such Lender to the Agent and the Borrower.
"EBITDA": for any period, Consolidated net income (or loss) of
the Borrower and its Subsidiaries for such period, determined in accordance with
GAAP plus the sum of, without duplication, (i) Interest Expense for such period,
(ii) provision for income taxes for such period and (iii) depreciation,
amortization and other non-cash charges, each to the extent deducted in
determining such net income for such period, and adjusted for any extraordinary
gains and losses from sales, exchanges and other dispositions of Property not in
the ordinary course of business and other non-recurring items (except
non-recurring losses in connection with net deferred production costs),
including without limitation, any non-recurring expenses or charges made in
connection with the Bash Acquisition (including bonus payments made in
connection therewith in an amount not to exceed $2,000,000) and calculated after
giving effect to Acquisitions, mergers and other Dispositions of the Borrower
and its Subsidiaries during such period as if such transactions had occurred on
the first day of such period.
-9-
<PAGE>
"ECTS": ECTS, a Scenic Technology Company, Inc., a New York
corporation.
"ECTS-LV": ECTS Contracting of Las Vegas, Inc., a Nevada
corporation.
"Effective Date": July 31, 1997.
"Eligible Assignee": a Lender, any affiliate of a Lender and
any other bank, insurance company, pension fund, mutual fund or other financial
institution.
"Employee Benefit Plan": an employee benefit plan within the
meaning of Section 3(3) of ERISA maintained, sponsored or contributed to by the
Borrower, any of its Subsidiaries or any ERISA Affiliate.
"Environmental Laws": any and all federal, state and local
laws relating to the environment, the use, storage, transporting, manufacturing,
handling, discharge, disposal or recycling of hazardous substances, materials or
pollutants or industrial hygiene, and including (i) the Comprehensive
Environmental Response, Compensation and Liability Act, as amended, 42 USCA
ss.9601 et seq.; (ii) the Resource Conservation and Recovery Act of 1976, as
amended, 42 USCA ss.6901 et seq.; (iii) the Toxic Substance Control Act, as
amended, 15 USCA ss.2601 et seq.; (iv) the Water Pollution Control Act, as
amended, 33 USCA ss.1251 et seq.; (v) the Clean Air Act, as amended, 42 USCA
ss.7401 et seq.; (vi) the Hazardous Materials Transportation Authorization Act
of 1994, as amended, 49 USCA ss.5101 et seq. and (vii) all rules, regulations,
judgments, decrees, injunctions and restrictions thereunder and any analogous
state law.
"ERISA": the Employee Retirement Income Security Act of 1974,
as amended from time to time, and the rules and regulations issued thereunder,
as from time to time in effect.
"ERISA Affiliate": when used with respect to an Employee
Benefit Plan, ERISA, the PBGC or a provision of the Code pertaining to employee
benefit plans, any Person which is a member of any group of organizations within
the meaning of Sections 414(b) or (c) of the Code (or, solely for purposes of
potential liability under Section 302(c)(11) of ERISA and Section 412(c)(11) of
the Code and the lien created under Section 302(f) of ERISA and Section 412(n)
of the Code, Sections 414(m) or (o) of the Code) of which the Borrower or any of
its Subsidiaries is a member.
"Eurodollar Advances": collectively, the Revolving Credit
Loans (or any portions thereof), at such time as they (or such portions) are
made and/or being maintained at a rate of interest based upon the Eurodollar
Rate.
"Eurodollar Lending Office": in respect of (i) any Lender
listed on the signature pages hereof, initially, the office or offices of such
Lender designated as such on Schedule 1.1;
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<PAGE>
thereafter, such other office of such Lender, through which it shall be making
or maintaining Eurodollar Advances, as reported by such Lender to the Agent and
the Borrower and (ii) in the case of any other Lender, initially, the office or
offices of such Lender designated as such on Schedule 2 of the Assignment and
Acceptance Agreement or other document pursuant to which it became a Lender;
thereafter, such other office of such Lender, through which it shall be making
or maintaining Eurodollar Advances, as reported by such Lender to the Agent and
the Borrower.
"Eurodollar Rate": with respect to the Interest Period
applicable to any Eurodollar Advance, a rate of interest per annum, as
determined by the Agent, obtained by dividing (and then rounding to the nearest
1/16 of 1% or, if there is no nearest 1/16 of 1%, then to the next higher 1/16
of 1%):
(a) the rate, as reported by BNY to the Agent, quoted
by BNY to leading banks in the interbank eurodollar market as the rate at which
BNY is offering Dollar deposits in an amount equal approximately to the
Eurodollar Advance to which such Interest Period shall apply for a period equal
to such Interest Period, as quoted at approximately 11:00 a.m. two Business Days
prior to the first day of such Interest Period, by
(b) a number equal to 1.00 minus the aggregate of the
then stated maximum rates during such Interest Period of all reserve
requirements (including marginal, emergency, supplemental and special reserves),
expressed as a decimal, established by the Board of Governors of the Federal
Reserve System and any other banking authority to which BNY and other major
United States money center banks are subject, in respect of eurocurrency funding
(currently referred to as "Eurocurrency Liabilities" in Regulation D of the
Board of Governors of the Federal Reserve System) or in respect of any other
category of liabilities including deposits by reference to which the interest
rate on Eurodollar Advances is determined or any category of extensions of
credit or other assets which includes loans by non-domestic offices of any
Lender to United States residents. Such reserve requirements shall include,
without limitation, those imposed under such Regulation D. Eurodollar Advances
shall be deemed to constitute Eurocurrency liabilities and as such shall be
deemed to be subject to such reserve requirements without benefit of credits for
proration, exceptions or offsets which may be available from time to time to any
Lender under such Regulation D. The Eurodollar Rate shall be adjusted
automatically on and as of the effective date of any change in any such reserve
requirement.
"Event of Default": as defined in Section 9.1.
"Excess Cash Flow": with respect to any fiscal year, EBITDA
(before giving effect to Acquisitions, mergers and Dispositions during such
period) for such fiscal year less the sum of, without duplication, (i) without
duplication, taxes and Restricted Payments for Members' Tax Liability paid or
required to be paid during such period, (ii) Capital Expenditures, (iii)
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Interest Expense and (iv) mandatory payments of principal of the Revolving
Credit Loans resulting from reductions in the Aggregate Commitment Amount
pursuant to Section 2.4(b)(ii).
"Existing Bank Debt": collectively, the Indebtedness of the
Borrower under the Amended and Restated Credit Agreement, dated as of July 25,
1996, as amended, by and between the Borrower and BNY, including all outstanding
principal, unpaid and accrued interest, unpaid and accrued fees and other unpaid
sums thereunder.
"Federal Funds Rate": for any day, a rate per annum (expressed
as a decimal, rounded upwards, if necessary, to the next higher 1/100 of 1%)
equal to the weighted average of the rates on overnight federal funds
transactions with members of the Federal Reserve System arranged by federal
funds brokers on such day, as published by the Federal Reserve Bank of New York
on the Business Day next succeeding such day, provided that (i) if the day for
which such rate is to be determined is not a Business Day, the Federal Funds
Rate for such day shall be such rate on such transactions on the next preceding
Business Day as so published on the next succeeding Business Day, and (ii) if
such rate is not so published for any day, the Federal Funds Rate for such day
shall be the average of the quotations for such day on such transactions
received by BNY as determined by BNY and reported to the Agent.
"Fees": as defined in Section 2.7.
"Financial Officer": as to any Person, the chief financial
officer of such Person or such other officer as shall be satisfactory to the
Agent.
"Financial Statements": as defined in Section 4.13.
"Fixed Charge Coverage Ratio": at any date of determination,
the ratio of EBITDA to Fixed Charges for the four fiscal quarter period ending
on such date or, if such date is not the last day of a fiscal quarter, for the
immediately preceding four fiscal quarter period.
"Fixed Charges": for any period, with respect to the Borrower
and its Subsidiaries on a Consolidated basis in accordance with GAAP, the sum of
(i) mandatory payments of principal (including mandatory payments of the
Revolving Credit Loans resulting from reductions in the Aggregate Commitment
Amount pursuant to Section 2.4(b)(ii)) on Total Debt made or required to be made
during such period, (ii) Capital Expenditures made during such period, (iii)
Capitalized Lease Obligations paid or required to be paid during such period,
(iv) without duplication, taxes and Restricted Payments for Members' Tax
Liability, and (v) Interest Expense.
"Funded Current Liability Percentage": as defined in Section
401(a)(29) of the Code.
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"GAAP": generally accepted accounting principles set forth in
the opinions and pronouncements of the Accounting Principles Board and the
American Institute of Certified Public Accountants and in the statements and
pronouncements of the Financial Accounting Standards Board or in such other
statement by such other entity as may be approved by a significant segment of
the accounting profession, which are applicable to the circumstances as of the
date of determination, consistently applied.
"Governmental Authority": any foreign, federal, state,
municipal or other government, or any department, commission, board, bureau,
agency, public authority or instrumentality thereof, or any court or arbitrator.
"Guarantors": collectively (i) (1) HPS, (2) ECTS, (3) Theatre
Techniques Associates, Inc., (4) ECTS-LV, (5) Showpay, Inc., (6) Scenic
Properties L.L.C., (7) ECTS, A Scenic Technology Company, Inc., a Delaware
corporation, (8) Scenic Technologies Contracting, L.L.C., and (9) Showpay
L.L.C., and (ii) each other Person which becomes a Guarantor pursuant to the
provisions of the Guaranty.
"Guaranty": the Guaranty by and between the Guarantors and the
Agent, substantially in the form of Exhibit J, as the same may be amended,
supplemented or otherwise modified from time to time.
"Harris Group": Jeremiah Harris, his spouse, his issue and any
of their respective spouses, including any trust with respect to which any such
individual is a beneficiary, and the descendants and heirs of Jeremiah Harris.
"Hazardous Substance": any hazardous or toxic substance,
material or waste, including (i) those substances, materials, and wastes listed
in the United States Department of Transportation Hazardous Materials Table (49
CFR 172.101) or by the Environmental Protection Agency as hazardous substances
(40 CFR Part 302) and amendments thereto and replacements thereof and (ii) any
substance, pollutant or material defined as, or designated in, any Environmental
Law as a "hazardous substance," "toxic substance," "hazardous material,"
"hazardous waste," "restricted hazardous waste," "pollutant," "toxic pollutant"
or words of similar import.
"Highest Lawful Rate": as to any Lender, the maximum rate of
interest, if any, that at any time or from time to time may be contracted for,
taken, charged or received by such Lender on the Revolving Credit Note held by
it, or which may be owing to such Lender pursuant to the Loan Documents under
the laws applicable to such Lender and this transaction.
"HPS": Harris Production Services, Inc., a New York
corporation.
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"Indebtedness": as to any Person, at a particular time, all
items which constitute, without duplication, (i) indebtedness for borrowed
money, (ii) indebtedness in respect of the deferred purchase price of Property
(other than trade payables incurred in the ordinary course of business), (iii)
indebtedness evidenced by notes, bonds, debentures or similar instruments, (iv)
obligations with respect to any conditional sale or title retention agreement,
(v) indebtedness arising under acceptance facilities and the amount available to
be drawn under all letters of credit issued for the account of such Person and,
without duplication, all drafts drawn thereunder to the extent such Person shall
not have reimbursed the issuer in respect of the issuer's payment thereof, (vi)
all liabilities secured by any Lien on any Property owned by such Person even
though such Person has not assumed or otherwise become liable for the payment
thereof (other than carriers', warehousemen's, mechanics', repairmen's or other
like non-consensual statutory Liens arising in the ordinary course of business),
(vii) Capital Lease Obligations, (viii) all obligations of such Person in
respect of Capital Stock subject to mandatory redemption or redemption at the
option of the holder thereof, in whole or in part, and (ix) all Contingent
Obligations of such Person in respect of any of the foregoing.
"Indemnified Liability": as defined in Section 11.5.
"Indemnified Person": as defined in Section 11.8.
"Indemnified Tax": as defined in Section 3.10(a).
"Indemnified Tax Person": as defined in Section 3.10(a).
"Intercompany Indebtedness": loans which are (i) made by the
Borrower to direct or indirect Subsidiaries or (ii) made by direct or indirect
Subsidiaries to the Borrower or to other direct or indirect Subsidiaries of the
Borrower.
"Interest Expense": for any period, the sum of all interest
(adjusted to give effect to all Interest Rate Protection Agreements and fees and
expenses paid in connection therewith), of the Borrower and its Subsidiaries
paid or accrued in respect of Total Debt during such period, determined on a
Consolidated basis in accordance with GAAP.
"Interest Payment Date": (i) as to any ABR Advance, the last
day of each March, June, September and December commencing on the first of such
days to occur after such ABR Advance is made or any Eurodollar Advance is
converted to an ABR Advance, (ii) as to any Eurodollar Advance as to which the
Borrower has selected an Interest Period of one, two or three months, the last
day of such Interest Period, (iii) as to any Eurodollar Advance as to which the
Borrower has selected an Interest Period of six months, the last day of each
three month interval occurring during such Interest Period and the last day of
such Interest Period; and (iv) as to all Advances, the Maturity Date.
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"Interest Period": with respect to any Eurodollar Advance
requested by the Borrower, the period commencing on, as the case may be, the
Borrowing Date or Conversion Date with respect to such Eurodollar Advance and
ending one, two, three or six months, thereafter, as selected by the Borrower in
its irrevocable Borrowing Request or its irrevocable Notice of Conversion,
provided, however, that (i) if any Interest Period would otherwise end on a day
which is not a Business Day, such Interest Period shall be extended to the next
succeeding Business Day unless the result of such extension would be to carry
such Interest Period into another calendar month, in which event such Interest
Period shall end on the immediately preceding Business Day and (ii) any Interest
Period which begins on the last Business Day of a calendar month (or on a day
for which there is no numerically corresponding day in the calendar month at the
end of such Interest Period) shall end on the last Business Day of a calendar
month. Interest Periods shall be subject to the provisions of Section 3.4.
"Interest Rate Protection Agreements": any interest rate swap,
cap or collar arrangement or any other derivative product customarily offered by
banks or other financial institutions to their customers in order to reduce the
exposure of such customers to interest rate fluctuations.
"Investments": as defined in Section 8.5.
"Leverage Ratio": at any date of determination, the ratio of
(i) Total Debt on such date to (ii) EBITDA for the four fiscal quarter period
ending on such date or, if such date is not the last day of a fiscal quarter,
for the immediately preceding four fiscal quarter period.
"Lien": any mortgage, pledge, hypothecation, assignment,
deposit or preferential arrangement, encumbrance, lien (statutory or other), or
other security agreement or security interest of any kind or nature whatsoever,
including any conditional sale or other title retention agreement and any
capital or financing lease having substantially the same economic effect as any
of the foregoing.
"Loan Documents": collectively, this Agreement, the Revolving
Credit Notes, the Collateral Documents and all other agreements, instruments and
documents executed or delivered in connection herewith, in each case as amended,
supplemented or otherwise modified from time to time.
"Managing Person": with respect to any Person that is (i) a
corporation, its board of directors, (ii) a limited liability company, its board
of control, managing member or manager, (iii) a limited partnership, its general
partner, (iv) a general partnership or a limited liability partnership, its
managing partner or executive committee or (v) any other Person, the managing
body thereof or other Person analogous to the foregoing.
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"Margin Stock": any "margin stock", as defined in Regulation
U of the Board of Governors of the Federal Reserve System, as amended,
supplemented or otherwise modified from time to time.
"Material Adverse Change": a material adverse change in (i)
the financial condition, operations, business, prospects or Property of (A) the
Borrower or (B) the Borrower and the Guarantors taken as a whole, (ii) the
ability of the Borrower or any of the Guarantors to perform its obligations
under the Loan Documents to which it is a party or (iii) the ability of the
Agent and the Lenders to enforce the Loan Documents.
"Material Adverse Effect": a material adverse effect on (i)
the financial condition, operations, business, prospects or Property of (A) the
Borrower or (B) the Borrower and the Guarantors taken as a whole, (ii) the
ability of the Borrower or any of the Guarantors to perform its obligations
under the Loan Documents to which it is a party or (iii) the ability of the
Agent and the Lenders to enforce the Loan Documents.
"Maturity Date": June 30, 2003, or such earlier date on which
the Revolving Credit Notes shall become due and payable, whether by acceleration
or otherwise.
"Members' Tax Liability": with respect to any period, the
amount required for the members of a limited liability company or a corporation
subject to the provisions of Subchapter S of the Code to pay their personal
income taxes as a result of such company's status as a limited liability company
or Subchapter S Corporation, assuming that each member is an individual subject
to Federal and New York State income tax at the maximum applicable rate.
"Moody's": Moody's Investors Service, Inc., or any successor
thereto.
"Multiemployer Plan": a Pension Plan which is a multiemployer
plan as defined in Section 4001(a)(3) of ERISA.
"Net Cash Proceeds": with respect to any Disposition by the
Borrower or any of its Subsidiaries or a Guarantor, the aggregate gross sales
proceeds received by the Borrower or such Subsidiary or Guarantor in cash in
connection with such Disposition minus the sum of (i) sales and other
commissions and legal and other expenses incurred in connection with such
Disposition, (ii) any taxes paid or payable by the Borrower or such Subsidiary
or Guarantor in connection therewith, and (iii) the amount of Indebtedness
(other than the Revolving Credit Loans) secured by the Property subject to such
Disposition which, in accordance with the terms governing such Indebtedness, is
required to be repaid upon such Disposition.
"New Subsidiary": as defined in Section 8.12.
"Notice of Conversion": a notice substantially in the form of
Exhibit D.
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"Offering": any public or private offering of Capital Stock
of the Borrower, any Subsidiary or Guarantor or any parent of any thereof.
"Offering Proceeds": with respect to any Offering, the
aggregate amount of cash received by the issuer in connection therewith, after
deduction of reasonable and customary fees and expenses in connection
therewith.
"Other Taxes": as defined in Section 3.10(c).
"Operating Entity": any Person or any business or operating
unit of a Person which is, or could be, operated separate and apart from (i)
the other businesses and operations of such Person, or (ii) any other line of
business or business segment.
"Organizational Documents": as to any Person which is (i) a
corporation, the certificate or articles of incorporation and by-laws of such
Person, (ii) a limited liability company, the limited liability company
agreement or similar agreement of such Person, (iii) a partnership, the
partnership agreement or similar agreement of such Person, or (iv) any other
form of entity or organization, the organizational documents analogous to the
foregoing.
"PBGC": the Pension Benefit Guaranty Corporation established
pursuant to Subtitle A of Title IV of ERISA, or any Governmental Authority
succeeding to the functions thereof.
"Pension Plan": at any date of determination, any Employee
Benefit Plan (including a Multiemployer Plan), the funding requirements of which
(under Section 302 of ERISA or Section 412 of the Code) are, or at any time
within the six years immediately preceding such date, were in whole or in part,
the responsibility of the Borrower, any of its Subsidiaries or any ERISA
Affiliate.
"Permitted Acquisition": an Acquisition permitted by Section
8.3.
"Permitted Lien": a Lien permitted to exist under Section 8.2.
"Person": any individual, firm, partnership, limited liability
company, joint venture, corporation, association, business enterprise, joint
stock company, unincorporated association, trust, Governmental Authority or any
other entity, whether acting in an individual, fiduciary, or other capacity, and
for the purpose of the definition of "ERISA Affiliate", a trade or business.
"Pledge Agreements": the Pledge Agreements, made by the
Pledgors in favor of the Agent, substantially in the form of Exhibit K hereto.
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"Pledgors": (i) Kevin Baxley, (ii) William Ennis, and (iii)
any other Person who becomes a Pledgor after the Effective Date pursuant to
Section 8.12.
"Preferred Membership Units": the preferred membership units
which may be issued to Donald Stern or Robert Cannon pursuant to an investment
option agreement that shall be executed in connection with the Bash
Acquisition.
"PRG Operating Agreement": the Amended and Restated Limited
Liability Company Agreement of the Borrower, dated as of January 1, 1996.
"Pricing Level": Pricing Level I, Pricing Level II, Pricing
Level III, Pricing Level IV or Pricing Level V, as said terms are used in the
definitions of "Applicable Fee Percentage" and "Applicable Margin", as
applicable.
"Pro Forma Interest Coverage Ratio": at any date of
determination, the ratio of EBITDA for the four fiscal quarter period ending on
such date or, if such date is not the last day of a fiscal quarter, for the
immediately preceding four fiscal quarter period, to Pro Forma Interest Expense
as of such date.
"Pro Forma Interest Expense": at any date of determination,
the sum of Interest Expense on Total Debt for the period of the four fiscal
quarters immediately succeeding such date of determination. For purposes of
calculating "Pro Forma Interest Expense", the principal amount of Total Debt
outstanding during such succeeding four fiscal quarters shall be assumed to be
the average daily Total Debt outstanding during the fiscal quarter immediately
preceding such date of determination (or, in the event that such date of
determination is a fiscal quarter ending date, the fiscal quarter then ended),
subject to any mandatory repayments required to be made under any outstanding
facilities as a result of any scheduled mandatory reductions to the amounts of
such facilities during such succeeding four fiscal quarters. If any item of
interest varies or depends upon a variable rate of interest such rate shall be
assumed to equal the Alternate Base Rate plus the Applicable Margin in effect on
the date of such calculation, or, if such rate is a Eurodollar Rate, the
applicable Eurodollar Rate plus the Applicable Margin in effect on the date of
such calculation.
"Prohibited Transaction": a transaction which is prohibited
under Section 4975 of the Code or Section 406 of ERISA and not exempt under
Section 4975 of the Code or Section 408 of ERISA.
"Property": all types of real, personal, tangible, intangible
or mixed property.
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"Rate Protection Lenders": collectively, the Lenders and any
affiliates of the Lenders which from time to time enter or have entered into
Interest Rate Protection Arrangements with the Borrower.
"Real Property": all real property owned or leased by the
Borrower or any of its Subsidiaries.
"Regulatory Change": (i) the introduction or phasing in of any
law, rule or regulation after the Effective Date, (ii) the issuance or
promulgation after the Effective Date of any directive, guideline or request
from any central bank or United States or foreign Governmental Authority
(whether or not having the force of law), or (iii) any change after the
Effective Date in the interpretation of any existing law, rule, regulation,
directive, guideline or request by any central bank or United States or foreign
Governmental Authority charged with the administration thereof.
"Remaining Interest Period": (i) in the event that the
Borrower shall fail for any reason to borrow a Revolving Credit Loan in respect
of which it shall have requested a Eurodollar Advance or convert an Advance to a
Eurodollar Advance after it shall have notified the Agent of its intent to do
so, a period equal to the Interest Period that the Borrower elected in respect
of such Eurodollar Advance; or (ii) in the event that a Eurodollar Advance shall
terminate for any reason prior to the last day of the Interest Period applicable
thereto, a period equal to the remaining portion of such Interest Period if such
Interest Period had not been so terminated; or (iii) in the event that the
Borrower shall prepay or repay all or any part of the principal amount of a
Eurodollar Advance prior to the last day of the Interest Period applicable
thereto, a period equal to the period from and including the date of such
prepayment or repayment to but excluding the last day of such Interest Period.
"Reportable Event": with respect to any Pension Plan, (i) any
event set forth in Sections 4043(c) (other than a Reportable Event as to which
the 30 day notice requirement is waived by the PBGC under applicable
regulations), 4062(c) or 4063(a) of ERISA or the regulations thereunder, (ii) an
event requiring the Borrower, any of its Subsidiaries or any ERISA Affiliate to
provide security to a Pension Plan under Section 401(a)(29) of the Code, or
(iii) any failure to make any payment required by Section 412(m) of the Code.
"Required Lenders": at any time when (i) no Revolving Credit
Loans are outstanding, Lenders having Commitment Amounts (or if no Commitments
then exist, Lenders having Commitment Amounts on the last day on which
Commitments did exist) greater than or equal to 51% of the Aggregate Commitment
Amount and (ii) at any time when Revolving Credit Loans are outstanding, Lenders
which have Revolving Credit Loans outstanding in an aggregate amount greater
than or equal to 51% of the Aggregate Credit Exposure.
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"Restricted Payment": as to any Person (i) any dividend or
other distribution, direct or indirect, on account of any Capital Stock in such
Person now or hereafter outstanding (other than a dividend payable solely in
shares or units of such Capital Stock to the holders thereof), (ii) any
redemption, retirement, sinking fund or similar payment, purchase or other
acquisition, direct or indirect, of any Capital Stock in such Person now or
hereafter outstanding, (iii) any tax sharing or similar payment payable by such
Person to another Person and (iv) any distribution made, directly or indirectly,
with respect to such Person's Members' Tax Liability.
"Revolving Credit Loan" and "Revolving Credit Loans": as
defined in Section 2.1.
"Revolving Credit Note" and "Revolving Credit Notes": as
defined in Section 2.2.
"SEC": the Securities and Exchange Commission or any
Governmental Authority succeeding to the functions thereof.
"Security Agreement": the Security Agreement by and between
the Borrower, the Guarantors and the Agent, substantially in the form of
Exhibit I, as the same may be amended, supplemented or otherwise modified from
time to time.
"Special Counsel": Emmet, Marvin & Martin, LLP, special
counsel to the Agent.
"Standard & Poor's": Standard & Poor's Ratings Services, a
division of The McGraw-Hill Companies, Inc., or any successor thereto.
"Subsidiary": as to any Person, any corporation, association,
partnership, limited liability company, joint venture or other business entity
of which such Person or any Subsidiary of such Person, directly or indirectly,
either (i) in respect of a corporation, owns or controls more than 50% of the
outstanding Capital Stock having ordinary voting power to elect a majority of
the Managing Person, irrespective of whether a class or classes shall or might
have voting power by reason of the happening of any contingency, or (ii) in
respect of an association, partnership, limited liability company, joint
venture or other business entity, is entitled to share in more than 50% of the
profits and losses, however determined provided, however that for purposes of
this Agreement J. Harris Inc. and Kaleidoscope Creative, Inc. shall not be
Subsidiaries of any Credit Party.
"Taxes": as defined in Section 3.10(a).
"Tax on the Income": as defined in Section 3.10(a).
"Termination Event": with respect to any Pension Plan, (i) a
Reportable Event, (ii) the termination of a Pension Plan,
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or the filing of a notice of intent to terminate a Pension Plan, or the
treatment of a Pension Plan amendment as a termination under Section 4041(c) of
ERISA, (iii) the institution of proceedings to terminate a Pension Plan under
Section 4042 of ERISA, or (iv) the appointment of a trustee to administer any
Pension Plan under Section 4042 of ERISA.
"Total Debt": at any date of determination, all Indebtedness
(other than trade payables incurred in the ordinary course of business) on such
date of the Borrower and its Subsidiaries on a Consolidated basis as determined
in accordance with GAAP.
"Type": with respect to any Revolving Credit Loan, the
character of such Revolving Credit Loan as an ABR Advance or a Eurodollar
Advance, each of which constitutes a type of loan.
"Unfunded Pension Liabilities": with respect to any Pension
Plan, at any date of determination, the amount determined by taking the
accumulated benefit obligation, as disclosed in accordance with Statement of
Accounting Standards No. 87, "Employers' Accounting for Pensions", over the
fair market value of Pension Plan assets.
"United States": the United States of America (including the
States thereof and the District of Columbia).
"Unqualified Amount": as defined in Section 3.1(c).
"Unrecognized Retiree Welfare Liability": with respect to any
Employee Benefit Plan that provides postretirement benefits other than pension
benefits, the amount of the transition obligation, as determined in accordance
with Statement of Financial Accounting Standards No. 106, "Employers' Accounting
for Postretirement Benefits Other Than Pensions," as of the most recent
valuation date, that has not been recognized as an expense in an income
statement of the Borrower and its Subsidiaries, provided that prior to the date
such Statement is applicable to the Borrower, such amount shall be based on an
estimate made in good faith of such transition obligation.
"U.S. Person": a citizen or resident of the United States, a
corporation, partnership or other entity created or organized in or under any
laws of the United States, or any estate or trust that is subject to United
States federal income taxation regardless of the source of its income.
1.2. Principles of Construction
(a) All terms defined in a Loan Document shall have the
meanings given such terms therein when used in the other Loan Documents or any
certificate, opinion or other document made or delivered pursuant thereto,
unless otherwise defined therein.
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(b) As used in the Loan Documents and in any certificate,
opinion or other document made or delivered pursuant thereto, accounting terms
not defined in Section 1.1, and accounting terms partly defined in Section 1.1,
to the extent not defined, shall have the respective meanings given to them
under GAAP. If at any time any change in GAAP would affect the computation of
any financial ratio or requirement set forth in this Agreement, the Agent, the
Lenders and the Borrower shall negotiate in good faith to amend such ratio or
requirement to reflect such change in GAAP (subject to the approval of the
Required Lenders), provided that, until so amended, (i) such ratio or
requirement shall continue to be computed in accordance with GAAP prior to such
change therein and (ii) the Borrower shall provide to the Agent and the Lenders
financial statements and other documents required under this Agreement or as
reasonably requested hereunder setting forth a reconciliation between
calculations of such ratio or requirement made before and after giving effect to
such change in GAAP.
(c) The words "hereof", "herein", "hereto" and "hereunder" and
similar words when used in a Loan Document shall refer to such Loan Document as
a whole and not to any particular provision thereof, and Section, schedule and
exhibit references contained therein shall refer to Sections thereof or
schedules or exhibits thereto unless otherwise expressly provided therein.
(d) The phrase "may not" is prohibitive and not permissive.
(e) Unless the context otherwise requires, words in the
singular number include the plural, and words in the plural include the
singular.
(f) Unless specifically provided in a Loan Document to the
contrary, any reference to a time shall refer to such time in New York.
(g) Unless specifically provided in a Loan Document to the
contrary, in the computation of periods of time from a specified date to a later
specified date, the word "from" means "from and including" and the words "to"
and "until" each means "to but excluding".
(h) References in any Loan Document to a fiscal period shall
refer to that fiscal period of the Borrower.
(i) The words "include" and "including", when used in each
Loan Document, shall mean that the same shall be included "without limitation",
unless otherwise expressly provided therein.
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2. AMOUNT AND TERMS OF REVOLVING CREDIT LOANS
2.1. Revolving Credit Loans
Subject to the terms and conditions hereof, each Lender
severally (and not jointly) agrees to make revolving credit loans (each a
"Revolving Credit Loan" and, as the context may require, collectively with all
other Revolving Credit Loans of such Lender and with the Revolving Credit Loans
of all other Lenders, the "Revolving Credit Loans") to the Borrower from time to
time during the Commitment Period, provided that immediately after giving effect
thereto (i) such Lender's Credit Exposure would not exceed such Lender's
Commitment Amount, and (ii) the Aggregate Credit Exposure would not exceed the
Aggregate Commitment Amount. During the Commitment Period, the Borrower may
borrow, prepay in whole or in part and reborrow under the Commitments, all in
accordance with the terms and conditions of this Agreement. Subject to the
provisions of Sections 2.3 and 3.3, at the option of the Borrower, Revolving
Credit Loans may be made as one or more (i) ABR Advances, (ii) Eurodollar
Advances or (iii) any combination thereof.
