<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Quarterly Period Ended June 30, 1998
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act Of 1934
Commission File Number: 333-46235
PRODUCTION RESOURCE GROUP, L.L.C.
(Exact Name of Registrant as Specified in its Charter)
Delaware 14-1786937
-------- ----------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
539 Temple Hill Road, New Windsor, New York 12553
------------------------------------------- -----
(Address of Principal Executive Office) (Zip Code)
(914) 567-5700
(Registrant's Telephone Number, Including Area Code)
Not Applicable
--------------
(Former Name, Former Address, and Former Fiscal Year,
if Changed Since Last Report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [ ] No [X]
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PRODUCTION RESOURCE GROUP, L.L.C.
Table Of Contents
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited):
Combined Balance Sheets as of December 31, 1997
and June 30, 1998.............................................3
Combined Statements of Operations and Members' Equity
for the six and three months ended June 30, 1997 and 1998.....4
Combined Statements of Cash Flows for the six months
ended June 30, 1997 and 1998..................................5
Notes to Combined Financial Statements.........................7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations..........................16
Item 3. Quantitative and Qualitative Disclosures About Market Risk....20
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.............................................21
Item 2. Changes in Securities and Use of Proceeds.....................21
Item 3. Defaults upon Senior Securities...............................21
Item 4. Submission of Matters to a Vote of Security Holders...........21
Item 5. Other Information.............................................21
Item 6. Exhibits and Reports on Form 8-K..............................22
Signatures..................................................................23
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PRODUCTION RESOURCE GROUP, L.L.C.
Combined Balance Sheets
($ in thousands)
June 30, December 31,
1998 1997
-------- --------
Assets (unaudited)
Current assets:
Cash and cash equivalents $ 16,631 $ 27,164
Accounts receivable, net of allowance of $1,653
at June 30, 1998 and $2,572 at December 31, 1997 26,240 23,783
Inventories 9,481 4,425
Other current assets 3,215 1,286
-------- --------
Total current assets 55,567 56,658
Property and equipment - net 76,060 49,236
Goodwill - net of accumulated amortization of $1,081
at June 30, 1998 and $540 at December 31, 1997 28,099 15,341
Other assets 10,251 7,017
-------- --------
Total assets $169,977 $128,252
======== ========
Liabilities and Members' Equity
Current liabilities:
Current portion of long-term debt $ 317 $ 822
Accounts payable 15,500 15,809
Payroll and sales taxes payable 2,716 918
Deferred revenue 5,708 2,119
Other current liabilities (including accrued bond
interest of $6,028 at June 30, 1998 and $225
at December 31, 1997) 8,609 1,758
-------- --------
Total current liabilities 32,850 21,426
Long-term debt
Senior Subordinated Notes 100,000 100,000
Credit Facilities 32,338 --
Other long-term debt 3,634 3,743
Minority interest 791 --
Members' equity 364 3,083
-------- --------
$169,977 $128,252
======== ========
See accompanying notes.
Note: The combined balance sheet at December 31, 1997 has been derived from
the audited financial statements at that date.
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PRODUCTION RESOURCE GROUP, L.L.C.
Combined Statements of Operations and Members' Equity (Unaudited)
($ In thousands)
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
1997 1998 1997 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues $ 14,693 $ 29,879 $ 31,703 $ 55,365
Direct production expenses:
Direct production costs 9,389 17,971 20,584 32,548
Depreciation expense 1,379 2,403 2,702 4,761
-------- -------- -------- --------
10,768 20,374 23,286 37,309
-------- -------- -------- --------
Gross profit 3,925 9,505 8,417 18,056
Selling, general and administrative expenses 3,510 6,785 6,014 13,463
Other depreciation and amortization 322 1,202 701 2,247
-------- -------- -------- --------
Operating profit 93 1,518 1,702 2,346
Interest expense 645 3,164 1,193 6,233
Interest (income) (15) (222) (46) (433)
-------- -------- -------- --------
Income (loss) from continuing operations before income taxes (537) (1,424) 555 (3,454)
and minority interest
Provision for income taxes 102 170 222 193
-------- -------- -------- --------
Income (loss) from continuing operations (639) (1,594) 333 (3,647)
Discontinued operations:
Income from operations of discontinued
Themed Attraction Permanent Installation Business 689 -- 763 --
-------- -------- -------- --------
Income (loss) before minority interest 50 (1,594) 1,096 (3,647)
Minority interest 11 11
-------- -------- -------- --------
Net income (loss) 50 (1,605) 1,096 (3,658)
Members' equity--beginning of period 15,376 1,969 14,398 3,083
Preferred units issued in connection with the acquisition of
Pro-Mix, Inc. 939
Less distributions (3,011) -- (3,079) --
-------- -------- -------- --------
Members' equity--end of period $ 12,415 $ 364 $ 12,415 $ 364
======== ======== ======== ========
</TABLE>
See accompanying notes.
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PRODUCTION RESOURCE GROUP, L.L.C.
Combined Statements of Cash Flows (Unaudited)
($ In thousands)
Six Months Ended June 30,
1998 1997
-------- --------
Operating activities
Net income (loss) $ (3,658) $ 1,096
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation 5,963 3,168
Gain on sale of property and equipment (927) --
Amortization of goodwill and other 696 182
Amortization of debt related costs 348 53
Minority interest 11 --
Provision for doubtful accounts 191 263
Changes in operating assets and liabilities:
Accounts receivable 3,773 (1,100)
Inventories (3,032) 588
Other current assets (517) (17)
Accounts payable and accrued expenses (7,788) 147
Payroll and sales taxes payable 305 --
Deferred revenue 1,868 (2,961)
Other current liabilities 5,912 --
-------- --------
Net cash provided by operating activities $ 3,145 $ 1,419
-------- --------
Investing activities
Acquisition of net assets of Design Dynamics, Inc.,
net of cash acquired -- (3,980)
Acquisition of net assets of Production Arts,
net of cash acquired (13,604) --
Acquisition of net assets of Promix, Inc.,
net of cash acquired (6,328) --
Acquisition of of Light & Sound Design Holdings
Ltd., net of cash acquired (14,525) --
Purchases of property and equipment (9,171) (5,530)
Proceeds from sale of rental equipment 1,471 --
Additions to software development costs (192) --
Other assets (2,773) (40)
-------- --------
Net cash used in investing activities $(45,122) $ (9,550)
-------- --------
Financing activities
Proceeds from long-term debt 32,338 35,906
Additions to deferred financing costs (122) (434)
Additions to bond offering costs (158) --
Repayments of long-term debt (614) (25,850)
Distributions to members -- (3,079)
-------- --------
Net cash provided by financing activities $ 31,444 $ 6,543
-------- --------
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Net decrease in cash and cash equivalents (10,533) (1,588)
Cash and cash equivalents--beginning of period 27,164 3,010
-------- --------
Cash and cash equivalents--end of period $ 16,631 $ 1,422
======== ========
See accompanying notes.
