-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WOVOmYRaF1fQY0r0t5OuY/jpNjWa1LarrfuVjWW+NGCf0ds4kB2lODsvZ1XzJCNi iYuRYKsBMQ5jRbq6BUG3JA== 0000912057-00-001225.txt : 20000202 0000912057-00-001225.hdr.sgml : 20000202 ACCESSION NUMBER: 0000912057-00-001225 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 20000113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: VARI LITE INTERNATIONAL INC CENTRAL INDEX KEY: 0001033491 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC LIGHTING & WIRING EQUIPMENT [3640] IRS NUMBER: 752239444 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-23159 FILM NUMBER: 507176 BUSINESS ADDRESS: STREET 1: 201 REGAL ROW CITY: DALLAS STATE: TX ZIP: 75247 BUSINESS PHONE: 2146301963 10-K 1 10-K - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-K /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1999 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 0-23159 ------------------------ VARI-LITE INTERNATIONAL, INC. (Exact name of registrant as specified in its charter) DELAWARE 75-2239444 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 201 REGAL ROW, DALLAS, TEXAS 75247 (Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (214) 630-1963 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, $0.10 PAR VALUE ------------------------ 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 /X/ No / / Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. / / The aggregate market value of the voting stock held by non-affiliates of the registrant on January 10, 2000, was $4,348,269. As of that date, 7,800,003 shares of the registrant's Common Stock were outstanding. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- DOCUMENTS INCORPORATED BY REFERENCE: Certain information required by Part III of this Annual Report on Form 10-K is incorporated by reference from the registrant's definitive proxy statement for its annual meeting of stockholders to be held on March 10, 2000. INDEX TO ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1999
PAGE -------- PART I Item 1. Business.................................................... 3 Item 2. Properties.................................................. 9 Item 3. Legal Proceedings........................................... 9 Item 4. Submission of Matters to a Vote of Security Holders......... 9 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters....................................... 10 Item 6. Selected Consolidated Financial Data........................ 11 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations................................. 12 Item 7A. Quantitative and Qualitative Disclosures About Market Risk...................................................... 22 Item 8. Financial Statements and Supplementary Data................. 22 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.................................. 22 PART III Item 10. Directors and Executive Officers of the Registrant.......... 23 Item 11. Executive Compensation...................................... 23 Item 12. Security Ownership of Certain Beneficial Owners and Management................................................ 23 Item 13. Certain Relationships and Related Transactions.............. 23 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K....................................................... 24 SIGNATURES............................................................ 29 INDEX TO FINANCIAL STATEMENTS......................................... F-1
2 PART I ITEM 1. BUSINESS GENERAL The Company is a leading international designer, manufacturer and distributor of automated lighting equipment and provider of related services to the entertainment industry, servicing markets such as concert touring, theatre, television, film and corporate events. The Company markets its proprietary VARI*LITE automated lighting equipment and other products and services through its domestic and international Vari-Lite Production Services facilities and an independent dealer network. Historically, the Company has only rented its VARI*LITE-Registered Trademark- products rather than offering products for sale, however, the Company intends to begin selling certain VARI*LITE-Registered Trademark- products in fiscal 2000. The Company is also a leader in providing complementary products and services to the entertainment industry, including concert sound reinforcement systems, conventional lighting equipment and design and production management services for conventions, business meetings and special events. The Company's predecessor was incorporated in 1988 in the State of Texas as a holding company to own Showco, Inc. ("Showco"), which began operations in 1970, and Vari-Lite, Inc. ("Vari-Lite"), which began operations in 1981. On October 15, 1997, the Company was reincorporated in the State of Delaware. The Company's principal executive offices are located at 201 Regal Row, Dallas, Texas 75247 and its telephone number is (214) 630-1963. PRODUCTS AND SERVICES VARI*LITE-Registered Trademark- AUTOMATED LIGHTING PRODUCTS. The Company designs, manufactures and distributes an extensive line of integrated automated lighting systems, including light fixtures, or "luminaires," control consoles and support equipment, and provides system operators and maintenance services. To accommodate users who prefer to operate the Company's lighting systems independently, the Company also conducts extensive training programs. To date, the Company has only rented its VARI*LITE-Registered Trademark- products through its rental offices rather than offering products for sale. However, as a result of the emergence of competing products along with the increased demand of certain customers to own rather than rent the products, the Company intends to begin selling certain VARI*LITE-Registered Trademark- products in fiscal 2000. SERIES 200-TM- SYSTEM. The Company's VL2C-TM- spot luminaire, VL4-TM- wash luminaire and Artisan-Registered Trademark-Plus and mini-Artisan-Registered Trademark-2 control consoles constitute the Company's Series 200-TM- system. Spot luminaires create a hard-edged, crisp beam which can be used for precisely focused illumination and visual effects, as well as for projecting custom light images and designs through the use of "gobos", designs etched into a piece of glass or cut into a piece of metal through which a light beam is directed to create an image. The VL2C-TM- spot luminaire can change light color in one-tenth of a second and can produce more than 120 separate light colors through the use of the Company's patented color changing system. In designing the Series 200-TM- system, the Company patented a number of features which it believes makes the Company's light systems superior to those of its competitors. The Company is the only industry participant which combines patented dichroic filter color changing systems, advanced heat removal techniques and computer control systems that utilize distributed processing and resident cue memory in each luminaire. By using such technology to execute a lighting effect (or cue), an operator can transmit a single command to up to 1,000 luminaires simultaneously, each of which stores its own set of cues. As a result, customers using the Company's systems can create lighting presentations with greater flexibility, complexity, speed and precision than with competing products. The VL4-TM- wash luminaire projects a dispersed soft-edge light beam for even illumination of objects and areas. The VL4-TM- luminaire's patented color changing system allows the user to select 30 preset and 160 programmable colors from thousands of available colors and to change these colors in less than three- 3 tenths of a second, or program the system for timed color cross-fades. In addition, the VL4-TM- luminaire features precisely timed control of light intensity, including the ability to instantaneously turn the light fixture on and off. Continuous adjustment of diffusion and beam angle provides enhanced control of the beam shape. SERIES 300-TM- SYSTEM. The Company developed its Series 300-TM- automated lighting system principally to satisfy the demands of the theatre and television and film markets for virtually silent, light weight automated lighting products with sophisticated color changing features. The Company's Series 300-TM- system, including the VL5-TM-, VL5Arc-TM- and VL5B-TM- wash luminaires, the VL6-TM-, VL6B-TM-, VL7-TM- and VL7B-TM- spot luminaires, and the VLM-TM- automated moving mirror, as well as the Artisan-Registered Trademark-Plus, mini-Artisan-Registered Trademark-2 and Virtuoso-TM- control consoles, also appeals to major concert touring clients who want to rent large systems. The VL5-TM- luminaire is lighter than the VL4-TM- luminaire, and its cold-mirror reflector both eliminates the need for noisy cooling fans and reduces the amount of heat the lights emit onto the stage. Color changes for the VL5-TM- are controlled by a system that allows color cross-fades in as little as seven-tenths of a second and interchangeable lenses work with an internal diffusing mechanism to provide a wide variety of beam sizes and shapes. The VL5Arc-TM- luminaire has a brighter bulb than the VL5-TM- luminaire and a patented fluid-filled variable lens which allows beam size control. The VL6-TM- spot luminaire is the companion to the VL5-TM- wash luminaire, and has two interchangeable 12-position wheels of dichroic color filters and gobos for split second color and image changes and multi-color beams. The VL6B-TM- spot luminaire adds a 3:1 zoom optics system and rotating gobos to the VL6-TM-. The VL7-TM- spot luminaire has a revolutionary collection optics system that produces a bright beam and provides an 8:1 zoom. Other features of the VL7-TM- include full color spectrum crossfades with unparalleled precision and repeatability via the unique CVF-TM- System, strobe, image morphing and fixed and rotating gobos. The VL7B-TM- spot luminaire adds a four frame shuttering system to the VL7-TM- fixture. The VLM-TM- automated moving mirror is a dual-sided highly reflective Lexan-Registered Trademark- polycarbonate mirror panel. With its ability to both pan and tilt 360 degrees, the VLM-TM-automated moving mirror can be used to augment the effects produced by VARI*LITE-Registered Trademark- wash and spot luminaires, or it can be used with conventional lights to create limited beam motion at a very low cost. SERIES 2200. The VL2201-TM- spot luminaire, which includes all of the features available in the VL6B-TM-, includes an upper enclosure that houses the control electronics, as well as a power factor corrected arc power supply. SERIES 2400. The VL2400-TM- Series wash luminaires, which are based upon the VL5-TM- architecture, has three light source choices and two beam control options, for a total of six model configurations. The luminaire is available with a zoomable beam spreading mechanism or in a collimated beam configuration. The innovative DICHRO*TUNE-TM- radial color changer employs enhanced dichroic color filters to produce smooth, full spectrum color crossfades. An internal douser provides intensity control and strobing. The luminaires include an upper enclosure that houses the control electronics, as well as a power factor corrected arc power supply or an SCR dimmer. The Company's luminaires are compatible with the industry-standard DMX 512 digital protocol and, as such, can be operated by DMX 512 control consoles, as well as the Company's more sophisticated, higher performance proprietary control consoles which use a high speed, bi-directional communications protocol. LIGHTING CONTROL SYSTEMS. The Company's primary control console, the Artisan-Registered Trademark-Plus, is used to operate all of the Company's VARI*LITE-Registered Trademark- products. It provides control of up to 1,000 luminaires, dimmers and other equipment with up to 1,000 cues per channel, allowing the operator to control each luminaire or to store and play back preset cues. The Company also rents the smaller, less expensive mini-Artisan-Registered Trademark-2 control console which has substantially the same capabilities as the Artisan-Registered Trademark-Plus control console, but requires longer programming time. Accordingly, the mini-Artisan-Registered Trademark-2 control console is often 4 used either as the primary control system where space is limited or as a back-up system to the Artisan-Registered Trademark-Plus control console. The Company recently introduced the Virtuoso-TM- control console, which is the Company's newest control system. This control system offers expanded control over VARI*LITE-Registered Trademark- luminaires, DMX automated lights and conventional luminaires with fully integrated 3-D graphics display. OTHER PRODUCTS AND SERVICES. The Company provides trained personnel to operate its automated lighting systems and offers training courses, maintenance and other support services to customers. The Company maintains training facilities in its Dallas, New York, Los Angeles, Tokyo and London offices, where it trains both its own personnel and customers who find it more efficient to have their personnel operate and maintain the VARI*LITE-Registered Trademark- equipment. In addition to luminaires and control consoles, the Company rents related equipment required to operate the Company's systems, such as power and control signal distribution equipment, dimmers and cables. The Company has also developed a unique stackable, plastic injection-molded storage case for transporting its equipment. The Company's cases are custom-designed to protect VARI*LITE-Registered Trademark- equipment and last longer than the industry-standard carpet covered wood or laminate cases. These cases are also significantly lighter than other cases, thereby reducing transportation costs. The Company also sold Irideon-Registered Trademark- architectural automated lighting systems until the disposal of that product line in October 1998. COMPLEMENTARY BUSINESSES The Company is a leader in providing complementary products and services to the entertainment industry, including concert sound systems, conventional lighting equipment and design and production management services for conventions, business meetings and special events. CONCERT SOUND SYSTEMS. The Company's Showco subsidiary rents concert sound systems and provides related services almost exclusively to the worldwide concert touring market. The Company's PRISM-Registered Trademark- sound system was introduced in 1986 as the first large scale concert sound system engineered as a totally integrated system specifically for use in concert touring. The proprietary, scalable PRISM-Registered Trademark- system can be used in any venue from smaller theatres to stadiums and is easier to assemble, disassemble and transport than competitive sound systems. In November 1998, the Company introduced the PRISM-Registered Trademark-L3, which is a compact loudspeaker system that incorporates the scalability of the PRISM-Registered Trademark- system. Showco both rents and sells the PRISM-Registered Trademark-L3 system, which appeals to the needs of smaller venues and a broader customer base than the larger PRISM-Registered Trademark- system. Also, in November 1998, the Company introduced the SHOWCONSOLE-TM-, a revolutionary audio control desk that provides instant total recall live sound mixing eliminating the need for multiple mixing consoles for multi-artist performances, and adds other innovative audio control features. CONVENTIONAL LIGHTING PRODUCTS. The Company offers conventional lighting and rigging equipment, including numerous types of luminaires and control consoles, large search lights, automatic gel scrollers, trusses, motors, dimmers and smoke machines. CORPORATE MEETINGS AND SPECIAL EVENTS. The Company, through its IGNITION! Creative Group, Inc. ("Ignition") subsidiary, provides design and production management services to businesses for conventions, business meetings and special events. The Company provides concept development, scenery, lighting, sound, special effects, scripting, media production and entertainment production for such events. The Company also provided custom stage and stage set design and construction services until the sale of that product line in December 1998. 