2.2. Revolving Credit Notes
The Revolving Credit Loans made by each Lender shall be
evidenced by a promissory note of the Borrower, substantially in the form of
Exhibit B, with appropriate insertions therein as to date and principal amount
(each, as indorsed or modified from time to time, a "Revolving Credit Note" and,
collectively with the Revolving Credit Notes of all other Lenders, the
"Revolving Credit Notes"), payable to the order of such Lender for the account
of its Applicable Lending Office, dated the first Borrowing Date, and in the
stated principal amount equal to such Lender's Commitment Amount. The
outstanding principal balance of the Revolving Credit Loans shall be due and
payable on the Maturity Date.
2.3. Procedure for Borrowing
(a) The Borrower may borrow under the Commitments on any
Business Day during the Commitment Period, provided that the Borrower shall
notify the Agent by the delivery of a Borrowing Request, which shall be sent by
telecopy and shall be irrevocable (confirmed promptly, and in any event within
five Business Days, by the delivery to the Agent of a Borrowing Request
manually signed by the Borrower), no later than: 11:00 a.m., three Business
Days prior to the requested Borrowing Date, in the case of Eurodollar Advances,
or 11:00 a.m., one Business Day prior to the requested Borrowing Date, in the
case of ABR Advances, specifying (A) the aggregate principal amount to be
borrowed under the Commitments, (B) the requested Borrowing Date, (C) whether
such borrowing is to consist of one or more Eurodollar Advances, ABR Advances,
or a combination thereof and (D) if the borrowing is to consist of one or more
Eurodollar Advances, the length of the Interest Period for each such Eurodollar
Advance. Each (i) Eurodollar Advance to be made on a Borrowing Date, when
aggregated with
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all amounts to be converted to a Eurodollar Advance on such date and having the
same Interest Period as such first Eurodollar Advance, shall equal no less than
$1,000,000 or such amount plus a whole multiple of $500,000 in excess thereof,
and (ii) each ABR Advance made on each Borrowing Date shall equal no less than
$500,000 or such amount plus a whole multiple of $100,000 in excess thereof or,
if less, the Available Commitment Amount.
(b) Upon receipt of each Borrowing Request, the Agent shall
promptly notify each Lender thereof. Subject to its receipt of the notice
referred to in the preceding sentence, each Lender will make the amount of its
Commitment Percentage of the requested Revolving Credit Loans available to the
Agent for the account of the Borrower at the office of the Agent set forth in
Section 11.2 not later than 12:00 noon on the relevant Borrowing Date requested
by the Borrower, in funds immediately available to the Agent at such office. The
amounts so made available to the Agent on such Borrowing Date will then, subject
to the satisfaction of the terms and conditions of this Agreement, as determined
by the Agent, be made available on such date to the Borrower by the Agent at the
office of the Agent specified in Section 11.2 by crediting the account of the
Borrower on the books of such office with the aggregate of said amounts received
by the Agent.
(c) Unless the Agent shall have received prior notice from a
Lender (by telephone or otherwise, such notice to be promptly confirmed by
telecopy or other writing) that such Lender will not make available to the Agent
such Lender's Commitment Percentage of the Revolving Credit Loans requested by
the Borrower, the Agent may assume that such Lender has made such share
available to the Agent on the Borrowing Date in accordance with this Section,
provided that such Lender received notice of the requested Revolving Credit
Loans from the Agent, and the Agent may, in reliance upon such assumption, make
available to the Borrower on the Borrowing Date a corresponding amount. If and
to the extent such Lender shall not have so made its Commitment Percentage of
such Revolving Credit Loans available to the Agent, such Lender and the Borrower
severally agree to pay to the Agent forthwith on demand such corresponding
amount (to the extent not previously paid by the other), together with interest
thereon for each day from the date such amount is made available to the Borrower
to the date such amount is paid to the Agent, at a rate per annum equal to, in
the case of the Borrower, the applicable interest rate set forth in Section 3.1
for ABR Advances, and, in the case of such Lender, at a rate of interest per
annum equal to the Federal Funds Rate for the first three days after the due
date of such payment until the date such payment is received by the Agent and
the Federal Funds Rate plus 2% thereafter. Such payment by the Borrower,
however, shall be without prejudice to its rights against such Lender. If such
Lender shall pay to the Agent such corresponding amount, such amount so paid
shall constitute such Lender's Revolving Credit Loan as part of the Revolving
Credit Loans for purposes of this Agreement, which Revolving Credit Loan shall
be deemed to have been made by such Lender on the Borrowing Date applicable to
such Revolving Credit Loans.
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(d) If a Lender makes a new Revolving Credit Loan on a
Borrowing Date on which the Borrower is to repay a Revolving Credit Loan from
such Lender, such Lender shall apply the proceeds of such new Revolving Credit
Loan to make such repayment, and only the excess of the proceeds of such new
Revolving Credit Loan over the Revolving Credit Loan being repaid need be made
available to the Agent.
2.4. Termination or Reduction of Commitments
(a) Voluntary Reductions. The Borrower shall have the right,
upon at least three Business Days' prior written notice to the Agent, to reduce
permanently the Aggregate Commitment Amount, in whole at any time, or in part
from time to time, to an amount not less than the sum of the aggregate principal
balance of the Revolving Credit Loans then outstanding (after giving effect to
any contemporaneous prepayment thereof), provided, however, that each partial
reduction of the Aggregate Commitment Amount shall be an amount equal to
$2,000,000 or such amount plus a whole multiple of $500,000 in excess thereof.
(b) Mandatory Reductions.
(i) On each date that a prepayment is made pursuant
to Section 2.5(b), (c), (d), (e) or (f), the Aggregate Commitment
Amount shall be automatically and permanently reduced in an amount
equal to the amount of the required prepayment.
(ii) On each of the dates set forth below, the
Aggregate Commitment Amount shall be automatically and permanently
reduced as set forth below:
<TABLE>
<CAPTION>
Commitment Commitment
Date Reduction Amount
---- --------- ------
<S> <C> <C>
September 30, 2000 $9,750,000 $120,250,000
December 31, 2000 $9,750,000 $110,500,000
March 31, 2001 $9,750,000 $100,750,000
June 30, 2001 $9,750,000 $91,000,000
September 30, 2001 $9,750,000 $81,250,000
December 31, 2001 $9,750,000 $71,500,000
March 31, 2002 $9,750,000 $61,750,000
June 30, 2002 $9,750,000 $52,000,000
September 30, 2002 $13,000,000 $39,000,000
December 31, 2002 $13,000,000 $26,000,000
March 31, 2003 $13,000,000 $13,000,000
June 30, 2003 $13,000,000 $0
</TABLE>
(c) In General.
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(i) Each reduction of the Aggregate Commitment Amount
pursuant to this Section shall effect a corresponding reduction of each
Lender's Commitment Amount by an amount equal to such Lender's
applicable Commitment Percentage of such reduction.
(ii) Reductions of the Aggregate Commitment Amount
made pursuant to Section 2.4(a) or 2.4(b)(i) shall be applied on a pro
rata basis among the remaining Aggregate Commitment Amount reductions
set forth in Section 2.4(b)(ii), except that in the case of a
prepayment made pursuant to Section 2.5(c) or (f), such corresponding
reductions of the Aggregate Commitment Amount made pursuant to Section
2.4(b)(i) shall be applied in inverse order among the remaining
Aggregate Commitment Amount reductions set forth in Section 2.4(b)(ii).
(iii) Simultaneously with each reduction of the
Aggregate Commitment Amount under this Section, the Borrower shall pay
the Commitment Fee accrued on the amount by which the Aggregate
Commitment Amount has been reduced.
2.5. Prepayments of the Revolving Credit Loans
(a) Voluntary Prepayments. The Borrower may, at its option,
prepay the Revolving Credit Loans without premium or penalty (but subject to
Section 3.5), in full at any time or in part from time to time by notifying the
Agent in writing at least one Business Day prior to the proposed prepayment
date, in the case of Revolving Credit Loans consisting of ABR Advances and at
least three Business Days prior to the proposed prepayment date, in the case of
Revolving Credit Loans consisting of Eurodollar Advances, specifying whether the
Revolving Credit Loans to be prepaid consist of ABR Advances, Eurodollar
Advances, or a combination thereof, the amount to be prepaid and the date of
prepayment. Each such notice shall be irrevocable and the amount specified in
each such notice shall be due and payable on the date specified, together with
accrued interest to the date of such payment on the amount prepaid. Upon receipt
of such notice, the Agent shall promptly notify each Lender thereof. Each
partial prepayment of the Revolving Credit Loans pursuant to this subsection
shall be in an aggregate principal amount of $2,000,000 or such amount plus a
whole multiple of $500,000 in excess thereof, or, if less, the outstanding
principal balance of the Revolving Credit Loans. After giving effect to any
partial prepayment with respect to Eurodollar Advances which were made (whether
as the result of a borrowing or a conversion) on the same date and which had the
same Interest Period, the outstanding principal balance of such Eurodollar
Advances shall exceed (subject to Section 3.3) $2,000,000.
(b) Mandatory Prepayments of Revolving Credit Loans Relating
to Terminations of the Commitments and Reductions of the Aggregate Commitment
Amount. Simultaneously with the termination of the Commitments of all of the
Lenders and each reduction of the Aggregate Commitment Amount under Section 2.4,
the Borrower shall prepay the Revolving Credit Loans in full in the case of the
termination of the Commitments of all of the
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Lenders and prepay the Revolving Credit Loans by the amount, if any, by which
the Aggregate Credit Exposure exceeds the Aggregate Commitment Amount as so
reduced, in the case of a reduction of the Aggregate Commitment Amount.
(c) Mandatory Prepayments of Revolving Credit Loans in Respect
of Excess Cash Flow. Upon the delivery of annual financial statements, but no
later than the March 31st of the following year with respect to any fiscal year,
commencing on March 31, 1999 with respect to the fiscal year ended December 31,
1998, when the Leverage Ratio is greater than or equal to 2.00 to 1.00, the
Borrower shall prepay the Revolving Credit Loans by an amount equal to 50% of
Excess Cash Flow for the prior fiscal year.
(d) Mandatory Prepayments of Revolving Credit Loans in Respect
of Dispositions. With respect to any Disposition by the Borrower, any of its
Subsidiaries or any Guarantor resulting in Net Cash Proceeds (other than from
the sale of Property in the ordinary course of business), such Net Cash Proceeds
shall be applied within ten Business Days' of the date of receipt thereof to the
prepayment of the Revolving Credit Loans.
(e) Mandatory Prepayments of Revolving Credit Loans Relating
to Insurance. In the event that the Borrower receives proceeds of insurance
maintained pursuant to Section 7.5 in excess of $500,000 and elects not to
repair, restore or replace Property in connection therewith, or such repair,
restoration or replacement is not completed within 180 days of receipt of such
insurance, 100% of such proceeds of insurance shall be applied upon receipt to
the prepayment of the Revolving Credit Loans.
(f) Mandatory Prepayments of Revolving Credit Loans Relating
to Receipt of Proceeds of Additional Indebtedness or Offering Proceeds. On the
date of receipt of the (i) net proceeds of any Indebtedness (evidenced by notes,
bonds or similar instruments) pursuant to Section 8.1(vi), or (ii) Offering
Proceeds (other than proceeds received in connection with the issuance of
Preferred Membership Units and proceeds received in connection with any
Investment permitted under Section 8.5(f) to purchase Capital Stock of the
Borrower) from an Offering, such proceeds of Indebtedness or Offering Proceeds
shall be applied to the prepayment of the Revolving Credit Loans.
(g) In General. Simultaneously with each prepayment of a
Revolving Credit Loan, the Borrower shall prepay all accrued interest on the
amount prepaid through the date of prepayment. Unless otherwise specified by the
Borrower, each prepayment of Revolving Credit Loans shall first be applied to
ABR Advances. If any prepayment is made in respect of any Eurodollar Advance, in
whole or in part, prior to the last day of the applicable Interest Period, the
Borrower agrees to indemnify the Lenders in accordance with Section 3.5.
2.6. Use of Proceeds
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<PAGE>
The Borrower agrees that the proceeds of the Revolving Credit
Loans shall be used solely, directly or indirectly, to (i) repay the Existing
Bank Debt, (ii) pay all of the Fees due hereunder, (iii) pay the reasonable
out-of-pocket fees and expenses incurred by the Borrower in connection with the
Loan Documents, (iv) to finance Acquisitions permitted hereunder and (v) for the
Borrower's general corporate and working capital purposes not inconsistent with
the provisions hereof. Notwithstanding anything to the contrary contained in any
Loan Document, the Borrower agrees that no part of the proceeds of any Revolving
Credit Loan will be used, directly or indirectly, to purchase or carry any
Margin Stock or for a purpose which violates any law, including the provisions
of Regulations G, T, U or X of the Board of Governors of the Federal Reserve
System, as amended.
2.7. Payments
(a) Each borrowing of Revolving Credit Loans by the Borrower
from the Lenders, any conversion of Revolving Credit Loans from one Type to
another and any reduction in the Aggregate Commitment Amount shall be made pro
rata according to the Commitment Percentage of such Lender. Each payment,
including each prepayment, of principal and interest on the Revolving Credit
Loans, of the Commitment Fee, and of all of the other fees to be paid to the
Agent and the Lenders in connection with this Agreement (the Commitment Fee,
together with all of such other fees, being sometimes hereinafter collectively
referred to as the "Fees") shall be made by the Borrower prior to 1:00 p.m. on
the date such payment is due to the Agent for the account of the applicable
Lenders at the Agent's office specified in Section 11.2, in each case in lawful
money of the United States, in immediately available funds and without set-off
or counterclaim. As between the Borrower and the Lenders, any payment by the
Borrower to the Agent for the account of the Lenders shall be deemed to be
payment by the Borrower to the Lenders. The failure of the Borrower to make any
such payment by such time shall not constitute a Default, provided that such
payment is made on such due date, but any such payment made after 1:00 p.m. on
such due date shall be deemed to have been made on the next Business Day for the
purpose of calculating interest on amounts outstanding on the Revolving Credit
Loans. Promptly upon receipt thereof by the Agent, each payment of principal and
interest on the Revolving Credit Loans shall be remitted by the Agent in like
funds as received to each Lender pro rata according to the aggregate outstanding
principal balance of the Revolving Credit Loans. Subject to Section 9.2(b),
promptly upon receipt by the Agent of each payment, including each prepayment,
pursuant to this Section, the Agent shall remit such payment in like funds as
received as follows: (i) in the case of the Commitment Fee, to each Lender
according to its Commitment Percentage, and (ii) in the case of principal and
interest on the Revolving Credit Loans, to each Lender pro rata according to the
amount of principal or interest, as the case may be, which is then due and
payable.
(b) If any payment hereunder or under the Revolving Credit
Notes shall be due and payable on a day which is not a Business Day, the due
date thereof (except as otherwise provided in the definition of Interest Period)
shall be extended to the next Business Day and
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(except with respect to payments in respect of the Fees) interest shall be
payable at the applicable rate specified herein during such extension,
provided, however that if such next Business Day is after the Maturity Date,
any such payment shall be due on the immediately preceding Business Day.
3. INTEREST, FEES, YIELD PROTECTIONS, ETC.
3.1. Interest Rate and Payment Dates
(a) Prior to Maturity. Except as otherwise provided in Section
3.1(b) and 3.1(c), prior to maturity, the Revolving Credit Loans shall bear
interest on the outstanding principal balance thereof at the applicable interest
rate or rates per annum set forth below:
ADVANCES RATE
-------- ----
Each ABR Advance Alternate Base Rate plus the Applicable
Margin applicable to ABR Advances.
Each Eurodollar Advance Eurodollar Rate for the applicable Interest
Period plus the Applicable Margin applicable
to Eurodollar Advances.
(b) Default Rate. Upon the occurrence and during the
continuance of an Event of Default under Section 9.1(a) or (b), the unpaid
principal balance of the Revolving Credit Loans shall bear interest, payable on
demand, at a rate per annum (whether before or after the entry of a judgment
thereon) equal to 2% plus the rate which would otherwise be applicable under
Section 3.1(a), and any overdue interest or other amount payable under the Loan
Documents shall bear interest, payable on demand, at a rate per annum (whether
before or after the entry of a judgment thereon) equal to the Alternate Base
Rate plus the Applicable Margin applicable to ABR Advances plus 2%.
(c) Highest Lawful Rate. At no time shall the interest rate
payable on the Revolving Credit Loans of any Lender, together with the Fees and
all other amounts payable under the Loan Documents to such Lender, to the extent
the same are construed to constitute interest, exceed the Highest Lawful Rate
applicable to such Lender. If with respect to any Lender for any period during
the term of this Agreement, any amount paid to such Lender under the Loan
Documents, to the extent the same shall (but for the provisions of this Section)
constitute or be deemed to constitute interest, would exceed the maximum amount
of interest permitted by the Highest Lawful Rate applicable to such Lender
during such period (such amount being hereinafter referred to as an "Unqualified
Amount"), then (i) such Unqualified Amount shall be applied or shall be deemed
to have been applied as a prepayment of the
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<PAGE>
Revolving Credit Loans of such Lender, and (ii) if in any subsequent period
during the term of this Agreement, all amounts payable under the Loan Documents
to such Lender in respect of such period which constitute or shall be deemed to
constitute interest shall be less than the maximum amount of interest permitted
by the Highest Lawful Rate applicable to such Lender during such period, then
the Borrower shall pay to such Lender in respect of such period an amount (each
a "Compensatory Interest Payment") equal to the lesser of (x) a sum which, when
added to all such amounts, would equal the maximum amount of interest permitted
by the Highest Lawful Rate applicable to such Lender during such period, and
(y) an amount equal to the Unqualified Amount less all other Compensatory
Interest Payments made in respect thereof.
(d) In General. Interest on (i) ABR Advances to the extent
based on the BNY Rate shall be calculated on the basis of a 365 or 366-day year
(as the case may be), and (ii) ABR Advances to the extent based on the Federal
Funds Rate and on Eurodollar Advances shall be calculated on the basis of a
360-day year, in each case, for the actual number of days elapsed. Except as
otherwise provided in Section 3.1(b), interest shall be payable in arrears on
each Interest Payment Date and upon each payment (including prepayment) of the
Revolving Credit Loans. Any change in the interest rate on the Revolving Credit
Loans resulting from a change in the Alternate Base Rate or reserve requirements
shall become effective as of the opening of business on the day on which such
change shall become effective. The Agent shall, as soon as practicable, notify
the Borrower and the Lenders of the effective date and the amount of each such
change in the BNY Rate, but any failure to so notify shall not in any manner
affect the obligation of the Borrower to pay interest on the Revolving Credit
Loans in the amounts and on the dates required. Each determination of the
Alternate Base Rate or a Eurodollar Rate by the Agent pursuant to this Agreement
shall be conclusive and binding on all parties hereto absent manifest error. The
Borrower acknowledges that to the extent interest payable on ABR Advances is
based on the BNY Rate, such rate is only one of the bases for computing interest
on loans made by the Lenders, and by basing interest payable on ABR Advances on
the BNY Rate, the Lenders have not committed to charge, and the Borrower has not
in any way bargained for, interest based on a lower or the lowest rate at which
the Lenders may now or in the future make loans to other borrowers.
3.2. Fees
(a) Commitment Fees. The Borrower agrees to pay to the Agent,
for the account of the Lenders in accordance with each Lender's Commitment
Percentage, a fee (the "Commitment Fee"), during the Commitment Period, at a
rate per annum equal to the Applicable Fee Percentage on the average daily
Available Commitment Amount. The Commitment Fee shall be payable quarterly in
arrears on the last day of each March, June, September and December of each
year, commencing on the first such day following the Effective Date, and ending
on the date that the Commitments shall expire or otherwise terminate. The
Commitment Fee shall be calculated on the basis of a 365 or 366 day year, as the
case may be, for the actual number of days elapsed.
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(b) Agent's Fees. The Borrower agrees to pay to the Agent, for
its own account, such other fees as have been agreed to in writing by the
Borrower and the Agent.
3.3. Conversions
(a) The Borrower may elect from time to time to convert one or
more Eurodollar Advances to ABR Advances by giving the Agent at least one
Business Day's prior irrevocable notice of such election, specifying the amount
to be converted, provided, that any such conversion of Eurodollar Advances shall
only be made on the last day of the Interest Period applicable thereto. In
addition, the Borrower may elect from time to time to convert (i) ABR Advances
to Eurodollar Advances and (ii) Eurodollar Advances to new Eurodollar Advances
by selecting a new Interest Period therefor, in each case by giving the Agent at
least three Business Days' prior irrevocable notice of such election, in the
case of a conversion to Eurodollar Advances, specifying the amount to be so
converted and the initial Interest Period relating thereto, provided that any
such conversion of ABR Advances to Eurodollar Advances shall only be made on a
Business Day and any such conversion of Eurodollar Advances to new Eurodollar
Advances shall only be made on the last day of the Interest Period applicable to
the Eurodollar Advances which are to be converted to such new Eurodollar
Advances. Each such notice shall be irrevocable and shall be given by the
delivery by telecopy of a Notice of Conversion (confirmed promptly, and in any
event within five Business Days, by the delivery to the Agent of a Notice of
Conversion manually signed by the Borrower). The Agent shall promptly provide
the Lenders with notice of each such election. Advances may be converted
pursuant to this Section in whole or in part, provided that the amount to be
converted to each Eurodollar Advance, when aggregated with any Eurodollar
Advance to be made on such date in accordance with Section 2.3 and having the
same Interest Period as such first Eurodollar Advance, shall equal no less than
$2,000,000 or such amount plus a whole multiple of $500,000 in excess thereof.
(b) Notwithstanding anything in this Agreement to the
contrary, upon the occurrence and during the continuance of a Default or an
Event of Default, the Borrower shall have no right to elect to convert any
existing ABR Advance to a new Eurodollar Advance or to convert any existing
Eurodollar Advance to a new Eurodollar Advance. In such event, all ABR Advances
shall be automatically continued as ABR Advances and all Eurodollar Advances
shall be automatically converted to ABR Advances on the last day of the Interest
Period applicable to such Eurodollar Advance.
(c) Each conversion shall be effected by each Lender by
applying the proceeds of its new ABR Advance or Eurodollar Advance, as the case
may be, to its Advances (or portion thereof) being converted (it being
understood that any such conversion shall not constitute a borrowing for
purposes of Sections 4, 5 or 6).
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<PAGE>
3.4. Concerning Interest Periods
Notwithstanding any other provision of any Loan Document:
(a) If the Borrower shall have failed to elect a Eurodollar
Advance under Section 2.3 or 3.3, as the case may be, in connection with any
borrowing of new Revolving Credit Loans or expiration of an Interest Period with
respect to any existing Eurodollar Advance, the amount of the Revolving Credit
Loans subject to such borrowing or such existing Eurodollar Advance shall
thereafter be an ABR Advance until such time, if any, as the Borrower shall
elect a new Eurodollar Advance pursuant to Section 3.3.
(b) No Interest Period selected in respect of the conversion
of any Eurodollar Advance shall end after the Maturity Date.
(c) The Borrower shall select Interest Periods such that, on
each date that a mandatory scheduled reduction in the Aggregate Commitment
Amount is required to be made pursuant to Section 2.4(b), the outstanding
principal balance of all ABR Advances comprising all or a portion of the
Revolving Credit Loans, when added to the aggregate principal balance of each
Eurodollar Advance comprising all or a portion of the Revolving Credit Loans,
the applicable Interest Period of which shall end on or before such date, shall
equal or exceed the aggregate amount of the reduction required to be made on
such date.
(d) The Borrower shall not be permitted to have more than
eight Eurodollar Advances outstanding at any one time, it being agreed that each
borrowing of a Eurodollar Advance pursuant to a single Borrowing Request shall
constitute the making of one Eurodollar Advance for the purpose of calculating
such limitation.
3.5. Indemnification for Loss
Notwithstanding anything contained herein to the contrary, if
the Borrower shall fail to borrow or convert on a Borrowing Date or Conversion
Date after it shall have given notice to do so in which it shall have requested
a Eurodollar Advance, or if a Eurodollar Advance shall be terminated for any
reason prior to the last day of the Interest Period applicable thereto, or if,
while a Eurodollar Advance is outstanding, any repayment or prepayment of such
Eurodollar Advance is made for any reason (including as a result of acceleration
or illegality or the application of Section 2.6) on a date which is prior to the
last day of the Interest Period applicable thereto, the Borrower agrees to
indemnify each Lender against, and to pay on demand directly to such Lender, any
loss or expense suffered by such Lender as a result of such failure to borrow or
convert, termination, repayment or prepayment, including an amount, if greater
than zero, equal to:
A x (B-C) x D
---
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360
where:
"A" equals such Lender's pro rata share of the Affected Principal Amount;
"B" equals the Eurodollar Rate (expressed as a decimal), applicable to such
Eurodollar Advances;
"C" equals the Eurodollar Rate (expressed as a decimal), in effect on or about
the first day of the applicable Remaining Interest Period, based on the
applicable rates offered or bid, as the case may be, on or about such date, for
deposits in an amount equal approximately to such Lender's pro rata share of the
Affected Principal Amount with an Interest Period equal approximately to the
applicable Remaining Interest Period, as determined by such Lender;
"D" equals the number of days from and including the first day of the applicable
Remaining Interest Period to but excluding the last day of such Remaining
Interest Period;
and any other out-of-pocket loss or expense (including any internal processing
charge customarily charged by such Lender) suffered by such Lender in connection
with such Eurodollar Advance, including in liquidating or employing deposits
acquired to fund or maintain the funding of its pro rata share of the Affected
Principal Amount, or redeploying funds prepaid or repaid, in amounts which
correspond to its pro rata share of the Affected Principal Amount. Each
determination by the Agent or a Lender pursuant to this Section shall be
conclusive and binding on the Borrower absent manifest error.
3.6. Capital Adequacy
If the amount of capital required or expected to be maintained
by any Lender or any Person directly or indirectly owning or controlling such
Lender (each a "Control Person"), shall be affected by the occurrence of a
Regulatory Change and such Lender shall have determined that such Regulatory
Change shall have had or will thereafter have the effect of reducing (i) the
rate of return on such Lender's or such Control Person's capital, or (ii) the
asset value to such Lender or such Control Person of the Revolving Credit Loans
made or maintained by such Lender, in either case to a level below that which
such Lender or such Control Person could have achieved or would thereafter be
able to achieve but for such Regulatory Change (after taking into account such
Lender's or such Control Person's policies regarding capital adequacy) by an
amount deemed by such Lender to be material to such Lender or Control Person,
then, within ten days after demand by such Lender, the Borrower shall pay to
such Lender or such Control Person such additional amount or amounts as shall be
sufficient to compensate such Lender or such Control Person, as the case may be,
for such reduction.
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3.7. Reimbursement for Increased Costs
If any Lender or the Agent shall determine that a Regulatory
Change:
(a) does or shall subject it to any Taxes of any kind
whatsoever with respect to any Eurodollar Advances or its obligations under this
Agreement to make Eurodollar Advances, or change the basis of taxation of
payments to it of principal, interest or any other amount payable hereunder in
respect of its Eurodollar Advances, or impose on the Agent or such Lender any
other condition, including any Taxes required to be withheld from any amounts
payable under the Loan Documents (except for imposition of, or change in the
rate of, Tax on the Income of such Lender or its Applicable Lending Office for
any of such Advances by the jurisdiction in which the Bank is incorporated or
has its principal office or such Applicable Lending Office, including such tax
imposed by the United States); or
(b) does or shall impose, modify or make applicable any
reserve, special deposit, compulsory loan, assessment, increased cost or similar
requirement against assets held by, or deposits of, or advances or loans by, or
other credit extended by, or any other acquisition of funds by, any office of
such Lender in respect of its Eurodollar Advances which is not otherwise
included in the determination of a Eurodollar Rate;
and the result of any of the foregoing is to increase the cost to such Lender of
making, renewing, converting or maintaining its Eurodollar Advances or its
commitment to make such Eurodollar Advances, or to reduce any amount receivable
hereunder in respect of its Eurodollar Advances, or increase the cost to the
Agent of performing its functions hereunder, then, in any such case, the
Borrower shall pay such Lender or the Agent, as the case may be, within ten days
after demand therefor, such additional amounts as is sufficient to compensate
such Lender or the Agent, as the case may be, for such additional cost or
reduction in such amount receivable which such Lender deems to be material as
determined by such Lender or the Agent, as the case may be; provided, however,
(i) that nothing in this Section shall require the Borrower to indemnify the
Lenders or the Agent, as the case may be, with respect to withholding Taxes for
which the Borrower has no obligation under Section 3.10 and (ii) that before
making any such demand, each Lender agrees to use reasonable efforts (consistent
with its internal policy and legal and regulatory restrictions) to designate a
different Applicable Lending Office if the making of such a designation would
avoid the need for, or reduce the amount of, such increased costs and would not,
in the reasonable judgment of such Lender, be otherwise disadvantageous to such
Lender. No failure by any Lender or the Agent to demand, and no delay in
demanding, compensation for any increased cost shall constitute a waiver of its
right to demand such compensation at any time. A statement setting forth the
calculations of any additional amounts payable pursuant to this Section
submitted by a Lender or the Agent, as the case may be, to the Borrower shall be
conclusive absent manifest error.
3.8. Illegality of Funding
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Notwithstanding any other provision hereof, if any Lender
shall reasonably determine that any law, regulation, treaty or directive, or any
change therein or in the interpretation or application thereof, shall make it
unlawful for such Lender to make or maintain any Eurodollar Advance as
contemplated by this Agreement, such Lender shall promptly notify the Borrower
and the Agent thereof, and (i) the commitment of such Lender to make such
Eurodollar Advances or convert ABR Advances to Eurodollar Advances shall
forthwith be suspended, (ii) such Lender shall fund its portion of each
requested Eurodollar Advance as an ABR Advance and (iii) such Lender's Revolving
Credit Loans then outstanding as such Eurodollar Advances, if any, shall be
converted automatically to ABR Advances on the last day of the then current
Interest Period applicable thereto or at such earlier time as may be required by
law. If the commitment of any Lender with respect to Eurodollar Advances is
suspended pursuant to this Section and such Lender shall have obtained actual
knowledge that it is once again legal for such Lender to make or maintain
Eurodollar Advances, such Lender shall promptly notify the Agent and the
Borrower thereof and, upon receipt of such notice by each of the Agent and the
Borrower, such Lender's commitment to make or maintain Eurodollar Advances shall
be reinstated.