6
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PRODUCTION RESOURCE GROUP, L.L.C.
Notes to Combined Financial Statements (Unaudited)
1. General
Presentation
The accompanying unaudited combined financial statements of Production
Resource Group, L.L.C. (the "Company") have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three and six month periods ended June 30, 1998 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 1998, due to fluctuations in the Company's varying
markets. For further information, refer to the combined financial statements
and footnotes thereto included in the Production Resource Group, L.L.C. annual
report on Form S-4 for the year ended December 31, 1997.
Business
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
operates through four segments: lighting systems and products, scenery
automation and fabrication, event services and audio. The Company's themed
attraction permanent installation ("Themed Attraction") segment was
discontinued during 1998 and, accordingly, the consolidated statements of
operations and members' equity for the three and six months ended June 30,
1997 have been restated to reflect the Themed Attraction segment as a
discontinued operation.
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. The
audio segment provides audio products for sale and rental.
2. Accounting Policies
Principles of Combination
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The combined financial statements of the Company include the accounts of all the
entities under common control of the members of the Company. All intercompany
balances and transactions have been eliminated.
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.
Income Taxes
The Company 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 based on their respective shares of the
Company's income, have not been reflected in the accompanying combined
financial statements.
Light & Sound Design Holdings Limited, a UK company ("Holdings"), in which the
Company acquired a 95% interest on June 19, 1998 (see Note 4), is subject to
UK corporation tax. Corporation tax payable for Holdings is provided on
taxable profits at the current rate. Deferred income taxes for Holdings are
computed using the liability method pursuant to which deferred tax assets and
liabilities are determined based on differences between financial reporting
and tax bases of assets and liabilities and are measured using enacted tax
rates and laws that will be in effect when the differences are expected to
reverse.
3. Reportable Segments
The Company's continuing operations include four reportable groups: scenery
automation and fabrication, lighting systems and products, audio, 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 six 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. In January 1998, with the acquisition of Pro-Mix Inc.
("Pro-Mix"), the Company established an audio segment. Assets of the lighting
systems and products group increased by approximately $40.4 million with the
acquisitions of Production Arts and Holdings.
8
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Six month period ended June 30, 1998
- ------------------------------------------------------------------------------
Scenery
Automation Lighting
and Systems
Event Fabrica- and
Services tion Products Audio Total
- ------------------------------------------------------------------------------
Revenues from external
customers $10,979 $12,141 $26,073 $ 6,154 $55,347
Intersegment revenues 73 811 1,563 -- 2,447
Segment profit 1,149 4,263 6,039 2,395 13,846
- ------------------------------------------------------------------------------
Six month period ended June 30, 1997
- ------------------------------------------------------------------------------
Scenery
Automation Lighting
and Systems
Event Fabrica- and
Services tion Products Audio(1) Total
- ------------------------------------------------------------------------------
Revenues from external
customers $ 7,410 $16,125 $ 8,164 -- $31,699
Intersegment revenues 241 1,473 997 -- 2,711
Segment profit 273 6,159 1,121 -- 7,553
- ------------------------------------------------------------------------------
(1) On January 2, 1998, the Company acquired substantially all the assets of
Pro-Mix and established the audio segment.
Three month period ended June 30, 1998
- ------------------------------------------------------------------------------
Scenery
Automation Lighting
and Systems
Event Fabrica- and
Services tion Products Audio Total
- ------------------------------------------------------------------------------
Revenues from external
customers $ 6,540 $ 6,779 $13,093 $ 3,452 $29,864
Intersegment revenues 3 346 1,076 -- 1,425
Segment profit 558 1,862 3,690 1,434 7,544
- ------------------------------------------------------------------------------
Three month period ended June 30, 1997
- ------------------------------------------------------------------------------
Scenery
Automation Lighting
and Systems
Event Fabrica- and
Services tion Products Audio(1) Total
- ------------------------------------------------------------------------------
Revenues from external
customers $ 2,400 $ 7,743 $ 4,546 -- $14,689
Intersegment revenues 6 672 148 -- 826
Segment profit (loss) (63) 2,853 524 -- 3,314
- ------------------------------------------------------------------------------
(1) On January 2, 1998, the Company acquired substantially all the assets of
Pro-Mix and established the audio segment.
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- --------------------------------------------------------------------------------
Profit (loss)
Three month period Six month period
ended June 30, ended June 30,
1997 1998 1997 1998
- --------------------------------------------------------------------------------
Total profit for reportable
segments $ 3,314 $ 7,544 $ 7,553 $ 13,846
Unallocated amounts:
Corporate selling, general and
administrative (1,467) (2,376) (2,448) (4,557)
Depreciation and amortization (1,754) (3,604) (3,403) (7,007)
Interest expense, net (630) (2,944) (1,147) (5,800)
Other profit (loss) (44) 64
-------- -------- -------- --------
Total income (loss) from
continuing operations $ (537) $ (1,424) $ 555 $ (3,454)
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4. Acquisitions
On June 19, 1998, the Company acquired all of the Cumulative Participating
Preferred Ordinary Shares and Cumulative Redeemable Preference Shares and
approximately 95% of the Ordinary Shares of Light & Sound Design Holdings
Limited, an English company ("Holdings"), pursuant to a Share Purchase
Agreement dated June 19, 1998 among the shareholders of Holdings and the
Company. Pursuant to the Share Purchase Agreement, in exchange for the
aforementioned Holdings stock, the Company paid $14,517,571 in cash to the
shareholders of Holdings.
Holdings has two wholly-owned operating subsidiaries, Light & Sound Design
Limited, an English company, which is based in Birmingham, England with an
office in London, England and operates exclusively in Europe, and Light &
Sound Design, Inc., a California corporation, which is based in Los Angeles,
California and Nashville, Tennessee and operates in the North American market.
Light & Sound Design Limited and Light & Sound Design, Inc. each provide
rentals of lighting and other equipment for use in the concert touring and
industrial markets. Light & Sound Design Limited and Light & Sound Design,
Inc. will each continue their business and operations as subsidiaries of
Holdings, which is a subsidiary of the Company. The Company incurred debt of
$16,000,000 under the Credit Facility (as defined in Item 2) and recorded
goodwill of approximately $7,491,000 relating to the transaction. Holdings
will operate as part of the Lighting Systems and Products group.
In connection with this acquisition, the remaining shareholders of Holdings
have granted the Company an option to purchase their remaining shares in
Holdings for their fair market value at any time during the five year period
commencing on the closing date.