5 MARKETING, SALES AND DISTRIBUTION The Company markets its products and services to the entertainment industry, including concert touring, theatre, television and film and corporate events markets. Depending on the circumstances, the Company solicits business from lighting and set designers and consultants, sound engineers, artist managers, producers, production managers and production companies, promoters, corporations and business associations. The Company believes that its quality products, reputation for innovation, customer relationships, worldwide distribution and excellent service are the keys to its success. No customer has accounted for more than 10% of the Company's revenues for at least the last three fiscal years. In 1998, the Company began to emphasize its full-service strategy by expanding the products and services it offers to include a more extensive selection of conventional lighting products and related services. This effort is designed to accommodate the comprehensive lighting needs of the Company's rental customers by offering "one-stop" shopping. VARI*LITE-Registered Trademark- AUTOMATED LIGHTING PRODUCTS. To date, the Company has only rented its VARI*LITE-Registered Trademark- products rather than offering the products for sale. The initial decision to distribute the Company's products through a rental network was largely driven by the demands of the Company's primary customers at the time--the concert touring market. In addition, the rental only strategy provided the Company with a higher level of quality control over its rental products, which require trained operators and maintenance personnel. The Company also believes renting has enabled it to better protect its intellectual property and generate revenue from each product over an extended time period. However, as a result of the emergence of competing automated lighting products, along with the increased demand of certain customers to own rather to rent the products, the Company intends to begin selling certain VARI*LITE-Registered Trademark- products in fiscal 2000. The Company markets its automated lighting systems and services in the United States both through Company-owned offices located in New York, Los Angeles, Nashville, Orlando, Las Vegas and Chicago and an independent dealer system. Each Company-owned office is strategically located to take advantage of specific market segments. For example, the New York office targets the theatre market, the Nashville office targets the country music, television and concert touring markets, the Los Angeles office targets the television, film and concert touring market, and the Orlando, Las Vegas, and Chicago offices target the corporate events market. The independent dealers focus on specific geographic markets and tend to rent to all market segments. The Company's international distribution system comprises Company-owned locations in London, Tokyo, Brussels, Paris, Madrid, Stockholm, Amsterdam and Hong Kong, as well as, at January 10, 2000, independent dealers in 40 cities in North America and Europe. In order to satisfy customers who wanted to purchase the Company's lighting systems, the Company has offered sales-type leases. Under the typical sales-type lease, the customer rents the Company's equipment for either a five- or a ten-year term, with unlimited one-year renewal options, for a lump sum payment at the commencement of the term, plus a nominal renewal option exercise price. The customer is normally responsible for maintaining the equipment under these arrangements, but often enters into a maintenance agreement with the Company. CONVENTIONAL LIGHTING PRODUCTS. The Company's conventional lighting operations, which have historically operated independently were integrated into the Company's operations in 1998 to improve the Company's position as a full-service provider. These operations, established under the name Vari-Lite Production Services, rely heavily on the Company's reputation for quality and service, which is enhanced by its high visibility projects and customers. The Company reinforces this reputation by advertising in trade and specialty magazines. Although most of the Company's conventional lighting contracts are procured through a bidding process, the Company believes that competition in this industry is based on expertise, quality, price and full service capabilities. 6 CONCERT SOUND SYSTEMS. The Company markets its concert sound equipment directly to end-users worldwide. Showco develops personal relationships with artist managers, sound engineers, production managers and event producers and relies on its reputation for superior quality and service to attract customers. CORPORATE MEETINGS AND SPECIAL EVENTS. The Company sells its design and production management services to corporate meeting planners and sales and marketing executives. In-house salespeople seek requests for proposals through cold calls, sales letters and professional mailings and, to a lesser extent, through advertising in trade publications. Upon receiving an invitation to submit a proposal, the Company assembles a project team which develops concepts and designs for a multi-media presentation to the potential client. RESEARCH AND DEVELOPMENT; INTELLECTUAL PROPERTY The Company's proprietary technology and development of innovative products that meet the needs of its customers have enabled it to expand the applications for its technology to new products and markets. From time to time, the Company collaborates with unaffiliated entities to supplement and complement its internal research and development activities. As of September 30, 1999, the Company's research and development group consisted of over 49 engineers, technicians and related personnel. These internal capabilities enable the Company to continually improve existing products, design new products and develop new technology to meet the needs of its customers. In the fiscal years ended September 30, 1997, 1998 and 1999, the Company's research and development expenditures totaled $6.7 million, $6.7 million and $5.6 million, respectively. The Company's extensive research and development efforts have produced a number of leading-edge technological developments in the automated lighting industry. When appropriate, the Company seeks patent protection for its products, particularly in its automated lighting business. As of September 30, 1999, the Company had registered and received more than 39 domestic patents and more than 261 foreign patents in several different countries and territories. In addition, the Company had more than 15 patent applications pending in the United States on automated lighting technology and more than 85 patent applications pending worldwide. The Company's patents cover the basic concepts, control software, control hardware and features unique to each of the Company's VARI*LITE-Registered Trademark- luminaire models. The Company believes that its patents provide it with a substantial competitive advantage in the automated lighting industry, and the Company's ability to compete in the future will depend in part on maintaining its technological advantage over its competitors. The Company has obtained trademark protection in the United States and numerous foreign countries on various names, including, among others, VARI*LITE-Registered Trademark-, Artisan-Registered Trademark-, Virtuoso-TM-, Visionary -TM-, ArtisanVLQ-TM-, Series 100-TM-, Series 200-TM-, Series 300-TM-, VL1-TM-, VL2C-TM-, VL4-TM-, VL5-TM-, VL5Arc-TM-, VL5B-TM-, VL6-TM-, VL6B-TM-, VL7-TM-, VL7B-TM-, VL2201-TM-, VL2400-TM-, VLM-TM-, VARI*IMAGE-TM-, DICHRO*TUNE-TM-, DICHRO*WHEEL-TM-, Showco-TM-, PRISM-Registered Trademark-, PRISML3-TM- and SHOWCONSOLE-TM-. MANUFACTURING The Company's manufacturing facilities are located in Dallas, Texas. The Company's manufacturing process principally consists of procuring, inspecting and assembling components custom-made by others to the Company's specifications. The Company generally provides its suppliers with specifications for its components and pays for all tooling used in their production. The Company emphasizes the quality and reliability of its products and, accordingly, submits all finished products to rigorous testing both at the time they are manufactured and when they are returned to the Company at the termination of each rental agreement. 7 The Company has frequently worked in concert with certain of its key suppliers to design and develop new technologies which have been incorporated into the Company's products specifically to meet its requirements. As a result, although most components and raw materials used by the Company are available from more than one supplier, many important components for the Company's lighting systems are provided by one vendor and are custom-designed (often jointly by the Company and its vendors). The Company attempts to maintain adequate inventories of these components and, based on its experience, does not anticipate problems obtaining sufficient supplies in the foreseeable future. The loss of any supplier that is the sole vendor of a component would delay the Company's manufacturing schedules and possibly force the Company to purchase new tooling, but the Company believes substitute suppliers can be found for all components of all of its products. EQUIPMENT INVENTORY MANAGEMENT The Company uses an inventory control and management system to locate its rental equipment at all times anywhere in the world. Each piece of equipment is serialized for identification purposes. Equipment utilization is centrally monitored at the Company's headquarters to determine (1) which products are in highest demand in various geographic markets and whether certain equipment should be relocated to increase utilization and revenue, (2) whether product shortages that require the production of additional units exist and (3) whether current pricing is at the appropriate level. The maximum utilization rates of the Company's equipment are affected by production scheduling requirements of the customers' various markets. Utilization rates are also impacted by the quantity of inventory, maintenance requirements and shipping time. The Company's inventory control system helps the Company optimize its utilization rates in light of these factors in order to satisfy customer requirements and maximize revenue. COMPETITION Each of the Company's businesses is highly competitive. In its automated lighting business, the Company primarily competes with Coemar SPA, Clay Paky SPA, High End Systems, Inc. ("High End"), Martin Gruppen A/S and Production Resource Group, PLC. Of these competitors, only Production Resource Group, PLC rents equipment, while the others sell equipment to other rental companies. The Company's Vari-Lite Production Services rental operations compete with a number of conventional lighting rental companies. The Company competes primarily on the basis of product capabilities, quality, reliability, price, worldwide distribution, full service capabilities, brand name recognition,reputation, customer service and support. The VARI*LITE-Registered Trademark- brand name has been recognized for years as the preeminent brand name for automated lighting. The Company has several national concert sound competitors, the most significant of which is Clair Brothers Audio, as well as Maryland Sound Industries, Inc., Audio Analysts USA, Inc., dB Sound, Inc. and Southern California Sound Image, Inc. The Company competes in this business principally on product capabilities, quality, reliability, price, brand name recognition, reputation and customer service. The market for design and production management services is highly competitive and fragmented, including hundreds of free-lance producers and designers. Competition in this industry is based primarily on personal relationships and creativity. EMPLOYEES As of September 30, 1999, the Company had 451 full-time employees. In addition, the Company had 222 part-time and temporary employees. None of the Company's employees is a party to any collective bargaining agreement and the Company has never experienced a work stoppage. The Company considers its relations with its employees to be good. 8 ITEM 2. PROPERTIES The Company leases all of its facilities, including four facilities comprising approximately 135,700 square feet in Dallas, Texas under leases that expire in April 2003. The Dallas facilities contain the Company's executive offices, manufacturing, warehouse, maintenance, research and development facilities and training center. The executive offices and warehouse space of Vari-Lite Production Services, Ltd. are located in London, England in one facility comprising approximately 57,000 square feet and the associated lease expires in April 2010. The executive offices of Vari-Lite Asia, Inc. ("Vari-Lite Asia"), as well as its technical center, are located in Tokyo in two leased facilities aggregating approximately 23,300 square feet, the terms of which expire in February 2001 and November 2004. In addition, the Company leases sales offices in Brussels, Amsterdam, Stockholm, Paris, Madrid, Hong Kong, Chicago, Las Vegas, Los Angeles, Nashville, New York and Orlando. The Company believes it maintains generally adequate insurance with respect to its properties. ITEM 3. LEGAL PROCEEDINGS In the ordinary course of its business, the Company is from time to time threatened with or named as a defendant in various lawsuits, including patent infringement claims. Additionally, the Company has filed lawsuits claiming infringements of its patents by third parties for which the Company has been subject to counterclaims. In August 1995, the Company brought suit asserting a number of claims of infringement of several of its patents by High End in the Northern District of Texas seeking monetary damages and injunctive relief to prevent future patent infringement (the "High End Lawsuit"). In December, 1998, the court approved a negotiated settlement between the Company and High End, the specific terms of which are confidential, but included a cash settlement paid to the Company, a cross license of certain patents and authorization for High End to continue to sell all of the products that were subject to the suit. In December 1998, the Company brought a similar suit against Martin Gruppen A/S and Martin Professional A/S (collectively, "Martin") in the Eastern District of Texas. In July 1999, the court entered a preliminary injunction which prohibits Martin from making, using, leasing or offering for sale or lease in the United States, or importing into the United States, certain Martin products. Martin was subsequently denied a stay of execution pending appeal and is pursuing an appeal to the injunction. The Company will continue with the suit, which is expected to go to trial in late 2000. In November 1999, four automated lighting manufacturers, Coemar S.p.A., Clay Paky S.p.A., SGM Elettronica, s.r.l. and Studio Due s.r.l., each filed suit against the Company in the Southern District of New York. Each of the lawsuits seeks declaration from the court that one of the Company's patents, the subject of the High End lawsuit and the litigation with Martin, is invalid, unenforceable and/or not infringed by each of the lighting manufacturers. The Company has filed motions to dismiss these lawsuits. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not Applicable. 9 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's Common Stock trades on the Nasdaq National Market under the symbol "LITE." The Company consummated its initial public offering of Common Stock on October 16, 1997. The following table sets forth, on a per share basis for the periods indicated, the high and low sale prices for the Common Stock as reported by the Nasdaq National Market:
PRICE RANGE ------------------- HIGH LOW -------- -------- Fiscal Year 1998 First Quarter............................................. $13.125 $11.750 Second Quarter............................................ $12.688 $11.375 Third Quarter............................................. $10.000 $ 5.750 Fourth Quarter............................................ $ 6.375 $ 2.000 Fiscal Year 1999 First Quarter............................................. $ 4.750 $ 2.000 Second Quarter............................................ $ 4.250 $ 2.625 Third Quarter............................................. $ 2.813 $ 2.000 Fourth Quarter............................................ $ 2.125 $ 0.875 Fiscal Year 2000 First Quarter............................................. $ 1.688 $ 0.938 Second Quarter (through January 10, 2000)................. $ 1.219 $ 0.938
There were 68 stockholders of record of Common Stock on January 10, 2000. The Company paid dividends of approximately $0.6 million with respect to the 1997 fiscal year. The Company has not paid, and does not anticipate paying in the foreseeable future, any other cash dividends and expects that future earnings will be retained to finance operations and expansion. The payment of cash dividends in the future will be at the discretion of the Board of Directors and will depend upon the Company's earnings levels, capital requirements, financial condition and such other factors the Board of Directors deems relevant. 10 ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA The following selected consolidated financial data for the Company as of and for each of the five fiscal years in the period ended September 30, 1999, have been derived from the audited consolidated financial statements of the Company. This data should be read in conjunction with the information set forth in "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Financial Statements and related notes thereto included elsewhere in this report.