3.9. Substituted Interest Rate
In the event that (i) the Agent shall have determined (which
determination shall be conclusive and binding upon the Borrower) that by reason
of circumstances affecting the interbank eurodollar market either adequate and
reasonable means do not exist for ascertaining the Eurodollar Rate applicable
pursuant to Section 3.1 or (ii) the Required Lenders shall have notified the
Agent that they have determined (which determination shall be conclusive and
binding on the Borrower) that the applicable Eurodollar Rate will not adequately
and fairly reflect the cost to such Lenders of maintaining or funding loans
bearing interest based on such Eurodollar Rate, with respect to any portion of
the Revolving Credit Loans that the Borrower has requested be made as Eurodollar
Advances or Eurodollar Advances that will result from the requested conversion
of any portion of the Advances into or of Eurodollar Advances (each, an
"Affected Advance"), the Agent shall promptly notify the Borrower and the
Lenders (by telephone or otherwise, to be promptly confirmed in writing) of such
determination, on or, to the extent practicable, prior to the requested
Borrowing Date or Conversion Date for such Affected Advances. If the Agent shall
give such notice, (a) any Affected Advances shall be made as ABR Advances, (b)
the Advances (or any portion thereof) that were to have been converted to
Affected Advances shall be converted to ABR Advances and (c) any outstanding
Affected Advances shall be converted, on the last day of the then current
Interest Period with respect thereto, to ABR Advances. Until any notice under
clauses (i) or (ii), as the case may be, of this Section has been withdrawn by
the Agent (by notice to the Borrower promptly upon either (x) the Agent having
determined that such circumstances affecting the interbank eurodollar no longer
exist and that adequate and reasonable means do exist for determining the
Eurodollar Rate pursuant to Section 3.1 or (y) the Agent having been notified by
such Required Lenders that
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circumstances no longer render the Advances (or any portion thereof) Affected
Advances, no further Eurodollar Advances shall be required to be made by the
Lenders, nor shall the Borrower have the right to convert all or any portion of
the Revolving Credit Loans to or as Eurodollar Advances.
3.10. Taxes
(a) Payments to be Free and Clear. All payments by each Credit
Party under the Loan Documents to or for the account of the Agent or any Lender
(each, an "Indemnified Tax Person") shall be made free and clear of, and without
any deduction or withholding for or on account of, any and all present or future
income, stamp or other taxes, levies, imposts, duties, fees, assessments,
deductions, withholdings, or other charges of whatever nature, now or hereafter
imposed, levied, collected, withheld, or assessed by any jurisdiction, or by any
department, agency, state or other political subdivision thereof or therein
(collectively, "Taxes"), excluding as to any Indemnified Tax Person, (i) a Tax
on the Income imposed on such Indemnified Tax Person and (ii) any interest,
fees, additions to tax or penalties for late payment thereof (each such
nonexcluded Tax, an "Indemnified Tax"). For purposes hereof, "Tax on the Income"
shall mean, as to any Person, a Tax imposed by one of the following
jurisdictions or by any political subdivision or taxing authority thereof: (i)
the United States, (ii) the jurisdiction in which such Person is organized,
(iii) the jurisdiction in which such Person's principal office is located, or
(iv) in the case of each Lender, any jurisdiction in which such Lender's
Applicable Lending Office is located; which Tax is an income tax or franchise
tax imposed on all or part of the net income or net profits of such Person or
which Tax represents interest, fees, or penalties for late payment of such an
income tax or franchise tax.
(b) Grossing Up of Payments. If any Credit Party or any other
Person is required by any law, rule, regulation, order, directive, treaty or
guideline to make any deduction or withholding (which deduction or withholding
would constitute an Indemnified Tax) from any amount required to be paid by any
Credit Party to or on behalf of an Indemnified Tax Person under any Loan
Document (i) such Credit Party shall pay such Indemnified Tax before the date on
which penalties attach thereto, such payment to be made for its own account (if
the liability to pay is imposed on such Credit Party) or on behalf of and in the
name of such Indemnified Tax Person (if the liability is imposed on such
Indemnified Tax Person), and (ii) the sum payable to such Indemnified Tax Person
shall be increased as may be necessary so that after making all required
deductions and withholdings (including deductions and withholdings applicable to
additional sums payable under this Section) such Indemnified Tax Person receives
an amount equal to the sum it would have received had no such deductions or
withholdings been made.
(c) Other Taxes. Each Credit Party agrees to pay any current
or future stamp or documentary taxes or any other excise or property taxes,
charges or similar levies that arise from any payment made hereunder or from the
execution, delivery or registration of, or any amendment, supplement or
modification of, or any waiver or consent under or in respect of, the
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Loan Documents or otherwise with respect to, the Loan Documents (collectively,
the "Other Taxes").
(d) Evidence of Payment. Within 30 days after the reasonable
request therefor by the Agent in connection with any payment of Indemnified
Taxes or Other Taxes, each Credit Party will furnish to the Agent the original
or a certified copy of an official receipt from the jurisdiction to which
payment is made evidencing payment thereof or, if unavailable, a certificate
from a Financial Officer that states that such payment has been made and that
sets forth the date and amount of such payment.
(e) U.S. Tax Certificates. Each Indemnified Tax Person that is
organized under the laws of any jurisdiction other than the United States or any
political subdivision thereof that is exempt from United States federal
withholding tax, or that is subject to such tax at a reduced rate under an
applicable treaty, with respect to payments under the Loan Documents shall
deliver to the Agent for transmission to the Borrower, on or prior to the
Effective Date (in the case of each Indemnified Tax Person listed on the
signature pages hereof) or on the effective date of the Assignment and
Acceptance Agreement or other document pursuant to which it becomes an
Indemnified Tax Person (in the case of each other Indemnified Tax Person), and
at such other times as the Borrower or the Agent may reasonably request Internal
Revenue Form 4224 or Form 1001 or other certificate or document required under
United States law to establish entitlement to such exemption or reduced rate. No
Credit Party shall be required to pay any additional amount to any such
Indemnified Tax Person under subsection (b) above if such Indemnified Tax Person
shall have failed to satisfy the requirements of the immediately preceding
sentence; provided that if such Indemnified Tax Person shall have satisfied such
requirements on the Effective Date (in the case of each Indemnified Tax Person
listed on the signature pages hereof) or on the effective date of the Assignment
and Acceptance Agreement or other document pursuant to which it became an
Indemnified Tax Person (in the case of each other Indemnified Tax Person),
nothing in this subsection shall relieve any Credit Party of its obligation to
pay any additional amounts pursuant to subsection (b) in the event that, as a
result of any change in applicable law or treaty, such Indemnified Tax Person is
no longer properly entitled to deliver certificates, documents or other evidence
at a subsequent date establishing the fact that such Indemnified Tax Person is
no longer entitled to such exemption or reduced rate.
(f) Any Lender claiming any additional amounts payable
pursuant to this Section 3.10 agrees to use reasonable efforts (consistent with
its internal policy and legal and regulatory restrictions) to change the
jurisdiction of its Applicable Lending Office if the making of such a change
would avoid the need for, or reduce the amount of, any such additional amounts
that may thereafter accrue and would not, in the reasonable judgment of such
Lender, be otherwise disadvantageous to such Lender.
(g) As of the Effective Date, each Indemnified Tax Person that
is organized under the laws of any jurisdiction other than the United States or
any political subdivision thereof
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represents and warrants to the Borrower and the Agent that it is exempt from
United States federal withholding tax.
3.11. Option to Fund
Each Lender has indicated that, if the Borrower requests a
Eurodollar Advance, such Lender may wish to purchase one or more deposits in
order to fund or maintain its funding of its Commitment Percentage of such
Eurodollar Advance during the Interest Period with respect thereto; it being
understood that the provisions of this Agreement relating to such funding are
included only for the purpose of determining the rate of interest to be paid in
respect of such Eurodollar Advance and any amounts owing under Sections 3.5 and
3.7. Each Lender shall be entitled to fund and maintain its funding of all or
any part of each Eurodollar Advance in any manner it sees fit, but all such
determinations hereunder shall be made as if each Lender had actually funded and
maintained its Commitment Percentage of each Eurodollar Advance during the
applicable Interest Period through the purchase of deposits in an amount equal
to its Commitment Percentage of such Eurodollar Advance having a maturity
corresponding to such Interest Period. Any Lender may fund its Commitment
Percentage of each Eurodollar Advance from or for the account of any branch or
office of such Lender as such Lender may choose from time to time provided,
however, that each Lender agrees to use reasonable efforts (consistent with its
internal policy and legal and regulatory restrictions) to designate a different
Applicable Lending Office if the making of such a designation would avoid the
need for, or reduce the amount of, any increased costs and would not, in the
reasonable judgment of such Lender, be otherwise disadvantageous to such Lender.
3.12. Substitution of Lender.
(a) In the event that the Borrower becomes obligated to pay
additional amounts to any Lender pursuant to Sections 3.6, 3.7 or 3.10 in an
aggregate amount in excess of $50,000, the Borrower may, within 60 days of the
demand by such Lender for such additional amounts in excess of $50,000, (i)
request one or more of the other Lenders to elect to increase its Commitment by
an amount up to the amount of the Commitment of such Lender (a "Selling Lender")
and purchase the Revolving Credit Loans of such Selling Lender subject to the
written consent of the Agent which shall not be unreasonably withheld or (ii)
designate another lender (such lender, a "Replacement Lender") upon the written
consent of the Agent which shall not be unreasonably withheld and the
Replacement Lender (other than such Selling Lender) willing to assume the
Commitment, and purchase the Revolving Credit Loans, of such Selling Lender.
Upon the Commitment and Revolving Credit Loans of such Selling Lender being
taken up by a Replacement Lender, such Replacement Lender shall assume the
Commitment and Revolving Credit Loans of such Selling Lender by purchasing such
Selling Lender's Revolving Credit Note without recourse or warranty (except as
to the amount due thereon, its title to such Revolving Credit Note and its right
to sell the same), at a price in immediately available funds equal to the
outstanding principal balance of such Selling Lender's Revolving Credit Loans,
together with
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accrued and unpaid interest thereon to the date of such assumption and
purchase, accrued and unpaid Commitment Fees due to such Selling Lender and any
other amounts due to such Selling Lender under the Loan Documents. Effective
upon such sale, each Replacement Lender shall be deemed to be a "Lender" for
purposes of this Agreement, and such Selling Lender shall cease to be a
"Lender" for all purposes of this Agreement (except with respect to its rights
hereunder to be reimbursed for costs and expenses, and to indemnification, with
respect to matters attributable to events, acts or conditions occurring prior
to such assumption and purchase) and shall no longer have any obligations
hereunder. The Borrower shall execute and deliver to such Replacement Lender a
Revolving Credit Note in an aggregate principal amount equal to the Revolving
Credit Loans assigned to, and the Commitment assumed by, such Replacement
Lender and the Selling Lender shall return its cancelled Revolving Credit Note
to the Borrower.
(b) Notwithstanding anything herein to the contrary, but
provided that a Selling Lender has complied with its obligations under Sections
3.7, 3.10 or 3.11, as applicable, a Selling Lender shall be entitled to receive
the additional amounts to which it would be entitled pursuant to Section 3.6,
3.7 or 3.10 had it not been replaced pursuant hereto.
4. REPRESENTATIONS AND WARRANTIES
In order to induce the Agent and the Lenders to enter into this
Agreement and to make the Revolving Credit Loans, the Borrower makes the
following representations and warranties to the Agent and each Lender:
4.1. Subsidiaries; Organization
The Borrower and each Guarantor has only the Subsidiaries set
forth on Schedule 4.1. As of the Effective Date, the authorized, issued and
outstanding Capital Stock of the Borrower, each Guarantor and each Subsidiary is
as set forth in Schedule 4.1. The shares of each corporate Subsidiary or
corporate Guarantor are duly authorized, validly issued, fully paid and
nonassessable and are owned free and clear of any Liens, except the Liens in
favor of the Agent pursuant to the Collateral Documents. The interest of the
Borrower and each Guarantor in each non-corporate Subsidiary is owned free and
clear of any Liens, except the Liens in favor of the Agent pursuant to the
Collateral Documents. The outstanding Capital Stock of the Borrower, each
Subsidiary of the Borrower and each Guarantor on the Effective Date are as set
forth on Schedule 4.1. As of the Effective Date, the owner of each membership
unit or other Capital Stock listed on Schedule 4.1 is the registered and
beneficial owner thereof. Neither the Borrower, any Guarantor or any Subsidiary
has issued any securities convertible into Capital Stock and there are no
outstanding options or warrants to purchase Capital Stock of any class or kind,
and, except as set forth on Schedule 4.1, there are no agreements, voting trusts
or understandings with respect thereto or affecting in any manner the sale,
pledge, assignment or other disposition thereof, including, without limitation,
any right of first refusal, option, redemption, call or other
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rights with respect thereto, whether similar or dissimilar to any of the
foregoing. The ownership of each membership unit of the Borrower is fully
vested in each member as indicated in Schedule 4.1, except as set forth on
Schedule 1 to the Pledge Agreement, as the same may be amended, supplemented or
otherwise modified from time to time.
4.2. Existence and Power
Each of the Borrower, its Subsidiaries and each Guarantor is
duly organized or formed and validly existing in good standing under the laws of
its jurisdiction of incorporation or formation, has all requisite power and
authority to own its Property and to carry on its business as now conducted, and
is in good standing and authorized to do business as a foreign entity in each
jurisdiction in which failure to so qualify could reasonably be expected to have
a Material Adverse Effect.
4.3. Authority and Execution
Each of the Borrower and each Credit Party has full legal
power and authority to enter into, execute, deliver and perform the terms of the
Loan Documents to which it is a party, and in the case of the Borrower, to make
the borrowings contemplated hereby and by the Revolving Credit Notes, to
execute, deliver and carry out the terms of the Revolving Credit Notes and to
incur the obligations provided for herein and therein, all of which have been
duly authorized by all proper and necessary corporate, partnership or other
applicable action and are in full compliance with its Organizational Documents
and no other corporate or other action is required. Each Credit Party has duly
executed and delivered the Loan Documents to which it is a party.
4.4. Binding Agreement
The Loan Documents (other than the Revolving Credit Notes)
constitute, and the Revolving Credit Notes, when issued and delivered pursuant
hereto for value received, will constitute, the valid and legally binding
obligations of each Credit Party, to the extent it is a party thereto,
enforceable in accordance with their terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization or other similar
laws affecting the enforcement of creditors' rights generally.
4.5. Litigation
Except as set forth on Schedule 4.5, there are no actions,
suits or proceedings at law or in equity or by or before any Governmental
Authority pending or, to the knowledge of the Borrower, threatened against the
Borrower, any of its Subsidiaries or any Credit Party or any of their respective
Properties or rights, which (i) if adversely determined, could reasonably be
expected to have a Material Adverse Effect, or (ii) call into question the
validity or enforceability
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of any of the Loan Documents, or (iii) could reasonably be expected to result
in the rescission, termination or cancellation of any material franchise,
right, license, permit or similar authorization held by the Borrower or any of
its Subsidiaries or any Credit Party.
4.6. Required Consents
Except as set forth on Schedule 4.6, no consent, authorization
or approval of, filing with, notice to, or exemption by, stockholders, members,
any Governmental Authority or any other Person is required to authorize, or is
required in connection with the execution, delivery and performance of the Loan
Documents to which the Borrower, any of its Subsidiaries or any Credit Party is
a party or is required as a condition to the validity or enforceability of the
Loan Documents to which the Borrower, any of its Subsidiaries or any Credit
Party is a party.
4.7. Absence of Defaults; No Conflicting Agreements
Neither the Borrower, any of its Subsidiaries nor any Credit
Party is in default under any mortgage, indenture, contract or agreement to
which it is a party or by which it or any of its Property is bound, the effect
of which default could reasonably be expected to have a Material Adverse Effect.
The execution, delivery or carrying out of the terms of the Loan Documents will
not constitute a default under, or result in the creation or imposition of, or
obligation to create, any Lien upon any Property of the Borrower or any of its
Subsidiaries or any Credit Party, or result in a breach of or require the
mandatory repayment of or other acceleration of payment under or pursuant to the
terms of any such mortgage, indenture, contract or agreement.
4.8. Compliance with Applicable Laws
Neither the Borrower, any of its Subsidiaries nor any Credit
Party is in default with respect to any judgment, order, writ, injunction,
decree or decision of any Governmental Authority which default could reasonably
be expected to have a Material Adverse Effect. The Borrower, each of its
Subsidiaries and each Credit Party is complying in all material respects with
all statutes, regulations, rules and orders applicable to the Borrower, such
Subsidiary or such Credit Party of all Governmental Authorities, including,
without limitation, Environmental Laws and ERISA, a violation of which could
reasonably be expected to have a Material Adverse Effect.
4.9. Taxes
Each of the Borrower, its Subsidiaries and each Credit Party
has filed or caused to be filed all tax returns required to be filed and has
paid, or has made adequate provision for the payment of, all taxes shown to be
due and payable on said returns or in any assessments made against it (other
than those being contested as set forth in Section 7.4) which would be material
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to the Borrower, such Subsidiary or such Credit Party and no tax Liens have been
filed with respect thereto.
4.10. Governmental Regulations
Neither the Borrower, any of its Subsidiaries nor any Credit
Party is subject to regulation under the Public Utility Holding Company Act of
1935, as amended, the Federal Power Act or the Investment Company Act of 1940,
as amended, and neither the Borrower, any of its Subsidiaries nor any Credit
Party is subject to any statute or regulation which prohibits or restricts the
incurrence of Indebtedness under the Loan Documents, including, without
limitation, statutes or regulations relative to common or contract carriers or
to the sale of electricity, gas, steam, water, telephone, telegraph or other
public utility services.
4.11. Federal Reserve Regulations; Use of Loan Proceeds
Neither the Borrower, any of its Subsidiaries nor any Credit
Party is engaged principally, or as one of its important activities, in the
business of extending credit for the purpose of purchasing or carrying any
Margin Stock. No part of the proceeds of the Loan will be used, directly or
indirectly, for a purpose which violates any law, rule or regulation of any
Governmental Authority, including, without limitation, the provisions of
Regulations G, T, U or X of the Board of Governors of the Federal Reserve
System, as amended.
4.12. Pension Plans
The only Pension Plans in effect as of the Effective Date are
listed on Schedule 4.12. Each Employee Benefit Plan of the Borrower, its
Subsidiaries, the Credit Parties and the ERISA Affiliates is in compliance with
ERISA and the Code, where applicable, in all material respects. Each of the
Borrower, its Subsidiaries, the Credit Parties and the ERISA Affiliates has
complied with the requirements of Section 515 of ERISA with respect to each
Pension Plan that is a Multiemployer Plan. Neither the Borrower, its
Subsidiaries, the Credit Parties nor any ERISA Affiliate has incurred or is
reasonably expected to incur any withdrawal liability as determined in
accordance with Title IV of ERISA to any Multiemployer Plan. The Borrower and
the ERISA Affiliates have fulfilled all obligations under the minimum funding
standards of ERISA and the Code with respect to each Pension Plan, is in
compliance in all material respects with the applicable provisions of ERISA and
the Code, and has not incurred any material liability to the PBGC under Title IV
of ERISA. None of the events set forth in Section 7.2(c) which would require
supplying a notice to the Agent has occurred, or copies of such notices have
been provided.
4.13. Financial Statements
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The Borrower has heretofore delivered to the Agent and the
Lenders copies of the (i) audited Consolidated balance sheets of the Borrower as
of December 31, 1996, and the related Consolidated statements of income,
retained earnings and cash flows for the fiscal year then ended and (ii) the
unaudited Consolidated balance sheet of the Borrower as of March 31, 1997, and
the related Consolidated statements of income, retained earnings and cash flows
for the fiscal quarter then ended (the foregoing together with the related notes
and schedules, the "Financial Statements"). The Financial Statements fairly
present the consolidated financial condition and results of the operations of
the Borrower and its Subsidiaries as of the dates and for the periods indicated
therein and have been prepared in conformity with generally accepted accounting
principles, and there has been no Material Adverse Change since December 31,
1996. Except as reflected in the Financial Statements or in the notes thereto,
neither the Borrower nor any of its Subsidiaries has any obligation or liability
of any kind (whether fixed, accrued, Contingent, unmatured or otherwise) which,
in accordance with GAAP, should have been shown on the Financial Statements and
was not.
4.14. Property
Each of the Borrower, its Subsidiaries and each Guarantor has
good and marketable title to all Property owned by it, title to which is
material to the Borrower, such Subsidiary or such Guarantor, subject to no Liens
except for Liens permitted under Section 8.2.
4.15. Franchises, Intellectual Property, Etc.
Each of the Borrower, its Subsidiaries and each Credit Party
possesses or has the right to use all franchises, intellectual Property,
licenses and other rights as are material and necessary for the conduct of its
business, and are in compliance with such franchises, intellectual Property,
licenses and other rights, except for any non-compliance which could not be
expected to have a Material Adverse Effect. There are no known conflicts with
the valid rights of others with respect to such franchises, intellectual
Property, licenses and other rights which could be expected to have a Material
Adverse Effect.
4.16. Security Interests
The Liens granted to the Agent under the Collateral Documents
constitute valid, binding and continuing first priority Liens in the Collateral,
subject to no Liens other than Liens described under Section 8.2.
4.17. Environmental Matters
(a) Except as described on Schedule 4.17(a), the Borrower,
each of its Subsidiaries and each Credit Party is in compliance in all material
respects with the requirements
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of all applicable Environmental Laws, except where the failure to so comply
could not reasonably be expected to have a Material Adverse Effect.
(b) Except as described on Schedule 4.17(b), no Hazardous
Substances have been generated or manufactured on, transported to or from,
treated at, stored at or discharged from any Real Property in violation of any
Environmental Laws; no Hazardous Substances have been discharged into subsurface
waters under any Real Property in violation of any Environmental Laws; no
Hazardous Substances have been discharged from any Real Property on or into
Property or waters (including subsurface waters) adjacent to any Real Property
in violation of any Environmental Laws; and there are not now, nor ever have
been, on any Real Property any underground or above ground storage tanks
regulated under any Environmental Laws , except where the failure to so comply
with such Environmental Laws could not reasonably be expected to have a Material
Adverse Effect.
(c) Neither the Borrower nor any of its Subsidiaries nor any
Credit Party (i) has received notice (written or oral) or otherwise learned of
any claim, demand, suit, action, proceeding, event, condition, report,
directive, Lien, violation, non-compliance or investigation indicating or
concerning any potential or actual liability (including, without limitation,
potential liability for enforcement, investigatory costs, cleanup costs,
government response costs, removal costs, remedial costs, natural resources
damages, Property damages, personal injuries or penalties) arising in connection
with: (x) any non- compliance with or violation of the requirements of any
applicable Environmental Laws, or (y) the presence of any Hazardous Substance on
any Real Property (or any Real Property previously owned by the Borrower or the
release or threatened release of any Hazardous Substance into the environment,
(ii) has threatened or actual liability in connection with the presence of any
Hazardous Substance on any Real Property (or any Real Property previously owned
by the Borrower) or the release or threatened release of any Hazardous Substance
into the environment, (iii) has received notice of any federal or state
investigation evaluating whether any remedial action is needed to respond to the
presence of any Hazardous Substance on any Real Property (or any Real Property
previously owned by the Borrower) or a release or threatened release of any
Hazardous Substance into the environment for which the Borrower is or may be
liable, or (iv) has received notice that the Borrower is or may be liable to any
Person under any Environmental Law.
4.18. Burdensome Obligations
Neither the Borrower, any of its Subsidiaries nor any Credit
Party is a party to or bound by any franchise, agreement, deed, lease or other
instrument, or subject to any restriction which, in the opinion of the
management of the Borrower, is so unusual or burdensome, in the context of its
business, as in the foreseeable future might materially and adversely affect or
impair the revenue or cash flow of the Borrower, such Subsidiary or such Credit
Party or the ability of the Borrower, such Subsidiary or such Credit Party to
perform its obligations under the Loan Documents to which it is a party. The
Borrower does not presently anticipate that future
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expenditures by the Borrower, any of its Subsidiaries or any Credit Party
needed to meet the provisions of federal or state statutes, orders, rules or
regulations will be so burdensome as to result in a Material Adverse Effect or
Material Adverse Change.
4.19. No Misrepresentation
No representation or warranty contained in any Loan Document
and no certificate or report furnished or to be furnished by the Borrower, any
of its Subsidiaries or any Credit Party in connection with the transactions
contemplated thereby, contains or will contain a misstatement of material fact,
or, to the best knowledge of the Borrower, omits or will omit to state a
material fact required to be stated in order to make the statements contained
therein not misleading in light of the circumstances under which made.
4.20. Ownership of Assets; Operating Entities
Except as set forth on Schedule 4.20, with respect to the
Borrower and each Credit Party, the Borrower and its Subsidiaries are (i) the
sole operating entities, and (ii) the legal owner of all of the Property and
assets of the Borrower, its Subsidiaries and each Guarantor (except membership
interests in the Borrower held by the Guarantors).
5. CONDITIONS TO FIRST REVOLVING CREDIT LOANS
In addition to the conditions precedent set forth in Section
6, the obligation of each Lender to make Revolving Credit Loans on the first
Borrowing Date shall be subject to the fulfillment of the following conditions
precedent:
5.1. Evidence of Action
(a) The Borrower. The Agent shall have received a certificate,
dated the Effective Date, of the Secretary or Assistant Secretary or other
analogous counterpart of the Borrower (i) attaching a true and complete copy of
the resolutions of its Managing Person and of all documents evidencing other
necessary company action (in form and substance satisfactory to the Agent) taken
by it to authorize the Loan Documents and the transactions contemplated thereby,
(ii) attaching a true and complete copy of its Organizational Documents, (iii)
attaching a true and complete copy of the PRG Operating Agreement and all
amendments thereto, (iv) setting forth the incumbency of its officers or other
analogous counterpart who may sign such Loan Documents, including therein a
signature specimen of such officers, and (v) attaching a certificate of good
standing of the Secretary of State of the State of its formation and each other
jurisdiction in which it is qualified to do business.
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(b) The Guarantors. The Agent shall have received a
certificate, dated the Effective Date, of the Secretary or Assistant Secretary
or other analogous counterpart of each of the Guarantors (i) attaching a true
and complete copy of the resolutions of its Managing Person and of all documents
evidencing other necessary corporate or company action (in form and substance
satisfactory to the Agent) taken by it to authorize the Loan Documents to which
it is a party and the transactions contemplated thereby, (ii) attaching a true
and complete copy of its Organizational Documents, (iii) setting forth the
incumbency of its officer or officers or other analogous counterpart who may
sign such Loan Documents, including therein a signature specimen of such officer
or officers and (iv) attaching a certificate of good standing of the Secretary
of State of the jurisdiction of its incorporation or formation and of each other
jurisdiction in which it is qualified to do business.
5.2. This Agreement
The Agent shall have received counterparts of this Agreement,
signed by each of the parties hereto (or receipt by the Agent from a party
hereto of a telecopy signature page signed by such party which shall have agreed
to promptly provide the Agent with originally executed counterparts hereof).
5.3. Revolving Credit Notes
The Agent shall have received the Revolving Credit Notes, duly
executed by an Authorized Signatory of the Borrower.
5.4. The Security Agreement
The Agent shall have received the Security Agreement, duly
executed by an Authorized Signatory of each Credit Party a party thereto,
together with (i) stock certificates, membership certificates or other evidence
of ownership interest representing all of the issued and outstanding Capital
Stock or membership units of the Borrower and each of its Subsidiaries held by
the Borrower or the Guarantors, together with undated stock powers or other
assignments executed in blank, (ii) Instruments constituting Collateral, duly
indorsed in blank by an Authorized Signatory of the Borrower or Guarantor which
is an owner thereof, (iii) Transaction Statements in the form of Annex A to the
Security Agreement, executed by an Authorized Signatory of the Borrower or
Guarantor with respect to each Uncertificated Security (as defined therein)
owned by such Borrower or Guarantor constituting Collateral thereunder, (iv)
such UCC Financing Statements, executed by the Borrower and each Guarantor, as
shall be reasonably requested by the Agent in order to perfect the security
interest in any collateral security granted under the Security Agreement and (v)
such other documents as the Agent may require in connection with the perfection
of its Security interest therein.
5.5. The Pledge Agreements
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The Agent shall have received the Pledge Agreements, duly
executed by each individual Pledgor, together with (i) such membership
certificates or other evidence of ownership interest representing all the issued
and outstanding Capital Stock or membership units of the Borrower held by the
Pledgors, together with undated assignments executed in blank and (ii) such
other documents as the Agent may require in connection with the perfection of
its security interests therein.
5.6. Guaranty
The Agent shall have received the Guaranty, duly executed by
an Authorized Signatory of each of the Guarantors.
5.7. Litigation
There shall be no injunction, writ, preliminary restraining
order or other order of any nature issued by any Governmental Authority in any
respect affecting the transactions provided for herein and no action or
proceeding by or before any Governmental Authority shall have been commenced and
be pending or, to the knowledge of the Borrower, threatened, seeking to prevent
or delay the transactions contemplated by the Loan Documents or challenging any
other terms and provisions hereof or thereof or seeking any damages in
connection therewith, and the Agent shall have received a certificate of an
Authorized Signatory of the Borrower to the foregoing effects.
5.8. Approvals and Consents
The Agent shall have received a certificate of an authorized
signatory of the Borrower to the effect that all approvals and consents of all
Persons required to be obtained in connection with the consummation of the
transactions contemplated by the Loan Documents have been duly obtained and are
in full force and effect, and that all required notices have been given and any
required waiting periods have expired.
5.9. Search Reports and Related Documents
The Agent shall have received (i) UCC, tax and judgment lien
searches with respect to each applicable public office where Liens are or may be
filed disclosing that there are no Liens of record in such official's office
covering any Collateral or showing the Borrower or any Guarantor as debtor
thereunder (other than a Permitted Lien and other than Liens with respect to
Existing Indebtedness to be repaid on the first Borrowing Date and (ii) a
certificate of the Borrower and the Guarantors signed by an Authorized Signatory
of each thereof, dated the first Borrowing Date, certifying that, upon the
making of the Loans on such date there will exist no Liens on the Collateral
other than Permitted Liens.
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5.10. Existing Indebtedness
Prior to or simultaneously with the making of the first
Revolving Credit Loans, the Borrower shall have fully repaid all Existing Bank
Debt.
5.11. Certain Agreements
The Agent shall have received a fully executed copy of the
Restricted Limited Liability Company Unit Incentive Compensation Plan, certified
by an Authorized Signatory of the Borrower as being true and correct as of the
Effective Date, and such Plan shall require each recipient of vested membership
units to pledge such units to the Agent as Collateral under the Loan Documents.