On June 30, 1998, the Company acquired substantially all of the assets subject
to substantially all of the operating liabilities, of Production Arts Lighting
Inc., a New York corporation, Production Arts Europe, Inc., a Delaware
corporation and Production Arts West, Inc., a California corporation,
collectively "Production Arts". Production Arts is based in Moonachie, New
Jersey with offices in New York, Los Angeles and London, England. Production
Arts provides sales and rentals of lighting and other equipment for use in the
installation, theatrical and industrial markets. Production Arts will continue
its business and operations as part of the Company's Lighting Systems and
products segment. In exchange for the assets of the three companies
constituting Production Arts, the Company paid $13,700,000 in cash to
Production Arts. The Company incurred debt of $13,700,000 under its credit
facility and recorded goodwill of approximately $4,878,500 relating to this
transaction.
The acquisitions of both Holdings and Production Arts have been accounted for
under the purchase method of accounting.
The pro forma results of operations for the six months ended June 30, 1998 and
1997, assuming consummation of the purchases as of January, 1 1997 are as
follows:
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Six Months Ended
June 30,
1998 1997
--------------------
($ In Thousands)
Net revenue $ 82,989 $ 57,260
Net income (loss) $ (968) $ 1,341
5. Subsequent Event
On July 31, 1998, the Company acquired substantially all of the assets subject
to substantially all of the operating liabilities, of CBE Exhibits & Events,
Incorporated, a Texas corporation, ("CBE") pursuant to an Acquisition
Agreement dated as of July 31, 1998 among CBE, the sole shareholder of CBE and
the Company. Pursuant to the acquisition agreement, in exchange for the net
assets of CBE, the Company paid $3,000,000 in cash to CBE and agreed to make
additional payments of up to $7,000,000 subject to the satisfaction of
performance targets.
CBE is based in Houston, Texas and provides support services including
logistic support, booth and exhibit construction and storage to exhibitors at
trade shows and other major events. CBE will continue its business and
operations as part of the Company's Event Services group.
The acquisition will be accounted for as a purchase and the operations of CBE
will be in the combined financials statements of the Company for the third
quarter. The Company incurred debt of $3,000,000 under the Credit Facility
relating to this transaction.
6. Subsidiary Financial Information
The following represents unaudited condensed combining financial statements as
of June 30, 1998 and for the six months ended June 30, 1998 with respect to the
financial position and results of operations and cash flows of the Company and
its wholly-owned and majority-owned subsidiaries. On December 24, 1997, the
Company and PRG Finance Corporation ("Finance Corp."), a Delaware Corporation
issued $100 million of 11 1/2 % of Senior Subordinated Notes due 2008 (the "Old
Notes") which were exchanged for $100 million of 11 1/2% Senior Subordinated
Notes registered under the Securities Act of 1933, as amended. (the "New Notes",
collectively with the Old Notes, the "Notes"). The Old Notes were and the New
Notes are fully and unconditionally guaranteed by the Company's domestic
subsidiaries other than Finance Corp. and Holdings (the "Guarantors"). Three of
the Guarantors are wholly-owned subsidiaries of the Company and the remaining
Guarantor is 99% owned by the Company (with the remaining 1% interest owned by a
member of the Company). The Guarantors are restricted from making distributions
to the Company under the terms of the indenture pursuant to which the Notes were
issued (the Indenture) and the Credit Facility. The condensed combining
financial Statements are presented in lieu of separate financial statements and
other related disclosures of Finance Corp, Holdings and the Guarantors as
management has determined that such information is not material to investors.
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Condensed Combining Balance Sheet (Unaudited)
June 30, 1998
($ in thousands)
<TABLE>
<CAPTION>
Guarantor Non Guarantor PRG
PRG Subsidiaries Subsidiaries Adjustments Combined
------------ ------------ ------------ -------------- --------------
<S> <C> <C> <C> <C> <C>
Assets
Cash and cash equivalents $ 15,244 $ 70 $ 1,317 $ $ 16,631
Accounts receivable, net 23,371 273 2,836 (240) 26,240
Inventories 8,039 - 1,442 9,481
Other current assets 2,294 2 919 3,215
------------ ------------ ------------ -------------- --------------
Current Assets: 48,948 345 6,514 (240) 55,567
Property and equipment, net 66,700 - 9,360 76,060
Investment in subsidiary 16,000 (16,000)
Goodwill, net 20,608 - 7,491 28,099
Other assets 9,296 - 955 10,251
------------ ------------ ------------ -------------- --------------
Total assets $ 161,552 $ 345 $ 16,829 $ (8,749) $ 169,977
============ ============ ============ ============== ==============
Liabilities and Members' equity
Current liabilities:
Current portion of long-term debt $ 317 $ - $ $ $ 317
Accounts payable 11,797 46 3,657 15,500
Payroll and sales taxes payable 1,235 135 1,346 2,716
Deferred revenue 3,978 1,730 5,708
Other current liabilities 8,019 1 589 8,609
------------ ------------ ------------ -------------- --------------
Total current liabilities 25,346 182 7,322 32,850
Long-term debt:
Senior Subordinated Notes 100,000 100,000
Credit Facilities 32,338 32,338
Other long-term debt 3,634 3,634
Minority interest 791 791
Members' equity (deficiency) 234 163 9,507 (9,540) 364
------------ ------------ ------------ -------------- --------------
$ 161,552 $ 345 $ 16,829 $ (8,749) $ 169,977
============ ============ ============ ============== ==============
</TABLE>
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Condensed Combining Statement of Operations (Unaudited)
Six months ended June 30, 1998
($ in thousands)
<TABLE>
<CAPTION>
PRG Guarantor Non Guarantor PRG
Subsidiaries Subsidiaries Adjustments Combined
-------------- ------------ -------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Revenues $ 53,384 $ 801 $ 1,180 $ $ 55,365
Direct production expenses 36,129 541 639 37,309
-------------- ------------ -------------- -----------
Gross profit 17,255 260 541 18,056
Selling, general and administrative
expenses 15,392 99 219 15,710
-------------- ------------ -------------- -----------
Operating profit 1,863 161 322 2,346
Interest expense 6,233 6,233
Interest (income) (429) (2) (2) (433)
-------------- ------------ -------------- -----------
Income (loss) before income taxes and
minority interest (3,941) 163 324 (3,454)
Provision for income taxes 76 117 193
-------------- ------------ -------------- ------------ -----------
Income (loss) before minority interest (4,017) 163 207 (3,647)
Minority interest (11) (11)
-------------- ------------ -------------- ------------ -----------
Net income (loss) $ (4,017) $ 163 $ 207 $ (11) $ (3,658)
============== ============ ============== ============ ===========
</TABLE>
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Condensed Combining Statement of Cash Flows (Unaudited)
Six months ended June 30, 1998
($ in thousands)
<TABLE>
<CAPTION>
PRG Guarantor Non Guarantor PRG
Subsidiaries Subsidiaries Combined