YEAR ENDED SEPTEMBER 30, ---------------------------------------------------- 1995 1996 1997 1998 1999 -------- -------- -------- -------- -------- (IN THOUSANDS EXCEPT PER SHARE DATA) INCOME STATEMENT DATA: Rental revenues............................................. $ 65,864 $ 65,741 $ 75,529 $ 74,863 $ 83,863 Product sales and service revenues.......................... 9,046 11,397 15,129 13,513 7,669 -------- -------- -------- -------- -------- Total revenues.......................................... 74,910 77,138 90,658 88,376 91,532 Rental costs................................................ 26,288 26,425 29,371 33,764 41,561 Product sales and service costs............................. 6,637 7,783 10,676 9,880 5,389 -------- -------- -------- -------- -------- Gross profit................................................ 41,985 42,930 50,611 44,732 44,582 Selling, general and administrative expense................. 28,163 30,077 32,983 35,077 38,360 Research and development expense............................ 3,283 4,404 6,657 6,690 5,586 Impairment of assets........................................ -- -- -- 3,542 -- Restructuring costs......................................... -- -- -- 1,080 600 -------- -------- -------- -------- -------- Operating income (loss)..................................... 10,539 8,449 10,971 (1,657) 36 Interest expense (net)...................................... 2,788 3,092 3,726 2,818 4,404 -------- -------- -------- -------- -------- Income (loss) before taxes, extraordinary loss and cumulative effect of change in accounting principle....... 7,751 5,357 7,245 (4,475) (4,368) Income taxes (benefit)...................................... 3,037 2,238 2,916 (1,785) (1,725) -------- -------- -------- -------- -------- Income (loss) before extraordinary loss and cumulative effect of change in accounting principle.................. 4,714 3,119 4,329 (2,690) (2,643) Extraordinary loss from early extinguishment of debt........ -- -- -- (737) -- Cumulative effect of change in accounting principle......... -- -- -- (195) -- -------- -------- -------- -------- -------- Net income (loss)........................................... $ 4,714 $ 3,119 $ 4,329 $ (3,622) $ (2,643) ======== ======== ======== ======== ======== Net income (loss) per basic share........................... $ 0.83 $ 0.54 $ 0.75 $ (0.47) $ (0.34) Net income (loss) per diluted share......................... $ 0.81 $ 0.53 $ 0.74 $ (0.47) $ (0.34) Cash dividends per share(1)................................. $ 0.10 $ 0.11 $ 0.18 $ -- $ -- Weighted average basic shares outstanding................... 5,699 5,813 5,799 7,712 7,800 Weighted average diluted shares outstanding................. 5,814 5,912 5,819 7,712 7,800 OTHER DATA: EBITDA(2)................................................... $ 19,161 $ 18,517 $ 22,634 $ 11,921 $ 15,402 Net cash provided by operations............................. 14,513 7,925 15,237 6,474 8,494 Net cash used in investing activities....................... (20,641) (11,826) (23,071) (27,576) (10,040) Net cash provided (used) by financing activities............ 7,307 2,564 8,346 23.673 (2,181) Capital expenditures........................................ 20,748 11,981 23,212 25,841 12,914
AS OF SEPTEMBER 30, ---------------------------------------------------- 1995 1996 1997 1998 1999 -------- -------- -------- -------- -------- BALANCE SHEET DATA: Total assets................................................ $73,465 $78,581 $96,704 $114,627 $107,700 Total debt.................................................. 34,870 37,349 46,242 50,333 48,050 Stockholders' equity........................................ 21,329 24,538 27,541 44,704 43,235
- ------------------------------ (1) The Company does not anticipate paying any cash dividends on the Common Stock for the foreseeable future and anticipates that future earnings will be retained to finance future operations and expansion. See "Market for Registrant's Common Equity and Related Stockholder Matters." (2) EBITDA is calculated herein as income before income taxes, extraordinary loss and cumulative effect of change in accounting principle plus depreciation, amortization and net interest expense. The Company believes that EBITDA serves as an important financial analysis tool for measuring and comparing financial information such as liquidity, operating performance and leverage. EBITDA should not be considered an alternative to net income or other cash flow measures determined under generally accepted accounting principals as an indicator of the Company's performance or liquidity. EBITDA as disclosed herein may not be comparable to EBITDA as disclosed by other companies. 11 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL The Company is a leading international designer, manufacturer and distributor of automated lighting equipment and provider of related services to the entertainment industry, servicing markets such as concert touring, theatre, television, film and corporate events. The Company markets its proprietary VARI*LITE-Registered Trademark- automated lighting equipment and other products and services through its domestic and international Vari-Lite Production Services facilities and an independent dealer network. Historically, the Company has only rented its VARI*LITE-Registered Trademark- products rather than offering products for sale, however, the Company intends to begin selling certain VARI*LITE-Registered Trademark- products in fiscal 2000. The Company is also a leader in providing complementary products and services to the entertainment industry, including concert sound reinforcement systems, conventional lighting equipment and design and production management services for conventions, business meetings and special events. The Company's revenues are generated from rental and leasing of VARI*LITE-Registered Trademark- automated lighting systems, concert sound systems and conventional lighting equipment. Revenues from product sales and services are derived from design and production management services. Rental revenues were $75.5 million, $74.9 million and $83.9 million or 83.3%, 84.7% and 91.6% of total revenues during fiscal 1997, 1998 and 1999, respectively. The majority of the Company's rental revenues are earned from the rental of VARI*LITE-Registered Trademark- automated lighting systems, with the remainder from the rental of concert sound systems and conventional lighting equipment. The Company's rental revenues are recorded as earned over the term of each contract, except for revenues from sales-type leases which are recorded and typically paid at the inception of the lease. Sales-type leases are long-term leases for the Company's VARI*LITE-Registered Trademark- automated lighting systems and are accounted for as sales for financial accounting purposes. Revenues from sales-type leases were $8.7 million, $1.2 million and $4.7 million during fiscal 1997, 1998 and 1999, respectively. Because sales-type lease revenues are recorded in their entirety at the inception of the lease, wide variations in revenues and earnings in any given quarter can occur. Rental costs consist of direct costs of maintaining, supporting and delivering the rental equipment and the depreciation costs of the rental equipment. The Company depreciates rental equipment over periods of five to ten years. The direct costs associated with sales-type leases include the net book value of the equipment rented which is expensed in its entirety at the inception of the lease. The Company generates sales revenue from its design and production management services to corporations and business associations for conventions, business meetings and special events. Through the first quarter of 1999, the Company generated sales revenue from its custom stage and stage set design and construction services and sales of Irideon-Registered Trademark- architectural automated lighting systems. During fiscal 1998, the Company made a strategic decision to dispose of the Irideon-Registered Trademark- product line. As a result of this decision, the assets of Irideon-Registered Trademark- were written down to their net realizable values, resulting in a pre-tax charge of $3.5 million for the impairment of these assets in fiscal 1998. On October 30, 1998, the Company sold substantially all of the Irideon-Registered Trademark- assets for their net book value. During fiscal 1997 and 1998, the Company's Irideon product line experienced operating losses of $1.3 million and $1.7 million and operating income of $0.2 million in fiscal 1999. On December 31, 1998, the Company sold substantially all of the assets of Brilliant Stages, Ltd., one of the Company's European subsidiaries. Brilliant Stages incurred operating income of $0.4 million in fiscal 1997, an operating loss of $0.5 million in fiscal 1998 and break even operating results in fiscal 1999. 12 The following table reflects the percentages of total revenues by market:
YEARS ENDED SEPTEMBER 30, -------------------------------- 1997 1998 1999 -------- -------- -------- Concert Touring............................................. 33.8% 35.0% 31.3% Theatre..................................................... 24.4 18.2 13.1 Television and Film......................................... 14.7 15.5 20.9 Corporate Events............................................ 16.3 23.2 26.9 Other....................................................... 10.8 8.1 7.8 ----- ----- ----- Total Revenue............................................. 100.0% 100.0% 100.0% ===== ===== =====
Although the Company expects revenues earned from concert touring (primarily rental revenues) to continue to represent a significant percentage of the Company's total revenues, from fiscal 1997 to fiscal 1999 concert touring revenues have decreased as a percentage of the Company's total revenues due to an increase in rental revenues generated from the Company's other customer markets. The Company has experienced fluctuations in its concert touring revenues because of the unpredictable nature of the timing and duration of such tours and expects such fluctuations to continue in the future. Revenues earned from theatre decreased from fiscal 1997 through fiscal 1999 primarily as a result of a decrease in sales-type leases to this market segment. The Company anticipates revenue from theatre will continue to fluctuate with the development of new theatrical productions and the cloning of productions. Revenues earned from television and film have increased from fiscal 1997 to fiscal 1999 as a result of the increase in expanding worldwide television market and the need to meet additional programming requirements. In addition, the Company has experienced an increase in revenues from the corporate events market as a result of an increasing number of companies that have exhibited the desire to create entertainment-like productions. The following table reflects the Company's geographic region revenues as a percentage of total revenues (see Note M of the "Notes to Consolidated Financial Statements"):
1997 1998 1999 -------- -------- -------- North America............................................... 53.5% 54.3% 52.0% Europe...................................................... 34.7 34.6 35.3 Asia........................................................ 11.8 11.1 12.7 ----- ----- ----- Total Revenue............................................. 100.0% 100.0% 100.0% ===== ===== =====
The majority of European and Asian revenues are denominated in British pounds sterling and Japanese yen, respectively. The Company has offices in London, Tokyo, Brussels, Paris, Madrid, Stockholm, Amsterdam, and Hong Kong. The Company anticipates that foreign revenues will remain a significant part of the Company's total revenues as the demand for entertainment in foreign markets increases. Fluctuations in foreign currencies have impacted, and will continue to impact, the Company's consolidated results of operations due to the translation of foreign currencies into U.S. dollars. The Company has typically maintained foreign currency borrowings to act as an economic hedge against fluctuations in British pounds sterling and Japanese yen. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." 13 RESULTS OF OPERATIONS The following table sets forth the percentages of total revenues (or as percentages of a component of total revenues as shown) represented by certain consolidated statements of operations and comprehensive income (loss) data and other data for the indicated periods:
YEARS ENDED SEPTEMBER 30, ------------------------------ 1997 1998 1999 -------- -------- -------- Income Statement Data: Rental revenues........................................... 83.3% 84.7% 91.6% Product sales and service revenues........................ 16.7 15.3 8.4 ----- ----- ----- Total revenues.......................................... 100.0 100.0 100.0 Rental costs.............................................. 32.4 38.2 45.4 Product sales and service costs........................... 11.8 11.2 5.9 ----- ----- ----- Gross margin.............................................. 55.8 50.6 48.7 Selling, general and administrative expense............... 36.4 39.7 41.9 Research and development expense.......................... 7.3 7.6 6.1 Impairment of assets...................................... -- 4.0 -- Restructuring costs....................................... -- 1.2 0.7 ----- ----- ----- Operating income (loss)................................... 12.1 (1.9) -- Interest expense.......................................... 4.1 3.2 4.8 ----- ----- ----- Income (loss) before income taxes, extraordinary item and cumulative effect of change in accounting principle..... 8.0 (5.1) (4.8) Incomes taxes (benefit)................................... 3.2 (2.0) (1.9) ----- ----- ----- Income (loss) before extraordinary item and cumulative effect of change in accounting principle................ 4.8 (3.1) (2.9) Extraordinary loss........................................ -- (0.8) -- Cumulative effect of change in accounting principle....... -- (0.2) -- ----- ----- ----- Net income (loss)......................................... 4.8% (4.1)% (2.9)% ===== ===== ===== Other Data: Rental revenues........................................... 100.0% 100.0% 100.0% Rental costs.............................................. 38.9 45.1 49.6 ----- ----- ----- Rental gross margin....................................... 61.1% 54.9% 50.4% ===== ===== ===== Product sales and service revenues........................ 100.0% 100.0% 100.0% Product sales and service costs........................... 70.6 73.1 70.3 ----- ----- ----- Product sales and service gross margin.................... 29.4% 26.9% 29.7% ===== ===== ===== EBITDA(1)................................................. 25.0% 13.5% 16.8%