5.12. Financial Statements; Compliance Certificate; Projections
The Agent shall have received (i) the Financial Statements set
forth in Section 4.13, (ii) a Compliance Certificate (prepared on a pro-forma
basis after giving effect to the first Borrowings hereunder) showing compliance
with the financial covenants on the first Borrowing Date, certified by a
Financial Officer of the Borrower, and (iii) financial projections of the
Borrower and its Subsidiaries for such periods, in such form and with respect to
such matters as the Agent may reasonably request.
5.13. Opinion of Counsel to the Borrower and the Guarantors
The Agent shall have received an opinion of counsel to the
Borrower and the Guarantors, addressed to the Agent and the Lenders (and
permitting Special Counsel to rely thereon), and dated the first Borrowing Date,
substantially in the form of Exhibit F. It is understood that such opinion is
being delivered to the Agent and the Lenders upon the direction of the Borrower
and the Guarantors and that the Agent and the Lenders may and will rely upon
such opinion.
5.14. Opinion of Special Counsel
The Agent shall have received an opinion of Special Counsel,
addressed to the Agent and the Lenders and dated the first Borrowing Date
substantially in the form of Exhibit G.
5.15. Insurance
The Agent shall have received a certificate of all insurance
maintained by the Borrower, its Subsidiaries and the Guarantors in form and
substance reasonably satisfactory to the Agent, and naming the Agent as loss
payee.
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5.16. Fees
All fees payable to the Agent and the Lenders on the first
Borrowing Date shall have been paid.
5.17. Fees and Expenses of Special Counsel
The fees and expenses of Special Counsel in connection with
the preparation, negotiation and closing of the Loan Documents shall have been
paid.
5.18. Other Documents
The Agent shall have received such other documents as the
Agent or the Lenders shall reasonably request.
6. CONDITIONS OF LENDING - ALL REVOLVING CREDIT LOANS
The obligation of each Lender to make any Revolving Credit Loan on a
Borrowing Date is subject to the satisfaction of the following conditions
precedent as of the date of such Revolving Credit Loan:
6.1. Compliance
On each Borrowing Date and after giving effect to the
Revolving Credit Loans to be made thereon (i) there shall exist no Default or
Event of Default and (ii) the representations and warranties contained in the
Loan Documents shall be true and correct with the same effect as though such
representations and warranties had been made on such Borrowing Date, except to
the extent such representations and warranties specifically relate to an
earlier date, in which case such representations and warranties shall have been
true and correct on and as of such earlier date. Each borrowing by the Borrower
shall constitute a certification by the Borrower as of such Borrowing Date that
each of the foregoing matters is true and correct in all respects.
6.2. Borrowing Request
With respect to the Revolving Credit Loans to be made on each
Borrowing Date, the Agent shall have received, a Borrowing Request, duly
executed by an Authorized Signatory of the Borrower.
6.3. Loan Closings
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All documents required by the provisions of the Loan Documents
to be executed or delivered to the Agent on or before the applicable Borrowing
Date shall have been executed and shall have been delivered at the office of the
Agent set forth in Section 11.2 on or before such Borrowing Date.
6.4. Other Documents
The Agent shall have received such other documents as the
Agent or the Lenders shall reasonably request.
7. AFFIRMATIVE COVENANTS
The Borrower agrees that, so long as this Agreement is in effect, any
Revolving Credit Loan remains outstanding and unpaid, any Lender has any
obligation to make any Revolving Credit Loan, or any other amount is owing under
any Loan Document to any Lender or the Agent, the Borrower shall:
7.1. Financial Statements
Maintain a standard system of accounting in accordance with
GAAP consistently applied, and furnish or cause to be furnished to the Agent and
each Lender:
(a) As soon as available, but in any event within 90 days
after the end of each fiscal year, a copy of its Consolidated balance
sheet as at the end of such fiscal year, together with the related
Consolidated statements of income, retained earnings and cash flows as
of and through the end of such fiscal year, setting forth in each case
in comparative form the figures for the preceding fiscal year. The
Consolidated balance sheets and Consolidated statements of income,
retained earnings and cash flows shall be audited and certified without
qualification by the Accountants, which certification shall (i) state
that the examination by such accountants in connection with such
financial statements has been made in accordance with generally
accepted auditing standards and, accordingly, included such tests of
the accounting records and such other auditing procedures as were
considered necessary in the circumstances, and (ii) include the opinion
of such accountants that such financial statements have been prepared
in accordance with GAAP in a manner consistent with prior fiscal
periods, except as otherwise specified in such opinion.
(b) As soon as available, but in any event within 45 days
after the end of each of the first three fiscal quarters, a copy of the
Consolidated balance sheet of the Borrower as at the end of each such
quarterly period, together with the related Consolidated statements of
income, retained earnings and cash flows for such period and for the
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elapsed portion of the fiscal year through such date, setting forth in
each case in comparative form the figures for the corresponding periods
of the preceding fiscal year, certified by a Financial Officer of the
Borrower (or such other member acceptable to the Agent), as being
complete and correct in all material respects and as presenting fairly
the Consolidated financial condition and the Consolidated results of
operations of the Borrower and its Subsidiaries, such statements to
include such additional specific information as to income and expenses
as the Agent may reasonably request.
(c) Within 45 days after the end of each of the first three
fiscal quarters and within 90 days after the end of the last fiscal
quarter, a Compliance Certificate, certified by a Financial Officer of
the Borrower (or such other member as shall be acceptable to the
Agent).
(d) Financial statements with respect to any new Acquisitions
in such form as the Agent may reasonably request within 90 days after
the end of each fiscal year.
(e) An annual budget in such form as shall be acceptable to
the Agent.
(f) Such other information as the Agent or any Lender may
reasonably request from time to time.
7.2. Certificates; Other Information
Furnish to the Agent and each Lender:
(a) Prompt written notice if: (i) any Indebtedness in excess
of $100,000 of the Borrower or any of its Subsidiaries is declared or shall
become due and payable prior to its stated maturity, or is called and not paid
when due, (ii) a default shall have occurred under any note (other than the
Notes) or the holder of any such note, or other evidence of Indebtedness,
certificate or security evidencing any such Indebtedness or any obligee with
respect to any other Indebtedness of the Borrower or any of its Subsidiaries has
the right to declare any such Indebtedness due and payable prior to its stated
maturity, (iii) there shall occur and be continuing a Default or an Event of
Default or (iv) a Change of Control should occur;
(b) Prompt written notice of: (i) any citation, summons,
subpoena, order to show cause or other document naming the Borrower or any of
its Subsidiaries a party to any proceeding before any Governmental Authority
which could reasonably be expected to have a Material Adverse Effect or which
calls into question the validity or enforceability of any of the Loan Documents,
and include with such notice a copy of such citation, summons, subpoena, order
to show cause or other document and (ii) any lapse or other termination of any
license, permit, franchise or other authorization issued to the Borrower or any
of its Subsidiaries by any
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Person or Governmental Authority which could reasonably be expected to have a
Material Adverse Effect;
(c) If and when the Borrower or any ERISA Affiliate (i) gives
or is required to give notice to the PBGC of any "reportable event" (as defined
in Section 4043 of ERISA) with respect to any Pension Plan, a copy of the notice
of such reportable event given or required to be given to the PBGC; (ii)
receives notice of complete or partial withdrawal liability under Title IV of
ERISA or notice that any Multiemployer Plan is in reorganization, is insolvent
or has been terminated, a copy of such notice; (iii) receives notice from the
PBGC of an intent to terminate, impose liability (other than for premiums in
respect of, or appoint a trustee to administer any Pension Plan, a copy of such
notice; (iv) applies for a waiver of the minimum funding standard under Section
412 of the Code, a copy of such application; (v) gives notice of intent to
terminate any Pension Plan under Section 4041(c) of ERISA, a copy of such notice
and other information filed with the PBGC; (vi) gives notice of withdrawal from
any Pension Plan pursuant to Section 4063 of ERISA, a copy of such notice; or
(vii) fails to make any payment or contribution to any Pension Plan or
Multiemployer Plan makes any amendment to any Pension Plan which in either case
would trigger the provisions of Sections 412(n) or 401(a)(29) of the Code (and
any corresponding provisions of ERISA), a certificate of the chief financial
officer of the Borrower setting forth details as to such occurrence and action,
if any, which the Borrower or ERISA Affiliate is required or proposes to take;
(d) Prompt written notice of any order, notice, claim or
proceeding received by, or brought against, the Borrower or any of its
Subsidiaries, or with respect to any of the Real Property, under any
Environmental Law; and
(e) Such other information as the Agent or any Lender shall
reasonably request from time
to time.
7.3. Legal Existence
Except for mergers, consolidations and acquisitions permitted
under Section 8.3, maintain, and cause each of its Subsidiaries to maintain, its
corporate or partnership or analogous existence in good standing in the
jurisdiction of its incorporation or formation and in each other jurisdiction in
which the failure so to do could have a Material Adverse Effect.
7.4. Taxes
Pay and discharge when due, and cause each of its Subsidiaries
so to do, all taxes, assessments and governmental charges, license fees and
levies upon, or with respect to the Borrower and all taxes upon the income,
profits and Property of the Borrower or any of its Subsidiaries, which if
unpaid, could reasonably be expected to have a Material Adverse Effect or become
a Lien on the Property of the Borrower or any of its Subsidiaries, except those
which are
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being contested in good faith by appropriate proceedings, and with respect to
which adequate reserves have been set aside, and provided that the Borrower
shall give the Agent prompt notice of such contest.
7.5. Insurance
(a) Maintain, and cause each of its Subsidiaries to maintain,
insurance with financially sound insurance carriers on such of its Property,
against at least such risks, and in at least such amounts, as are usually
insured against by similar businesses, including public liability (bodily injury
and property damage), fidelity, business interruption, and workers' compensation
with deductibles which are customary for companies engaged in similar
businesses, and which, in the case of property insurance, shall be (i) in
amounts sufficient to prevent the Borrower or such Subsidiary from becoming a
co-insurer, and (ii) against all risks; and file with the Agent within ten days
after request therefor a detailed list of such insurance then in effect, stating
the names of the carriers thereof, the policy numbers, the insureds thereunder,
the amounts of insurance, dates of expiration thereof, and the Property and
risks covered thereby, together with a certificate of the Financial Officer (or
such other officer as shall be acceptable to the Agent) of the Borrower
certifying that in the opinion of such officer such insurance is adequate in
nature and amount, complies with the obligations of the Borrower under this
Section, and is in full force and effect.
(b) Insurance Covering Collateral. Promptly upon request
therefor, deliver or cause to be delivered to the Agent originals or duplicate
originals of all such policies of insurance. All such insurance policies in
respect of property insurance and business interruption insurance shall contain
a standard loss payable clause and shall be endorsed to provide that, in respect
of the interests of the Agent and the Lenders: (i) the Agent shall be an
additional insured, (ii) 30 days' prior written notice of any cancellation,
reduction of amounts payable, or any changes and amendments shall be given to
the Agent, and (iii) the Agent shall have the right, but not the obligation, to
pay any premiums due or to acquire other such insurance upon the failure of the
Borrower or such Subsidiary to pay the same or to so insure. All property
insurance policies shall name the Agent as sole loss payee in respect of each
claim relating to the Collateral and resulting in a payment under any such
insurance policy exceeding $1,000,000. Provided that no Default or Event of
Default shall exist, the Agent agrees, promptly upon its receipt thereof, to pay
over to the Borrower the proceeds of such payment to enable the Borrower to
repair, restore or replace the Property subject to such claim. To the extent
that the Borrower elects not to repair, restore or replace such Property an
amount equal to such proceeds shall be immediately applied as a permanent
reduction of the Aggregate Commitment Amount pursuant to Section 2.5(e). If a
Default or Event of Default shall then exist, the Agent shall (i) hold the
proceeds of such payment as Collateral until such Default or Event of Default
shall no longer exist and then pay over the same to the Borrower to enable the
Borrower to repair, restore or replace or cause to be repaired, restored or
replaced the Property subject to the claim which resulted in such payment or
(ii) hold such proceeds as Collateral and apply the same to the obligations of
the Borrower under
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the Loan Documents in such order, in such amounts and at such times as the
Agent, with the consent of Required Lenders, shall decide.
7.6. Payment of Indebtedness and Performance of Obligations
Pay and discharge when due, and cause each of its Subsidiaries
to pay and discharge, all lawful Indebtedness, obligations and claims for labor,
materials and supplies or otherwise (which, if unpaid, might (i) have a Material
Adverse Effect, or (ii) become a Lien upon Property of the Borrower or any of
its Subsidiaries other than a Permitted Lien, (except to the extent that any
such Indebtedness, obligations or claims are being contested in good faith by
the Borrower or any of its Subsidiaries by appropriate proceedings diligently
conducted by the Borrower or such Subsidiary, and provided that the Borrower
shall give the Agent prompt notice of any such contest and that such reserve or
other appropriate provision as shall be required by the Accountants in
accordance with GAAP shall have been made therefor).
7.7. Condition of Property
At all times, maintain, protect and keep in good repair,
working order and condition (ordinary wear and tear excepted), and cause each of
its Subsidiaries so to do, all Property necessary to the operation of the
Borrower's or such Subsidiary's business and activities, except where the
failure to maintain such Property could reasonably be expected to have a
Material Adverse Effect.
7.8. Observance of Legal Requirements
Observe and comply in all respects, and cause each of its
Subsidiaries so to do, with all laws, ordinances, orders, judgments, rules,
regulations, certifications, franchises, permits, licenses, directions and
requirements of all Governmental Authorities, which now or at any time hereafter
may be applicable to it, including, without limitation, all Environmental Laws,
a violation of which could reasonably be expected to have a Material Adverse
Effect.
7.9. Inspection of Property; Books and Records; Discussions
Keep proper books of record and account in which full, true
and correct entries in conformity with generally accepted accounting principles,
consistently applied, and all requirements of law shall be made of all dealings
and transactions in relation to its business and activities and permit
representatives of the Agent and each Lender to visit the offices of the
Borrower and each of its Subsidiaries, to inspect any of its Property and
examine and make copies or abstracts from any of its books and records with
reasonable advance notice, at any reasonable time and as often as may reasonably
be desired, and to discuss the business, operations, prospects, licenses,
Property and financial condition of the Borrower and each such Subsidiary with
the officers thereof and the Accountants.
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7.10. Licenses
Maintain, and cause each of its Subsidiaries to maintain, in
full force and effect, all material licenses, franchises, intellectual property,
permits, licenses, authorizations and other rights as are necessary for the
conduct of its business except where such failure could not reasonably be
expected to have a Material Adverse Effect.
7.11. Financial Covenants
(a) Pro Forma Interest Coverage Ratio. Maintain at all times
a Pro Forma Interest Coverage Ratio of not less than 2.00 to 1.00.
(b) Fixed Charge Coverage Ratio. Maintain at all times a Fixed
Charge Coverage Ratio of not less than 1.10 to 1.00, commencing with the fiscal
quarter ending March 31, 1998.
(c) Leverage Ratio. Maintain at all times during the periods
set forth below, a Leverage Ratio of not more than the ratios set forth below:
Period Ratio
------ -----
Effective Date through
December 30, 1997 3.50:1.00
December 31, 1997 through
June 29, 1998 3.25:1.00
June 30, 1998 through
December 30, 1998 3.00:1:00
December 31, 1998 through
December 30, 1999 2.75:1.00
December 31, 1999 through
December 30, 2000 2.50:1.00
December 31, 2000
and thereafter 2.25:1.00
7.12. Additional Collateral
In the event that the Borrower shall purchase any real
property using the proceeds of the Revolving Credit Loans, the Borrower shall
(i) provide the Agent with 10 days' written notice of such purchase and (ii)
grant to the Agent a mortgage on such real property on such
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terms and conditions as the Agent may require and shall deliver such mortgage
on or within 30 days of the acquisition of such real property.
8. NEGATIVE COVENANTS
The Borrower agrees that, so long as this Agreement is in effect, any
Revolving Credit Loan remains outstanding and unpaid, any Lender has any
obligation to make any Revolving Credit Loan, or any other amount is owing under
any Loan Document to any Lender or the Agent, the Borrower shall not, directly
or indirectly:
8.1. Indebtedness
Create, incur, assume or suffer to exist any liability for
Indebtedness, or permit any of its Subsidiaries so to do, except (i)
Indebtedness under the Loan Documents, (ii) Indebtedness of the Borrower or any
of its Subsidiaries existing on the Effective Date as set forth on Schedule 8.1
(other than the Existing Bank Debt which is to be repaid on the Effective Date),
excluding increases and refinancings thereof, (iii) Intercompany Indebtedness,
(iv) purchase money Indebtedness and Capital Lease Obligations (other than any
such purchase money Indebtedness or Capital Lease Obligations described in
clause (ii) above) incurred in connection with the purchase, after the Effective
Date, of any Property, in an aggregate principal amount not to exceed $1,000,000
at any one time outstanding, (v) Indebtedness under Interest Rate Protection
Agreements and (vi) Indebtedness incurred to prepay outstanding Revolving Credit
Loans pursuant to Section 2.5(f).
8.2. Liens
Create, incur, assume or suffer to exist any Lien upon any of
its Property, whether now owned or hereafter acquired, or covenant or agree with
any Person to grant a Lien in favor of any other Person or permit any of its
Subsidiaries so to do, except (i) Liens on Property of the Borrower and its
Subsidiaries existing on the Effective Date as set forth in Schedule 8.2, (ii)
Liens for taxes, assessments or similar charges incurred in the ordinary course
of business which are not delinquent, (iii) Liens in connection with workers'
compensation, unemployment insurance or other social security obligations (but
not ERISA), (iv) deposits or pledges to secure bids, tenders, contracts (other
than contracts for the payment of money), leases, statutory obligations, surety
and appeal bonds and other obligations of like nature arising in the ordinary
course of business, (v) zoning ordinances, easements, rights of way, minor
defects, irregularities, and other similar restrictions affecting Real Property
which do not adversely affect the value of such Real Property or the financial
condition of the Borrower or such Subsidiary or impair its use for the operation
of the business of the Borrower or such Subsidiary, (vi) Liens arising by
operation of law such as mechanics', materialmen's, carriers', warehousemen's
liens incurred in the ordinary course of business which are not delinquent,
(vii) Liens in favor of the Agent and
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the Lenders under the Loan Documents, (viii) Liens on Property of the Borrower
or any of its Subsidiaries acquired after the Effective Date provided that such
Liens are limited to the Property so acquired and were not created in
contemplation of such acquisition, and (ix) purchase money Liens on Property of
the Borrower or any of its Subsidiaries acquired after the date hereof to
secure Indebtedness of the Borrower permitted by Section 8.1(iv).
8.3. Mergers, Consolidations and Acquisitions
Consolidate with, be acquired by, merge into or with any
Person, make any Acquisition or enter into any binding agreement to do any of
the foregoing which is not contingent on obtaining the consent of the Required
Lenders, or permit any of its Subsidiaries so to do, except:
(a) Capital Expenditures;
(b) provided that the Agent shall have received ten
days' prior written notice, any Subsidiary of the Borrower may merge or
consolidate with any other Subsidiary of the Borrower;
(c) mergers involving Subsidiaries as part of an
Acquisition permitted by subsection (e) below, provided that no Capital
Stock is issued in connection therewith except to the extent permitted
by Section 8.12;
(d) Investments permitted by Section 8.5;
(e) Acquisitions, provided, however, that the
Acquisition Cost in respect thereof shall not exceed $30,000,000 in the
aggregate for the period from the Effective Date to the termination of
this Agreement without the prior written consent of the Required
Lenders and, provided further, that with respect to any Acquisition
whenever consummated (A) such Acquisition shall be of a Person or
operating entity or involve the purchase of assets of a Person in the
same or a similar line of business as the Borrower is engaged in on the
Effective Date, (B) no Default or Event of Default shall exist
immediately before or after giving effect to such Acquisition, the
Borrower will be in compliance with all financial covenants contained
herein on a pro-forma basis after giving effect to such Acquisition and
any Indebtedness incurred or assumed in connection therewith is
permitted by Section 8.1, and, immediately after giving effect to each
such Acquisition, all of the representations and warranties contained
in Section 4 shall be true and correct as if then made and the Agent
shall have received a certificate of a Financial Officer of the
Borrower to such effect, (C) the Agent and the Lenders shall have been
given not less than 30 calendar days' prior written notice thereof, (D)
the Agent shall have received a certificate signed by a Financial
Officer of the Borrower, identifying the Person or Property to be
acquired, the name of the Person making such Acquisition and
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setting forth the total consideration to be paid in respect of such
Acquisition, (E) the conditions of Section 8.12 shall have been
satisfied, (F) in the case of an Acquisition of Property, Capital
Stock or other ownership interest of a Person that will be a
Subsidiary of the Borrower, such new Subsidiary shall deliver to the
Agent a duly executed Guaranty and Security Agreement or supplements
thereto and such other documents as the Agent shall reasonably require
in order that the Agent shall have a perfected first priority security
interest in the Property, Capital Stock or other ownership interest so
acquired and (G) the Agent shall have received such other information
or documents as the Agent shall have reasonably requested, which may
include, without limitation, a copy of any letter of intent with
respect to any acquisition and a copy of the final acquisition
agreement between the purchaser and seller.
8.4. Dispositions
Make any Disposition, or permit any of its Subsidiaries so to
do, except:
(a) Dispositions of any Investments permitted under
Section 8.5(a);
(b) Dispositions of Property which, in the
reasonable opinion of the Borrower or such Subsidiary, is obsolete or
no longer useful in the conduct of its business;
(c) Dispositions as to which the following
conditions have been satisfied:
(i) the Agent and the Required Lenders shall
have consented thereto (which consent shall be discretionary),
(ii) no Default or Event of Default shall
exist immediately before or after giving effect thereto,
(iii) the total consideration received or to
be received therefor by the Borrower or any of its
Subsidiaries shall be payable in cash on or before the closing
thereof or with the consent of the Required Lenders, payable
in other forms and shall not be less than the fair market
value thereof as reasonably determined by the Managing Person
of the Borrower or such Subsidiary,
(iv) the Borrower shall apply 100% of the
Net Cash Proceeds thereof within ten Business Days of the
receipt thereof, to the mandatory reduction of the Aggregate
Commitment Amount pursuant to Section 2.4, and the mandatory
prepayment of the Revolving Credit Loans pursuant to Section
2.5, and
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(v) within ten Business Days prior to each
such Disposition, the Agent and the Lenders shall have
received a certificate in respect thereto signed by an
Authorized Signatory of the Borrower identifying the Property
to be sold or otherwise disposed of and stating (x) that
immediately before or after giving effect thereto, no Default
or Event of Default shall exist, (y) that the consideration
received or to be received by the Borrower or such Subsidiary
for such Property has been determined by the Managing Person
thereof to be not less than the fair market value of such
Property and (z) the total consideration to be paid in respect
of such Disposition, together with estimates of items to be
deducted therefrom in arriving at the Net Cash Proceeds
thereof.
8.5. Investments, Loans, Etc.
At any time, directly or indirectly, purchase or otherwise
hold, own, acquire or invest in the Capital Stock of, evidence of indebtedness
or other obligation or security issued by, any other Person, or make any loan or
advance to, or enter into any arrangement for the purpose of providing funds or
credit to, or make any Acquisition (other than a Permitted Acquisition), or
become a partner or joint venturer in any partnership or joint venture, or make
any other investment (whether in cash or other Property) in any other Person, or
make any commitment or otherwise to agree to do any of the foregoing (all of
which are sometimes referred to herein as "Investments"), or permit any of its
Subsidiaries so to do, or except:
(a) Investments in Cash Equivalents;
(b) Investments existing on the Effective Date
as set forth on Schedule 8.5;
(c) normal business banking accounts;
(d) short-term certificates of deposit and time
deposits in, or issued by, federally insured institutions in amounts
not exceeding the limits of such insurance;
(e) Investments by the Borrower or any Subsidiary in
Intercompany Indebtedness permitted under Section 8.1;
(f) loans to employees of the Borrower or any
Subsidiary (i) to pay for relocation costs of such employees, provided
that such loans shall not exceed $500,000 at any one time oustanding or
(ii) to purchase Capital Stock of the Borrower, provided that such
Capital Stock shall be pledged by such employees to the Agent, pursuant
to and in accordance with Section 8.12(a); and
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(g) other Investments in an aggregate amount not to
exceed $750,000 from the Effective Date to the termination of this
Agreement, provided that in no case shall such Investments be made to
become a partner or joint venturer in any partnership or joint venture
in respect of which the liability of the Borrower exceeds the amount of
the Investment permitted by this clause (g).
8.6. Restricted Payments
Declare or pay any Restricted Payments payable in cash or
otherwise or apply any of its Property thereto or set apart any sum therefor, or
permit any of its Subsidiaries so to do, except: (i) a wholly-owned Subsidiary
may declare and pay Restricted Payments to the Borrower, provided that no
Default or Event of Default has occurred and is continuing or would occur after
giving effect thereto, (ii) the Borrower and any Subsidiaries may declare and
pay Restricted Payments, directly or indirectly, to its members to enable such
members to pay taxes when due, provided that such Restricted Payments shall not
exceed the Members' Tax Liability with respect to each such entity and provided
further that no Event of Default under Section 9.1(a), (b), (h) or (i) has
occurred and is continuing or would occur after giving effect thereto, (iii)
commencing December 31, 1998, the Borrower may declare and pay dividends in an
amount not to exceed 50% of Excess Cash Flow for the immediately preceding
fiscal year of the Borrower, provided that the Leverage Ratio for the two fiscal
quarters prior to and after giving effect thereto is less than 2.00:1.00 and
provided further that no Default or Event of Default has occurred and is
continuing or would occur after giving effect thereto, and (iv) Restricted
Payments in connection with a put or redemption of any Preferred Membership
Units, provided that (A) the Leverage Ratio for the two fiscal quarters prior to
and after giving effect thereto is less than 2.50:1.00 or, alternatively, three
years shall have passed from the issuance of such Preferred Membership Units,
(B) such Restricted Payments shall not in the aggregate exceed $4,000,000 from
the Effective Date until the termination of this Agreement and (C) no Default or
Event of Default has occurred and is continuing or would occur after giving
effect thereto.
8.7. Business and Name Changes
Materially change the nature of the business or the fiscal
year of the Borrower and its Subsidiaries as conducted on the Effective Date, or
alter or modify the Borrower's name, structure or status, as conducted on the
Effective Date.
8.8. Subsidiaries
Create or acquire any other Subsidiary, or permit any of its
Subsidiaries so to do, except as permitted pursuant to and in accordance with
Section 8.12.
8.9. ERISA
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Establish or contribute, or permit any of its Subsidiaries so
to do, to any Pension Plan (other than an Existing Pension Plan) except to the
extent that the same could not reasonably be expected to result in a Material
Adverse Effect, cause any Pension Plan to have a Funded Current Liability
Percentage of less than 60%, or increase benefits, or permit any of its
Subsidiaries so to do, under any Employee Benefit Plan or establish or
contribute to any new Employee Benefit Plan except to the extent that the same
could not reasonably be expected to result in a Material Adverse Effect.
8.10. Amendments, Etc. of Certain Agreements
Enter into or agree to any amendment, modification or waiver
of any term or condition of its Organizational Documents, including the PRG
Operating Agreement, or the Restricted Limited Liability Company Unit Incentive
Compensation Plan.
8.11. Transactions with Affiliates and Employees
Become a party to any transaction with an Affiliate or any
employee of the Borrower or any Subsidiary (other than a Guarantor) unless the
Borrower's Managing Person shall have determined that the terms and conditions
relating thereto are as favorable to the Borrower as those which would be
obtainable at the time in a comparable arms-length transaction with a Person
other than an Affiliate or employee of the Borrower or any Subsidiary, or permit
any of its Subsidiaries so to do.
8.12. Issuance of Additional Capital Stock
Create or acquire the Capital Stock in, or Property of, any
Person which shall thereupon become a direct or indirect Subsidiary (each, a
"New Subsidiary"), or issue any additional Capital Stock, or permit any of its
Subsidiaries so to do, except as follows:
(a) the Borrower may issue additional Capital Stock
(other than Capital Stock subject to mandatory redemption or redemption
at the option of the holder thereof, in whole or in part except for
Preferred Membership Units), including issuance pursuant to the
Restricted Limited Liability Company Unit Incentive Plan, provided that
(i) the same is not otherwise prohibited under the Loan Documents, (ii)
simultaneously therewith (A) such Capital Stock shall be pledged by the
holder thereof to the Agent, for the ratable benefit of the Lenders
pursuant to the Security Agreement or Pledge Agreement, as the case may
be, and (B) appropriate documentation with respect thereto as the Agent
shall reasonably request shall be delivered to the Agent, and (iii)
there shall be no Lien upon such Capital Stock except for the Lien
created in favor of the Agent, for the ratable benefit of the Lenders
under the Collateral Documents;
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(b) a Subsidiary may issue additional Capital Stock
to its immediate parent provided that (i) the same is not otherwise
prohibited under the Loan Documents, (ii) simultaneously therewith (A)
such Capital Stock shall be pledged to the Agent, for the ratable
benefit of the Lenders pursuant to the Security Agreement and (B)
appropriate documentation with respect thereto as the Agent shall
reasonably request shall be delivered to the Agent, and (iii) there
shall be no Lien upon such Capital Stock except for the Lien created in
favor of the Agent, for the ratable benefit of the Lenders under the
Security Agreement or Guaranty, as the case may be; and
(c) the Borrower or any of its Subsidiaries may
create or acquire a New Subsidiary with respect to an Acquisition
provided that: (i) in the case of an Acquisition, such Acquisition is a
Permitted Acquisition; (ii) the Agent shall have received 30 calendar
days' advance written notice thereof; (iii) prior to or simultaneously
with the consummation of such Acquisition, (A) such New Subsidiary
shall execute and deliver to the Agent a supplement to the Guaranty and
the Security Agreement in accordance with the terms thereof together
with (1) a certificate, dated the date such New Subsidiary shall have
become a party to the Guaranty, executed by such New Subsidiary and
substantially in the form of, and with substantially the same
attachments as, the certificate which would have been required under
Section 5.1 if such New Subsidiary had become a party to the Guaranty
and the Security Agreement on the Effective Date and (2) such
certificates, stock powers, membership units instruments, Grants of
Security Interest, Transaction Statements, UCC Financing Statements and
UCC, tax and judgment lien searches which would have been required
under Section 5.4 and 5.9 if such New Subsidiary had become a party to
the Guaranty and the Security Agreement on the Effective Date; (B) each
Credit Party owning Capital Stock of such New Subsidiary shall deliver
certificates evidencing such Capital Stock to the Agent as additional
Collateral, together with appropriate stock or transfer powers; (iv)
the Agent shall have received an opinion of counsel to the New
Subsidiary, in all respects satisfactory to the Agent and dated the
date of such supplement to the Guaranty and the Security Agreement; and
(v) the Agent shall have received such other documents as the Agent
shall have reasonably requested.