------------- -------------- -------------- ----------------
<S> <C> <C> <C> <C>
Net cash provided by operating activities $ 3,222 $ 18 $ (95) $ 3,145
Investing activities
Acquisition of net assets of Design Dynamics, Inc., - -
net of cash acquired
Acquisition of net assets of Production Arts, net (13,604) (13,604)
of cash acquired
Acquisition of net assets of Promix, Inc., net of (6,328) (6,328)
cash acquired
Acquisition of of Light & Sound Design Holdings (14,525) (14,525)
Ltd., net of cash acquired
Purchases of property and equipment (9,101) (70) (9,171)
Proceeds from sale of rental equipment 1,471 1,471
Additions to software development costs (192) (192)
Other assets (2,773) (2,773)
------------- -------------- -------------- --------------
Net cash used in investing activities $ (45,052) $ - $ (70) $ (45,122)
------------- -------------- -------------- --------------
Financing activities
Proceeds from long-term debt 32,338 32,338
Loan from Parent (1,482) 1,482
Additions to deferred financing costs (122) (122)
Additions to bond offering costs (158) (158)
Repayments of long-term debt (614) (614)
------------- -------------- -------------- --------------
Net cash provided by financing activities $ 29,962 $ - $ 1,482 $ 31,444
------------- -------------- -------------- --------------
Net increase (decrease) in cash and cash equivalents (11,868) 18 1,317 (10,533)
Cash and cash equivalents--beginning of period 27,112 52 27,164
Cash and cash equivalents--end of period $ 15,244 70 1,317 $ 16,631
============= ============== ============== ==============
</TABLE>
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS
- -----------------------
The Company is including the following cautionary statement in this Form 10-Q
to make applicable and take advantage of safe harbor provisions of the Private
Security Reform Act of 1995 for any forward looking statements made by, or on
behalf of, the Company. Forward-looking statements include statements
concerning plans, objectives, goals, strategies, future events or performance
and underlying assumptions and other statements, which are other than
statements of historical facts. From time to time, the Company may publish or
otherwise make available forward-looking statements of this nature. All such
subsequent forward-looking statements, whether written or oral, and whether
made by or on behalf of the Company, are also expressly qualified by these
cautionary statements. Certain statements contained herein are forward-looking
statements and accordingly involve risk and uncertainties, which could cause
actual results, or outcomes to differ materially from those expressed in the
forward-looking statements.
Results of Operations
- --------------------------
Comparability of Periods
Financial results for the period ended June 30, 1998 and the period ended June
30, 1997 are not fully comparable to prior periods due to the acquisitions of
the net assets of Design Dynamics, Inc. ("Design Dynamics") and Bash
Theatrical Lighting ("Bash") in June and August 1997, respectively, and the
acquisitions of Pro-Mix and Light & Sound Design Holdings, Limited in January
and June 1998, respectively. The Company's historical combined financial
statements for the period ended June 30, 1998 and the period ended June 30, 1997
include results of operations from such acquired operations only from the dates
of their respective acquisitions.
Three Months Ended June 30, 1998 Compared to Three Months Ended June 30, 1997
Revenues. The Company's revenues increased to $29.9 million for the three
months ended June 30, 1998 an increase of $15.2 million or 103.4%, from $14.7
million for the three months ended June 30, 1997. The increase was primarily
attributable to revenue generated by operations acquired subsequent to the
second quarter of 1997. Revenues increased in the lighting systems and products
segment as a result of the acquisition of Bash in August 1997 (approximately
$6.3 million in additional revenue). The event services group's revenue
increased $4.1 million primarily due to the acquisition of Design Dynamics ($2.0
million of additional revenue) and an increase in production management revenue
(approximately $1.5 million increase). Additionally, the Company began
operations in the audio segment with the acquisition of Pro-Mix that provided an
additional $3.5 million in revenue.
Gross Profit. The Company's gross profit increased to $9.5 million for
the three months ended June 30, 1998, an increase of $5.6 million, or 143.6%,
from $3.9 million for the three months ended June 30, 1997. The increase in
gross profit was primarily due to the increase in revenues described above.
Gross profit margin improved to 31.8% for the three months ended June 30,
1998 from 26.7% for the three months ended June 30, 1997. The improvement was
primarily attributable to higher margins associated with increased rental
revenue as a percentage of total revenue. The change in the revenue mix is
primarily the result of the aforementioned acquisitions of Bash and Pro-Mix.
Selling, general and administrative. Selling, general and administrative
expenses increased 94.3% or $3.3 million to $6.8 million for the three months
ended June 30, 1998 compared to $3.5 million for the three months ended June
30, 1997. The increase was primarily attributable to incremental selling,
general and administrative expenses associated with the acquisitions of Design
Dynamics, Bash and Pro-Mix (approximately $2.1 million). The remainder of the
16
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increase was attributable to the aforementioned increase in personnel related
to the hiring of additional senior executives, professionals to manage the
Company's information technology infrastructure and new marketing initiatives.
As a percentage of revenue, selling, general and administrative costs
decreased to 22.7% for three months ended June 30, 1998 as compared to 23.9 %
for the three months ended June 30, 1997.
Operating Profit. Operating profit was $1.5 million for the three months
ended June 30, 1998, an increase of $1.4 million from $0.1 million for the
three months ended June 30, 1997. Operating profit, as a percentage of
revenues, was 5.1% for the three months ended June 30, 1998 compared to 1.0%
for the three months ended June 30, 1997. The increase was primarily
attributable to an increase in the gross profit margin as the Company's
revenue from rental activities increased.
Interest Expense. Interest expense increased to $3.2 million for the
three months ended June 30, 1998 from $0.6 million for the three months ended
June 30, 1997. The increase was attributable to the interest expense
associated with the Notes issued in December 1997.
Discontinued Operations. The Company had income from discontinued
operations of $0.7 million for the three months ended June 30, 1997. The
Company believes that it has provided for any additional estimated losses
related to open themed attraction projects.
Net income (loss). The Company had a net loss of $1.6 million for the
three months ended June 30, 1998 compared to net income of $0.1 million for
the three months ended June 30, 1997. The net loss was primarily due to the
increased interest expense, selling general and administrative costs and an
increase in amortization expense on the goodwill that was recorded with the
acquisitions of Design Dynamics, Bash and Pro-Mix.