- -------------------------- (1) EBITDA is calculated herein as income before income taxes, extraordinary loss and cumlative effect of change in accounting principle plus depreciation, amortization and net interest expense. The Company believes that EBITDA serves as an important financial analysis tool for measuring and comparing financial information such as liquidity, operating performance and leverage. EBITDA should not be considered an alternative to net income or other cash flow measures determined under generally accepted accounting principals as an indicator of the Company's performance or liquidity. EBITDA as disclosed herein may not be comparable to EBITDA as disclosed by other companies. 14 FISCAL YEAR ENDED SEPTEMBER 30, 1999 COMPARED TO FISCAL YEAR ENDED SEPTEMBER 30, 1998 REVENUES. Total revenues increased 3.6%, or $3.1 million, to $91.5 million in fiscal 1999, compared to $88.4 million in fiscal 1998. The revenue increase was attributable primarily to the factors set forth below. Rental revenues increased 12.0%, or $9.0 million, to $83.9 million in fiscal 1999, compared to $74.9 million in fiscal 1998. This increase was primarily due to the acquisition of several of the Company's European distributors in fiscal 1998. Prior to acquiring each distributor, the Company received and recognized approximately one-half of the rental revenue earned by the distributor in accordance with the terms of the distributor agreement. After acquiring each distributor, the Company's results reflect all of the revenues the distributor would have earned. In addition, the Company's sales-type lease revenues increased as a result of the conversion of several North American dealers from a monthly rental arrangement to a fully paid long term lease program. Rental revenues from sales-type leases increased $3.5 million, to $4.7 million for fiscal 1999, compared to $1.2 million for fiscal 1998. Finally, additional revenue increases resulted from the opening of two new offices in fiscal 1998. Product sales and services revenues decreased 43.3%, or $5.8 million, to $7.7 million in fiscal 1999, compared to $13.5 million in fiscal 1998. This decrease was primarily due to the sale of the Company's Irideon-Registered Trademark- automated lighting product line in October 1998 and substantially all of the assets of the Company's Brilliant Stages, Ltd. subsidiary ("Brilliant Stages") in December 1998. RENTAL COSTS. Rental costs increased 23.1%, or $7.9 million, to $41.6 million in fiscal 1999, compared to $33.7 million in fiscal 1998. Rental costs as a percentage of rental revenues increased to 49.6% in fiscal 1999, from 45.1% in fiscal 1998. The increase in rental costs as a percentage of total rental revenues was primarily due to increased costs associated with the higher level of conventional equipment rentals which has a higher cost associated with it than automated equipment, pricing pressures from competitors and the inclusion of all of the costs of the operations of the European distributors that were acquired in fiscal 1998. Prior to acquiring each distributor, the Company's rental costs associated with distributor rental revenues were almost exclusively the depreciation on the equipment assigned to the distributor. After acquiring the distributor, the Company's results reflect all of the additional rental costs incurred from operating the business previously operated by the distributor. PRODUCT SALES AND SERVICES COSTS. Product sales and services costs decreased 45.5%, or $4.5 million, to $5.4 million in fiscal 1999, compared to $9.9 million in fiscal 1998. Product sales and services costs as a percentage of product sales and services revenues decreased to 70.3% in fiscal 1999, from 73.1% in fiscal 1998. The decrease in product sales and services costs as a percentage of the related revenues was primarily the result of the sale of the Company's Irideon-Registered Trademark- automated lighting product line in October 1998 and the sale of Brilliant Stages in December 1998. SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and administrative expense increased 9.4%, or $3.3 million, to $38.4 million in fiscal 1999, compared to $35.1 million in fiscal 1998. This increase resulted primarily from the additional administrative costs associated with the acquisition of certain of the Company's European distributors in fiscal 1998. This expense as a percentage of total revenues increased to 41.9% in fiscal 1999 from 39.7% in fiscal 1998. RESEARCH AND DEVELOPMENT EXPENSE. Research and development expense decreased 16.5%, or $1.1 million, to $5.6 million in fiscal 1999, compared to $6.7 million in fiscal 1998. This expense as a percentage of total revenues decreased to 6.1% in fiscal 1999, from 7.6% in fiscal 1998. This decrease was primarily the result of a decrease in employee-related costs as a result of employee terminations from the restructuring of the Company in fiscal 1998. 15 IMPAIRMENT OF ASSETS. During 1998, the Company made a strategic decision to dispose of its Irideon-Registered Trademark- architectural automated product line, and the asset sale was completed in October 1998. As a result of this decision, the Irideon-Registered Trademark- assets were written down to their net realizable value, resulting in a pre-tax charge of $3.5 million during the period ended September 30, 1998. RESTRUCTURING COSTS. In 1999, the Company recorded a $0.6 million pretax charge for the estimated costs of restructuring the Company's operations. The charge includes severance payments and other costs associated with the termination of approximately 15 employees. The charge also includes cost associated with terminating leases and the write off of the net book value of leasehold improvements associated with the closing of two offices. In 1998, the Company recorded a pretax charge of $1.1 million for the estimated costs of restructuring the Company's operations. The costs included the cost of employee terminations and were comprised primarily of severance payments and other employee related costs associated with terminating the employment of approximately 75 people. INTEREST EXPENSE. Interest expense increased 56.3%, or $1.6 million, to $4.4 million in fiscal 1999, compared to $2.8 million in fiscal 1998. This increase was due to higher interest rates and a higher debt level in fiscal 1999, as well as the write-off of loan origination fees of $0.3 million which were previously capitalized. EXTRAORDINARY LOSS. A non-cash extraordinary loss of $0.7 million was recorded in fiscal 1998, net of $0.4 million of tax benefit, relating to the early extinguishment of debt under the Company's old credit facility. CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE. In fiscal 1998, the Company recorded a cumulative effect of change in accounting principle loss of $0.2 million, net of $0.1 million of tax benefit, relating to start-up costs that had previously been capitalized. INCOME TAXES. Effective tax rates in fiscal 1999 and 1998 were 39.5% and 39.9%, respectively. FISCAL YEAR ENDED SEPTEMBER 30, 1998 COMPARED TO FISCAL YEAR ENDED SEPTEMBER 30, 1997 REVENUES. Total revenues decreased 2.5%, or $2.2 million, to $88.4 million in fiscal 1998, compared to $90.6 million in fiscal 1997. The revenue decrease was attributable primarily to the factors set forth below. Rental revenues decreased 0.9%, or $0.6 million, to $74.9 million in fiscal 1998, compared to $75.5 million in fiscal 1997. This decrease was primarily due to a lower volume of sales-type leases and a decrease in revenues in Asia due to the economic situation in that region, partially offset by a strong performance in North America and increased sales due to the acquisition of the Company's Brussels-based distributor. Rental revenues from sales-type leases decreased 86.7%, or $7.5 million, to $1.2 million for fiscal 1998 compared to $8.7 million for fiscal 1997. Product sales and services revenues decreased 10.7%, or $1.6 million, to $13.5 million in fiscal 1998, compared to $15.1 million in fiscal 1997. This decrease was primarily due to lower revenues from the design and construction of custom stages and stage sets which was partially offset by an increase in revenues from the design and production management services. RENTAL COSTS. Rental costs increased 15.0%, or $4.4 million, to $33.7 million in fiscal 1998, compared to $29.3 million in fiscal 1997. Rental costs as a percentage of rental revenues increased to 45.1% in fiscal 1998, from 38.9% in fiscal 1997. The increase in rental costs as a percentage of total rental revenues was primarily due to the reduction in rental revenues from sales-type leases for which the associated costs as a percentage of related revenues is typically less than the costs as a percentage of revenue from sources other than sales-type leases. In addition, to a lesser extent, pricing pressures from competitors in fiscal 1998 created an environment in which increased costs associated with renting more equipment were incurred without a corresponding increase in revenue. 16 PRODUCT SALES AND SERVICES COSTS. Product sales and services costs decreased 7.5%, or $0.8 million, to $9.9 million in fiscal 1998, compared to $10.7 million in fiscal 1997. Product sales and services costs as a percentage of product sales and services revenues increased to 73.1% in fiscal 1998, from 70.6% in fiscal 1997. The increase in product sales and services costs as a percentage of the related revenues was primarily the result of higher costs associated with the sales of the Company's Irideon-Registered Trademark- automated lighting products due to increased warranty expense associated with a defect in the initial delivery of a new product and higher than anticipated costs to design and construct custom stages and stage sets for customers. SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and administrative expense increased 6.4%, or $2.1 million, to $35.1 million in fiscal 1998, compared to $33.0 million in fiscal 1997. This increase resulted primarily from the addition of the Company's Brussels-based distributor companies, which was acquired in March 1998, and was partially offset by lower professional services, payroll and related costs and other discretionary expenses in the first half of the fiscal year. This expense as a percentage of total revenues increased to 39.7% in fiscal 1998 from 36.4% in fiscal 1997. RESEARCH AND DEVELOPMENT EXPENSE. Research and development expenses were $6.7 million in fiscal 1998 and 1997. IMPAIRMENT OF ASSETS. During fiscal 1998, the Company made a strategic decision to dispose of its Irideon-Registered Trademark- architectural automated product line, and the asset sale was completed in October 1998. As a result of this decision, the Irideon-Registered Trademark- assets were written down to their net realizable value, resulting in a pre-tax charge of $3.5 million during the period ended September 30, 1998. RESTRUCTURING COSTS. In fiscal 1998, the Company recorded a pretax charge of $1.1 million for the estimated costs of restructuring the Company's operations. The costs include the cost of employee terminations and were comprised primarily of severance payments and other employee related costs associated with terminating the employment of approximately 75 people. INTEREST EXPENSE. Interest expense decreased 24.4%, or $0.9 million, to $2.8 million in fiscal 1998, compared to $3.7 million in fiscal 1997. This decrease was attributable to the reduction in indebtedness from the use of the proceeds from the Company's initial public offering in October 1997 to repay $21.3 million of indebtedness and the subsequent negotiation of a new credit facility in December 1997 with lower interest rates. EXTRAORDINARY LOSS. A non-cash extraordinary loss of $0.7 million was recorded in fiscal 1998, net of $0.4 million of tax benefit, relating to the early extinguishment of debt under the Company's old credit facility. CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE. In fiscal 1998, the Company recorded a cumulative effect of change in accounting principle loss of $0.2 million, net of $0.1 million of tax benefit, relating to start-up costs that had previously been capitalized. INCOME TAXES. Effective tax rates in fiscal 1998 and 1997 were 39.9% and 40.2%, respectively. 17 QUARTERLY FLUCTUATIONS AND SEASONALITY The following table sets forth certain quarterly income statement data and EBITDA for each of the Company's last three fiscal years, which were derived from unaudited financial statements of the Company. In the opinion of the Company's management, this income statement data contains all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation thereof.