8.13. Limitation on Upstream Dividends by Subsidiaries
Permit or cause any of its Subsidiaries to enter into or
agree, or otherwise be or become subject, to any agreement, contract or other
arrangement (other than this Agreement) with any Person pursuant to the terms of
which such Subsidiary is or would be limited or prohibited from declaring or
paying any cash dividends or distributions on its Capital Stock owned directly
or indirectly by the Borrower or any of the other Subsidiaries.
8.14. Prepayments of Indebtedness
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Prepay or obligate itself to prepay, in whole or in part, any
Indebtedness (other than Indebtedness under the Loan Documents), or permit any
of its Subsidiaries so to do except that the Borrower may prepay up to
$1,000,000 of Indebtedness provided that no Default or Event of Default has
occurred and is continuing or would occur after giving effect thereto.
9. DEFAULT
9.1. Events of Default
The following shall each constitute an "Event of Default"
hereunder:
(a) Any payment of principal with respect to any
Revolving Credit Note shall not be made on the date when due and
payable; or
(b) Any payment of interest, fees, expenses or other
amounts payable under any Loan Document or otherwise to the Agent with
respect to the loan facilities established hereunder shall not be made
within three Business Days of the date when due and payable; or
(c) The failure of the Borrower to observe or perform
any covenant or agreement contained in Sections 2.6, 7.3, 7.11 or
Section 8; or
(d) The failure of any Credit Party to observe or
perform any other term, covenant, or agreement contained in any Loan
Document and such failure shall have continued unremedied for a period
of 30 days after such Credit Party shall have obtained knowledge
thereof; or
(e) Any representation or warranty made by any Credit
Party (or by an officer thereof on its behalf) in any Loan Document or
in any certificate, report, opinion (other than an opinion of counsel)
or other document delivered or to be delivered pursuant thereto, shall
prove to have been incorrect or misleading (whether because of
misstatement or omission) in any material respect when made; or
(f) Liabilities and/or other obligations of the
Borrower (other than its obligations hereunder), any of its
Subsidiaries or any Guarantor, whether as principal, guarantor, surety
or other obligor, for the payment of any Indebtedness or operating
leases in an aggregate amount in excess of $250,000 (i) shall become or
shall be declared to be due and payable prior to the expressed maturity
thereof, or (ii) shall not be paid when due or within any grace period
for the payment thereof, (iii) any holder of any such obligation shall
have the right to declare such obligation due and payable prior to the
expressed maturity thereof or (iv) as a consequence of the occurrence
or continuation of
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any event or condition, the Borrower, any of its Subsidiaries or any
Guarantor, has become obligated to purchase or repay any Indebtedness
in an aggregate amount in excess of $250,000 before its regularly
scheduled maturity date;
(g) Any license, franchise, permit, right, approval
or agreement of the Borrower, any of its Subsidiaries or any Guarantor,
is not renewed, or is suspended, revoked or terminated and the
non-renewal, suspension, revocation or termination thereof would have a
Material Adverse Effect; or
(h) The Borrower, any of its Subsidiaries or any
Guarantor, shall (i) suspend or discontinue its business, (ii) make an
assignment for the benefit of creditors, (iii) generally not be paying
its debts as such debts become due, (iv) admit in writing its inability
to pay its debts as they become due, (v) file a voluntary petition in
bankruptcy, (vi) become insolvent (however such insolvency shall be
evidenced), (vii) file any petition or answer seeking for itself any
reorganization, arrangement, composition, readjustment of debt,
liquidation or dissolution or similar relief under any present or
future statute, law or regulation of any jurisdiction, (viii) petition
or apply to any tribunal for any receiver, custodian or any trustee for
any substantial part of its Property, (ix) be the subject of any such
proceeding filed against it which remains undismissed for a period of
60 days, (x) file any answer admitting or not contesting the material
allegations of any such petition filed against it or any order,
judgment or decree approving such petition in any such proceeding, (xi)
seek, approve, consent to, or acquiesce in any such proceeding, or in
the appointment of any trustee, receiver, sequestrator, custodian,
liquidator, or fiscal agent for it, or any substantial part of its
Property, or an order is entered appointing any such trustee, receiver,
custodian, liquidator or fiscal agent and such order remains in effect
for 60 days, or (xii) take any formal action for the purpose of
effecting any of the foregoing or looking to the liquidation or
dissolution of the Borrower, such Subsidiary or any Guarantor; or
(i) An order for relief is entered under the
bankruptcy or insolvency laws of any jurisdiction or any other decree
or order is entered by a court having jurisdiction (i) adjudging the
Borrower, any of its Subsidiaries or any Guarantor, bankrupt or
insolvent, (ii) approving as properly filed a petition seeking
reorganization, liquidation, arrangement, adjustment or composition of
or in respect of the Borrower, any of its Subsidiaries or any
Guarantor, under the bankruptcy or insolvency laws of any jurisdiction,
(iii) appointing a receiver, liquidator, assignee, trustee, custodian,
sequestrator (or other similar official) of the Borrower, any of its
Subsidiaries or any Guarantor, or of any substantial part of the
Property of any thereof, or (iv) ordering the winding up or liquidation
of the affairs of the Borrower, any of its Subsidiaries or any
Guarantor, and any such decree or order continues unstayed and in
effect for a period of 60 days; or
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(j) Judgments or decrees against the Borrower, any of
its Subsidiaries or any Guarantor, aggregating in excess of $250,000
shall remain unpaid, unstayed on appeal, undischarged, unbonded or
undismissed for a period of 30 days; or
(k) Any Loan Document shall cease, for any reason, to
be in full force and effect, or any Credit Party shall so assert in
writing or shall disavow any of its obligations thereunder; or
(l) The occurrence of an Event of Default as
defined in any Collateral Document; or
(m) The occurrence of a Material Adverse
Change; or
(n) The occurrence of a Change of Control; or
(o) (i) any Termination Event shall occur; (ii) any
Accumulated Funding Deficiency, whether waived, shall exist with
respect to any Pension Plan; (iii) any Person shall engage in any
Prohibited Transaction involving any Employee Benefit Plan; (iv) the
Borrower, any of its Subsidiaries or any ERISA Affiliate shall fail to
pay when due an amount which is payable by it to the PBGC or to a
Pension Plan under Title IV of ERISA; (v) the imposition of any tax
under Section 4980B(a) of the Code; (vi) the assessment of a civil
penalty with respect to any Employee Benefit Plan under Section 502(c)
of ERISA; or (vii) any other event or condition shall occur or exist
with respect to an Employee Benefit Plan which in the case of clauses
(i) through (vii) would, individually or in the aggregate, have a
Material Adverse Effect.
9.2. Contract Remedies
(a) Upon the occurrence of an Event of Default or at any time
thereafter during the continuance thereof, (i) if such event is an Event of
Default specified in clause (h) or (i) above, the Commitments of all of the
Lenders shall immediately and automatically terminate and the Revolving Credit
Loans, all accrued and unpaid interest thereon and all other amounts owing under
the Loan Documents shall immediately become due and payable, and the Agent may,
and, upon the direction of the Required Lenders shall, exercise any and all
remedies and other rights provided in the Loan Documents, and (ii) if such event
is any other Event of Default, any or all of the following actions may be taken:
(A) with the consent of the Required Lenders, the Agent may, and upon the
direction of the Required Lenders shall, by notice to the Borrower, declare the
Commitments of all of the Lenders terminated forthwith, whereupon such
Commitments shall immediately terminate, and (B) with the consent of the
Required Lenders, the Agent may, and upon the direction of the Required Lenders
shall, by notice of default to the Borrower, declare the Revolving Credit Loans,
all accrued and unpaid interest thereon and all other amounts owing under the
Loan Documents to be due and payable forthwith, whereupon the
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same shall immediately become due and payable, and the Agent may, and upon the
direction of the Required Lenders shall, exercise any and all remedies and
other rights provided in the Loan Documents. Except as otherwise provided in
this Section, presentment, demand, protest and all other notices of any kind
are hereby expressly waived. The Borrower hereby further expressly waives and
covenants not to assert any appraisement, valuation, stay, extension,
redemption or similar laws, now or at any time hereafter in force which might
delay, prevent or otherwise impede the performance or enforcement of any Loan
Document.
(b) In the event that the Commitments of all the Lenders shall
have been terminated or the Revolving Credit Loans shall have been declared due
and payable pursuant to the provisions of this Section, any funds received by
the Agent and the Lenders from or on behalf of the Borrower shall be applied by
the Agent and the Lenders in liquidation of the Revolving Credit Loans and the
other obligations of the Borrower under the Loan Documents in the following
manner and order: (i) first, to the payment of interest on, and then the
principal portion of, any Revolving Credit Loans which the Agent may have
advanced on behalf of any Lender for which the Agent has not then been
reimbursed by such Lender or the Borrower; (ii) second, to the payment of any
fees or expenses due the Agent from the Borrower, (iii) third, to reimburse the
Agent and the Lenders for any expenses (to the extent not paid pursuant to
clause (ii) above) due from the Borrower pursuant to the provisions of Section
11.5; (iv) fourth, to the payment of accrued Fees and all other fees, expenses
and amounts due under the Loan Documents (other than principal and interest on
the Revolving Credit Loans), (v) fifth, to the payment pro rata according to the
outstanding principal balance of the Revolving Credit Loans, of interest due on
the Revolving Credit Loans of each Lender; (vi) sixth, to the payment, pro rata
according to the outstanding principal balance of the Revolving Credit Loans, of
principal outstanding on the Loans; and (vii) seventh, to the payment of any
other amounts owing to the Agent and the Lenders under any Loan Document.
10. THE AGENT
10.1. Appointment
Each Lender hereby irrevocably designates and appoints BNY as
the Agent of such Lender under the Loan Documents and each Lender hereby
irrevocably authorizes the Agent to take such action on its behalf under the
provisions of the Loan Documents and to exercise such powers and perform such
duties as are expressly delegated to the Agent by the terms of the Loan
Documents, together with such other powers as are reasonably incidental thereto.
The duties of the Agent shall be mechanical and administrative in nature, and,
notwithstanding any provision to the contrary elsewhere in any Loan Document,
the Agent shall not have any duties or responsibilities other than those
expressly set forth therein, or any fiduciary relationship with, or fiduciary
duty to, any Lender, and no implied covenants,
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functions, responsibilities, duties, obligations or liabilities shall be read
into the Loan Documents or otherwise exist against the Agent.
10.2. Delegation of Duties
The Agent may execute any of its duties under the Loan
Documents by or through agents or attorneys-in-fact and shall be entitled to
rely upon, and shall be fully protected in, and shall not be under any liability
for, relying upon, the advice of counsel concerning all matters pertaining to
such duties.
10.3. Exculpatory Provisions
Neither the Agent nor any of its officers, directors,
employees, agents, attorneys-in-fact or affiliates shall be (A) liable for any
action lawfully taken or omitted to be taken by it or such Person under or in
connection with the Loan Documents (except the Agent for its own gross
negligence or willful misconduct), or (B) responsible in any manner to any of
the Lenders for any recitals, statements, representations or warranties made by
the Borrower or any other Credit Party or any officer thereof contained in the
Loan Documents or in any certificate, report, statement or other document
referred to or provided for in, or received by the Agent under or in connection
with, the Loan Documents or for the value, validity, effectiveness, genuineness,
perfection, enforceability or sufficiency of any of the Loan Documents or for
any failure of the Borrower or any other Credit Party or any other Person to
perform its obligations thereunder. The Agent shall not be under any obligation
to any Lender to ascertain or to inquire as to the observance or performance of
any of the agreements contained in, or conditions of, the Loan Documents, or to
inspect the Property, books or records of the Borrower or any other Credit
Party. The Lenders acknowledge that the Agent shall not be under any duty to
take any discretionary action permitted under the Loan Documents unless the
Agent shall be instructed in writing to do so by the Required Lenders and such
instructions shall be binding on all Lenders and all holders of the Revolving
Credit Notes; provided, however, that the Agent shall not be required to take
any action which exposes the Agent to personal liability or is contrary to law
or any provision of the Loan Documents. The Agent shall not be under any
liability or responsibility whatsoever, as Agent, to the Borrower or any other
Credit Party or any other Person as a consequence of any failure or delay in
performance, or any breach, by any Lender of any of its obligations under any of
the Loan Documents.
10.4. Reliance by Agent
The Agent shall be entitled to rely, and shall be fully
protected in relying, upon any writing, resolution, notice, consent,
certificate, affidavit, opinion, letter, cablegram, telegram, telecopy, telex or
teletype message, statement, order or other document or conversation reasonably
believed by it to be genuine and correct and to have been signed, sent or made
by a proper Person or Persons and upon advice and statements of legal counsel
(including counsel to
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the Borrower or any other Credit Party), independent accountants and other
experts selected by the Agent. The Agent may treat each Lender or the Person
designated in the last notice filed with it under this Section, as the holder
of all of the interests of such Lender in its Revolving Credit Loans and
Revolving Credit Note until written notice of transfer, signed by such Lender
(or the Person designated in the last notice filed with the Agent) and by the
Person designated in such written notice of transfer, in form and substance
satisfactory to the Agent, shall have been filed with the Agent. The Agent
shall not be under any duty to examine or pass upon the validity,
effectiveness, enforceability or genuineness of the Loan Documents or any
instrument, document or communication furnished pursuant thereto or in
connection therewith, and the Agent shall be entitled to assume that the same
are valid, effective and genuine, have been signed or sent by the proper
parties and are what they purport to be. The Agent shall be fully justified in
failing or refusing to take any action under the Loan Documents unless it shall
first receive such advice or concurrence of the Required Lenders as it deems
appropriate. The Agent shall in all cases be fully protected in acting, or in
refraining from acting, under the Loan Documents in accordance with a request
or direction of the Required Lenders, and such request or direction and any
action taken or failure to act pursuant thereto shall be binding upon all the
Lenders and all future holders of the Revolving Credit Notes.
10.5. Notice of Default
The Agent shall not be deemed to have knowledge or notice of
the occurrence of any Default or Event of Default unless the Agent has received
written notice thereof from a Lender or the Borrower. In the event that the
Agent receives such a notice, the Agent shall promptly give notice thereof to
the Lenders and the Borrower. The Agent shall take such action, or refrain from
taking such action, with respect to such Default or Event of Default as shall be
directed by the Required Lenders, provided, however, that unless and until the
Agent shall have received such directions, the Agent may (but shall not be
obligated to) take such action, or refrain from taking such action, with respect
to such Default or Event of Default as it shall deem to be in the best interests
of the Lenders.
10.6. Non-Reliance on Agent and Other Lenders
Each Lender expressly acknowledges that neither the Agent nor
any of its respective officers, directors, employees, agents, attorneys-in-fact
or affiliates has made any representations or warranties to it and that no act
by the Agent hereinafter, including any review of the affairs of the Borrower or
any other Credit Party, shall be deemed to constitute any representation or
warranty by the Agent to any Lender. Each Lender represents to the Agent that it
has, independently and without reliance upon the Agent or any Lender, and based
on such documents and information as it has deemed appropriate made its own
evaluation of and investigation into the business, operations, Property,
financial and other condition and creditworthiness of the Borrower or any other
Credit Party and the value and Lien status of any collateral security and made
its own decision to enter into this Agreement. Each Lender also
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represents that it will, independently and without reliance upon the Agent or
any Lender, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit analysis, evaluations
and decisions in taking or not taking action under any Loan Document, and to
make such investigation as it deems necessary to inform itself as to the
business, operations, Property, financial and other condition and
creditworthiness of the Borrower or any other Credit Party and the value and
Lien status of any collateral security. Except for notices, reports and other
documents expressly required to be furnished to the Lenders by the Agent
hereunder, the Agent shall not have any duty or responsibility to provide any
Lender with any credit or other information concerning the business,
operations, Property, financial and other condition or creditworthiness of the
Borrower or any other Credit Party which at any time may come into the
possession of the Agent or any of its officers, directors, employees, agents,
attorneys-in-fact or affiliates.
10.7. Indemnification
Each Lender agrees to indemnify and hold harmless the Agent in
its capacity as such (to the extent not promptly reimbursed by the Borrower and
without limiting the obligation of the Borrower to do so), pro rata according to
the aggregate of the outstanding principal balance of the Revolving Credit Loans
(or at any time when no Revolving Credit Loans are outstanding, according to its
Commitment Percentage), from and against any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind whatsoever including any amounts paid to the Lenders
(through the Agent) by the Borrower or any other Credit Party pursuant to the
terms of the Loan Documents, that are subsequently rescinded or avoided, or must
otherwise be restored or returned) which may at any time (including at any time
following the payment of the Revolving Credit Loans and Revolving Credit Notes)
be imposed on, incurred by or asserted against the Agent in any way relating to
or arising out of the Loan Documents or any other documents contemplated by or
referred to therein or the transactions contemplated thereby or any action taken
or omitted to be taken by the Agent under or in connection with any of the
foregoing; provided, however, that no Lender shall be liable for the payment of
any portion of such liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements to the extent
resulting solely from the finally adjudicated gross negligence or willful
misconduct of the Agent. Without limitation of the foregoing, each Lender agrees
to reimburse the Agent promptly upon demand for its pro rata share of any unpaid
fees owing to the Agent, and any costs and expenses (including reasonable fees
and expenses of counsel) payable by the Borrower under Section 11.5, to the
extent that the Agent has not been paid such fees or has not been reimbursed for
such costs and expenses, by the Borrower. The failure of any Lender to reimburse
the Agent promptly upon demand for its pro rata share of any amount required to
be paid by the Lenders to the Agent as provided in this Section shall not
relieve any other Lender of its obligation hereunder to reimburse the Agent for
its pro rata share of such amount, but no Lender shall be responsible for the
failure of other Lender to reimburse the Agent for such other Lender's pro rata
share of such
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amount. The agreements in this Section shall survive the termination of the
Commitments of all of the Lenders and the payment of all amounts payable under
the Loan Documents.
10.8. Agent in Its Individual Capacity
BNY and its affiliates may make secured or unsecured loans to,
accept deposits from, issue letters of credit for the account of, act as trustee
under indentures of, and generally engage in any kind of business with, the
Borrower or any other Credit Party as though BNY were not Agent hereunder and
BNY Capital Markets, Inc. did not arrange the transactions contemplated hereby.
With respect to the Commitment made or renewed by BNY and the Revolving Credit
Note issued to BNY, BNY shall have the same rights and powers under the Loan
Documents as any Lender and may exercise the same as though it were not the
Agent, and the terms "Lender" and "Lenders" shall in each case include BNY.
10.9. Successor Agent
If at any time the Agent deems it advisable, in its sole
discretion, it may submit to each of the Lenders a written notice of its
resignation as Agent under the Loan Documents, such resignation to be effective
upon the earlier of (i) the written acceptance of the duties of the Agent under
the Loan Documents by a successor Agent and (ii) on the 30th day after the date
of such notice. Upon any such resignation, the Required Lenders shall have the
right to appoint from among the Lenders a successor Agent. If no successor Agent
shall have been so appointed by the Required Lenders and accepted such
appointment in writing within 30 days after the retiring Agent's giving of
notice of resignation, then the retiring Agent may, on behalf of the Lenders,
appoint a successor Agent, which successor Agent shall be a commercial bank
organized under the laws of the United States or any State thereof and having a
combined capital, surplus, and undivided profits of at least $100,000,000. Upon
the acceptance of any appointment as Agent hereunder by a successor Agent, such
successor Agent shall thereupon succeed to and become vested with all the
rights, powers, privileges and duties of the retiring Agent, and the retiring
Agent's rights, powers, privileges and duties as Agent under the Loan Documents
shall be terminated. The Borrower, the other Credit Parties and the Lenders
shall execute such documents as shall be necessary to effect such appointment.
After any retiring Agent's resignation as Agent, the provisions of the Loan
Documents shall inure to its benefit as to any actions taken or omitted to be
taken by it, and any amounts owing to it, while it was Agent under the Loan
Documents. If at any time there shall not be a duly appointed and acting Agent,
the Borrower agrees to make each payment due under the Loan Documents directly
and the Lenders entitled thereto during such time.
11. OTHER PROVISIONS
11.1. Amendments and Waivers
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With the written consent of the Required Lenders, the Agent
and the Borrower and any other appropriate Credit Party may, from time to time,
enter into written amendments, supplements or modifications of the Loan
Documents and, with the consent of the Required Lenders, the Agent on behalf of
the Lenders may execute and deliver to any such parties a written instrument
waiving or a consent to a departure from, on such terms and conditions as the
Agent may specify in such instrument, any of the requirements of the Loan
Documents or any Default or Event of Default and its consequences; provided,
however, that no such amendment, supplement, modification, waiver or consent
shall:
(a) without the consent of all of the Lenders, (i) increase
the Aggregate Commitment Amount, (ii) extend the Maturity Date, (iii)
decrease the rate, or extend the time of payment, of interest of, or
change or forgive the principal amount or extend the time of payment
of, or change the pro rata allocation of payments under, any Revolving
Credit Note, or decrease the rate, or extend the time of payment, or
change the pro rata allocation of payments in respect of the Commitment
Fee, (iv) extend the date or decrease the amount of any required
reduction of the Commitment Amount pursuant to Section 2.4(b), (v)
release all or any of the obligations of any Credit Party under the
Collateral Documents (other than in connection with (A) a Disposition
by or of any Credit Party permitted by Section 8.4, or (B) any release
specifically provided for in the Collateral Documents), (vi) release
any Collateral or any security interest therein (other than in
connection with (A) a Disposition permitted under Section 8.4, or (B)
any release specifically provided for in the Collateral Documents,
(vii) change the provisions of Sections 3.6, 3.10, 9.1(a), 9.1(b), 11.1
or 11.7(a), or (viii) change the definition of "Required Lenders";
(b) without the written consent of the Agent, amend, modify or
waive any provision of Section 10 or otherwise change any of the rights
or obligations of the Agent hereunder or under the Loan Documents; and
(c) increase or decrease a Lender's Commitment Amount without
such Lender's consent.
Any such amendment, supplement, modification or waiver shall
apply equally to the Agent and each of the Lenders and shall be binding upon the
parties to the applicable Loan Document, the Lenders, the Agent and all future
holders of the Revolving Credit Notes. In the case of any waiver, the parties to
the applicable Loan Document, the Lenders and the Agent shall be restored to
their former position and rights hereunder and under the outstanding Revolving
Credit Notes and other Loan Documents to the extent provided for in such waiver,
and any Default or Event of Default waived shall not extend to any subsequent or
other Default or Event of Default, or impair any right consequent thereon. The
Loan Documents may not be amended orally or by any course of conduct.
Notwithstanding anything to the contrary contained in any
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Loan Document, the Agent may, at any time and from time to time without the
consent of any one or more of the Lenders, (i) release all or any of the
obligations of any Credit Party under the Collateral Documents in connection
with (A) a Disposition by or of such Credit Party permitted by Section 8.4, or
(B) any release specifically provided for in the Collateral Documents, and (ii)
release any Collateral or any security interest therein in connection with (A)
any disposition of such Collateral permitted by Section 8.4, or (B) any release
specifically provided for in the Collateral Documents.
11.2. Notices
All notices, requests and demands to or upon the respective
parties to the Loan Documents to be effective shall be in writing and, unless
otherwise expressly provided therein, shall be deemed to have been duly given or
made when delivered by hand, one Business Day after having been sent by
overnight courier service, or when deposited in the mail, first-class postage
prepaid, or, in the case of notice by telecopy, when sent, addressed as follows
in the case of the Borrower or the Agent, addressed to the Domestic Lending
Office, in the case of each Lender, or addressed to such other addresses as to
which the Agent may be hereafter notified by the respective parties thereto or
any future holders of the Revolving Credit Notes:
The Borrower:
Production Resource Group, L.L.C.
539 Temple Hill Road
New Windsor, New York 12553
Attention: Kenneth W. Cabarle,
Chief Financial Officer
Telephone: (914) 567-5825
Telecopy: (914) 567-5804
The Agent:
The Bank of New York
One Wall Street
Agency Function Administration
18th Floor
New York, New York 10286
Attention: Michael Pizarro,
Agency Function Administrator
Telephone: (212) 635-7388
Telecopy: (212) 635-6365 or 6366 or 6367
with a copy to:
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The Bank of New York
One Wall Street
New York, New York 10286
Attention: Brian C. Weddington,
Assistant Vice President
Telephone: (212) 635-8473
Telecopy: (212) 635-8595,
except that any notice, request or demand by the Borrower to or upon the Agent
or the Lenders pursuant to Sections 2.3 or 3.3 shall not be effective until
received. Any party to a Loan Document may rely on signatures of the parties
thereto which are transmitted by telecopy or other electronic means as fully as
if originally signed.
11.3. No Waiver; Cumulative Remedies
No failure to exercise and no delay in exercising, on the part
of the Agent or any Lender, any right, remedy, power or privilege under any Loan
Document shall operate as a waiver thereof; nor shall any single or partial
exercise of any right, remedy, power or privilege under any Loan Document
preclude any other or further exercise thereof or the exercise of any other
right, remedy, power or privilege. The rights, remedies, powers and privileges
under the Loan Documents are cumulative and not exclusive of any rights,
remedies, powers and privileges provided by law.
11.4. Survival of Representations and Warranties and Certain
Obligations
(a) All representations and warranties made under the Loan
Documents and in any document, certificate or statement delivered pursuant
thereto or in connection therewith shall survive the execution and delivery of
the Loan Documents.
(b) The obligations of the Borrower under Sections 3.5, 3.6,
3.7, 3.8, 3.9, 3.10, 3.11, 11.5 and 11.8 shall survive the termination of the
Commitments of all of the Lenders and the payment of the Revolving Credit Loans
and all other amounts payable under the Loan Documents.
11.5. Expenses
The Borrower agrees, promptly upon presentation of a statement
or invoice therefor, and whether any Revolving Credit Loan is made (i) to pay or
reimburse the Agent and BNY Capital Markets, Inc. for all their respective
out-of-pocket costs and expenses reasonably incurred in connection with the
development, preparation, execution and syndication of, the Loan Documents and
any amendment, supplement or modification thereto (whether or not executed or
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effective), any documents prepared in connection therewith and the consummation
of the transactions contemplated thereby, including the reasonable fees and
disbursements of Special Counsel, (ii) to pay or reimburse the Agent and the
Lenders for all of their respective costs and expenses, including reasonable
fees and disbursements of counsel, incurred in connection with (A) any Default
or Event of Default and any enforcement or collection proceedings resulting
therefrom or in connection with the negotiation of any restructuring or
"work-out" (whether consummated or not) of the obligations of any Credit Party
under any of the Loan Documents and (B) the enforcement of this Section and
(iii) to pay, indemnify and hold each Lender and the Agent and each of their
respective officers, directors and employees harmless from and against any and
all other liabilities, obligations, claims, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or nature
whatsoever (including reasonable counsel fees and disbursements) with respect to
the enforcement and performance of the Loan Documents, the use of the proceeds
of the Revolving Credit Loans and the enforcement and performance of the
provisions of any subordination agreement involving the Agent and the Lenders
(all the foregoing, collectively, the "Indemnified Liabilities") and, if and to
the extent that the foregoing indemnity may be unenforceable for any reason, the
Borrower agrees to make the maximum payment not prohibited under applicable law;
provided, however, that the Borrower shall have no obligation to pay Indemnified
Liabilities to the Agent or any Lender arising from the finally adjudicated
gross negligence or willful misconduct of the Agent or such Lender or claims
between one indemnified party and another indemnified party. The agreements in
this Section shall survive the termination of the Commitments of all of the
Lenders and the payment of all amounts payable under the Loan Documents.
11.6. Lending Offices
(a) Each Lender shall have the right at any time and from time
to time to transfer its Revolving Credit Loans to a different office, provided
that such Lender shall promptly notify the Agent and the Borrower of any such
change of office. Such office shall thereupon become such Lender's Domestic
Lending Office or Eurodollar Lending Office, as the case may be, provided,
however, that no Lender shall be entitled to receive any greater amount under
Sections 3.5, 3.6, 3.7 and 3.10, as a result of a transfer of any such Revolving
Credit Loans to a different office of such Lender than it would be entitled to
immediately prior thereto unless such claim would have arisen even if such
transfer had not occurred.
(b) Each Lender agrees that, upon the occurrence of any event
giving rise to any increased cost or indemnity under Sections 3.5, 3.6, 3.7 and
3.10 with respect to such Lender, it will, if requested by the Borrower, use
reasonable efforts (subject to overall policy considerations of such Lender) to
designate another lending office for any Revolving Credit Loans affected by such
event, provided that such designation is made on such terms that such Lender and
its lending office suffer no economic, legal or regulatory disadvantage, with
the object of avoiding the consequence of the event giving rise to the operation
of any such Section.
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Nothing in this Section shall affect or postpone any of the obligations of the
Borrower or the right of any Lender provided in Sections 3.5, 3.6, 3.7 and
3.10.
11.7. Assignments and Participations
(a) The Loan Documents shall be binding upon and inure to the
benefit of the Borrower, the Lenders, the Agent, all future holders of the
Revolving Credit Notes, and their respective successors and assigns, except that
neither the Borrower nor any other Credit Party may assign, delegate or transfer
any of its rights or obligations under the Loan Documents without the prior
written consent of the Agent and each Lender.
(b) Each Lender shall have the right at any time, upon written
notice to the Agent of its intent to do so, to sell, assign, transfer or
negotiate all or any part of its rights and obligations under the Loan Documents
to one or more of its affiliates, to one or more of the other Lenders (or to
affiliates of such other Lenders) or, with the prior written consent of the
Borrower and the Agent (which consents shall not be unreasonably withheld and,
in the case of the Borrower, shall not be required upon the occurrence and
during the continuance of an Event of Default), to sell, assign, transfer or
negotiate all or any part of its rights and obligations under the Loan Documents
to any Eligible Assignee, provided that (i) each such sale, assignment, transfer
or negotiation (other than sales, assignments, transfers or negotiations (x) to
its affiliates or (y) its entire interest) shall be in a minimum amount of
$5,000,000 and (ii) there shall be paid to the Agent by it a fee (an "Assignment
Fee") of $3,500. For each assignment, the parties to such assignment shall
execute and deliver to the Agent for its acceptance and recording an Assignment
and Acceptance Agreement. Upon such execution, delivery, acceptance and
recording by the Agent, from and after the effective date specified in such
Assignment and Acceptance Agreement, the assignee thereunder shall be a party
hereto and, to the extent provided in such Assignment and Acceptance Agreement,
the assignor Lender thereunder shall be released from its obligations under the
Loan Documents. The Borrower agrees upon written request of the Agent and at the
Borrower's expense to execute and deliver (1) to such assignee, a Revolving
Credit Note, dated the effective date of such Assignment and Acceptance
Agreement, in an aggregate principal amount equal to the Revolving Credit Loans
assigned to, and Commitment assumed by, such assignee and (2) to such assignor
Lender if it did not assign its entire interest, a Revolving Credit Note, dated
the effective date of such Assignment and Acceptance Agreement, in an aggregate
principal amount equal to the balance of such assignor Lender's Commitment
Amount, if any, and each assignor Lender shall cancel and return to the Borrower
its existing Revolving Credit Note. Upon any such sale, assignment or other
transfer, the Commitment Amounts set forth in Exhibit A shall be adjusted
accordingly by the Agent and a new Exhibit A shall be distributed by the Agent.