Six Months Ended June 30, 1998 Compared to Six Months Ended June 30, 1997
Revenues. The Company's revenues increased to $55.4 million for the six
months ended June 30, 1998 an increase of $23.7 million or 74.8%, from $31.7
million for the six months ended June 30, 1997. The increase was primarily
attributable to revenue generated by operations acquired subsequent to the
second quarter of 1997. Revenues increased in the lighting systems and
products segment as a result of the acquisition of the net assets of Bash in
August 1997 ($10.7 million). Revenue in the event services group increased
$3.6 million primarily due to the acquisition of Design Dynamics, Inc. In
addition, with the acquisition of Pro-Mix, the Company began operations in the
audio segment, which provided an additional $6.2 million in revenue.
Gross Profit. The Company's gross profit increased to $18.1 million for
the six months ended June 30, 1998, an increase of $9.7 million, or 115.5%,
from $8.4 million for the six months ended June 30, 1997. The increase in
gross profit was primarily attributable to the increase in revenues described
above. Gross profit margin improved to 32.6 % for the six months ended June 30,
1998 from 26.5% for the six months ended June 30, 1997. The improvement was
primarily attributable to higher margins associated with increased rental
revenue as a percentage
17
<PAGE>
of total revenue. The change in the revenue mix is primarily the result of the
aforementioned acquisitions of Bash and Pro-Mix.
Selling, general and administrative. Selling, general and administrative
expenses increased to $13.5 million for the six months ended June 30, 1998, an
increase of $7.5 million, or 125%, from $6.0 million for the six months ended
June 30, 1997. The increase was primarily attributable to incremental selling,
general and administrative expenses associated with the acquisitions of Design
Dynamics, Bash and Pro-Mix (approximately $4.6 million). In addition, the
Company has experienced increased personnel costs related to the hiring of
additional senior executives (approximately $0.4 million) and professionals to
manage the Company's information technology infrastructure (approximately $0.4
million). Additionally, the Company has intensified sales and marketing
initiatives (approximately $0.8 million). As a percentage of revenue, selling,
general and administrative costs increased to 24.3% for the six months ended
June 30, 1998 as compared to 19.0% for the six months ended June 30, 1997.
Operating Profit. Operating profit increased to $2.3 million for the six
months ended June 30, 1998, an increase of $0.6 million, or 35.3%, from $1.7
million for the six months ended June 30, 1997. Operating profit, as a
percentage of revenues, declined to 4.2% for the six months ended June 30,
1998 from 5.4% for the six months ended June 30, 1997, primarily attributable
to higher selling, general and administrative expenses as a percentage of
revenues for the period.
Interest Expense. Interest expense increased to $6.2 million for the six
months ended June 30, 1998 from $1.2 million for the six months ended June 30,
1997. The increase was attributable to the interest expense associated with
the Notes issued in December 1997.
Discontinued Operations. The Company had income from discontinued
operations of $0.8 million for the six months ended June 30, 1997. The Company
believes that it has provided for any additional estimated losses related to
open themed attraction projects.
Net income (loss). The Company had a net loss of $3.7 million for the six
months ended June 30, 1998 compared to net income of $1.1 million for the six
months ended June 30, 1997. The net loss was primarily due to the increased
interest expense and selling general and administrative expenses and an increase
in amortization expense on the goodwill that was recorded with the acquisitions
of Design Dynamics, Bash and Pro-Mix.
Liquidity and Capital Resources
During the six months ended June 30, 1998, the Company's investing activities
were financed primarily from bank borrowings under the existing $100 million,
five-year, senior secured, reducing revolving credit facility (the "Credit
facility") and excess proceeds related to the December 1997 issuance of
the Old Notes due 2008 (the "Offering"). The Guarantors are restricted from
making distributions under the terms of the Indenture and the Credit Facility.
The borrowings under the credit facility and the excess cash related to the
Offering were used to acquire Pro-Mix, Production Arts and Light & Sound Design
Holdings ($34.5 million) and to pay for approximately $9.2 million in property
and equipment additions.
18
<PAGE>
Property and equipment additions were primarily related to the purchase of
approximately $4.5 million in lighting and audio rental equipment, $2.8
million related to the construction of a new facility in Las Vegas, $0.7
million in leasehold and building improvements, and an additional $0.7 million
related to the implementation of an Oracle information system.
The following table sets forth certain information from the Company's Combined
Statement of Cash Flows for the six months ended June 30, 1998 and 1997:
Six Months Ended
June 30,
($ in thousands)
1998 1997
----------------------------
Net cash provided by (used in):
Operating activities $ 3,145 $ 1,419
Investing activities (45,122) (9,550)
Financing activities 31,444 6,543
The Company believes that cash flow from operations and availability under the
Credit Facility will be sufficient to meet operating needs and capital
spending requirements and to fund its acquisition strategies for the
foreseeable future.
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.
Year 2000
The Company has determined that it will need to replace a small portion of its
software so that its computer systems will function properly with respect to
dates in the Year 2000 and beyond. Furthermore, the Company is currently
replacing systems as part of its ongoing systems development projects which
will be Year 2000 compliant. The costs for Year 2000 modifications are not
expected to have a material impact on the Company's results of operations
or financial position.
19
<PAGE>
ITEM 3.
QUANITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
20
<PAGE>
PART II
Other Information
- -----------------
Items 1,2,3,4, and 5 are not applicable.
21
<PAGE>
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit Number Description
- -------------- -----------
10.12 Second Amendment to Credit Agreement, dated as of June 18, 1998,
by and among the Company, the lenders party thereto and the Bank
of New York, as agent.*
27.1 Financial Data Schedule*
- ------------------------
* filed herewith
(b) Reports on Form 8-K.
The Company filed a current report on Form 8-K, dated June 19, 1998,
reporting in Item 2, "Acquisition or Disposition of Assets," its acquisitions of
Light and Sound Design Holdings Limited and Production Arts Lighting Inc.
22
<PAGE>
PRODUCTION RESOURCE GROUP, L.L.C.
FORM 10-Q
June 30, 1998
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
PRODUCTION RESOURCE GROUP, L.L.C.
August 14, 1998 By /s/ Bradley G. Miller
- --------------- ---------------------
Date Bradley G. Miller
Chief Operating and Financial Officer
(Principal Financial Officer)
23
<PAGE>
Exhibit Index
10.12 Second Amendment to Credit Agreement, dated as of June 18, 1998,
by and among the Company, the lenders party thereto and the Bank
of New York, as agent.
27.1 Financial Data Schedule
<PAGE>
AMENDMENT NO. 2
to
CREDIT AGREEMENT
AMENDMENT No. 2 (this "Amendment"), dated as of June 18, 1998, to the
Credit Agreement, dated as of July 31, 1997, by and among Production Resource
Group, L.L.C. (the "Borrower"), the Lenders party thereto and The Bank of New
York, as agent for the Lenders (in such capacity, the "Agent"), as amended by
Amendment No. 1 ("Amendment No. 1"), dated as of December 12, 1997 (as so
amended, 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 adjust certain financial covenants for certain fiscal
periods, waive certain other provisions of the Credit Agreement and consent to
two Acquisitions 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. Amendment.