QUARTERS ENDED ------------------------------------------------ DECEMBER 31 MARCH 31 JUNE 30 SEPTEMBER 30 FISCAL YEAR ----------- -------- -------- ------------ ----------- (IN THOUSANDS) FISCAL 1997 Total Revenues.......................... $22,326 $22,384 $22,185 $23,763 $90,658 EBITDA.................................. 5,215 5,083 5,989 6,347 22,634 Operating income........................ 2,424 2,265 2,954 3,328 10,971 FISCAL 1998 Total Revenues.......................... $22,519 $19,227 $22,529 $24,101 $88,376 EBITDA.................................. 6,033 3,134 4,099 (1,345) 11,921 Operating income (loss)................. 2,808 (128) 662 (4,999) (1,657) FISCAL 1999 Total Revenues.......................... $25,248 $23,170 $20,066 $23,048 $91,532 EBITDA.................................. 5,326 4,370 3,035 2,671 15,402 Operating income (loss)................. 1,454 302 (699) (1,021) 36
- ------------------------ EBITDA is calculated herein as income before income taxes, extraordinary loss and cumulative effect of change in accounting principle plus depreciation, amortization and net interest expense. The Company believes that EBITDA serves as an important financial analysis tool for measuring and comparing financial information such as liquidity, operating performance and leverage. EBITDA should not be considered an alternative to net income or other cash flow measures determined under generally accepted accounting principles as an indicator of the Company's performance or liquidity. EBITDA as disclosed herein may not be comparable to EBITDA as disclosed by other companies. The Company has experienced and is expected to continue to experience fluctuations in quarterly operating results, both between different quarters within the same fiscal year and with respect to the same quarter between different fiscal years. These fluctuations arise from several factors, including the timing and dollar value of sales-type leases with customers, the dependence of the Company on concert tours, which are unpredictable in timing and duration, the introduction of new products and general economic conditions both domestically and internationally. Because of the possibilities of significant fluctuations, results for any quarter may not be indicative of results that may be achieved in a full year. EBITDA and operating loss for the quarter ended September 30, 1998, include charges totaling $4.6 million for the write-down of impaired Irideon-Registered Trademark- assets to their net realizable value and employee termination costs associated with restructuring the Company's operations. EBITDA and operating loss for the quarter ended September 30, 1999, include charges totaling $0.6 million for employee termination costs associated with restructuring the Company's operations. LIQUIDITY AND CAPITAL RESOURCES Historically, the Company has financed its operations and capital expenditures with cash flow from operations, bank borrowings and advances from distributors and customers. The Company's operating activities generated cash flow of approximately $15.2 million, $6.5 million and $8.5 million during fiscal 1997, 1998 and 1999, respectively. During fiscal 1997, the Company borrowed under a multicurrency credit agreement (the "Old Credit Agreement") to partially finance its operations and capital expenditures. On October 21, 1997, the Company consummated the initial public offering of its common stock and used the net proceeds thereof, 18 approximately $21.3 million, to repay indebtedness under the Old Credit Agreement. On December 19, 1997, the Company entered into a $50.0 million multicurrency revolving credit facility (the "New Credit Facility") and canceled its existing credit facility. At September 30, 1999, the commitment under the amended New Credit Facility was $47.3 million; which decreases to $46.5 million on March 31, 2000 and $38.0 million on April 30, 2000, and the loan matures on January 1, 2001. Borrowings under the amended New Credit Facility were $44.5 million at September 30, 1999 and bear interest at the lender's base rate plus a rate margin ranging from 1.00% to 3.50% based upon the Company's ratio of Adjusted Funded Debt to EBITDA (as defined in the New Credit Facility) and are secured by substantially all of the assets owned by the Company's domestic subsidiaries and a pledge of 65% of the outstanding capital stock of the Company's foreign subsidiaries. A commitment fee is charged on the average daily unused portion of the New Credit Facility at a rate ranging from 0.20% to 0.50% per annum based upon the ratio of Adjusted Funded Debt to EBITDA. The amended New Credit Facility contains compliance covenants, including requirements that the Company achieve certain financial ratios. In addition, the amended New Credit Facility places limitations on annual capital expenditures and on the ability to incur additional indebtedness, make certain loans or investments, sell assets, pay dividends or reacquire the Company's stock. In December 1997, the Company expensed deferred financing costs related to the prior debt facility of $0.7 million (net of tax benefit of $0.4 million) relating to the early extinguishment of debt, which have been reflected in the consolidated statements of income as an extraordinary loss. As of September 30, 1999, the Company has a principal payment of approximately $6.5 million due in April 2000. The Company has used proceeds of approximately $3.3 million from asset sales and equipment financings to reduce this obligation subsequent to September 30, 1999. The Company expects that it will be able to meet its remaining obligation on April 30, 2000 through the use of funds from operations, the deferral of certain planned capital expenditures, debt financings and refinancings or asset dispositions. In the event that the Company does not meet its obligation on April 30, 2000, the lenders will be entitled to pursue all rights available under the New Credit Facility. Subsequent to September 30, 1999, the Company was in violation of two technical covenants of its New Credit Facility. On January 11, 2000, the Company signed an amendment to its New Credit Facility that waived the violations and modified the covenants. Management believes they can meet these covenants in the future. The Company has typically hedged a portion of its currency fluctuation risk by borrowing in French francs, British pounds sterling and Japanese yen under its New Credit Facility. Cash generated from the Company's France, England and Japan offices is typically denominated in French francs, British pounds sterling and Japanese yen, respectively, and is used to pay expenses incurred in those currencies and service any foreign currency borrowings. The amendment to the New Credit Facility, on January 11, 2000, eliminated the Company's ability to borrow foreign currencies under the New Credit Facility. In the future, the Company may use other financial instruments to hedge its foreign currency fluctuation risk. Prior to fiscal 1999, the Company had funded the costs to manufacture automated lighting equipment to be rented to certain distributors with advances made by the distributors under the terms of the Company's distributorship agreements. The distributors typically advanced to the Company an amount equal to the cost to manufacture the equipment, and entered into agreements whereby the distributors had the exclusive right to sublease the lighting equipment within defined territories. Borrowings by the Company under these agreements, which are secured by liens against the applicable equipment, are repaid by the Company through future rentals due from the distributors under the terms of their distributorship agreements and bear interest at various rates ranging up to 7% annually. Proceeds received under these distributorship agreements were approximately $1.2 million and $0.7 million for fiscal 1997 and 1998, respectively, and outstanding borrowings from distributors at September 30, 1997, 1998 and 1999 were approximately $2.3 million, $1.2 million and $0.3 million, respectively. All amounts advanced by distributors are accounted for by the Company as short-term debt. See "Business--Marketing, Sales and Distribution." 19 The Company has borrowed money to purchase computer equipment and office furniture and fixtures and conventional lighting equipment. These loans typically amortize over three years and bear interest at various rates ranging from 2.0% to 8.71%. Proceeds received under this type of financing were approximately $1.1 million, $2.0 million and $1.4 million for fiscal 1997, 1998 and 1999, respectively, and borrowings outstanding under this type of financing at September 30, 1997, 1998 and 1999 were approximately $2.6 million, $3.2 million and $2.6 million, respectively. In November 1999, the Company borrowed an additional $1.8 under a three-year amortizing loan. The Company has also used customer advances to fund short-term working capital and immediate capital expenditure needs for specific contracts. As of September 30, 1997, 1998 and 1999, the Company had unearned revenue related to customer advances of approximately $3.0 million, $1.7 million and $2.6 million, respectively. Dividends paid to stockholders totaled approximately $0.6 million with respect to fiscal 1997. The Company did not pay dividends in fiscal 1998 and 1999 and does not anticipate paying any additional cash dividends for the foreseeable future. See "Market for Registrant's Common Equity and Related Stockholder Matters." Historically, the Company's business has required significant capital expenditures. Capital expenditures for fiscal 1997, 1998 and 1999 were approximately $23.2 million, $25.8 million and $12.9 million, respectively, of which approximately $19.2 million, $22.6 million and $11.2 million were for rental equipment inventories. The majority of the Company's revenues are generated through the rental of automated lighting and concert sound systems and, as such, the Company must maintain a significant amount of rental equipment to meet customer demands. Total rental equipment inventories increased from approximately $61.6 million at the beginning of fiscal 1995 to $134.1 million at September 30, 1999. This increase primarily consisted of automated lighting equipment, including new products, additional inventory of existing products and the replacement of equipment leased under sales-type leases. The amended New Credit Facility limits the Company's capital expenditures in fiscal 2000 to $4.0 million, which will be used primarily to purchase rental equipment. Inventory included in current assets consists primarily of spare parts inventory for the Company's VARI*LITE-Registered Trademark- automated lighting equipment and, until the sale of the Irideon-Registered Trademark- product line in October 1998, raw materials and finished goods for Irideon-Registered Trademark- products. Raw materials represented 86%, 87% and 89% of total inventory at September 30, 1997, 1998 and 1999, respectively. The Company had a working capital deficit of approximately $0.8 million at September 30, 1997. The Company had a working capital surplus of $6.2 million at September 30, 1998 and a working capital deficit of approximately $0.2 million at September 30, 1999. The Company has historically maintained working capital deficits since the bulk of its revenue generating assets are classified as long-term assets rather than current assets. The working capital surplus in 1998 was primarily the result of terminating the Old Credit Agreement, which included borrowings classified as current at September 30, 1997, with proceeds from the New Credit Facility. Management believes that cash flow generated from operations and borrowing capacity under the New Credit Facility will not be sufficient to meet the scheduled commitment reductions under the New Credit Facility, the anticipated operating cash needs and capital expenditures for the next twelve months. Additionally, the New Credit Facility has a maturity date of January 1, 2001 at which time the entire amounts outstanding under the facility will become due. The Company is currently in discussions with several banks regarding the refinancing of the New Credit Facility. The Company's management believes that they will obtain adequate cash from operations, cost reductions, deferral of capital expenditures, asset sales, other financing sources and either proceeds from a new credit agreement or an amendment to the New Credit Facility to meet the Company's needs for the next twelve months and for the maturity of the New Credit Facility. Because the Company's future operating results will depend on a number of factors, including the demand for the Company's products and services, the success of the Company to market, sale 20 and support products sold, the level of competition, the success of the Company's research and development programs, the ability to achieve competitive and technological advances and general and economic conditions and other factors beyond the Company's control, there can be no assurance that sufficient capital resources will be available to fund the expected expansion of its business beyond such period. INFLATION The Company has generally been able to offset cost increases with increases in the rental rates and sales prices charged for its products and services. Accordingly, the Company does not believe that inflation has had a material effect on its results of operations to date. However, there can be no assurance that the Company's business will not be adversely affected by inflation in the future. IMPACT OF THE YEAR 2000 ISSUE The term "year 2000 issue" is a general term used to describe the various problems that may result from the improper processing of dates and date-sensitive calculations by computers and other machinery as the year 2000 was approached and reached. These problems generally arise from the fact that most of the world's computer hardware and software have historically used only two digits to identify the year in a date, often meaning that the computer will fail to distinguish dates in the "2000's" from dates in the "1900's". These problems may also arise from other sources as well, such as the use of special codes and conventions in software that make use of the date field. In 1995 and 1996, the Company invested approximately $2.2 million constructing a wide-area network throughout the United States and implementing Oracle financial and manufacturing applications. In October 1998, the Company developed an extensive Year 2000 readiness plan. This was a comprehensive project to review and modify, as necessary, its computer applications, hardware and other equipment to make them Year-2000 compliant. The project was organized into three principal areas: hardware/software on desktop systems, hardware/software on embedded systems and hardware/software on enterprise systems. Each of these areas involved inventory, assessment, remediation, testing and implementation. The Company completed all business-critical systems remediation, testing and implementation by September of 1999. In addition, the Company obtained compliance statements from all major vendors, customers and manufactures of all computer-related equipment and devices. As a result of the successful implementation and deployment of the Company's Year 2000 readiness plan, the Company has experienced no downtime or loss of any information as a result of the year 2000 change over. The Company is committed to continuous monitoring of all systems, applications and operating systems. Updates for applications and operating systems will be obtained as they become necessary and available. All new systems and software will be added only after compliance has been verified. DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS This report includes "forward-looking statements" as that phrase is defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. When used in this report, the words "anticipate," "believe," "estimate," "expect," "will," "could," "may" and similar expressions, as they relate to management or the Company, are intended to identify forward-looking statements. Such statements reflect the current views of management with respect to future events and are subject to certain risks, uncertainties and assumptions, including without limitation the following as they relate to the Company: fluctuations in operating results and seasonality; ability to introduce new products; the success of the Company to market, sale and support products sold; technological changes; reliance on intellectual property; dependence on entertainment industry; competition; dependence on management; foreign exchange risk; international trade risk; dependence on key suppliers and dependence on manufacturing facility; and the year 2000 issue. Should one or more of these risks or uncertainties 21 materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described herein. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. The Company is exposed to market risk primarily due to fluctuations in interest rates and foreign currency. As of September 30, 1999, with all other variables held constant, a hypothetical one percentage point increase in interest rates would result in an increase in interest expense of approximately $0.5 million. The Company has typically hedged a portion of its currency fluctuation risk by borrowing in French francs, British pounds sterling and Japanese yen under its New Credit Facility. Cash generated from the Company's France, England and Japan offices is typically denominated in French francs, British pounds sterling and Japanese yen, respectively, and is used to pay expenses incurred in those currencies and service any foreign currency borrowings. The amendment to the New Credit Facility, on January 11, 2000, eliminated the Company's ability to borrow foreign currencies under the New Credit Facility. In the future, the Company may use other financial instruments to hedge its foreign currency fluctuation risk. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The consolidated financial statements of the Company and its subsidiaries which are required by this Item 8 are listed in Part IV, Item 14(a) of this report. Such consolidated financial statements are included herein beginning on page F-1. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not Applicable. 22 PART III Certain information required by Part III is omitted from this Report on the basis that the registrant will file a definitive proxy statement pursuant to Regulation 14A for its annual meeting of shareholders to be held on March 10, 2000 (the "Proxy Statement") not later than 120 days after the end of the fiscal year covered by this Report, and certain information included therein is incorporated herein by reference. Only those sections of the Proxy Statement which specifically address the items set forth herein are incorporated by reference. Such incorporation does not include the Report of the Compensation Committee and Omnibus Committee on Executive Compensation or the Stock Performance Graph included in the Proxy Statement. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information concerning the Company's directors and executive officers required by this item is incorporated by reference to the sections entitled "Election of Directors" and "Management--Executive Officers" in the Proxy Statement. ITEM 11. EXECUTIVE COMPENSATION The information required by this Item is incorporated by reference to the section entitled "Executive Compensation" in the Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this Item is incorporated by reference to the section entitled "Outstanding Capital Stock" and "Section 16(a) Beneficial Ownership Reporting Compliance" in the Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this Item is incorporated by reference to the section entitled "Transactions with Directors, Officers and Affiliates" in the Proxy Statement. 23 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a) Financial Statements The Financial Statements listed below are filed as part of this Annual Report on Form 10-K. (b) Financial Statement Schedule
SCHEDULE DESCRIPTION PAGE - -------- ----------- -------- II Valuation and Qualifying Accounts........................... S-1
The auditors' report with respect to the above-listed financial statement schedule appears on page F-2 of this report. All other financial statements and schedules not listed are omitted either because they are not applicable or not required, or the required information is included in the consolidated financial statements. (c) Reports on Form 8-K A Form 8-K was filed on September 27, 1999 reporting on the adoption by the Company of a Rights Plan. (d) Exhibits
EXHIBIT NO. DESCRIPTION - --------------------- ----------- 3.1 -- Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Company's Registration Statement on Form S-1 No. 333-33559) 3.2 -- By-Laws of the Company (incorporated by reference to Exhibit 3.2 to the Company's Registration Statement on Form S-1 No. 333-33559) *3.3 -- Certificate of Designation of Rights, Preferences and Privileges of Series A Junior Participating Preferred Stock, dated September 22, 1999 4.1 -- Form of certificate representing shares of the Company's Common Stock (incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on Form S-1 No. 333-33559) 4.2 -- Warrant Agreement, dated as of July 31, 1996, among the Company, Brown Brothers Harriman & Co., NBD Bank, SunTrust Bank, Atlanta (formerly known as Trust Company Bank) and Comerica BankTexas (incorporated by reference to Exhibit 4.2 to the Company's Registration Statement on Form S-1 No. 333-33559) *4.3 -- Supplement, dated as of August 31, 1999, to the Warrant Agreement, dated as of July 31, 1996, between the Company and Chase Bank of Texas, N.A. *4.4 -- Amendment No. 1 dated as of August 31, 1999 to the Warrant Agreement, dated as of July 31, 1996, between the Company and Brown Brothers Harriman & Co. *4.5 -- Amendment No. 1 dated August 31, 1999, to the Warrant Agreement, dated as of July 31, 1996, between the Company and Suntrust Bank, Atlanta *4.6 -- Amendment No. 1 dated August 31, 1999, to the Warrant Agreement, dated as of July 31, 1996, between the Company and Comerica Bank-Texas *4.7 -- Amendment No. 1 dated August 31, 1999, to the Warrant Agreement, dated as of July 31, 1996, between the Company and The First National Bank of Chicago (as successor to NBD Bank)
24
EXHIBIT NO. DESCRIPTION - --------------------- ----------- *4.8 -- Supplement, dated August 31, 1999, to the Warrant Agreement, dated as of July 31, 1996, between the Company, Brown Brothers Harriman & Co., the First National Bank of Chicago as successor to NBD Bank, Suntrust Bank, Comerica Bank-Texas, and Chase Bank of Texas, N.A. (CBT) 10.1 -- Employment Agreement, dated as of July 1, 1995, between the Company and H.R. Brutsche III (incorporated by reference to Exhibit 10.1 to the Company's Registration Statement on Form S-1 No. 333-33559) 10.2 -- Amendment No. 1, dated as of August 11, 1997, to the Employment Agreement, dated as of July 1, 1995, between the Company and H.R. Brutsche III (incorporated by reference to Exhibit 10.2 to the Company's Registration Statement on Form S-1 No. 333-33559) 10.3 -- Consulting Agreement, dated as of July 1, 1995, between the Company and J. Anthony Smith (incorporated by reference to Exhibit 10.3 to the Company's Registration Statement on Form S-1 No. 333-33559) 10.4 -- Consulting Agreement, dated as of July 1, 1995, between the Company and John D. Maxson (incorporated by reference to Exhibit 10.4 to the Company's Registration Statement on Form S-1 No. 333-33559) 10.5 -- Amendment No. 1, dated as of August 11, 1997, to the Consulting Agreement, dated as of July 1, 1995, between the Company and John D. Maxson (incorporated by reference to Exhibit 10.5 to the Company's Registration Statement on Form S-1 No. 333-33559) 10.6 -- Consulting Agreement, dated as of July 1, 1995, between the Company and James H. Clark, Jr. (incorporated by reference to Exhibit 10.6 to the Company's Registration Statement on Form S-1 No. 333-33559) 10.7 -- Deferred Compensation Agreement, dated as of July 1, 1995, between the Company and H. R. Brutsche III (incorporated by reference to Exhibit 10.7 to the Company's Registration Statement on Form S-1 No. 333-33559) 10.8 -- Deferred Compensation Agreement, dated as of July 1, 1995, between the Company and John D. Maxson (incorporated by reference to Exhibit 10.8 to the Company's Registration Statement on Form S-1 No. 333-33559) 10.9 -- Deferred Compensation Agreement, dated as of July 1, 1995, between the Company and James H. Clark, Jr. (incorporated by reference to Exhibit 10.9 to the Company's Registration Statement on Form S-1 No. 333-33559) 10.10 -- Deferred Compensation Agreement, dated as of July 1, 1995, between the Company and J. Anthony Smith (incorporated by reference to Exhibit 10.10 to the Company's Registration Statement on Form S-1 No. 333-33559) 10.11 -- Compensation Continuation Agreement, dated as of March 31, 1994, among the Company, Vari-Lite, Inc., Showco, Inc. and H. R. Brutsche III (incorporated by reference to Exhibit 10.11 to the Company's Registration Statement on Form S-1 No. 333-33559) 10.12 -- Compensation Continuation Agreement, dated as of March 31, 1994, among the Company, Vari-Lite, Inc., Showco, Inc. and John D. Maxson (incorporated by reference to Exhibit 10.12 to the Company's Registration Statement on Form S-1 No. 333-33559) 10.13 -- Compensation Continuation Agreement, dated as of March 31, 1994, among the Company, Vari-Lite, Inc., Showco, Inc. and James H. Clark, Jr. (incorporated by reference to Exhibit 10.13 to the Company's Registration Statement on Form S-1 No. 333-33559)
25
EXHIBIT NO. DESCRIPTION - --------------------- ----------- 10.14 -- Statement and Terms of Employment, dated as of April 1, 1994, between Vari-Lite Europe Ltd. and Brian L. Croft (incorporated by reference to Exhibit 10.14 to the Company's Registration Statement on Form S-1 No. 333-33559) 10.15 -- Split-Dollar Agreement, dated as of October 12, 1995, among the Company, Brown Brothers Harriman Trust Company of Texas, trustee of the H.R. Brutsche III Insurance Trust, and H.R. Brutsche III (incorporated by reference to Exhibit 10.15 to the Company's Registration Statement on Form S-1 No. 333-33559) 10.16 -- Amended and Restated Split-Dollar Agreement, dated as of October 12, 1995, among the Company, Brown Brothers Harriman Trust Company of Texas, trustee of the H.R. Brutsche III Insurance Trust, and H. R. Brutsche III (incorporated by reference to Exhibit 10.16 to the Company's Registration Statement on Form S-1 No. 333- 33559) 10.17 -- Amended and Restated Split-Dollar Agreement, dated as of October 12, 1997, among the Company, Brown Brothers Harriman Trust Company of Texas, trustee of the John D. Maxson 1995 Irrevocable Trust, and John D. Maxson (incorporated by reference to Exhibit 10.17 to the Company's Registration Statement on Form S-1 No. 333- 33559) 10.18 -- Split-Dollar Life Insurance Agreement, dated as of October 12, 1995, among the Company, James Howard Cullum Clark and James H. Clark, Jr. (incorporated by reference to Exhibit 10.18 to the Company's Registration Statement on Form S-1 No. 333-33559) 10.19 -- Amended and Restated Split-Dollar Agreement, dated as of October 12, 1995, between the Company, James Howard Cullum Clark and James H. Clark, Jr. (incorporated by reference to Exhibit 10.19 to the Company's Registration Statement on Form S-1 No. 333-33559) 10.20 -- Vari-Lite International, Inc. 1997 Omnibus Plan (including forms of Incentive Stock Option Agreement and Nonqualified Stock Option Agreement) (incorporated by reference to Exhibit 10.20 to the Company's Registration Statement on Form S-1 No. 333-33559) 10.21 -- Vari-Lite International, Inc. Employees' Stock Ownership Plan (incorporated by reference to Exhibit 10.21 to the Company's Registration Statement on Form S-1 No. 333-33559) 10.22 -- Vari-Lite International, Inc. Employees' Stock Equivalence Plan (incorporated by reference to Exhibit 10.22 to the Company's Registration Statement on Form S-1 No. 333-33559) 10.23 -- Vari-Lite International, Inc. Annual Incentive Plan (as amended and restated) (incorporated by reference to Exhibit 10.23 to the Company's Registration Statement on Form S-1 No. 333-33559) 10.24 -- Employment Agreement, dated as of August 28, 1995, by and between the Company and James E. Kinnu (incorporated by reference to Exhibit 10.34 to the Company's Registration Statement on Form S-1 No. 333-33559) 10.25 -- Severance Agreement, dated as of September 30, 1996, by and between the Company and James E. Kinnu (incorporated by reference to Exhibit 10.35 to the Company's Registration Statement on Form S-1 No. 333-33559) 10.26 -- Ground Lease, dated as of December 21, 1995, among Brazos Beltline Development, Inc. and Vari-Lite, Inc., Showco, Inc., IGNITION! Creative Services, Inc., Concert Production Lighting, Inc. and Irideon, Inc. (incorporated by reference to Exhibit 10.36 to the Company's Registration Statement on Form S-1 No. 333-33559) 10.27 -- Guaranty, dated as of December 21, 1995, by the Company (incorporated by reference to Exhibit 10.37 to the Company's Registration Statement on Form S-1 No. 333-33559)
26