(c) Each Lender may, with the prior written consent of the
Borrower and the Agent (which consents shall not be unreasonably withheld),
grant participations in all or any part of its rights under the Loan Documents
to one or more Eligible Assignees, provided that (i) its
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obligations under the Loan Documents shall remain unchanged, (ii) it shall
remain solely responsible to the other parties to the Loan Documents for the
performance of such obligations, (iii) the Borrower, the Agent and the Lenders,
as applicable, shall continue to deal solely and directly with it in connection
with its rights and obligations under the Loan Documents, (iv) no
sub-participations shall be permitted and (v) the voting rights of any holder
of any participation shall be limited to decisions that only do any of the
following: (A) subject the participant to any additional obligation, (B) reduce
the principal of, or interest on the Revolving Credit Notes or any fees or
other amounts payable under the Loan Documents, (C) postpone any date fixed for
the payment of principal of, or interest on the Revolving Credit Notes or any
fees or other amounts payable under the Loan Documents, (D) release any
security interest or Collateral, except to the extent that such release is
specifically provided for in any Loan Document or (E) release any guarantor
under any guarantee. The Borrower acknowledges and agrees that any such
participant shall for purposes of Sections 3.5, 3.6, 3.7, 3.8, 3.9, 3.10 and
3.11, be deemed to be a "Lender"; provided, however, the Borrower shall not, at
any time, be obligated to pay any participant in any interest of any Lender
hereunder any sum in excess of the sum which the Borrower would have been
obligated to pay to such Lender in respect of such interest had such Lender not
sold such participation.
(d) If any (i) assignment is made pursuant to subsection (b)
above or (ii) any participation is granted pursuant to subsection (c) above, to
any Person that is not a U.S. Person, such Person shall furnish such
certificates, documents or other evidence to the Borrower and the Agent in the
case of clause (i), and to the Borrower or the Lender which sold such
participation, as the case may be, in the case of clause (ii), as shall be
required by Section 3.10(e).
(e) No Lender shall, as between and among the Borrower, the
Agent and such Lender, as the case may be, be relieved of any of its obligations
under the Loan Documents as a result of any sale, assignment, transfer or
negotiation of, or granting of participations in, all or any part of its
Revolving Credit Loans, its Revolving Credit Note or its Commitment, except that
it shall be relieved of its obligations to the extent of any such sale,
assignment, transfer, or negotiation of all or any part of its Revolving Credit
Loans, its Commitment and its Revolving Credit Note pursuant to subsection (b)
above.
(f) Notwithstanding anything to the contrary contained in this
Section, any Lender may at any time or from time to time assign all or any
portion of its rights under the Loan Documents to a Federal Reserve Bank,
provided that any such assignment shall not release such assignor from its
obligations thereunder.
11.8. Indemnity
The Borrower agrees to defend, protect, indemnify, and hold
harmless the Agent, BNY Capital Markets, Inc. and each and all of the Lenders,
each of their respective Affiliates and each of the respective officers,
directors, employees and agents of each of the foregoing (each an
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"Indemnified Person" and, collectively, the "Indemnified Persons") from and
against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, claims, costs, expenses and disbursements of any
kind or nature whatsoever (including the fees and disbursements of counsel to
such Indemnified Persons in connection with any investigative, administrative
or judicial proceeding, whether direct, indirect or consequential and whether
based on any federal or state laws or other statutory regulations, including
securities and commercial laws and regulations, under common law or at
equitable cause, or on contract or otherwise, including any liabilities and
costs under Environmental Laws, Federal, state or local health or safety laws,
regulations, or common law principles, arising from or in connection with the
past, present or future operations of the Borrower, any other Credit Party, or
their respective predecessors in interest, or the past, present or future
environmental condition of the Property of the Borrower or any of its
Subsidiaries, the presence of asbestos-containing materials at any such
Property, or the release or threatened release of any Hazardous Substance into
the environment from any such Property) in any manner relating to or arising
out of the Loan Documents, any commitment letter or fee letter executed and
delivered by the Borrower or any of its Subsidiaries and/or the Agent, the
capitalization of the Borrower or any of its Subsidiaries, the Commitments, the
making of, management of and participation in the Revolving Credit Loans, or
the use or intended use of the proceeds of the Revolving Credit Loans
hereunder, provided that the Borrower shall have no obligation under this
Section to an Indemnified Person with respect to any of the foregoing to the
extent found in a final judgment of a court having jurisdiction to have
resulted primarily out of the gross negligence or wilful misconduct of such
Indemnified Person or arising solely from claims between one such Indemnified
Person and another such Indemnified Person. The indemnity set forth herein
shall be in addition to any other obligations or liabilities of the Borrower to
each Indemnified Person under the Loan Documents or at common law or otherwise,
and shall survive any termination of the Loan Documents, the expiration of the
Commitments of all of the Lenders and the payment of all Indebtedness of the
Credit Parties under the Loan Documents.
11.9. Limitation of Liability
No claim may be made by the Borrower, any of its Subsidiaries,
any other Credit Party, any Lender or other Person against the Agent, any
Lender, or any directors, officers, employees, or agents of any of them for any
special, indirect, consequential or punitive damages in respect of any claim for
breach of contract or any other theory of liability arising out of or related to
the transactions contemplated by any Loan Document, or any act, omission or
event occurring in connection therewith, and each of the Borrower, its
Subsidiaries, such other Credit Party, any such Lender or other Person hereby
waives, releases and agrees not to sue upon any claim for any such damages,
whether or not accrued and whether or not known or suspected to exist in its
favor.
11.10. Counterparts
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Each Loan Document (other than the Revolving Credit Notes) may
be executed by one or more of the parties thereto on any number of separate
counterparts and all of said counterparts taken together shall be deemed to
constitute one and the same document. It shall not be necessary in making proof
of any Loan Document to produce or account for more than one counterpart signed
by the party to be charged. A counterpart of any Loan Document or to any
document evidencing, and of any an amendment, modification, consent or waiver to
or of any Loan Document transmitted by telecopy shall be deemed to be an
originally executed counterpart. A set of the copies of the Loan Documents
signed by all the parties thereto shall be deposited with each of the Borrower
and the Agent. Any party to a Loan Document may rely upon the signatures of any
other party thereto which are transmitted by telecopy or other electronic means
to the same extent as if originally signed.
11.11. Adjustments; Set-off
(a) If any Lender (a "Benefited Lender") shall at any time
receive any payment of all or any part of the principal of its Revolving Credit
Loans owing to such Lender, or receive any collateral in respect thereof
(whether voluntarily or involuntarily, by set-off, pursuant to events or
proceedings of the nature referred to in Section 9.1(h) or (i), or otherwise),
in a greater proportion than any such payment to and collateral received by any
other Lender in respect of the principal of such other Lender's Revolving Credit
Loans to such other Lender, or interest thereon, such Benefited Lender shall
purchase for cash from each of the other Lenders such portion of each such other
Lender's Revolving Credit Loans, and shall provide each of such other Lenders
with the benefits of any such collateral, or the proceeds thereof, as shall be
necessary to cause such Benefited Lender to share the excess payment or benefits
of such collateral or proceeds ratably with each of the Lenders, provided,
however, that if all or any portion of such excess payment or benefits is
thereafter recovered from such Benefited Lender, such purchase shall be
rescinded, and such other Lenders shall repay to the Benefited Lender the
purchase price to the extent of such recovery, together with an amount equal to
each Lender's pro rata share (according to the proportion of (i) the amount of
each other Lender's required repayment to (ii) the total amount so recovered
from the Benefited Lender) of any interest or other amount paid or payable by
the Benefited Lender in respect of the total amount so recovered.
(b) In addition to any rights and remedies of the Lenders
provided by law, upon the occurrence of an Event of Default and the acceleration
of the obligations owing in connection with the Loan Documents, or at any time
upon the occurrence and during the continuance of an Event of Default, under
Section 9.1(a) or (b), each Lender shall have the right, without prior notice to
the Borrower or any other Credit Party, any such notice being expressly waived
by the Borrower and each other Credit Party to the extent not prohibited by
applicable law, to set-off and apply against any indebtedness, whether matured
or unmatured, of the Borrower or such other Credit Party, as the case may be, to
such Lender any amount owing from such Lender to the Borrower or such other
Credit Party, as the case may be, at, or at any time
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after, the happening of any of the above-mentioned events. To the extent not
prohibited by applicable law, the aforesaid right of set-off may be exercised
by such Lender against the Borrower or such other Credit Party, as the case may
be, or against any trustee in bankruptcy, custodian, debtor in possession,
assignee for the benefit of creditors, receiver, or execution, judgment or
attachment creditor of the Borrower or such other Credit Party, as the case may
be, or against anyone else claiming through or against the Borrower or such
other Credit Party, as the case may be, or such trustee in bankruptcy,
custodian, debtor in possession, assignee for the benefit of creditors,
receiver, or execution, judgment or attachment creditor, notwithstanding the
fact that such right of set-off shall not have been exercised by such Lender
prior to the making, filing or issuance, or service upon such Lender of, or of
notice of, any such petition, assignment for the benefit of creditors,
appointment or application for the appointment of a receiver, or issuance of
execution, subpoena, order or warrant. Each Lender agrees promptly to notify
the Borrower and the Agent after any such set-off and application made by such
Lender, provided that the failure to give such notice shall not affect the
validity of such set-off and application.
11.12. Construction
Each party to a Loan Document represents that it has been
represented by counsel in connection with the Loan Documents and the
transactions contemplated thereby and that the principle that agreements are to
be construed against the party drafting the same shall be inapplicable.
11.13. Governing Law
The Loan Documents and the rights and obligations of the
parties thereunder shall be governed by, and construed and interpreted in
accordance with, the internal laws of the State of New York, without regard to
principles of conflict of laws, but including Section 5-1401 of the General
Obligations Law.
11.14. Headings Descriptive
Section headings have been inserted in the Loan Documents for
convenience only and shall not be construed to be a part thereof.
11.15. Severability
Every provision of the Loan Documents is intended to be
severable, and if any term or provision thereof shall be invalid, illegal or
unenforceable for any reason, the validity, legality and enforceability of the
remaining provisions thereof shall not be affected or impaired thereby, and any
invalidity, illegality or unenforceability in any jurisdiction shall not affect
the validity, legality or enforceability of any such term or provision in any
other jurisdiction.
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11.16. Integration
All exhibits to a Loan Document shall be deemed to be a part
thereof. Except for agreements between the Agent and the Borrower with respect
to certain fees, the Loan Documents embody the entire agreement and
understanding among the Borrower, the Agent and the Lenders with respect to the
subject matter thereof and supersede all prior agreements and understandings
among the Borrower, the Agent and the Lenders with respect to the subject matter
thereof.
11.17. Consent to Jurisdiction
Each party to a Loan Document hereby irrevocably submits to
the jurisdiction of any New York State or Federal court sitting in the City of
New York over any suit, action or proceeding arising out of or relating to the
Loan Documents. Each party to a Loan Document hereby irrevocably waives, to the
fullest extent permitted or not prohibited by law, any objection which it may
now or hereafter have to the laying of the venue of any such suit, action or
proceeding brought in such a court and any claim that any such suit, action or
proceeding brought in such a court has been brought in an inconvenient forum.
Each Credit Party hereby agrees that a final judgment in any such suit, action
or proceeding brought in such a court, after all appropriate appeals, shall be
conclusive and binding upon it.
11.18. Service of Process
Each party to a Loan Document hereby irrevocably consents to
the service of process in any suit, action or proceeding by sending the same by
first class mail, return receipt requested or by overnight courier service, to
the address of such party set forth in Section 11.2 of the applicable Loan
Document executed by such party. Each party to a Loan Document hereby agrees
that any such service (i) shall be deemed in every respect effective service of
process upon it in any such suit, action, or proceeding, and (ii) shall to the
fullest extent enforceable by law, be taken and held to be valid personal
service upon and personal delivery to it.
11.19. No Limitation on Service or Suit
Nothing in the Loan Documents or any modification, waiver,
consent or amendment thereto shall affect the right of the Agent or any Lender
to serve process in any manner permitted by law or limit the right of the Agent
or any Lender to bring proceedings against any Credit Party in the courts of any
jurisdiction or jurisdictions in which such Credit Party may be served.
11.20. WAIVER OF TRIAL BY JURY
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EACH OF THE AGENT, THE LENDERS AND THE CREDIT PARTIES HEREBY
KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL
BY JURY IN RESPECT OF ANY LITIGATION ARISING OUT OF, UNDER OR IN CONNECTION WITH
THE LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREIN. FURTHER, EACH
CREDIT PARTY HEREBY CERTIFIES THAT NO REPRESENTATIVE OR AGENT OF THE AGENT OR
THE LENDERS, OR COUNSEL TO THE AGENT OR THE LENDERS, HAS REPRESENTED, EXPRESSLY
OR OTHERWISE, THAT THE AGENT OR THE LENDERS WOULD NOT, IN THE EVENT OF SUCH
LITIGATION, SEEK TO ENFORCE THIS WAIVER OF RIGHT TO JURY TRIAL PROVISION. EACH
CREDIT PARTY ACKNOWLEDGES THAT THE AGENT AND THE LENDERS HAVE BEEN INDUCED TO
ENTER INTO THIS AGREEMENT BY, INTER ALIA, THE PROVISIONS OF THIS SECTION.
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IN WITNESS WHEREOF, the parties hereto have caused this Credit
Agreement to be duly executed and delivered by their proper and duly authorized
officers as of the day and year first above written.
PRODUCTION RESOURCE GROUP, L.L.C.
By:
-----------------------------------
Name:
----------------------------------
Title:
---------------------------------
THE BANK OF NEW YORK,
Individually and as Agent
By:
-----------------------------------
Name:
----------------------------------
Title:
---------------------------------
BANK OF SCOTLAND
By:
-----------------------------------
Name:
----------------------------------
Title:
---------------------------------
CIBC INC.
By:
-----------------------------------
Name:
----------------------------------
Title:
---------------------------------
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CORESTATES BANK
By:
-----------------------------------
Name:
----------------------------------
Title:
---------------------------------
FIRST UNION NATIONAL BANK
By:
-----------------------------------
Name:
----------------------------------
Title:
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IBJ SCHRODER BANK & TRUST COMPANY
By:
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Name:
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Title:
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KEY CORPORATE CAPITAL INC.
By:
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Name:
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Title:
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USTRUST
By:
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Name:
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Title:
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STATE STREET BANK
By:
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Name:
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Title:
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<PAGE>
AMENDMENT NO. 1
to
CREDIT AGREEMENT
AMENDMENT No. 1 (this "Amendment"), dated as of December 12, 1997, to
the Credit Agreement, dated as of July 31, 1997, by and among Production
Resource Group, L.L.C. (the "Borrower") and the Lenders party thereto and The
Bank of New York, as agent for the Lenders (the "Agent"), with BNY Capital
Markets, Inc., as Arranger (the "Credit Agreement").
RECITALS
A. Capitalized terms used herein which are not defined herein and
which are defined in the Credit Agreement shall have the same meanings as
therein defined.
B. The Borrower has requested that the Agent and the Lenders amend the
Credit Agreement to permit the Borrower to issue up to $150,000,000 of
subordinated debt and to amend and waive certain other provisions of the Credit
Agreement and other Loan Documents as set forth below, and the Agent and the
Lenders have agreed to do so subject to the terms and conditions set forth
herein.
In consideration of the covenants, conditions and agreements
hereinafter set forth, and for other good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, and pursuant to Section
11.1 of the Credit Agreement, the parties hereto hereby agree as follows:
Article I. Amendments.
The Credit Agreement is, effective on the Amendment Effective Date (as
defined below), and subject to the satisfaction of the conditions precedent set
forth in Article III below, hereby amended as follows:
1. Section 1.1 of the Credit Agreement is hereby amended to amend and
restate the definition of "Applicable Fee Percentage" to read as follows:
"Applicable Fee Percentage": with respect to the Commitment
Fee, at all times during which the applicable Pricing Level set forth
below is in effect, the appropriate applicable percentages
corresponding to the Total Leverage Ratio in effect as set forth below
next to such Pricing Level and under the applicable column:
<PAGE>
Applicable Fee
Pricing Total LeverageRatio Percentage
------- ------------------- ----------
I Greater than or equal to 3.00:1.00 0.375%
II Greater than or equal to 2.50:1.00 0.375%
but less than 3.00:1.00
III Greater than or equal to 2.00:1.00 0.375%
but less than 2.50:1.00
IV Greater than or equal to 1.50:1.00 0.375%
but less than 2.00:1.00
V Less than 1.50:1.00 0.250%
Changes in the Applicable Fee Percentage resulting from a change in a
Pricing Level shall become effective upon the due date of delivery by
the Borrower to the Agent of a Compliance Certificate pursuant to
Sections 7.1(c), 8.3 or pursuant to any other provision or requirement
herein evidencing a change in the Total Leverage Ratio which would
affect the Pricing Level. If the Borrower shall fail to deliver a
Compliance Certificate by such due date as required by Sections
7.1(c), 8.3 or pursuant to any other provision or requirement herein,
Pricing Level I shall apply from and including the day following such
due date to the date of the delivery by the Borrower to the Agent of a
Compliance Certificate demonstrating that a different Pricing Level is
applicable, which different Pricing Level shall apply from the date of
delivery of such Compliance Certificate. Notwithstanding the
foregoing, no reduction in the Applicable Fee Percentage shall become
effective if an Event of Default shall have occurred and be
continuing.
2. Section 1.1 of the Credit Agreement is hereby amended to amend and
restate the definition of "Applicable Margin" to read as follows:
"Applicable Margin": with respect to the unpaid principal
balance of ABR Advances and Eurodollar Advances, in each case at all
times during which the applicable Pricing Level set forth below is in
effect, the appropriate applicable percentages corresponding to the
Total Leverage Ratio in effect as set forth below next to such Pricing
Level and under the applicable column:
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Applicable Applicable Margin
Margin for for
Pricing Total ABR Eurodollar
Level Leverage Ratio Advances Advances
- ----- -------------- -------- --------
I Greater than or equal to 1.375% 2.500%
4.00:1.00
II Greater than or equal to 1.125% 2.250%
3.00:1.00 but less than
4.00:1.00
III Greater than or equal to 0.750% 1.875%
2.50:1.00 but less than
3.00:1.00
IV Greater than or equal to 0.500% 1.625%
2.00:1.00 but less than
2.50:1.00
V Greater than or equal to 0.250% 1.375%
1.50:1.00 but less than
2.00:1.00
VI Less than 1.50:1.00 0.000% 1.125%
Changes in the Applicable Margin resulting from a change in the
Pricing Level shall become effective upon the due date of delivery by
the Borrower to the Agent of a Compliance Certificate pursuant to
Sections 7.1(c), 8.3 or pursuant to any other provision or requirement
herein evidencing a change in the Total Leverage Ratio which would
affect the Pricing Level. If the Borrower shall fail to deliver a
Compliance Certificate by such due date as required by Sections
7.1(c), 8.3 or pursuant to any other provision or requirement herein
Pricing Level I shall apply from the day following such due date to
the date of the delivery by the Borrower to the Agent of a Compliance
Certificate demonstrating that a different Pricing Level is
applicable, which different Pricing Level shall apply from the date of
delivery of such Compliance Certificate. Notwithstanding the
foregoing, no reduction in the Applicable Margin shall become
effective if an Event of Default shall have occurred and be
continuing.
3. Section 1.1 of the Credit Agreement is hereby amended to amend and
restate the definition of "Change of Control" to read as follows:
"Change of Control": any one or more of the following events:
(a) the Harris Group shall fail to own, beneficially and of record,
directly or indirectly, 80% of the issued and outstanding voting
Capital Stock of the Borrower and of each of the Guarantors owning,
beneficially and of record any Capital Stock of the
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Borrower or (b) the Harris Group shall fail to own, beneficially and
of record, directly or indirectly, 25% of the issued and outstanding
Capital Stock of the Borrower and each of the Guarantors owning,
beneficially and of record any Capital Stock of the Borrower or (c) a
"Change of Control" as said term is defined in the documentation
governing Subordinated Indebtedness.
4. Section 1.1. of the Credit Agreement is hereby amended to amend and
restate the definition of "Contingent Obligation" to read as follows:
"Contingent Obligation": as to any Person ( a "secondary
obligor"), any obligation of such secondary obligor (i) guaranteeing
or in effect guaranteeing any return on any investment made by another
Person, (ii) with respect to obligations arising under Interest Rate
Protection Agreements, or (iii) guaranteeing or in effect guaranteeing
any Indebtedness, lease, dividend or other obligation (a "primary
obligation") of any other Person (a "primary obligor") in any manner,
whether directly or indirectly, including any obligation of such
secondary obligor, whether contingent, (A) to purchase any primary
obligation or any Property constituting direct or indirect security
therefor, (B) to advance or supply funds (x) for the purchase or
payment of any primary obligation or (y) to maintain working capital
or equity capital of the primary obligor or otherwise to maintain the
net worth or solvency of a primary obligor, (C) to purchase Property,
securities or services primarily for the purpose of assuring the
beneficiary of any primary obligation of the ability of a primary
obligor to make payment of a primary obligation, (D) otherwise to
assure or hold harmless the beneficiary of a primary obligation
against loss in respect thereof, and (E) in respect of the liabilities
of any partnership in which a secondary obligor is a general partner,
except to the extent that such liabilities of such partnership are
nonrecourse to such secondary obligor and its separate Property,
provided, however, that the term "Contingent Obligation" shall not
include Excluded Contingent Obligations or the indorsement of
instruments for deposit or collection in the ordinary course of
business. The amount of any Contingent Obligation of a Person shall be
deemed to be an amount equal to the stated or determinable amount of a
primary obligation in respect of which such Contingent Obligation is
made or, if not stated or determinable, the maximum reasonably
anticipated liability in respect thereof as determined by such Person
in good faith.
5. Section 1.1 of the Credit Agreement is hereby amended to amend and
restate the definition of "EBITDA" to read as follows:
"EBITDA": for any period, Consolidated net income (or loss)
of the Borrower and its Subsidiaries for such period, determined in
accordance with GAAP plus the sum of, without duplication, (i)
Interest Expense for such period, (ii) provision for income taxes for
such period and (iii) depreciation, amortization
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and other non-cash charges, each to the extent deducted in
determining such net income for such period, less (iv) income from
Investments, (v) extraordinary gains and losses from sales, exchanges
and other dispositions of Property not in the ordinary course of
business and (vi) other non-recurring items (except non-recurring
losses in connection with net deferred production costs), including
without limitation, any non-recurring expenses or charges made in
connection with the Bash Acquisition (including bonus payments made
in connection therewith in an amount not to exceed $2,000,000) and
calculated after giving effect to Acquisitions, mergers and other
Dispositions of the Borrower and its Subsidiaries during such period
as if such transactions had occurred on the first day of such period.
6. Section 1.1 of the Credit Agreement is hereby amended to amend and
restate the definition of "Excess Cash Flow" to read as follows:
"Excess Cash Flow": with respect to any fiscal year, the sum
of (a) EBITDA (before giving effect to Acquisitions, mergers and
Dispositions during such period) for such fiscal year, (b) income from
Investments permitted under Section 8.5(a) actually received in cash
during such period, and (c) Offering Proceeds for such fiscal year
minus (d) the sum of, without duplication, (i) without duplication,
taxes and Restricted Payments for Members' Tax Liability paid or
required to be paid during such period, (ii) Capital Expenditures made
during such period minus, to the extent not included in calculating
EBITDA, net cash proceeds from the sale of used rental equipment sold
during such period for cash, (iii) Capital Lease Obligations paid or
required to be paid during such period, (iv) Interest Expense to the
extent paid or required to be paid in cash, (v) mandatory payments of
principal of the Revolving Credit Loans resulting from reductions in
the Aggregate Commitment Amount pursuant to Section 2.4(b)(ii), and
(vi) mandatory payments of principal of other Indebtedness.
7. Section 1.1 of the Credit Agreement is hereby amended to amend and
restate the definition of "Fixed Charges" to read as follows:
"Fixed Charges": for any period, with respect to the Borrower
and its Subsidiaries on a Consolidated basis in accordance with GAAP,
the sum of (i) mandatory payments of principal (including mandatory
payments of the Revolving Credit Loans resulting from reductions in
the Aggregate Commitment Amount pursuant to Section 2.4(b)(ii)) on
Total Debt made or required to be made during such period, but
excluding payments pursuant to Section 2.5(c), (ii) Capital
Expenditures made during such period minus, to the extent not included
in calculating EBITDA, net cash proceeds from the sale of used rental
equipment sold during such period for cash, (iii) Capital Lease
Obligations paid or required to be paid during such period, (iv)
without duplication, taxes and Restricted Payments
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<PAGE>
(excluding any Restricted Payments made pursuant to Sections 8.6(v)
or 8.6(vi)), and (v) Interest Expense to the extent paid or required
to be paid in cash, minus (vi) income from Investments permitted
under Section 8.5(a) actually received in cash during such period.
8. Section 1.1 of the Credit Agreement is hereby amended to amend and
restate the definition of "Maturity Date" to read as follows:
"Maturity Date": December 31, 2002, or such earlier date on
which the Revolving Credit Notes shall become due and payable, whether
by acceleration or otherwise.
9. Section 1.1 of the Credit Agreement is hereby amended to amend and
restate the definition of "PRG Operating Agreement" to read as follows:
"PRG Operating Agreement": The Amended and Restated Limited
Liability Agreement of the Borrower, dated as of January 1, 1996, as
the same may be amended, supplemented or otherwise modified from time
to time.
10. Section 1.1 of the Credit Agreement is hereby amended to add the
following new definitions in the appropriate alphabetical order:
"Amendment Effective Date": as defined in Amendment No. 1 to
the Agreement.
"Amendment No. 1": Amendment No. 1, dated as of December 12,
1997, to the Agreement.
"Cash Balances": the aggregate amount of cash or Cash
Equivalents maintained by the Borrower with any of the Lenders or
their Affiliates, or any other bank or financial institution listed on
a certificate provided in accordance with Section 7.1(g).
"Excluded Contingent Obligation": shall mean any guarantee or
other obligation of the Borrower of a type described in clauses (i) or
(iii) of the definition of "Contingent Obligation" with respect to,
and following the disposition of, the Real Property located at 5950
South Valley View Boulevard, Las Vegas, Nevada, to Scenic Properties
L.L.C., provided that such obligation shall not extend to a date later
than September 30, 1998, nor be for an amount exceeding the lesser of
(A) 89% of the principal amount of any construction loan with respect
to such property incurred by Scenic Properties L.L.C. and (B)
$4,500,000, and insofar as any such obligation extends beyond such
date, or exceeds such amount, such
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<PAGE>
obligation or the amount of such excess shall not be an
Excluded Contingent Obligation for purposes of this definition.
"Interest Rate Protection Lenders": collectively, the Lenders
and any affiliates of the Lenders which from time to time enter or
have entered into Interest Rate Protection Agreements with the
Borrower.
"Senior Debt": at any date of determination, all Indebtedness
(other than trade payables incurred in the ordinary course of business
and Subordinated Indebtedness) on such date of the Borrower and its
Subsidiaries on a Consolidated basis as determined in accordance with
GAAP.
"Senior Leverage Ratio": at any date of determination, the
ratio of (a) Senior Debt on such date, minus the aggregate amount of
Cash Balances in excess of $2,500,000, to (b) EBITDA for the four
fiscal quarter period ending on such date or, if such date is not the
last day of a fiscal quarter, for the immediately preceding four
fiscal quarters period, as determined on such date of determination.
"Subordinated Indebtedness": Indebtedness of the Borrower
evidenced by notes issued by the Borrower on or before February 28,
1998, in an aggregate principal amount not to exceed $150,000,000 and
subordinated to the obligations of the Borrower under the Loan
Documents on terms of subordination satisfactory to the Agent.
"Total Leverage Ratio": at any date of determination, the
ratio of (a) Total Debt on such date minus the aggregate amount of
Cash Balances in excess of $2,500,000, to (b) EBITDA for the four
fiscal quarter period ending on such date or, if such date is not the
last day of a fiscal quarter, for the immediately preceding four
fiscal quarter period as determined on such date of determination.
11. Section 1.1 of the Credit Agreement is hereby amended by deleting
the definition of "Leverage Ratio".
12. Section 2.4(b)(ii) of the Credit Agreement is hereby amended and
restated in its entirety to read as follows:
(ii) On each of the dates set forth below, the
Aggregate Commitment Amount shall be automatically and
permanently reduced as set forth below:
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Commitment Commitment
Date Reduction Amount
- ---- --------- ------
March 31, 2000 $7,500,000 $92,500,000
June 30, 2000 $7,500,000 $85,000,000
September 30, 2000 $7,500,000 $77,500,000
December 31, 2000 $7,500,000 $70,000,000
March 31, 2001 $7,500,000 $62,500,000
June 30, 2001 $7,500,000 $55,000,000
September 30, 2001 $7,500,000 $47,500,000
December 31, 2001 $7,500,000 $40,000,000
March 31, 2002 $10,000,000 $30,000,000
June 30, 2002 $10,000,000 $20,000,000
September 30, 2002 $10,000,000 $10,000,000
December 31, 2002 $10,000,000 $0
13. Section 2.4(b) of the Credit Agreement is hereby amended by
inserting a new subsection (iii) after subsection (ii) to read as follows:
(iii) On the date of receipt by the Borrower of the
proceeds of Subordinated Indebtedness, the Aggregate
Commitment Amount shall be automatically and permanently
reduced by the amount by which the aggregate face amount of
the Subordinated Indebtedness exceeds $100,000,000 (up to a
maximum reduction amount of $25,000,000).
14. Section 2.4(b)(ii) of the Credit Agreement is hereby amended by
adding a new sentence at the end of Section 2.4(b)(ii) to read as follows:
Reductions of the Aggregate Commitment Amount made pursuant
to Section 2.4(b)(iii) shall be applied in inverse order
among the remaining Aggregate Commitment Amount reductions
set forth in Section 2.4(b)(ii).