The Credit Agreement is, effective on the date of this Amendment,
hereby amended as follows:
1. The definition of "Collateral Documents" contained in Section 1.1
of the Credit Agreement is amended and restated in its entirety as follows:
"Collateral Documents": collectively, (i) the Pledge
Agreements, the Security Agreement, the Guaranty, (ii) any guaranty,
security agreement or equivalent document delivered to the Agent at
any time in respect of foreign Subsidiaries or foreign assets, and
(iii) all documents executed or delivered in connection with any of
the foregoing.
<PAGE>
2. The definition of "Consolidated" contained in Section 1.1 of the
Credit Agreement is amended and restated in its entirety as follows:
"Consolidated": the Borrower and its Subsidiaries which are
consolidated for financial reporting purposes, and from and after
January 1, 1998, the Borrower, its Subsidiaries and Affiliates, to
the extent that such Affiliates are consolidated for financial
reporting purposes.
3. The definition of "Excess Cash Flow" contained in Section 1.1 of
the Credit Agreement is amended by deleting the text following "(v)" and
inserting in its place the following:
mandatory payments of principal of the Revolving Credit Loans
pursuant to Sections 2.5(b), 2.5(f) and 2.5(g), and (vi) mandatory
payments of principal of other Indebtedness.
4. The definition of "Fixed Charge Coverage Ratio" contained in
Section 1.1 of the Credit Agreement is amended and restated in its entirety as
follows:
"Fixed Charge Coverage Ratio": at any date of determination,
the ratio of (a) the sum of (i) EBITDA (before giving effect to
Acquisitions, mergers and other Dispositions during such period)
plus (ii) cash proceeds received by the Borrower from any equity
issuance or other capital contribution to the Borrower occurring
during the immediately preceding four fiscal quarter period
excluding the capital contributions required pursuant to Section
7.14, to (b) 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.
For any calculation of the Fixed Charge Coverage Ratio which
includes the fiscal quarter ended March 31, 1998, the sum of
$18,900,000 will be added to EBITDA.
5. The definition of "Fixed Charges" contained in Section 1.1 of the
Credit Agreement is amended and restated in its entirety 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 (a) payments pursuant to Section 2.5(c), and
(b) mandatory payments of principal related to the payment in full
of any Indebtedness secured by any Real Property owned by Scenic,
(ii) Capital Expenditures made during such period minus the sum of
(A) to the extent not included in calculating EBITDA, net cash
proceeds from the sale of used rental equipment sold during such
period for cash and (B) the Capital
-2-
<PAGE>
Expenditures incurred, on or after April 1, 1998, on the Las Vegas
Property not in excess of $3,500,000, (iii) Capital Lease
Obligations paid or required to be paid during such period, (iv)
without duplication, taxes and Restricted Payments (excluding any
Restricted Payments made pursuant to Sections 8.6(v), 8.6(vi) or
8.6(vii)), and (v) Interest Expense to the extent paid or required
to be paid in cash, minus the sum of (A) income from Investments
permitted under Section 8.5(a) actually received in cash during such
period, (B) the lesser of (x) the Net Cash Proceeds received from
the sale of any of the Real Property described in Paragraph 2 of
Article II of Amendment No. 1, and (y) any Capital Expenditures made
on such Real Property, in either case to the extent of the Capital
Expenditures included in subpart (ii) hereof, (C) the capital
contributions made pursuant to Section 7.14 and (D) any amount of
the Restricted Payments allowed pursuant to Section 8.6(vii) to the
extent that the same have not been paid out.
6. The definition of "Real Property" contained in Section 1.1 of the
Credit Agreement is amended and restated in its entirety as follows:
"Real Property": all real property owned or leased by the
Borrower, any of its Subsidiaries or any Consolidated Affiliate.
7. Section 1.1 of the Credit Agreement is amended by inserting the
following definitions in the appropriate alphabetical order:
"Las Vegas Property": the Real Property located at 5950 South
Valley View Boulevard, Las Vegas, Nevada.
"Pro-Mix Acquisition": The Acquisition by the Borrower, on
January 2, 1998, of certain assets of Pro-Mix, Incorporated, a New
York corporation, and Pro-Mix A.F.I., Inc., a New York corporation.
"Scenic": Scenic Properties L.L.C., a New York limited
liability company.
"Year 2000 Issue": the failure of computer software, hardware
and firmware systems and equipment containing embedded computer
chips to properly receive, transmit, process, manipulate, store,
retrieve, re-transmit or in any other way utilize data and
information due to the occurrence of the year 2000 or the inclusion
of dates on or after January 1, 2000.
8. Section 2.5(d) of the Credit Agreement is amended by inserting the
phrase "(except Scenic)" after the words "any Guarantor".
9. Section 2.5 of the Credit Agreement is amended by redesignating
Subsection (g) to be Subsection (h), and a new Subsection (g) is inserted as
follows:
-3-
<PAGE>
(g) Mandatory Prepayments of Revolving Credit Loans Relating to
Receipt of Offering Proceeds. On the date of receipt of any 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), such Offering Proceeds
shall be applied to the prepayment of the Revolving Credit Loans.
10. Section 4 of the Credit Agreement is amended by adding a new
Section 4.21 as follows:
4.21. Year 2000 Issue
The Borrower and its Subsidiaries have reviewed the effect of
the Year 2000 Issue on the computer software, hardware and firmware
systems and equipment containing embedded microchips owned or
operated by or for the Borrower and its Subsidiaries or used or
relied upon in the conduct of their business (including systems and
equipment supplied by others or with which such computer systems of
the Borrower and its Subsidiaries interface). The costs to the
Borrower and its Subsidiaries of any reprogramming required as a
result of the Year 2000 Issue to permit the proper functioning of
such systems and equipment and the proper processing of data, and
the testing of such reprogramming, and of the reasonably foreseeable
consequences of the Year 2000 Issue to the Borrower or any of its
Subsidiaries (including reprogramming errors and the failure of
systems or equipment supplied by others) are not reasonably expected
to result in a Default or Event of Default or to have a material
adverse effect on the business, assets, operations, prospects or
condition (financial or otherwise) of the Borrower or any of its
Subsidiaries.