EXHIBIT NO. DESCRIPTION - --------------------- ----------- 10.28 -- Form of Indemnification Agreement with Directors and Officers (incorporated by reference to Exhibit 10.38 to the Company's Registration Statement on Form S-1 No. 333-33559) 10.29 -- Agreement and Plan of Merger, dated as of August 27, 1997, between the Company and Vari-Lite Texas (incorporated by reference to Exhibit 10.39 to the Company's Registration Statement on Form S-1 No. 333-33559) 10.30 -- International Swap Dealers Association, Inc. Master Agreement, dated as of November 23, 1993, between the Company and Brown Brothers, Harriman & Co. (along with confirmation of Interest Rate Swap Transaction) (incorporated by reference to Exhibit 10.40 to the Company's Registration Statement on Form S-1 No. 333- 33559) 10.31 -- International Swap Dealers Association, Inc. Master Agreement, dated as of September 13, 1996, between Vari-Lite, Inc. and SunTrust Bank, Atlanta (along with confirmations of Interest Rate Transactions) (incorporated by reference to Exhibit 10.41 to the Company's Registration Statement on Form S-1 No. 333-33559) 10.32 -- Multicurrency Credit Agreement, dated as of December 19, 1997, among the Company and SunTrust Bank, Atlanta, as agent for the other banks thereunder (incorporated by reference to Exhibit 10.32 to the Company's Annual Report on Form 10-K for the year ended September 30, 1997) 10.33 -- Amendment No.1, dated April 24, 1998 to the Multicurrency Credit Agreement, dated as of December 19, 1997, among the Company and SunTrust Bank, Atlanta, as agent for the other banks thereunder (incorporated by reference 10.33 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1998) 10.34 -- Amendment No. 2, dated July 31, 1998 to the Multicurrency Credit Agreement, dated as of December 19, 1997, among the Company and SunTrust Bank, Atlanta, as agent for the other banks thereunder (incorporated by reference to Exhibit 10.34 to the Company's Quarterly Report for the quarterly period ended June 30, 1998) 10.35 -- Amendment No. 3, dated December 15, 1998 to the Multicurrency Credit Agreement, dated as of December 19, 1997, among the Company and SunTrust Bank, Atlanta, as agent for the other banks thereunder (incorporated by reference to Exhibit 10.35 to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1998) 10.36 -- Amendment No. 1, effective November 2, 1998, to the Deferred Compensation Agreement, dated as of July 1, 1995, between the Company and H.R. Brutsche' III (incorporated by reference to Exhibit 10.36 to the Company's Quarterly Report for the quarterly period ended December 31, 1998) 10.37 -- Amendment No. 1, effective November 2, 1998, to the Deferred Compensation Agreement, dated as of July 1, 1995, between the Company and John D. Maxson (incorporated by reference to Exhibit 10.37 to the Company's Quarterly Report for the quarterly period ended December 31, 1998) 10.38 -- Amendment No. 1, effective November 2, 1998, to the Deferred Compensation Agreement, dated as of July 1, 1995, between the Company and James H. Clark, Jr. (incorporated by reference to Exhibit 10.38 to the Company's Quarterly Report for the quarterly period ended December 31, 1998) 10.39 -- Amendment No. 1, effective November 2, 1998, to the Deferred Compensation Agreement, dated as of July 1, 1995, between the Company and J. Anthony Smith (incorporated by reference to Exhibit 10.39 to the Company's Quarterly Report for the quarterly period ended December 31, 1998)
27
EXHIBIT NO. DESCRIPTION - --------------------- ----------- 10.40 -- Amendment No. 1, effective January 1, 1998, to the Vari-Lite International, Inc. Employees' Stock Ownership Plan dated September 27, 1995 (incorporated by reference to Exhibit 10.40 to the Company's Quarterly Report for the quarterly period ended March 31, 1999) 10.41 -- Amendment No. 1, effective January 1, 1998, to the Vari-Lite International, Inc. Employees' Stock Ownership Trust dated September 27, 1995 (incorporated by reference to Exhibit 10.41 to the Company's Quarterly Report for the quarterly period ended March 31, 1999) 10.42 -- Amendment No. 4, dated April 1, 1999 to the Multicurrency Credit Agreement, dated as of December 19, 1997, among the Company and SunTrust Bank, Atlanta, as agent for the banks thereunder (incorporated by reference to Exhibit 10.42 to the Company's Quarterly Report for the quarterly period ended March 31, 1999) 10.43 -- Temporary Waiver Agreement, dated August 12, 1999 to the Multicurrency Credit Agreement, dated as of December 19, 1997, among the Company and SunTrust Bank, Atlanta, as agent for the banks thereunder (incorporated by reference to Exhibit 10.43 to the Company's Quarterly Report for the quarterly period ended June 30, 1999) 10.44 -- Rights Agreement, dated as of September 27, 1999, by and between the Company and Chase Mellon shareholder services, L.L.C. (incorporated by reference to Exhibit 4.1 to the Company's Form 8-K filed September 22, 1999) *10.45 -- Amendment No. 5, dated August 25, 1999, to the Multicurrency Credit Agreement, dated as of December 19, 1997, among the Company and SunTrust Bank, Atlanta, as agent for the banks thereunder *10.46 -- Amendment No. 6, dated January 11, 2000, to the Multicurrency Credit Agreement, dated as of December 19, 1997, among the Company and Sun Trust Bank, Atlanta, as agent for the banks thereunder. 21.1 -- List of Company's Subsidiaries (incorporated by reference to Exhibit 21.1 to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1998) *23.1 -- Consent of Deloitte & Touche, LLP *27.1 -- Financial Data Schedule
- ------------------------ * Filed herewith. 28 SIGNATURES Pursuant to the requirements of the Section 13 or 15(d) of Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Dallas and State of Texas on the 13th day of January, 2000. VARI-LITE INTERNATIONAL, INC. By: /s/ H.R. BRUTSCHE' III ----------------------------------------- H.R. Brutsche' III Chairman of the Board and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities on the 13th day of January, 2000.
/s/ H.R. BRUTSCHE' III ------------------------------------------- Chariman of the Board and Chief Executive H.R. Brutsche' III Officer (Principal Executive Officer) /s/ JEROME L. TROJAN III Vice President--Finance, Chief Financial ------------------------------------------- Officer, Treasurer and Secretary (Principal Jerome L. Trojan III Financial and Accounting Officer) /s/ JAMES H. CLARK, JR. ------------------------------------------- Director James H. Clark, Jr. /s/ JOHN D. MAXSON ------------------------------------------- Director John D. Maxson /s/ C. VINCENT PROTHRO ------------------------------------------- Director C. Vincent Prothro /s/ JOHN R. RETTBERG ------------------------------------------- Director John R. Rettberg /s/ J. ANTHONY SMITH ------------------------------------------- Director J. Anthony Smith
29 INDEX TO FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS OF VARI-LITE INTERNATIONAL, INC. AND SUBSIDIARIES
Independent Auditors' Report................................ F-2 Consolidated Balance Sheets as of September 30, 1998 and 1999...................................................... F-3 Consolidated Statements of Operations and Comprehensive Income (Loss) for the Years Ended September 30, 1997, 1998, and 1999............................................ F-4 Consolidated Statements of Stockholders' Equity for the Years Ended September 30, 1997, 1998 and 1999............. F-5 Consolidated Statements of Cash Flows for the Years Ended September 30, 1997, 1998 and 1999......................... F-6 Notes to Consolidated Financial Statements.................. F-7
The following financial statement supplementary schedule of the Registrant and its subsidiaries required to be included in Item 14 (a) (b) is listed below:
Schedule II--Valuation and Qualifying Accounts.............. S-1
F-1 INDEPENDENT AUDITORS' REPORT To the Stockholders of Vari-Lite International, Inc. Dallas, Texas We have audited the accompanying consolidated balance sheets of Vari-Lite International, Inc. and subsidiaries (herein referred to as "the Company") as of September 30, 1998 and 1999, and the related consolidated statements of operations and comprehensive income (loss), stockholders' equity and of cash flows for each of the three years in the period ended September 30, 1999. Our audits also included the financial statement schedule listed in the index at Item 14 (a)(b). These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 1998 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 1999, in conformity with generally accepted accounting principles. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /s/ DELOITTE & TOUCHE LLP Dallas, Texas December 14, 1999 (January 11, 2000 as to the fifth paragraph of Note E) F-2 VARI-LITE INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 1998 AND 1999 (IN THOUSANDS EXCEPT SHARE DATA)
1998 1999 -------- -------- ASSETS CURRENT ASSETS: Cash...................................................... $ 3,838 $ 1,969 Receivables, less allowance for doubtful accounts of $900 and $720................................................ 13,471 13,056 Inventory................................................. 6,075 6,586 Prepaid expense and other current assets.................. 1,749 1,715 -------- -------- TOTAL CURRENT ASSETS.................................... 25,133 23,326 EQUIPMENT AND OTHER PROPERTY: Lighting and sound equipment.............................. 127,763 135,220 Machinery and tools....................................... 5,097 6,044 Furniture and fixtures.................................... 4,439 5,009 Office and computer equipment............................. 10,399 11,060 Work in progress and raw materials inventory.............. 5,320 3,040 -------- -------- 153,018 160,373 Less accumulated depreciation and amortization.......... 71,745 83,323 -------- -------- 81,273 77,050 OTHER ASSETS................................................ 8,221 7,324 -------- -------- TOTAL ASSETS............................................ $114,627 $107,700 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable and accrued expenses..................... $ 13,189 $ 11,855 Unearned revenue.......................................... 1,694 2,606 Income taxes payable...................................... 999 440 Current portion of long-term obligations.................. 3,049 8,591 -------- -------- TOTAL CURRENT LIABILITIES............................... 18,931 23,492 LONG-TERM OBLIGATIONS....................................... 47,284 39,459 DEFERRED INCOME TAXES....................................... 3,708 1,514 -------- -------- TOTAL LIABILITIES....................................... 69,923 64,465 COMMITMENTS AND CONTINGENCIES (Note F)...................... -- -- STOCKHOLDERS' EQUITY: Preferred Stock, $0.10 par value (10,000,000 shares authorized; no shares outstanding)...................... -- -- Common Stock, $0.10 par value (40,000,000 shares authorized; 7,845,167 shares issued; 7,800,003 shares outstanding)............................................ 785 785 Treasury Stock............................................ (186) (186) Additional paid-in capital................................ 24,426 25,026 Stockholder notes receivable.............................. (82) (30) Stock purchase warrants................................... 600 -- Accumulated other comprehensive income (loss)--foreign currency translation adjustment......................... (230) 892 Retained earnings......................................... 19,391 16,748 -------- -------- TOTAL STOCKHOLDERS' EQUITY.............................. 44,704 43,235 -------- -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.............. $114,627 $107,700 ======== ========
See notes to consolidated financial statements. F-3 VARI-LITE INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) YEARS ENDED SEPTEMBER 30, 1997, 1998 AND 1999 (IN THOUSANDS, EXCEPT SHARE DATA)
1997 1998 1999 ---------- ---------- ---------- Rental revenues............................................. $ 75,529 $ 74,863 $ 83,863 Product sales and services revenues......................... 15,129 13,513 7,669 ---------- ---------- ---------- TOTAL REVENUES............................................ 90,658 88,376 91,532 Rental cost................................................. 29,371 33,764 41,561 Product sales and services cost............................. 10,676 9,880 5,389 ---------- ---------- ---------- TOTAL COST OF SALES....................................... 40,047 43,644 46,950 ---------- ---------- ---------- GROSS PROFIT................................................ 50,611 44,732 44,582 Selling, general and administrative expense................. 32,983 35,077 38,360 Research and development expense............................ 6,657 6,690 5,586 Impairment of assets........................................ -- 3,542 -- Restructuring costs......................................... -- 1,080 600 ---------- ---------- ---------- TOTAL OPERATING EXPENSES.................................. 39,640 46,389 44,546 ---------- ---------- ---------- OPERATING INCOME (LOSS)..................................... 10,971 (1,657) 36 Interest expense (net)...................................... 3,726 2,818 4,404 ---------- ---------- ---------- INCOME (LOSS) BEFORE INCOME TAXES, EXTRAORDINARY LOSS AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE....... 7,245 (4,475) (4,368) Income taxes (benefit)...................................... 2,916 (1,785) (1,725) ---------- ---------- ---------- INCOME (LOSS) BEFORE EXTRAORDINARY LOSS AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE.................. 4,329 (2,690) (2,643) Extraordinary loss from early extinguishment of debt........ -- (737) -- Cumulative effect of change in accounting principle......... -- (195) -- ---------- ---------- ---------- NET INCOME (LOSS)........................................... 4,329 (3,622) (2,643) Other comprehensive income (loss)--foreign currency translation adjustment.................................... (544) (591) 1,122 ---------- ---------- ---------- COMPREHENSIVE INCOME (LOSS)................................. $ 3,785 $ (4,213) $ (1,521) ========== ========== ========== WEIGHTED AVERAGE SHARES OUTSTANDING......................... 5,799,328 7,712,332 7,800,003 Dilutive effect of stock warrants........................... 19,473 -- -- ---------- ---------- ---------- WEIGHTED AVERAGE DILUTED SHARES OUTSTANDING................. 5,818,801 7,712,332 7,800,003 ========== ========== ========== PER SHARE INFORMATION BASIC: Income (loss) before extraordinary loss and cumulative effect of change in accounting principle................ $ 0.75 $ (0.35) $ (0.34) Extraordinary loss........................................ $ -- $ (0.10) $ -- Cumulative effect of change in accounting principle....... $ -- $ (0.02) $ -- ---------- ---------- ---------- Net income (loss)......................................... $ 0.75 $ (0.47) $ (0.34) ========== ========== ========== DILUTED: Income (loss) before extraordinary loss and cumulative effect of change in accounting principle................ $ 0.74 $ (0.35) $ (0.34) Extraordinary loss........................................ $ -- $ (0.10) $ -- Cumulative effect of change in accounting principle....... $ -- $ (0.02) $ -- ---------- ---------- ---------- Net income (loss)......................................... $ 0.74 $ (0.47) $ (0.34) ========== ========== ========== Dividends declared........................................ $ 0.18 $ 0.00 $ 0.00 ========== ========== ==========