15. Section 2.5(c) of the Credit Agreement is hereby amended and
restated in its entirety to read as follows:
(c) Mandatory Prepayments of Revolving Credit Loans
in Respect of Excess Cash Flow. Upon the delivery of annual
financial statements, but no later than the March 31st of the
following year with respect to any fiscal year, commencing
with the fiscal year ended December 31, 1998, when the Total
Leverage Ratio is greater than or equal to 3.50 to 1.00, the
Borrower shall prepay the Revolving Credit Loans by an amount
equal to the lesser of (i) 50% of Excess Cash Flow for the
prior fiscal year or (ii) the amount which, if subtracted
from Total Debt, would have been
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sufficient to reduce the Total Leverage Ratio to less than
3.50 to 1.00 for the prior fiscal year.
16. Section 2.5(f) of the Credit Agreement is hereby amended and
restated in its entirety to read as follows:
(f) Mandatory Prepayments of Revolving Credit Loans
Relating to Receipt of Proceeds of Additional Indebtedness.
On the date of receipt of the net proceeds of any
Indebtedness (evidenced by notes, bonds or similar
instruments), pursuant to Section 8.1(vi) such proceeds of
Indebtedness shall be applied to the prepayment of the
Revolving Credit Loans.
17. Section 7.1 of the Credit Agreement is hereby amended by adding a
new subsection (g) as follows:
(g) A certificate with respect to Cash Balances to
be delivered to the Agent together with each Compliance
Certificate, showing each financial institution in which Cash
Balances are maintained, the location thereof, and the amount
of such Cash Balances.
18. Section 7.11 of the Credit Agreement is hereby amended and
restated in its entirety to read as follows:
(a) Pro Forma Interest Coverage Ratio. Maintain at
all times a Pro Forma Interest Coverage Ratio of not less
than 2.00 to 1.00.
(b) Fixed Charge Coverage Ratio. Maintain at all
times a Fixed Charge Coverage Ratio of not less than 1.10 to
1.00, commencing with the fiscal quarter ending March 31,
1998.
(c) Total Leverage Ratio. Maintain at all times
during the periods set forth below, a Total Leverage Ratio of
not more than the ratios set forth below:
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Total
Period Leverage Ratio
------ --------------
Effective Date through
June 30, 1998 4.75:1:00
July 1, 1998 through
December 31, 1998 4.50:1:00
January 1, 1999 through
December 31, 1999 4.00:1.00
January 1, 2000 through
June 30, 2000 3.75:1.00
July 1, 2000
and thereafter 3.50:1.00
(d) Senior Leverage Ratio. Maintain at all times
during the periods set forth below, a Senior Leverage Ratio
of not more than the ratios set forth below:
Senior
Period Leverage Ratio
------ --------------
Effective Date through
June 30, 1998 2.25:1:00
July 1, 1998
and thereafter 2.00:1.00
19. Section 7 of the Credit Agreement is hereby amended by inserting a
new Section 7.13 after Section 7.12 to read as follows:
7.13 Interest Rate Protection Agreements
At all times, commencing 60 days after the Amendment
Effective Date, not less than 50% of Total Debt of the
Borrower shall be either (i) Indebtedness for which the
interest rate with respect thereto is fixed from the date of
issuance thereof through maturity or (ii) protected by
Interest Rate Protection Agreements, such Interest Rate
Protection Agreements shall be in form and substance
satisfactory to the Agent and shall have the effect of
establishing a maximum interest rate acceptable to the Agent
and shall be of a duration acceptable to the Agent.
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20. Section 8.1 of the Credit Agreement is hereby amended and restated
in its entirety to read as follows:
Create, incur, assume or suffer to exist any
liability for Indebtedness, or permit any of its Subsidiaries
so to do, except (i) Indebtedness under the Loan Documents,
(ii) Indebtedness of the Borrower or any of its Subsidiaries
existing on the Effective Date as set forth on Schedule 8.1
(other than the Existing Bank Debt which is to be repaid on
the Effective Date), excluding increases and refinancings
thereof, (iii) Intercompany Indebtedness, (iv) purchase money
Indebtedness and Capital Lease Obligations (other than any
such purchase money Indebtedness or Capital Lease Obligations
described in clause (ii) above) incurred in connection with
the purchase, after the Effective Date, of any Property, in
an aggregate principal amount not to exceed $1,000,000 at any
one time outstanding, (v) Indebtedness under Interest Rate
Protection Agreements, (vi) Indebtedness incurred to prepay
outstanding Revolving Credit Loans pursuant to Section
2.5(f), (vii) Indebtedness of the Borrower arising out of
obligations under letters of credit issued by any of the
Lenders, up to an aggregate face amount available to be drawn
thereunder not to exceed $1,000,000 at any one time
outstanding, (viii) Subordinated Indebtedness, provided that
to the extent that proceeds thereof exceed $100,000,000 the
Aggregate Commitment Amount shall be reduced pursuant to
Section 2.4(b)(iii) by an amount equal to the lesser of (A)
$25,000,000 or (B) the amount by which such proceeds exceed
$100,000,000, and (ix) guarantees by the Borrower's
Subsidiaries of Subordinated Indebtedness which are
subordinated to such Subsidiary's obligations to the Lenders
under the Guaranty on terms satisfactory to the Agent.
21. Section 8.3(e) of the Credit Agreement is hereby amended and
restated in its entirety to read as follows:
(e) Acquisitions, provided, that the Acquisition
Cost in respect thereof shall not exceed $30,000,000 in the
aggregate for the period from the Amendment Effective Date to
the termination of this Agreement without the prior written
consent of the Required Lenders, provided, however, that
Acquisitions in respect of which the Acquisition Cost exceeds
such $30,000,000 in the aggregate shall be permitted without
the prior written consent of the Required Lenders at any time
when pro-forma Total Leverage Ratio before and after giving
effect to such Acquisition is less than 3.50:1.00, and,
provided further, that with respect to any Acquisition
whenever consummated (1) such Acquisition shall be of a
Person or operating entity or involve the purchase of assets
of a Person in the same or a similar line of business as the
Borrower is engaged in on the Effective
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Date, (2) no Default or Event of Default shall exist
immediately before or after giving effect to such
Acquisition, the Borrower will be in compliance with all
financial covenants contained herein on a pro-forma basis
after giving effect to such Acquisition and any Indebtedness
incurred or assumed in connection therewith is permitted by
Section 8.1, and, immediately after giving effect to each
such Acquisition, all of the representations and warranties
contained in Section 4 shall be true and correct as if then
made and the Agent shall have received a certificate of a
Financial Officer of the Borrower to such effect together
with a Compliance Certificate, in form and substance
satisfactory to the Agent, (3) the Agent and the Lenders
shall have been given not less than 30 calendar days' prior
written notice thereof, (4) the Agent shall have received a
certificate signed by a Financial Officer of the Borrower,
identifying the Person or Property to be acquired, the name
of the Person making such Acquisition and setting forth the
total consideration to be paid in respect of such
Acquisition, (5) the conditions of Section 8.12 shall have
been satisfied, (6) in the case of an Acquisition of
Property, Capital Stock or other ownership interest of a
Person that will be a Subsidiary of the Borrower, such new
Subsidiary shall deliver to the Agent a duly executed
Guaranty and Security Agreement or supplements thereto and
such other documents as the Agent shall reasonably require in
order that the Agent shall have a perfected first priority
security interest in the Property, Capital Stock or other
ownership interest so acquired and (7) the Agent shall have
received such other information or documents as the Agent
shall have reasonably requested, which may include, without
limitation, a copy of any letter of intent with respect to
any acquisition and a copy of the final acquisition agreement
between the purchaser and seller.
22. Section 8.5 of the Credit Agreement is hereby amended and restated
in its entirety to read as follows:
At any time, directly or indirectly, purchase or
otherwise hold, own, acquire or invest in the Capital Stock
of, evidence of indebtedness or other obligation or security
issued by, any other Person, or make any loan or advance to,
or enter into any arrangement for the purpose of providing
funds or credit to, or make any Acquisition (other than a
Permitted Acquisition), or become a partner or joint venturer
in any partnership or joint venture, or make any other
investment (whether in cash or other Property) in any other
Person, or make any commitment or otherwise to agree to do
any of the foregoing (all of which are sometimes referred to
herein as "Investments"), or permit any of its Subsidiaries
so to do, or except:
(a) Investments in Cash Equivalents;
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(b) Investments existing on the Effective Date as
set forth on Schedule 8.5;
(c) normal business banking accounts;
(d) short-term certificates of deposit and time
deposits in, or issued by, federally insured institutions in
amounts not exceeding the limits of such insurance;
(e) Investments by the Borrower or any Subsidiary in
Intercompany Indebtedness permitted under Section 8.1;
(f) loans to employees of the Borrower or any
Subsidiary (i) to pay for relocation costs of such employees,
provided that such loans shall not exceed $500,000 at any one
time outstanding or (ii) to purchase Capital Stock of the
Borrower, provided that such Capital Stock shall be pledged
by such employees to the Agent, pursuant to and in accordance
with Section 8.12(a); and
(g) other Investments in an aggregate amount not to
exceed $7,500,000 from the Effective Date to the termination
of this Agreement, provided that in no case shall such
Investments be made to become a partner or joint venturer in
any partnership or joint venture in respect of which the
liability of the Borrower exceeds the amount of the
Investment permitted by this clause (g).
23. Section 8.6 of the Credit Agreement is hereby amended and
restated in its entirety to read as follows:
Declare or pay any Restricted Payments payable in
cash or otherwise or apply any of its Property thereto or set
apart any sum therefor, or permit any of its Subsidiaries so
to do, except: (i) a wholly-owned Subsidiary may declare and
pay Restricted Payments to the Borrower, provided that no
Default or Event of Default has occurred and is continuing or
would occur after giving effect thereto, (ii) the Borrower
and any Subsidiaries may declare and pay Restricted Payments,
directly or indirectly, to its members to enable such members
to pay taxes when due, provided that such Restricted Payments
shall not exceed the Members' Tax Liability with respect to
each such entity and provided further that no Event of
Default under Section 9.1(a), (b), (h) or (i) has occurred
and is continuing or would occur after giving effect thereto,
(iii) commencing March 31, 1999, the Borrower may pay
dividends in an amount (excluding any other Restricted
Payments permitted pursuant to Section 8.6) not to exceed 50%
of Excess
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Cash Flow for the immediately preceding fiscal year
of the Borrower, provided that the Total Leverage Ratio for
the two fiscal quarters prior to and after giving effect
thereto is less than 3.50:1.00 and provided further that no
Default or Event of Default has occurred and is continuing or
would occur after giving effect thereto, (iv) Restricted
Payments in connection with a put or redemption of any
Preferred Membership Units, provided that (A) the Total
Leverage Ratio for the two fiscal quarters prior to and after
giving effect thereto is less than 4.00:1.00 or,
alternatively, three years shall have passed from the
issuance of such Preferred Membership Units, (B) such
Restricted Payments shall not in the aggregate exceed
$4,000,000 from the Effective Date until the termination of
this Agreement and (C) no Default or Event of Default has
occurred and is continuing or would occur after giving effect
thereto,(v) the Borrower may declare and pay Restricted
Payments to its members in an aggregate amount (excluding any
other Restricted Payments permitted pursuant to Section 8.6)
not to exceed $10,000,000, provided that such Restricted
Payments shall be paid no later than February 28, 1998, and
(vi) the Borrower may declare and pay Restricted Payments to
its members in an aggregate amount (excluding any other
Restricted Payments permitted pursuant to Section 8.6) not to
exceed the lesser of (a) the net cash proceeds received by
the Borrower as a contribution to its common equity in
connection with a Permitted Acquisition after deduction of
all Acquisition Costs, or (b) 25% of the Acquisition Cost
paid by PRG (but in no event to include any contribution to
equity funded by an employee loan permitted under Section
8.5(f)(ii)), provided that no Default or Event of Default has
occurred and is continuing or would occur after giving effect
thereto, and provided that Restricted Payments pursuant to
this Section 8.6(vi) shall not exceed $5,000,000 in the
aggregate during the term of the Agreement.
24. Section 8.10 of the Credit Agreement is hereby amended and
restated in its entirety to read as follows:
Enter into or agree to any amendment, modification
or waiver of any term or condition of:
(a) its Organizational Documents, including
the PRG Operating Agreement, or the Restricted
Limited Liability Company Unit Incentive
Compensation Plan without the Agent's prior written
consent; or
(b) any subordination provision contained
in the indenture, the notes or any other documents
executed in connection with the issuance of the
Subordinated Indebtedness or any other
-14-
<PAGE>
term relating to the payment or prepayment of
principal of or interest on the Subordinated
Indebtedness.
25. Section 8.14 of the Credit Agreement is hereby amended and
restated in its entirety to read as follows:
8.14. Prepayments of Indebtedness; Purchase, Redemption or
Defeasance of Subordinated Indebtedness. Prepay or obligate itself to
prepay, in whole or in part, any Indebtedness (other than Indebtedness
under the Loan Documents), or exercise any option to purchase or
redeem any Subordinated Indebtedness, or elect to have its obligations
discharged pursuant to any defeasance provision related to the
Subordinated Indebtedness, or permit any of its Subsidiaries so to do,
except that the Borrower may prepay up to $1,000,000 of Indebtedness
provided that no Default of Event of Default has occurred and is
continuing or would occur after giving effect thereto.
26. The Aggregate Commitment Amount is reduced from $130,000,000
to $100,000,000.
27. Exhibit A annexed hereto is substituted for Exhibit A annexed to
the Credit Agreement.
28. Exhibit B annexed hereto is substituted for Exhibit E annexed to
the Credit Agreement.
Article II. Consents and Waivers.
The Agent and the Lenders hereby agree, subject to the satisfaction of
the conditions precedent set forth in Article III below, as follows:
1. The Agent and the Lenders hereby consent to the formation on or
before the Amendment Effective Date (the "Finance Formation") by the Borrower
of PRG Finance Corporation ("PRG Finance"), a wholly-owned Subsidiary of the
Borrower, subject to the satisfaction of the following conditions precedent:
(a) upon the consummation of the Finance Formation, and at
all times thereafter, 100% of the Capital Stock of PRG Finance shall
be owned by the Borrower;
(b) no later than the Amendment Effective Date, the Agent
shall have received (i) a supplement to the Security Agreement in the
form of Annex A to the Security Agreement, duly executed by an
authorized
-15-
<PAGE>
signatory of PRG Finance, (ii) a supplement to the Guaranty in the
form of Annex A to the Guaranty, duly executed by an authorized
signatory of PRG Finance, (iii) stock certificates representing all of
the issued and outstanding stock of PRG Finance held by the Borrower,
together with undated stock powers executed in blank, and (iv) such
UCC Financing Statements, executed by an authorized signatory of PRG
Finance, as shall be reasonably requested by the Agent in order to
perfect the security interest in any collateral security granted under
the Security Agreement;
(c) the Agent shall have received a certificate, dated as of
the date PRG Finance shall have become a party to the Guaranty, of the
Secretary of PRG Finance (i) attaching a true and complete copy of the
resolutions of its Board of Directors and of all documents evidencing
all necessary corporate action (in form and substance satisfactory to
the Agent) taken by it to authorize the Loan Documents to which it is
a party and the transactions contemplated thereby, (ii) attaching a
true and complete copy of its Certificate of Incorporation and
By-Laws, (iii) setting forth the incumbency of its officers who may
sign such Loan Documents, including therein a signature specimen of
such officers, and (iv) attaching a certificate of good standing of
the Secretary of State of the State of its formation and each other
jurisdiction in which it is qualified to do business; and
(d) the Agent shall have received a revised Schedule 4.1 to
the Credit Agreement.
2. The Agent and the Lenders hereby consent to the Disposition by the
Borrower of its Real Property located at 539 Temple Hill Road, New Windsor, New
York, its Real Property located in Cornwall-on-Hudson, New York, and its Real
Property located at 5950 South Valley View Boulevard, Las Vegas, Nevada, and
waive the provision of Section 2.5(d) of the Credit Agreement requiring the
applications of the Net Cash Proceeds of such Dispositions to a prepayment of
the Revolving Credit Loans, provided that (i) such Dispositions shall be made
to Scenic Properties L.L.C. in exchange for the redemption or purchase of 100%
of the Capital Stock of the Borrower held by Scenic Properties L.L.C., but
subject to assumption by Scenic Properties L.L.C. of all obligations under
existing mortgages on such properties in an amount of not less than $3,500,000,
and (ii) the Borrower shall enter into a lease for such properties providing
for a lease period and such other terms and conditions as would be contained in
a lease between unrelated parties negotiated on an arms-length basis. Upon
consummation of such transactions, Scenic Properties L.L.C. shall be released
from its obligations under the Guaranty and Security Agreement.
3. The Agent and the Lenders hereby waive the provisions of Section
7.12 of the Credit Agreement with respect to any failure by the Borrower to
deliver a mortgage on the Real Property located at 5950 South Valley View
Boulevard, Las Vegas, Nevada within 30 days of such acquisition provided that
the Disposition referred to in Section 2 above of such Real Property shall have
occurred on or before February 15, 1998. If such Disposition has not occurred
by such date, the Borrower shall deliver a mortgage on such property not later
than
-16-
<PAGE>
March 31, 1998 in favor of the Agent, containing such terms and conditions
as the Agent may reasonably require.
4. To allow for the changes in the corporate structure contemplated by
the amendment to the PRG Operating Agreement being done in connection with the
issuance of the Subordinated Indebtedness, the Agent and the Lenders hereby
consent to the merger of any Guarantor into any other Guarantor or the
Borrower, provided that, at the request of the Agent, the Borrower will provide
copies of any merger documents to the Agent.
Article III. Conditions of Effectiveness.
Sections 9 and 24 of Article I, and Article II, shall become effective
as of the date hereof when the Agent shall have received counterparts of this
Amendment executed by each of the Borrower, the Guarantors, the Lenders and the
Agent, and all other provisions of Article I shall become effective when, and
if, on or before February 28, 1998, each of the following conditions precedent
shall have been fulfilled (the "Amendment Effective Date"):
(a) The Agent shall have received copies, certified by the
Secretary or an Assistant Secretary of the Borrower to be correct, of
all company action taken by the Borrower to authorize the issuance of
the Subordinated Indebtedness and this Amendment and the transactions
contemplated thereby and hereby together with (i) the certificate of
formation and operating agreement of the Borrower and (ii) such other
documents as the Agent shall reasonably require;
(b) The Agent shall have received a certificate from a
Financial Officer of the Borrower certifying as to the following:
(i) that the Borrower has received the proceeds of
the Subordinated Indebtedness and setting forth the aggregate
amount of such Subordinated Indebtedness issued by the
Borrower;
(ii) that attached to such certificate are duly
executed, true and correct copies of the indenture, the
notes, the offering memorandum and all other documents
executed in connection with the issuance of the Subordinated
Indebtedness (the "Transaction Documents");
(iii) that each of the Transaction Documents
attached thereto is in full force and effect;
(c) The Agent shall have received a Compliance Certificate
from a Financial Officer of the Borrower as to the following: (i)
certifying as to compliance with Section 7.11 of the Credit Agreement
(the determination of compliance with such ratios to be
-17-
<PAGE>
calculated on a pro forma basis as if such Subordinated Indebtedness
were incurred and proceeds thereof were so applied, in each case, at
the beginning of such period) and (ii) certifying that immediately
prior thereto and after giving effect to the incurrence of such
Subordinated Indebtedness, no Default shall have occurred and be
continuing;
(d) The Agent shall have received an opinion of counsel to
the Borrower in form and substance satisfactory to the Agent;
(e) All of the conditions precedent set forth in Article II,
Section 1 with respect to the Finance Formation shall have been
fulfilled in accordance with the terms and conditions thereto;
(f) The Agent shall be satisfied in all respects with the
Transaction Documents, including, without limitation, the
subordination provisions, and with respect to any guarantees issued by
Borrower's Subsidiaries in connection therewith;
(g) The fees and expenses of Special Counsel in connection
with the preparation, negotiation and closing of this Amendment, and
the effectiveness thereof, shall have been paid; and
(h) The Agent shall have received such other documents as the
Agent shall reasonably require.
Article IV. Other Provisions.
1. Except as specifically amended or waived above, the Credit
Agreement and all other Loan Documents shall remain in all respects in full
force and effect.
2. In order to induce the Agent and the Lenders to execute
this Amendment, the Borrower hereby (i) certifies that, immediately after
giving effect to this Amendment or any portion thereof, all representations and
warranties contained in the Credit Agreement are true and correct in all
respects as of the date hereof and that no Default or Event of Default exists
under the Credit Agreement, (ii) reaffirms and admits the validity and
enforceability of the Loan Documents and its obligations thereunder, and (iii)
agrees and admits that it has no valid defenses to or offsets against any of
its obligations to the Agent and the Lenders under the Loan Documents as of the
date hereof.
3. This Amendment may be executed in any number of
counterparts, each of which shall be an original and all of which shall
constitute one agreement. It shall not be necessary in making proof of this
Amendment to produce or account for more than one counterpart signed by the
party to be charged.
-18-
<PAGE>
4. This Amendment is being delivered in and is intended to be
performed in the State of New York and shall be construed and enforceable in
accordance with, and be governed by, the internal laws of the State of New York
without regard to principles of conflict of laws.
5. This Amendment shall be subject to the conditions and
limitations specified herein, and the rights of the parties hereto under the
Loan Documents shall be otherwise unaffected.
-19-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed and delivered by their proper and duly authorized
officers as of the day and year first above written.
PRODUCTION RESOURCE GROUP,
L.L.C.
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
THE BANK OF NEW YORK,
Individually and as Agent
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
BANK OF SCOTLAND
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
CIBC INC.
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
-20-
<PAGE>
CORESTATES BANK, N.A.
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
FIRST UNION NATIONAL BANK
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
IBJ SCHRODER BANK & TRUST
COMPANY
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
KEY CORPORATE CAPITAL INC.
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
USTRUST
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
-21-
<PAGE>
STATE STREET BANK AND TRUST
COMPANY
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
-22-
<PAGE>
Consent of Guarantors
The undersigned, as Guarantors to the Credit Agreement, each
hereby consents to the foregoing Amendment No. 1 and hereby confirms and
agrees that, notwithstanding the effectiveness of said Amendment No. 1 the
Guaranty and each Loan Document in effect on the date hereof to which it is
a party are, and shall continue to be, in full force and effect and are
hereby confirmed and ratified in all respects.
ECTS, A SCENIC TECHNOLOGY
COMPANY, INC., a New York
corporation
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
THEATRE TECHNIQUES ASSOCIATES,
INC.
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
ECTS CONTRACTING OF LAS VEGAS,
INC.
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
HARRIS PRODUCTION SERVICES, INC.
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
-23-
<PAGE>
ECTS, A SCENIC TECHNOLOGY
COMPANY, INC., a Delaware
corporation
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
SHOWPAY, INC.
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
SCENIC PROPERTIES L.L.C.
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
PRG PLANNING & DEVELOPMENT L.L.C.
By: PRODUCTION RESOURCE GROUP,
L.L.C., Majority Member
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
SHOWPAY, L.L.C.
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
-24-
<PAGE>
ATTRACTION MANAGEMENT L.L.C.
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
-25-
<PAGE>
Exhibit 12.1
Computation of Earnings to Fixed Charges Ratio
(Dollars in thousands)
<TABLE>
<CAPTION>
Pro Forma (1)
-------------
Year Ended
Year Ended December 31, December 31,
---------------------------------------------------- -------------
1993 1994 1995 1996 1997 1997
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Fixed charges:
Interest expense $ 103 $ 279 $ 632 $ 1,292 $ 3,956 $ 11,952
Capitalized interest -- -- 134 255 -- --
Amortization expense -- -- -- -- -- 370
Interest portion of rent expense -- 103 104 224 429 823
------- ------- ------- ------- ---------- --------
Total fixed charges $ 103 $ 382 $ 870 $ 1,771 $ 4,385 $ 13,145
======= ======= ======= ======= ========== ========
Earnings:
Income (loss) from continuing
operations before taxes $ 1,659 $2,541 $4,775 $5,394(2) $ (1,463) $ (2,255)
Fixed charges 103 382 870 1,771 4,385 13,145
Capitalized interest -- -- (134) (255) -- --
-------- -------- -------- -------- ---------- --------
Total earnings $ 1,762 $2,923 $5,511 $6,910 $ 2,922 $ 10,890
========= ========= ========= ========= ============ ========
Ratio of earnings to fixed charges 17.1x 7.7x 6.3x 3.9x --(3) --(4)
========= ========= ========= ========= ============ ========
</TABLE>
(1) Adjusted to give effect to the Transactions as if the Transactions had
occurred at January 1, 1997.
(2) Adjusted to exclude writedown of $495,000 to the carrying value of the
Company's former principal fabrication facility.
(3) Earnings were insufficient to cover fixed charges by approximately $1.5
million.
(4) Earnings were insufficient to cover fixed charges by approximately $2.3
million.
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts," "Summary
Consolidated Financial Data" and "Selected Consolidated Financial Data" and to
the use of our reports dated March 16, 1998, relating to the consolidated
financial statements and schedule of Production Resource Group, L.L.C., and
September 19, 1997, relating to the combined financial statements of Bash
Theatrical Lighting, Inc. and Affiliates, included in Amendment No. 1 to the
Registration Statement (Form S-4 No. 333-46235) and related Prospectus of
Production Resource Group, L.L.C. for the registration of $100,000,000 of its
11.5% Senior Subordinated Notes due 2008.
/s/ Ernst & Young LLP
-----------------------
Ernst & Young LLP
New York, New York
April 22, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEETS OF PRODUCTION RESOURCE GROUP, L.L.C. AS OF DECEMBER 31, 1997 AND
DECEMBER 31, 1996 AND THE RELATED STATEMENTS OF OPERATIONS FOR THE YEAR
ENDED SEPTEMBER 30, 1997 AND THE YEAR ENDED DECEMBER 31, 1997 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001055417
<NAME> PRODUCTION RESOURCE GROUP, L.L.C.
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997
<PERIOD-END> DEC-31-1996 DEC-31-1997
<CASH> 3,010 27,164
<SECURITIES> 0 0
<RECEIVABLES> 11,110 26,355
<ALLOWANCES> 323 2,572
<INVENTORY> 3,346 4,425
<CURRENT-ASSETS> 17,960 56,658
<PP&E> 39,715 65,875
<DEPRECIATION> 8,526 16,639
<TOTAL-ASSETS> 51,995 128,252
<CURRENT-LIABILITIES> 18,827 21,426
<BONDS> 0 100,000
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 14,398 3,083
<TOTAL-LIABILITY-AND-EQUITY> 51,995 128,252
<SALES> 49,434 75,180
<TOTAL-REVENUES> 49,434 75,180
<CGS> 33,485 52,312
<TOTAL-COSTS> 42,876 72,804
<OTHER-EXPENSES> 495 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 1,292 3,956
<INCOME-PRETAX> 4,899 (1,463)
<INCOME-TAX> 206 392
<INCOME-CONTINUING> 4,693 (1,855)
<DISCONTINUED> 1,407 (5,302)
<EXTRAORDINARY> 0 (614)
<CHANGES> 0 0
<NET-INCOME> 6,100 (7,771)
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
<PAGE>
LETTER OF TRANSMITTAL
PRODUCTION RESOURCE GROUP, L.L.C.
PRG FINANCE CORPORATION
Offer to Exchange All Outstanding
11.50% Senior Subordinated Notes Due 2008
for
11.50% Senior Subordinated Notes Due 2008
Pursuant to the Prospectus Dated ____________, 1998
- -------------------------------------------------------------------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON __________,
1998, UNLESS THE EXCHANGE OFFER IS EXTENDED (THE "EXPIRATION DATE").
- -------------------------------------------------------------------------------
TO: First Union National Bank, Exchange Agent
By Mail: By Hand or Overnight Courier:
First Union National Bank First Union National Bank
Corporate Trust Operation Corporate Trust Operation
1525 West W.T. Harris Blvd. 1525 West W.T. Harris Blvd.
Charlotte, N.C. 28288-1153 Charlotte, N.C. 28288-1153
By Facsimile (For Eligible Institutions Only):
(704) 590-7628
Confirm by Telephone:
(704) 590-7408
Delivery of this Letter of Transmittal to an address, or transmission
via facsimile, other than as set forth above will not constitute a valid
delivery. The instructions contained herein should be read carefully before
this Letter of Transmittal is completed.
Holders who wish to be eligible to receive new notes for their old
notes pursuant to the Exchange Offer must validly tender (and not withdraw)
their old notes to the Exchange Agent prior to the expiration date.
By execution hereof, the undersigned acknowledges receipt of the
Prospectus dated _______________ (the "Prospectus"), of Production Resource
Group, L.L.C., a Delaware corporation (the "Company") and PRG Finance
Corporation ("Finance Corp.", together with the Company, the "Issuers")., and
this Letter of Transmittal and the instructions hereto (the "Letter of
Transmittal"), which together constitute the offer to exchange (the "Exchange
Offer") an aggregate principal amount of up to $100,000,000 11.50% Senior
Subordinated Notes Due 2008 (the "New Notes") for an equal principal amount of
the outstanding 11.50% Senior Subordinated Notes Due 2008 (the "Old Notes" and,
together with the New Notes, the "Notes").
The Issuers reserve the right, at any time or from time to time, to
extend the Exchange Offer at its sole discretion, in which event the term
"Expiration Date" shall mean the latest time
1
<PAGE>
and date to which the Exchange Offer is extended. The Issuers shall notify the
holders of the Old Notes of any extension by means of a press release or other
public announcement prior to 9:00 a.m., New York City time, on the next
business day after the previously scheduled Expiration Date.
This Letter of Transmittal is to be completed by a holder of Old Notes
either if certificates are to be forwarded herewith or if a tender of
certificates for Old Notes, if available, is to be made by book-entry transfer
to the account maintained by the Exchange Agent at The Depository Trust Company
(the "Book-Entry Transfer Facility") pursuant to the procedures set forth in
"The Exchange Offer" section of the Prospectus. Holders that are tendering by
book-entry transfer to the Exchange Agent's account at the DTC can execute the
tender through the DTC Automated Tender Offer Program ("ATOP") for which the
transaction is eligible. DTC participants should transmit their acceptance of
the Exchange Offer to DTC, which will verify the acceptance and execute a
book-entry delivery to the Exchange Agent's account at DTC. DTC will then send
an "Agent's Message" to the Exchange Agent for its acceptance. Holders of Old
Notes whose certificates are not immediately available, or who are unable to
deliver their certificates or confirmation of the book-entry tender of their
Old Notes into the Exchange Agent's account at the Book-Entry Transfer Facility
(a "Book-Entry Confirmation") and all other documents required by this Letter
to the Exchange Agent on or prior to the Expiration Date, must tender their Old
Notes according to the guaranteed delivery procedures set forth in "The
Exchange Offer - Guaranteed Delivery Procedures" section of the Prospectus. See
Instruction 1. Delivery of documents to the Book-Entry Transfer Facility does
not constitute delivery to the Exchange Agent.