11. Section 7.11 of the Credit Agreement is amended to amend and
restate Subsections (a) and (b) of such Section in their entirety as follows:
(a) Pro Forma Interest Coverage Ratio. Maintain at all times
during the periods set forth below, a Pro Forma Interest Coverage
Ratio of not less that the ratios set forth below:
Pro Forma Interest
Period Coverage Ratio
------ --------------
January 1, 1998 through
September 30, 1999 1.75:1:00
October 1, 1999
and thereafter 2.00:1.00
-4-
<PAGE>
(b) Fixed Charge Coverage Ratio. Maintain at all times during
the periods set forth below, a Fixed Charge Coverage Ratio of not
less that the ratios set forth below:
Fixed Charge
Period Coverage Ratio
------ --------------
January 1, 1998 through
June 30, 1998 1.05:1:00
July 1, 1998
and thereafter 1.10:1.00
12. Section 7 of the Credit Agreement is amended by inserting new
Sections 7.14 and 7.15 after Section 7.13 to read as follows:
7.14 Mandatory Capital Contribution
Ensure that each of the individuals listed on the Consent of
Members attached hereto files all of such individual's personal
income tax returns by no later than August 15, 1998, and requests
therein the maximum available cash refund of taxes paid for the tax
year 1997; and to the extent that each such individual receives, as
a result of such filings, refunds of income taxes paid up to the
amount of the Restricted Payments received by such individual during
1997, the Borrower shall receive capital contributions in cash from
each such individual in an aggregate amount up to $3,500,000.
7.15 Year 2000 Issue
The Borrower shall take, and shall cause each of its
Subsidiaries to take, all necessary action to complete in all
material respects by September 30, 1999, the reprogramming of
computer software, hardware and firmware systems and equipment
containing embedded microchips owned or operated by or for the
Borrower and its Subsidiaries or used or relied upon in the conduct
of their business (including systems and equipment supplied by
others or with which such systems of the Borrower or any of its
Subsidiaries interface) required as a result of the Year 2000 Issue
to permit the proper functioning of such computer systems and other
equipment and the testing of such systems and equipment, as so
reprogrammed. At the request of the Agent, the Borrower shall
provide, and shall cause each of its Subsidiaries to provide, to the
Agent reasonable assurance of its compliance with the preceding
sentence.
13. Section 8.3(a) of the Credit Agreement is amended and restated in
its entirety as follows:
-5-
<PAGE>
(a) Capital Expenditures, which, in any fiscal quarter ending
after April 1, 1998 and on or before December 31, 1998, shall not
exceed the sum of (i) $3,500,000, (ii) any remaining amount under
this Section 8.3(a) which was unspent in any preceding fiscal
quarter of such period, which amount shall not exceed $3,500,000,
(iii) the aggregate of such amounts as shall have been specified as
"Additional Permitted Capital Expenditures" in any Consents that the
Agent and the Lenders shall execute in connection with any
Acquisitions made subsequent to the date hereof and no later than
December 31, 1998, (iv) the lesser of (x) the Net Cash Proceeds
received from the sale of any of the Real Property described in
Paragraph 2 of Article II of Amendment No. 1, and (y) any Capital
Expenditures made on such Real Property, in either case to the
extent of Capital Expenditures previously counted against the
limitation of this Section 8.3(a), (v) the capital contributions
made pursuant to Section 7.14 to the extent that the same shall not
have been counted in this Section 8.3(a) in any previous fiscal
quarter, and (vi) any amount of the Restricted Payments allowed
pursuant to Section 8.6(vii) to the extent that the same have not
been paid out.
14. Section 8.3 of the Credit Agreement is amended by redesignating
Subsections (b) through (e) to be Subsections (c) through (f) respectively,
and a new Subsection (b) is inserted as follows:
(b) Capital Expenditures on the Las Vegas Property not to
exceed $3,500,000 in the aggregate from and after April 1, 1998.
15. Section 8.3(f) (formerly 8.3(e)) of the Credit Agreement is
amended by inserting the phrase ", excluding the Acquisition Cost of the
Pro-Mix Acquisition," after each occurrence of the words "$30,000,000 in the
aggregate".
16. Section 8.6 of the Credit Agreement is amended by inserting the
words "or Consolidated Affiliates" after the words "permit any of its
Subsidiaries" in the introductory phrase of such Section.
17. Section 8.6 of the Credit Agreement is amended by deleting the
word "and" immediately preceding Subsection (vi) thereof, and by inserting the
following immediately preceding the "." at the end of such Section:
, and (vii) one or more Restricted Payments to the members of
Scenic, each in an amount not to exceed an amount equal to (a) the
Net Cash Proceeds from the sale of any Real Property owned by
Scenic, minus (b) the aggregate amount of all Capital Expenditures
made, on or after January 1, 1998, on such Real Property, provided
that (A) the capital contributions required pursuant to Section 7.14
shall have occurred, (B) the Real Property owned by Scenic in New
Windsor, New York and Las Vegas, Nevada shall have been sold, (C)
all Indebtedness secured by all Real Property owned by Scenic shall
have been
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<PAGE>
repaid in full, and (D) no Default or Event of Default shall have
occurred and be continuing or would occur after giving effect
thereto
Article II. Waivers.
The Agent and the Lenders hereby agree, effective on the date of this
Amendment, as follows:
1. The Agent and the Lenders waive any Defaults occurring under
Sections 7.11(a) and 7.11(b) of the Credit Agreement prior to the
effectiveness of this Amendment.
2. The Agent and the Lenders waive compliance with Section 7.1(a) of
the Credit Agreement with respect to the delivery of the financial statements
for the Borrower's fiscal year ended December 31, 1997, to the extent that
such financial statements were received by the Agent on April 30, 1998.
3. In connection with the Pro-Mix Acquisition, the Borrower issued
79,179 of Preferred Units (as such term is defined in the Second Amended and
Restated Limited Liability Company Agreement of the Borrower, dated as of
December 1, 1997). The Agent and the Lenders waive, through June 15, 1998,
compliance with the requirements of Sections 8.3(f) and 8.12(a) of the Credit
Agreement with respect to the pledge of the Preferred Units and other
documentation required in respect of the Pro-Mix Acquisition.
Article III. Consents.
The Agent and the Lenders hereby agree, subject to the satisfaction
of the conditions precedent set forth in Article IV below, as follows:
1. The Agent and the Lenders consent, effective on each Consent
Effective Date (as defined below), to the Acquisitions by the Borrower of (a)
Light & Sound Design Holdings Limited, a U.K. corporation (the "LSDHL
Acquisition"), which may be structured as more than one partial purchase of
the company's stock, and (b) Production Arts Lighting Inc. (the "PA
Acquisition" and, collectively with the LSDHL Acquisition, the "Pending
Acquisitions"), substantially on the terms outlined in the letters of intent
dated February 24, 1998 and March 16, 1998, respectively, provided that no
other Acquisitions shall have been consumated prior to the date on which the
Borrower completes each of the Pending Acquisitions. If, at any time, one or
both of the Pending Acquisitions have not been consumated, the Borrower may
make other Acquisitions, provided that the Borrower remains in compliance with
the requirements of Section 8.3(f) of the Credit Agreement. In the event that
any other such Acquisitions are consumated prior to one or both of the Pending
Acquisitions, then the consent herein shall only be effective to the extent
that the consumation of such Pending Acquisition shall be in compliance with
the requirements of Section 8.3(f) of the Credit Agreement. Each Acquisition,
including each of the Pending Acquisitions, when consumated, shall reduce the
-7-
<PAGE>
amount available for Acquisitions pursuant to Section 8.3(f) of the Credit
Agreement in the amount of the Acquisition Cost of such Acquisition.