The undersigned has completed, executed and delivered this Letter of
Transmittal to indicate the action the undersigned desires to take with respect
to the Exchange Offer. Holders who wish to tender their Old Notes must complete
this letter in its entirety.
All capitalized terms used herein and not defined herein shall have
the respective meanings given to them in the Prospectus.
HOLDERS WHO WISH TO ACCEPT THE EXCHANGE OFFER AND TENDER THEIR OLD
NOTES MUST COMPLETE THIS LETTER OF TRANSMITTAL IN ITS ENTIRETY.
List below the old Notes to which this Letter of Transmittal relates.
If the space provided below is inadequate, list the certificate numbers and
principal amounts on a separately executed schedule and affix the schedule to
this Letter Of Transmittal.
2
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF OLD NOTES
- ---------------------------------------------------------------------------------------------------------------------
Aggregate Principal Amount of Old Notes
Name(s) and Address(es) of Holder(s) (Please fill Certificate Tendered
in, if blank) Number(s) (if less than all)**
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------
---------------------------------------------------------------
---------------------------------------------------------------
---------------------------------------------------------------
---------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
Total Principal Amount of Old Notes Tendered
- ---------------------------------------------------------------------------------------------------------------------
* Need not be completed by holders tendering Old Notes by book-entry transfer.
** Need not be completed by holders who wish to tender with respect to all Old Notes listed. See Instruction 2.
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
[ ] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY DTC TO THE EXCHANGE
AGENT'S ACCOUNT AT DTC AND COMPLETE THE FOLLOWING:
Name of Tendering Institution:
---------------------------------------
DTC Book-Entry Account No.:
------------------------------------------
Transaction Code No.
-------------------------------------------------
If holders desire to tender Old Notes pursuant to the Exchange Offer
and (i) certificates representing such Old Notes are not lost but are not
immediately available, (ii) time will not permit this Letter of Transmittal,
certificates representing such Old Notes or other required documents to reach
the Exchange Agent prior to the Expiration Date or (iii) the procedures for
book-entry transfer cannot be completed prior to the Expiration Date, such
holders may effect a tender of such Old Notes in accordance with the guaranteed
delivery procedures set forth in the Prospectus under "The Exchange Offer -
Guaranteed Delivery Procedures."
/ / CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE
OF GUARANTEED DELIVERY PREVIOUSLY DELIVERED TO THE EXCHANGE AGENT AND
COMPLETE THE FOLLOWING:
Name of Holder of Old Notes:
-----------------------------------------
Window Ticket No. (if any):
------------------------------------------
3
<PAGE>
Date of Execution of Notice of Guaranteed Delivery:
------------------
Name of Eligible Institution that Guaranteed Delivery:
----------------
If delivered by Book-Entry Transfer:
Name of Tendering Institution:
---------------------------------------
DTC Book-Entry Account No.:
-----------------------------------------
Transaction Code No.:
------------------------------------------------
/ / CHECK HERE IF YOU ARE A BROKER-DEALER WHO HOLDS OLD NOTES ACQUIRED FOR
YOUR OWN ACCOUNT AS A RESULT OF MARKET-MAKING OR OTHER TRADING ACTIVITIES
AND WISH TO RECEIVE COPIES OF THE PROSPECTUS AND COPIES OF ANY AMENDMENTS
OR SUPPLEMENTS THERETO FOR USE IN CONNECTION WITH RESALES OF NEW NOTES
RECEIVED FOR YOUR OWN ACCOUNT IN EXCHANGE FOR SUCH OLD NOTES.
Name:
----------------------------------------------------------------
Address:
-------------------------------------------------------------
Aggregate Principal Amount of Old Notes so held: $
------------------
Ladies and Gentlemen:
The undersigned hereby tenders to the Issuers the aggregate principal
amount of Old Notes indicated in this Letter of Transmittal, upon the terms and
subject to the conditions of the Exchange Offer. Subject to, and effective
upon, the acceptance for exchange of the Old Notes tendered hereby, the
undersigned hereby sells, assigns and transfers to, or upon the order of, the
Issuers all right, title and interest in and to such Old Notes as are being
tendered hereby and hereby irrevocably constitutes and appoints the Exchange
Agent as attorney-in-fact of the undersigned with respect to such Old Notes,
with full power of substitution (such power of attorney being an irrevocable
power coupled with an interest), to: (a) deliver such Old Notes in registered
certificated form, or transfer ownership of such Old Notes through book-entry
transfer at the Book-Entry Transfer Facility, to or upon the order of the
Issuers, upon receipt by the Exchange Agent, as the undersigned's agent, of the
same aggregate principal amount of New Notes; and (b) receive, for the account
of the Issuers, all benefits and otherwise exercise, for the account of the
Company, all rights of beneficial ownership of the Old Notes tendered hereby in
accordance with the terms of the Exchange Offer.
The undersigned hereby represents and warrants that the undersigned
has full power and authority to tender, sell, assign and transfer the Old Notes
tendered hereby and that the Company will acquire good, marketable and
unencumbered title thereto, free and clear of all security interests, liens,
restrictions, charges, encumbrances, conditional sale agreements or other
obligations relating to their sale or transfer, and not subject to any adverse
claim when the same
4
<PAGE>
are accepted by the Issuers. The undersigned hereby further represents that any
new notes acquired in exchange for Old Notes tendered hereby will have been
acquired in the ordinary course of business of the person receiving such New
Notes, whether or not such person is the undersigned, that neither the holder
of such Old Notes nor any such other person is engaged in, or intends to engage
in, a distribution of such New Notes, or has an arrangement or understanding
with any person to participate in the distribution of such New Notes, and that
neither the holder of such Old Notes nor any such other person is an
"affiliate," as defined in Rule 405 under the Securities Act of 1933, as
amended (the "Securities Act"), of the Issuers. The undersigned has read and
agrees to all of the terms of the Exchange Offer.
The undersigned also acknowledges that the Issuers are making this
Exchange Offer in reliance on the position of the staff of the Securities and
Exchange Commission (the "Commission"), as set forth in certain interpretive
letters issued to third parties in other transactions. Based on the Commission
interpretations, the Issuers believe that the New Notes issued in exchange for
the Old Notes pursuant to the Exchange Offer may be offered for resale, resold
and otherwise transferred by holders thereof (other than a broker-dealer who
purchased Old Notes directly from the Issuers for resale pursuant to Rule 144A
under the Securities Act or any other available exemption under the Securities
Act or any such holder that is an "affiliate" of the Issuers within the meaning
of Rule 405 under the provisions of the Securities Act) without further
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that such New Notes are acquired in the ordinary
course of such holders' business and such holders are not engaged in, and do
not intend to engage in, a distribution of such New Notes and have no
arrangement with any person to participate in the distribution of such New
Notes. However, the Issuers do not intend to request the Commission to
consider, and the Commission has not considered, the Exchange Offer in the
context of an interpretive letter, and there can be no assurance that the staff
of the Commission would make a similar determination with respect to the
Exchange Offer as in other circumstances.
If the undersigned is not a broker-dealer, the undersigned represents
that it is not engaged in, and does not intend to engage in, a distribution of
New Notes and has no arrangement or understanding to participate in a
distribution of New Notes. If any holder is an affiliate of the Issuers, is
engaged in or intends to engage in or has any arrangement or understanding with
respect to the distribution of the New Notes to be acquired pursuant to the
Exchange Offer, such holder (i) could not rely on the applicable
interpretations of the staff of the Commission and (ii) must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. If the undersigned is a broker-dealer
that will receive New Notes for its own account in exchange for Old Notes
acquired as a result of market-making or other trading activities (a
"Participating Broker-Dealer"), it represents that the Old Notes to be
exchanged for the New Notes were acquired by it as a result of market-making or
other trading activities and acknowledges that it will deliver a prospectus in
connection with any resale of such New Notes; however, by so acknowledging and
by delivering a prospectus, such Participating Broker-Dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
The Issuers have agreed that, subject to the provisions of the
Registration Agreement, the Prospectus, as it may be amended or supplemented
from time to time, may be used by a Participating Broker-Dealer in connection
with resales of New Notes received in exchange for
5
<PAGE>
Old Notes which were acquired by such Participating Broker-Dealer for its own
account as a result of market-making or other trading activities, for a period
ending [180] days after the Expiration Date, or, if earlier, when all such New
Notes have been disposed of by such Participating Broker-Dealer. In that
regard, each Participating Broker-Dealer by tendering such Old Notes and
executing this Letter of Transmittal, agrees that, upon receipt of notice from
the Company of the occurrence of any event or the discovery of any fact which
makes any statement contained or incorporated by reference in the Prospectus
untrue in any material respect or which causes the Prospectus to omit to state
a material fact necessary in order to make the statements contained or
incorporated by reference therein, in light of the circumstances under which
they were made, not misleading, such Participating Broker-Dealer will suspend
the sale of New Notes pursuant to the Prospectus until the Issuers have amended
or supplemented the Prospectus to correct such misstatement or omission and has
furnished copies of the amended or supplemented Prospectus to the Participating
Broker-Dealer or the Issuers have given notice that the sale of the New Notes
may be resumed, as the case may be. If the Issuers give such notice to suspend
the sale of the New Notes, it shall extend the [180-day] period referred to
above during which Participating Broker-Dealers are entitled to use the
Prospectus in connection with the resale of New Notes by the number of days
during the period from and including the date of the giving of such notice to
and including the date when Participating Broker-Dealers shall have received
copies of the supplemented or amended Prospectus necessary to permit resales of
the New Notes or to and including the date on which the Issuers have given
notice that the sale of New Notes may be resumed, as the case may be.
The undersigned will, upon request, execute and deliver any additional
documents deemed by the Issuers to be necessary or desirable to complete the
sale, assignment and transfer of the Old Notes tendered hereby. All authority
conferred or agreed to be conferred in this Letter of Transmittal and every
obligation of the undersigned hereunder shall be binding upon the successors,
assigns, heirs, executors, administrators, trustees in bankruptcy and legal
representatives of the undersigned and shall not be affected by, and shall
survive, the death or incapacity of the undersigned. This tender may be
withdrawn only in accordance with the procedures set forth in "The Exchange
Offer - Withdrawal Rights" section of the Prospectus.
Unless otherwise indicated herein in the box entitled "Special
Issuance Instructions" below, please deliver the New Notes (and, if applicable,
substitute certificates representing Old Notes for any Old Notes not exchanged)
in the name of the undersigned or, in the case of a book-entry delivery of Old
Notes, please credit the account indicated above maintained at the Book-Entry
Transfer Facility. Similarly, unless otherwise indicated under the box entitled
"Special Delivery Instructions" below, please send the New Notes (and, if
applicable, substitute certificates representing Old Notes for any Old Notes
not exchanged) to the undersigned at the address shown above in the box
entitled "Description of Old Notes."
SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTIONS 3 AND 4)
Unless otherwise indicated in the box entitled "Special Issuance
Instruction" or in the box entitled "Special Delivery Instructions" in this
Letter of Transmittal, certificates for New Notes delivered in exchange for
tendered Old Notes, and any Old Notes delivered herewith but not exchanged,
will be registered in the name of the undersigned and will be delivered to the
6
<PAGE>
undersigned at the address shown below the signature of the undersigned. If a
New Note is to be mailed to someone other than the person(s) signing this
Letter of Transmittal or to person(s) signing this Letter of Transmittal at an
address different than the address shown on this Letter of Transmittal, the
appropriate boxes of this Letter of Transmittal should be completed. If Notes
are surrendered by Holder(s) that have completed either the box entitled
"Special Issuance Instruction" or the box entitled "Special Issuance
Instruction" or the box entitled "Special Delivery Instructions" in this Letter
of Transmittal, signature(s) on this Letter of Transmittal must be guaranteed
by an Eligible Institution (defined in Instruction 3).
7
<PAGE>
To be completed ONLY if certificates for Old To be completed ONLY if
New Notes are Notes not exchanged and/or new Notes are to be delivered to
someone other than the issued in a name other than the name appearing
undersigned, or to the undersigned at an above address other than that shown
above.
<TABLE>
<CAPTION>
------------------------------------------------------ -----------------------------------------------------
<S> <C>
SPECIAL ISSUANCE INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
Issue and mail check to: Deliver New Notes to:
Name Name
----------------------------------------- -----------------------------------------
(Please Print: First, Middle & Last Name) (Please Print: First, Middle & Last Name)
Address Address
-------------------------------------- --------------------------------------
(Number and Street) (Number and Street)
--------------------------------------------- ---------------------------------------------
(City, State and Zip Code) (City, State and Zip Code)
---------------------------------------------
(Tax Identification or Social Security No.)
------------------------------------------------------ -----------------------------------------------------
</TABLE>
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF OLD
NOTES" ABOVE AND SIGNING THIS LETTER OF TRANSMITTAL, WILL BE DEEMED TO HAVE
TENDERED THE OLD NOTES AS SET FORTH IN SUCH BOX ABOVE.
IMPORTANT: THIS LETTER OF TRANSMITTAL OR, IF APPLICABLE, A FACSIMILE
HEREOF (TOGETHER WITH THE OLD NOTES OR A BOOK-ENTRY CONFIRMATION AND ALL OTHER
REQUIRED DOCUMENTS OR THE NOTICE OF GUARANTEED DELIVERY) MUST BE RECEIVED BY
THE EXCHANGE AGENT PRIOR TO 5:00 PM., NEW YORK CITY TIME, ON THE EXPIRATION
DATE.
<PAGE>
==============================================================================
PLEASE SIGN HERE
(TO BE COMPLETED BY ALL TENDERING HOLDERS OF
OLD NOTES REGARDLESS OF WHETHER OLD NOTES ARE
BEING PHYSICALLY DELIVERED HEREWITH)
X Date:
- -------------------------------------- -------------------------------------
X Date:
- -------------------------------------- -------------------------------------
Signature of Owner
If a holder is tendering any Old Notes, this Letter of Transmittal must be
signed by the holder(s) of Old Notes exactly as the name(s) of the holder(s)
appear(s) on the certificate(s) for the Old Notes or by any person(s)
authorized to become (a) holder(s) by endorsements and documents transmitted
herewith. If signature is by a trustee, executor administrator, guardian,
officer or other person acting in a fiduciary or representative capacity, such
person must provide the following information:
Name(s): Address:
---------------------------------- ----------------------------------
(Please Print) (Include Zip Code)
Capacity: Telephone Number:
---------------------------------- ----------------------------------
(Include Area Code)
SIGNATURE GUARANTEE (SEE INSTRUCTION 3 HEREIN)
CERTAIN SIGNATURES MUST BE GUARANTEED BY AN ELIGIBLE INSTITUTION
Signature(s) Guaranteed by:
-----------------------------------------------------
(Authorized Signature)
- ------------------------------------------------------------------------------
(Title of Officer Signing this Guarantee)
- ------------------------------------------------------------------------------
(Name of Eligible Institution Guaranteeing Signatures - Please Print)
- ------------------------------------------------------------------------------
(Address and Telephone Number of Eligible Institution Guaranteeing Signatures)
Date:
---------------------------------
================================================================================
<PAGE>
<TABLE>
<CAPTION>
===================================================================================================================================
PLEASE COMPLETE SUBSTITUTE FORM W-9
- -----------------------------------------------------------------------------------------------------------------------------------
PAYER'S NAME: STATE STREET BANK AND TRUST COMPANY
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
SUBSTITUTE Part 1-- PLEASE PROVIDE YOUR TIN IN THE BOX Social security number
AT RIGHT AND CERTIFY BY SIGNING AND DATING
Form W-9 BELOW
OR
------------------------------
Employer Identification Number
---------------------------------------------------------------------------------------------
<S> <C>
Department
of the Treasury Part 2 - Certificates -- Under penalties of perjury, I
Internal Revenue Service certify that:
(1) The number shown on this form is my correct Taxpayer
Identification Number (or I am waiting for a number to
be issued or to me); and
(2) I am not subject to backup withholding because (a) I am
exempt from backup withholding, or (b) I have not been
notified by the Internal Revenue Service (the "IRS")
that I am subject to backup (TIN) withholding as a
result of a failure to report all interest or Number
dividend, or (c) the IRS has notified me that I am no
longer subject to backup withholding. |_|
----------------------------------------------------------------------------------------------
<S> <C> <C>
CERTIFICATION INSTRUCTIONS -- You must cross out item (2)
above if you have been notified by the IRS that you are
currently subject to backup withholding because of
underreporting interest or dividends on your tax return.
However, if after being notified by the IRS that you were
subject to backup withholding you received another
notification from the IRS that you are no longer subject
to backup withholding, do not cross out item (2).
Part 3
Payer's Request for Taxpayer
Identification Number (TIN) SIGNATURE DATE Awaiting TIN |_|
----------------------------- -------------
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENT (IF ANY) MADE TO YOU WITH RESPECT TO OLD NOTES TENDERED IN
CONNECTION WITH THE EXCHANGE OFFER. YOU MUST COMPLETE THE FOLLOWING CERTIFICATE
IF YOU CHECKED THE BOX IN PART 3 OF SUBSTITUTE FORM W-9
- -------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number ha
snot been issued to me, and either (a) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office, or
(b) I intend to mail or deliver an application in the near future, I understand
that because I have not provided a taxpayer identification number, 31% of all
reportable payments made to me thereafter will be withheld until I provide a
number. If I provide a properly certified taxpayer identification number within
60 days, you will refund the tax if I so request.
SIGNATURE DATE
---------------------------------------------------- -------------
- --------------------------------------------------------------------------------
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER OF BOYD GAMING
CORPORATION TO EXCHANGE ITS 11.50% SENIOR SUBORDINATED NOTES DUE 2008 FOR ALL
OF ITS OUTSTANDING 9.50% SENIOR SUBORDINATED NOTES DUE 2008.
1. Delivery of this Letter and Old Notes; Guaranteed Delivery Procedures.
This Letter of Transmittal is to be completed by holders of Old Notes
either if certificates for Old Notes are to be forwarded herewith or if tenders
are to be made pursuant to the procedures for delivery by book-entry transfer
set forth in "The Exchange Offer--Procedures for Tendering Old Notes" section
of the Prospectus. Physically tendered Old Notes, or Book-Entry Confirmation,
as the case may be, as well as a properly completed and duly executed Letter of
Transmittal (or facsimile thereof) and any other documents required by this
Letter, must be received by the Exchange Agent at the address set forth herein
on or prior to the Expiration Date, or the tendering holder must comply with
the guaranteed delivery procedures set forth below.
Holders whose certificates for Old Notes are not immediately available
or who cannot deliver their certificates for Old Notes and all other required
documents to the Exchange Agent on or prior to the Expiration Date, or who
cannot complete the procedure for book-entry transfer on a timely basis, may
tender their Old Notes pursuant to the guaranteed delivery procedures set forth
in "The Exchange Offer--Guaranteed Delivery Procedures" section of the
Prospectus. Pursuant to such procedures: (i) such tender must be made by or
through an Eligible Institution, (ii) on or prior to the Expiration Date, the
Exchange Agent must have received from the holder and the Eligible Institution
a properly completed and duly executed Notice of Guaranteed Delivery (by
facsimile transmission, mail or hand delivery) setting forth the name and
address of the holder of Old Notes, the certificate number or numbers of the
tendered Old Notes, and the principal amount of tendered Old Notes, stating
that the tender is being made thereby and guaranteeing that, within five New
York Stock Exchange trading days after the Expiration Date, the certificates
for the tendered Old Notes, or a Book-Entry Confirmation of such Old Notes, a
duly executed Letter of Transmittal and any other required documents will be
deposited by the Eligible Institution with the Exchange Agent, and (iii) such
properly completed and executed documents required by the Letter of
Transmittal, as well as the certificates for the tendered Old Notes in proper
form for transfer (or Book-Entry Confirmation of such Old Notes into the
Exchange Agent's account at DTC) must be received by the Exchange Agent within
five New York Stock Exchange trading days after the Expiration Date. Any holder
who wishes to tender Old Notes pursuant to the guaranteed delivery procedures
described above must ensure that the Exchange Agent receives the Notice of
Guaranteed Delivery and Letter of Transmittal relating to such Old Notes prior
to 5:00 p.m., New York City time, on the Expiration Date.
THE METHOD OF DELIVERY OF THIS LETTER, THE OLD NOTES AND ALL OTHER REQUIRED
DOCUMENTS IS AT THE ELECTION AND RISK OF THE TENDERING HOLDERS, BUT THE
DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED OR CONFIRMED BY THE
EXCHANGE AGENT. IF OLD NOTES ARE SENT BY MAIL, IT IS SUGGESTED THAT THE MAILING
BE MADE SUFFICIENTLY IN ADVANCE OF THE EXPIRATION DATE TO PERMIT DELIVERY TO
THE EXCHANGE AGENT PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION
DATE. See "The Exchange Offer" section of the Prospectus.
DO NOT SENT THIS LETTER OF TRANSMITTAL OR ANY OLD NOTES TO THE COMPANY.
2. Partial Tenders (Not Applicable to Holders of Old Notes Who Tender By
Book-Entry Transfer).
If less than the entire principal amount of any submitted Old Note is to
be tendered, the tendering holder(s) should fill in the aggregate principal
amount to be tendered in the box above entitled "Description of Old
Notes--Aggregate Principal Amount of Old Notes Tendered." A reissued
certificate representing the balance of non-tendered principal of any submitted
Old Notes will be sent to such tendering holder, unless otherwise provided in
the appropriate box of this Letter of Transmittal, promptly after the
Expiration Date. THE ENTIRE PRINCIPAL AMOUNT OF ANY OLD NOTES DELIVERED TO THE
EXCHANGE AGENT WILL BE DEEMED TO HAVE BEEN TENDERED UNLESS OTHERWISE INDICATED.
11
<PAGE>
3. Signatures on this Letter; Assignments and Endorsement; Guarantee of
Signatures.
If this Letter of Transmittal is signed by the registered holder of the
Old Notes tendered hereby, the signature must correspond exactly with the name
as written on the face of the Old Notes without any change whatsoever.
If any tendered Old Notes are owned or record by two or more joint
owners, all such owners must sign this letter of Transmittal.
If any tendered Old Notes are registered in different names on several
Old Notes, it will be necessary to complete, sign and submit as many separate
copies of this Letter of Transmittal as there are different registrations of
Old Notes.
When this Letter of Transmittal is signed by the registered holder(s) of
the Old Notes specified herein and tendered hereby, no endorsements of the
submitted Old Notes or separate instruments of assignment are required. If,
however, the New Notes are to be issued, or any untendered Old Notes are to be
reissued, to a person other than the registered holder(s), then endorsements of
any Old Notes transmitted hereby or separate instruments of assignment are
required. Signatures on such Old Notes must be guaranteed by an Eligible
Institution.
If this Letter of Transmittal is signed by a person other than the
registered holder(s) of any Old Notes specified herein, such Old Notes must be
endorsed or accompanied by appropriate instruments of assignment, in either
case signed exactly as the name of the registered holder appears on the Old
Notes and the signatures of such Old Notes must be guaranteed by an Eligible
Institution.
If this Letter of Transmittal or any Old Notes or instruments of
assignment are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations or others acting in a fiduciary or
representative capacity, such persons should so indicate when signing, and,
unless waived by the Company, proper evidence satisfactory to the Company of
their authority to so act must be submitted.
Endorsements on Old Notes or signatures on instruments of assignment
required by this Instruction 3 must be guaranteed by a firm which is a member
of a registered national securities exchange or a member of the National
Association of Securities Dealers, Inc., by a commercial bank or trust company
having an office or correspondent in the United States or by an "eligible
guarantor" institution within the meaning of Rule 17Ad-15 under the Securities
Exchange Act of 1934 (the "Eligible Institution").
Signatures of this Letter of Transmittal need not be guaranteed by a
Eligible Institution, provided the Old Notes are tendered: (i) by a registered
holder of Old Notes (which term, for purposes of the Exchange Offer, includes
any participant in the Book-Entry Transfer Facility system whose name appears
on a security position listing as the holder of such Old Notes) who has not
completed the box entitled "Special Issuance Instructions" or "Special Delivery
Instructions" on this Letter of Transmittal, or (ii) for the account of an
Eligible Institution.
4. Special Issuance and Delivery Instructions.
Tendering holders of Old Notes should indicated in the applicable box
the name and address to which new Notes issued pursuant to the Exchange Offer
and/or substitute certificates evidencing Old Notes not exchanged are to be
issued or sent, if different from the name or address of the person signing
this Letter of Transmittal. In the case of Issuance in a different name, the
Employer Identification of Social Security Number of the person named must also
be indicated. A holder of Old Notes tendering Old Notes by book-entry transfer
may request that New Notes and Old Notes not exchanged be credited to such
account maintained at the Book-Entry Transfer Facility as such holder of Old
Notes may designate hereon. If no such instructions are given, such New Notes
and Old Notes not exchanged will be returned to the name or address of the
person signing this Letter of Transmittal or credited to the account listed
beneath the box entitled "Description of Old Notes," as the case may be.
12
<PAGE>
5. Tax Identification Number.
Federal income tax law generally requires that a tendering holder whose
Old Notes are accepted for exchange must provide the Issuers (as payor) with
such Holder's correct Taxpayer Identification Number ("TIN") on Substitute Form
W-9 above, which, in the case of a tendering holder who is an individual, is
his or her Social Security Number. If the Company is not provided with the
Current TIN or an adequate basis for an exemption, such tendering holder may be
subject to a $50 penalty imposed by the Internal Revenue Service. In addition,
delivery of New Notes to such tendering holder may be subject to backup
withholding in an amount equal to 31% of all reportable payments made after the
exchange. If withholding results in an overpayment of taxes, a refund may be
obtained.
Exempt holders of Old Notes (including, among others, all corporations
and certain foreign individuals) are not subject to these backup withholding
and reporting requirements. See the enclosed Guidelines of Certification of
Taxpayer Identification Number on Substitute Form W-9 (the "W-9 Guidelines")
for additional instructions.
To prevent backup withholding, each tendering holder of Old Notes must
provide its correct TIN by completing the "Substitute Form W-9" set forth
above, certifying that the TIN provided is correct (or that such holder is
awaiting a TIN) and that (i) the holder is exempt from backup withholding, (ii)
the holder has not been notified by the Internal Revenue Service that such
holder is subject to a backup withholding as a result of a failure to report
all interest or dividends or (iii) the Internal Revenue Service has notified
the holder that such holder is no longer subject to backup withholding. If the
tendering holder of Old Notes is a nonresident alien or foreign entity not
subject to backup withholding, such holder must give the Issuers a completed
Form W-8, Notice of Foreign Status. These forms may be obtained from the
Exchange Agent. If the Old Notes are in more than one name or are not in the
name of the actual owner, such holder should consult the W-9 Guidelines for
Instructions on applying for a TIN, check the box in Part 2 of the Substitute
Form W-9 and write "applied for" in lieu of its TIN. Note: checking this box
and writing "applied for" on the form means that such holder has already
applied for a TIN or that such holder intends to apply for one in the near
future. If such holder does not provide its TIN to the Issuers within 60 days,
backup withholding will begin and continue until such holder furnishes its TIN
to the Issuers.
6. Transfer Taxes.
The Issuers will pay all transfer taxes, if any, applicable to the
transfer of Old Notes to it or its order pursuant to the Exchange Offer. If,
however, New Notes and/or substitute Old Notes not exchanges are to be
delivered to, or are to be registered or issued in the name of, any person
other than the registered holder of the Old Notes tendered hereby, or if
tendered Old notes are registered in the name of any person other than the
person signing this Letter of Transmittal, or if a transfer tax is imposed for
any reason other than the transfer of Old Notes to the Issuer or its order
pursuant to the Exchange Offer, the amount of any such transfer taxes (whether
imposed on the registered holder or any other person) will be payable by the
tendering holder. If satisfactory evidence of payment of such taxes or
exemption therefrom is not submitted herewith, the amount of such transfer
taxes will be billed directly to such tendering holder.
EXCEPT AS PROVIDED IN THIS INSTRUCTION 6, IT IS NOT NECESSARY FOR
TRANSFER TAX STAMPS TO BE AFFIXED TO THE OLD NOTES SPECIFIED IN THIS LETTER OF
TRANSMITTAL.
7. Determination of Validity/Waiver of Conditions.
The Issuers will determine, in its sole discretion, all questions as to
the form of documents, validity, eligibility (including time of receipt) and
acceptance for exchange of any tender of Old Notes, which determination shall
be final and binding on all parties. The Issuers reserve the absolute right to
reject any and all tenders determined by it not to be in proper form or the
acceptance of which, or exchange for which, may, in the view of counsel to the
Company, be unlawful. The Issuers also reserve the absolute right, subject to
applicable law, to waive any of the conditions of the Exchange Offer set forth
in the Prospectus under the caption "The Exchange Offer" or any conditions or
irregularity in any tender of Old Notes of any particular holder whether or not
similar conditions or irregularities are waived in the case of other holders.
13
<PAGE>
The Issuers' interpretation of the terms and conditions of the Exchange
Offer (including this Letter of Transmittal and the instructions hereto) will
be final and binding. No tender or Old Notes will be deemed to have been
validly made until all irregularities with respect to such tender have been
cured or waived. Although the Issuers intend to notify holders of defects or
irregularities with respect to tenders of Old Notes, neither the Issuers, any
employees, agents, affiliates or assigns of the Issuers, the Exchange Agent,
nor any other person shall be under any duty to give notification of any
irregularities in tenders or incur any liability for failure to give such
notification.
8. No Conditional Tenders.
No alternative, conditional, irregular or contingent tenders will be
accepted. All tendering holders of Old Notes, by execution of this Letter of
Transmittal, shall waive any right to receive notice of the acceptance of their
Old Notes for exchange.
Neither the Issuers, the Exchange Agent nor any other person is
obligated to give notice of any defect or irregularity with respect to any
tender of Old Notes nor shall any of them incur any liability for failure to
give any such notice.
9. Mutilated, Lost, Stolen or Destroyed Old Notes.
Any holder whose Old Notes have been mutilated, lost, stolen or
destroyed should contact the Exchange Agent at the address indicated above for
further instructions.
10. Requests for Assistance or Additional Copies.
Questions relating to the procedure for tendering, as well as requests
for additional copies of the Prospectus and this Letter of Transmittal, may be
directed to the Exchange Agent, at the address and telephone number indicated
above.
14