2. The Agent and the Lenders consent to the disposition by Scenic of
any of the Real Property owned by it, provided that (i) all Indebtedness
secured by such Real Property shall be repaid in full from the proceeds of
such disposition, and (ii) all loans or advances made by the Borrower to
Scenic in connection with such Real Property shall be repaid in full from the
proceeds of such disposition.
Article IV. Conditions of Effectiveness.
1. This Amendment shall become effective, and shall be dated, as of
the date that the Agent shall have received (i) counterparts of this Amendment
executed by each of the Borrower, the Guarantors, the Required Lenders and the
Agent, (ii) an opinion of counsel to the Borrower and the Guarantors, in form
and substance satisfactory to the Agent, and (iii) the Borrower shall have
paid all fees and expenses owed to the Agent, the Lenders and Special Counsel
which have been accrued and/or incurred up to and including the date hereof.
2. The Consents granted under Paragraph 1 of Article III hereof shall
become effective as of the dates (each, a "Consent Effective Date") that the
Agent shall have received, in form and substance satisfactory to the Agent,
the items required pursuant to Sections 8.3(f) and 8.12 of the Credit
Agreement in respect of the Pending Acquisitions. Notwithstanding anything to
the contrary in the foregoing sentence, it is agreed that the pledge and
delivery of any Capital Stock required pursuant to said sections may be made
to the Agent within fifteen (15) days after the closing of the related
Acquisition. To the extent that the Acquisition of LSDHL consists of foreign
assets or creates a foreign Subsidiary, the documentation executed with
respect to a security interest therein and/or a guaranty therefrom, as
required by Sections 8.3(f) and 8.12(c) of the Credit Agreement shall be such
that the rights and obligations of the various parties created thereunder are
substantially equivalent to those which would be created by execution of the
Supplements to the Guaranty and the Security Agreement with respect to a
domestic Subsidiary or domestic assets, with such changes as may be required
by the Agent or to comply with laws governing such foreign transactions. The
requirements of Sections 8.3(f) and 8.12(c) of the Credit Agreement will be
deemed met by the delivery of such documentation in form and substance
satisfactory to the Agent and its counsel.
Article V. 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
-8-
<PAGE>
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.
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.
-9-
<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:
------------------------
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<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:
------------------------
-11-
<PAGE>
STATE STREET BANK AND TRUST
COMPANY
By:
------------------------
Name:
------------------------
Title:
------------------------
-12-
<PAGE>
PRODUCTION RESOURCE GROUP, L.L.C.
AMENDMENT NO. 2
Consent of Guarantors
The undersigned, as Guarantors to the Credit Agreement, each
hereby consents to the foregoing Amendment No. 2 and hereby confirms and
agrees that, notwithstanding the effectiveness of said Amendment No. 2,
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.
HARRIS PRODUCTION SERVICES, INC.
By:
------------------------
Name:
------------------------
Title:
------------------------
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:
------------------------
-13-
<PAGE>
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:
------------------------
ATTRACTION MANAGEMENT L.L.C.
By:
------------------------
Name:
------------------------
Title:
------------------------
-14-
<PAGE>
Consent of Members
Each of the undersigned holders of the Capital Stock of the
Borrower and/or Harris Production Services, Inc. hereby agrees that, to
the extent that such individual received, whether actually or
constructively, any Restricted Payments during 1997 related to the fiscal
years ended December 31, 1996 or December 31, 1997, such individual shall
(i) file all of his personal income tax returns and request the maximum
available cash refund of taxes paid for the year 1997 by no later than
August 15, 1998, and (ii) make one or more capital contributions as
required pursuant to Section 7.14 of the Credit Agreement, which requires
that, to the extent that each such individual receives, as a result of
such filings, refunds of income taxes paid up to the amount of the
Restricted Payments received by such individual during 1997, the Borrower
shall receive capital contributions in cash from each such individual in
an aggregate amount up to $3,500,000.
---------------------------
KEVIN BAXLEY
---------------------------
WILLIAM ENNIS
---------------------------
FRED GALLO
---------------------------
JEREMIAH HARRIS
---------------------------
ROY SEARS
---------------------------
JOHN WOLF
-15-
<PAGE>
The Borrower hereby represents that the above listed
individuals are the only individuals to have received, either actually or
constructively, the Restricted Payments referred to herein.
PRODUCTION RESOURCE GROUP, L.L.C.
By:
------------------------
Name:
------------------------
Title:
------------------------
-16-
<PAGE>
Affirmation of Guaranty of
Scenic Properties L.L.C.
Notwithstanding anything to the contrary contained in Paragraph 2
of Article II of Amendment No. 1, Scenic Properties L.L.C. ("Scenic")
hereby affirms that (i) its Guaranty has remained in effect at all times,
and (ii) it continues to be bound by the terms of the Loan Documents to
which it is a party, both heretofore and hereafter executed.
Pursuant to Section 5(d) of the Guaranty and Article II,
Paragraph 2 of Amendment No. 1 to the Credit Agreement, Scenic may engage
in no business other than the ownership of the Real Property described
therein and real property management activities directly related thereto.
Scenic hereby agrees that, following the sale of such Real Property, and
for such period of time as it remains a Guarantor, it shall engage in no
other business activity without the prior written consent of the Agent and
the Lenders.
SCENIC PROPERTIES L.L.C.
By:
------------------------
Name:
------------------------
Title:
------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S REPORT ON FORM 10-Q FOR THE SIX MONTHS ENDED JUNE 30, 1998, AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 16,631
<SECURITIES> 0
<RECEIVABLES> 27,893
<ALLOWANCES> 1,653
<INVENTORY> 9,481
<CURRENT-ASSETS> 55,567
<PP&E> 98,182
<DEPRECIATION> (22,122)
<TOTAL-ASSETS> 169,977
<CURRENT-LIABILITIES> 32,850
<BONDS> 100,000
0
0
<COMMON> 0
<OTHER-SE> 364
<TOTAL-LIABILITY-AND-EQUITY> 169,977
<SALES> 55,365
<TOTAL-REVENUES> 55,365
<CGS> 37,309
<TOTAL-COSTS> 53,019
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,233
<INCOME-PRETAX> (3,454)
<INCOME-TAX> 193
<INCOME-CONTINUING> (3,647)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,658)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