See notes to consolidated financial statements. F-4 VARI-LITE INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED SEPTEMBER 30, 1997, 1998 AND 1999 (IN THOUSANDS EXCEPT SHARE DATA)
PREFERRED STOCK COMMON STOCK TREASURY STOCK ADDITIONAL STOCKHOLDER ------------------- -------------------- ------------------- PAID-IN NOTES SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL RECEIVABLE -------- -------- --------- -------- -------- -------- ---------- ----------- BALANCE, OCTOBER 1, 1996.......... -- $-- 5,830,202 $583 (7,527) $ (28) $ 3,096 $(353) Dividends declared................ Purchase of treasury stock........ (37,637) (158) Payments on stockholder notes receivable...................... 177 Issuance of stock to the ESOP and ESEP............................ 14,965 2 248 Other comprehensive loss--foreign currency translation adjustment...................... Net income........................ --- --- --------- ---- ------- ----- ------- ----- BALANCE, SEPTEMBER 30, 1997....... -- -- 5,845,167 585 (45,164) (186) 3,344 (176) Initial public offering........... 2,000,000 200 21,082 Payments on stockholder notes receivable...................... 94 Other comprehensive loss--foreign currency translation adjustment...................... Net loss.......................... --- --- --------- ---- ------- ----- ------- ----- BALANCE, SEPTEMBER 30, 1998....... -- -- 7,845,167 785 (45,164) (186) 24,426 (82) Payments on stockholder notes receivable...................... 52 Repricing of stock warrants....... 600 Other comprehensive income--foreign currency translation adjustment.......... Net loss.......................... --- --- --------- ---- ------- ----- ------- ----- BALANCE, SEPTEMBER 30, 1999....... -- $-- 7,845,167 $785 (45,164) $(186) $25,026 $ (30) === === ========= ==== ======= ===== ======= ===== ACCUMULATED STOCK OTHER PURCHASE COMPREHENSIVE RETAINED WARRANTS INCOME EARNINGS TOTAL -------- ------------- -------- -------- BALANCE, OCTOBER 1, 1996.......... $ 600 $ 905 $19,735 $24,538 Dividends declared................ (1,051) (1,051) Purchase of treasury stock........ (158) Payments on stockholder notes receivable...................... 177 Issuance of stock to the ESOP and ESEP............................ 250 Other comprehensive loss--foreign currency translation adjustment...................... (544) (544) Net income........................ 4,329 4,329 ----- ------ ------- ------- BALANCE, SEPTEMBER 30, 1997....... 600 361 23,013 27,541 Initial public offering........... 21,282 Payments on stockholder notes receivable...................... 94 Other comprehensive loss--foreign currency translation adjustment...................... (591) (591) Net loss.......................... (3,622) (3,622) ----- ------ ------- ------- BALANCE, SEPTEMBER 30, 1998....... 600 (230) 19,391 44,704 Payments on stockholder notes receivable...................... 52 Repricing of stock warrants....... (600) -- Other comprehensive income--foreign currency translation adjustment.......... 1,122 1,122 Net loss.......................... (2,643) (2,643) ----- ------ ------- ------- BALANCE, SEPTEMBER 30, 1999....... $ -- $ 892 $16,748 $43,235 ===== ====== ======= =======
See notes to consolidated financial statements. F-5 VARI-LITE INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED SEPTEMBER 30, 1997, 1998 AND 1999 (IN THOUSANDS)
1997 1998 1999 -------- -------- -------- Cash flows from operating activities: Net income (loss)......................................... $ 4,329 $ (3,622) $ (2,643) Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization........................... 11,459 13,515 15,230 Amortization of note discount and deferred loan fees.... 346 83 136 Provision for doubtful accounts......................... 134 641 140 Extraordinary loss from early extinguishment of debt.... -- 737 -- Cumulative effect of change in accounting principle..... -- 195 -- Impairment of assets.................................... -- 3,542 -- Deferred income taxes................................... 1,470 (2,735) (2,194) Gain on sale of equipment and other property............ (171) (18) (159) Provisions for ESOP and ESEP contributions.............. 250 250 250 Gain on sale of Brilliant Stages, loss on sale of Dubai and cancellation of land lease......................... -- -- (462) Net change in assets and liabilities: Accounts receivable................................... (2,500) 1,758 268 Inventory............................................. (1,655) (3,561) (2,545) Prepaid expenses...................................... (1,720) 746 12 Other assets.......................................... (1,462) (3,085) 1,668 Accounts payable, accrued liabilities and income taxes payable.............................................. 3,960 (568) (2,119) Unearned revenue...................................... 797 (1,404) 912 -------- -------- -------- Net cash provided by operating activities............... 15,237 6,474 8,494 Cash flows from investing activities: Capital expenditures, including rental equipment.......... (23,212) (25,841) (12,914) Acquisition of European companies, net of cash acquired... -- (1,833) (1,192) Proceeds from sale of Irideon, Brilliant Stages and Dubai assets and cancellation of land lease................... -- -- 3,666 Proceeds from sale of equipment........................... 141 98 400 -------- -------- -------- Net cash used in investing activities................... (23,071) (27,576) (10,040) Cash flows from financing activities: Proceeds from issuance of debt............................ 21,997 79,760 33,178 Principal payments on debt................................ (12,189) (76,418) (34,765) Proceeds from issuance of distributor advances............ 1,237 690 -- Principal payments on distributor advances................ (1,667) (1,735) (646) Proceeds from payments on stockholder notes receivable.... 177 94 52 Proceeds from public offering of common stock............. -- 21,282 -- Purchase of treasury stock................................ (158) -- -- Dividends paid............................................ (1,051) -- -- -------- -------- -------- Net cash provided (used) by financing activities........ 8,346 23,673 (2,181) Effect of exchange rate changes on cash and cash equivalents............................................... (1,283) (595) 1,858 -------- -------- -------- Net increase (decrease) during the year..................... (771) 1,976 (1,869) Cash, beginning of year..................................... 2,633 1,862 3,838 -------- -------- -------- Cash, end of year........................................... $ 1,862 $ 3,838 $ 1,969 ======== ======== ======== SUPPLEMENTAL CASH FLOW INFORMATION Cash paid for interest expense............................ $ 4,102 $ 2,732 $ 3,958 Cash paid for income taxes................................ $ 1,787 $ 1,313 $ 821 Non-cash transactions: Warrants issued......................................... $ -- $ -- $ -- Warrants retired........................................ $ -- $ -- $ (600)
See notes to consolidated financial statements. F-6 VARI-LITE INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 1997, 1998 AND 1999 (IN THOUSANDS EXCEPT SHARE DATA) NOTE A--ORGANIZATION: The Company is a leading international designer, manufacturer and distributor of automated lighting equipment and provider of related services to the entertainment industry, servicing markets such as concert touring, theatre, television, film and corporate events. The Company markets its proprietary VARI*LITE automated lighting equipment and other products and services through its domestic and international Vari-Lite Production Services facilities and an independent dealer network. NOTE B--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: PRINCIPLES OF CONSOLIDATION AND USE OF ESTIMATES The consolidated financial statements of Vari-Lite International, Inc. include the accounts of its wholly-owned subsidiaries which consist of operating and holding companies. The operating companies consist of Vari-Lite, Inc., Showco, Inc., IR Sub, Inc. (formerly Irideon, Inc.), IGNITION! Creative Group, Inc., BS Sub, Ltd. (formerly Brilliant Stages, Ltd.), Vari-Lite Asia, Inc., Vari-Lite Production Services Hong Kong Limited, Vari-Lite Production Services, Ltd., Vari-Lite Production Services, SL, Vari-Lite Production Services, NV, Vari-Lite Production Services, AB, and Vari-Lite Production Services, SAS. The wholly-owned holding companies include Vari-Lite Europe Holdings Limited, Vari-Lite International Europe, B.V. and Vari-Lite Production Services Europe, NV. During 1998, the Company acquired two of its distributors for a total purchase price of approximately $3,160 which created approximately $1,000 of goodwill. In October 1998, the Company acquired the VARI*LITE-Registered Trademark- distribution rights and related assets of its French distributor for approximately $1,200, virtually all of which was recorded as goodwill. On October 30, 1998, the Company sold substantially all of the assets of its Irideon architectural automated lighting product line for its net book value, after writedown, of approximately $2,000, (see Note I). On December 31, 1998, the Company sold substantially all of the assets of Brilliant Stages, Ltd., one of the Company's European subsidiaries. On September 23, 1999, the Company sold substantially all of the assets of its Dubai operation. All material intercompany transactions and balances have been eliminated. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements. Actual results could differ from these estimates. INVENTORY Inventories are stated at the lower of cost (first-in, first-out method) or market. Market for raw materials is based on replacement cost and for other inventory classifications on net realizable value. Appropriate consideration is given to deterioration, obsolescence and other factors in evaluating net realizable value. EQUIPMENT AND OTHER PROPERTY Equipment and other property are stated at cost or, in the case of capitalized leases, at the lower of the present value of future lease payments or the fair value of the equipment. Depreciation and F-7 VARI-LITE INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED SEPTEMBER 30, 1997, 1998 AND 1999 (IN THOUSANDS EXCEPT SHARE DATA) NOTE B--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED) amortization are provided on the straight-line method over the estimated useful lives ranging from three to ten years of the various classes of equipment and other property. LONG-LIVED ASSETS As required by Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and Assets to be Disposed Of," the Company assesses potential impairments to its long-lived assets when there is evidence that events or changes in circumstances have made recovery of the assets' carrying value unlikely. An impairment loss would be recognized when the sum of the expected future net cash flows is less than the carrying amount of the asset. OTHER ASSETS The Company capitalizes and includes in other assets deferred financing costs and the costs of acquiring patents and trademarks on its products. Deferred financing costs are amortized over the term of the related debt. Amortization on patents and trademarks is computed on the straight-line basis over the lives of the patents or trademarks or the period of expected benefit. In addition, the Company capitalizes legal costs associated with the pursuit of third parties for infringement of certain of the Company's patents, copyrights and trademarks when the Company is successful, or management believes it will be successful, and that these costs will be recovered pursuant to SFAS No. 121. These costs are amortized over the lives of the applicable patents, copyrights and trademarks. GOODWILL Goodwill represents the excess of purchase price over the fair value of identifiable tangible and intangible net assets of businesses acquired. Goodwill is amortized on a straight-line basis over periods not exceeding 25 years. The recoverability of carrying values of intangible assets is evaluated on a recurring basis. The primary indicators are current and forecasted profitability of the related acquired business. FOREIGN CURRENCY TRANSLATION In accordance with SFAS No. 52, "Foreign Currency Translation," the asset and liability accounts of the Company's non-U.S. subsidiaries are translated into U.S. dollars using rates of exchange in effect at the balance sheet date. Revenues and expenses are translated at exchange rates which approximate the average rates prevailing during the year. The cumulative translation gains and losses are a component of comprehensive income and included in stockholders' equity. REVENUE RECOGNITION Revenues related to equipment rental and services are recognized as earned over the terms of the contracts. Revenues from long-term leases classified as sales-type leases are recognized upon delivery and installation of the equipment. Revenues related to the sale of products are recognized upon shipment of the equipment. F-8 VARI-LITE INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED SEPTEMBER 30, 1997, 1998 AND 1999 (IN THOUSANDS EXCEPT SHARE DATA) NOTE B--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED) RESEARCH AND DEVELOPMENT Costs incurred in connection with the development of new products are considered research and development costs and are charged to operations as incurred. DERIVATIVE INSTRUMENTS The Company had entered into an interest rate swap agreement to reduce the risks associated with variable interest rates. The interest rate swap agreement corresponded to a portion of the outstanding principal balance of the Company's line of credit. The Company recorded the amount paid or received pursuant to the swap agreement as an adjustment to interest expense, and the related payable or receivable to or from the counterparty as a liability or asset, respectively. The termination of the interest swap prior to the scheduled maturity resulted in a charge to expense for the amount of unamortized costs and payments required under the agreement. The Company terminated the interest rate swap agreement in August 1999 for $300 in cash from the counterparty. As a result, the Company recorded a gain for the amount of cash received. The gain is included in selling, general and administrative expenses in the accompanying income statement. The fair value of the interest rate swap agreement, which was carried at zero value at September 30, 1998 was a liability to the Company of approximately $940. FAIR VALUE OF FINANCIAL INSTRUMENTS In assessing the fair value of financial instruments at September 30, 1998 and 1999, the Company has used available market information and other valuation methodologies. Some judgment is necessarily required in interpreting market data to develop the estimates of fair value, and, accordingly, the estimates are not necessarily indicative of the amounts that the Company could realize in a current market exchange. The carrying amounts of cash, receivables, payables and long term obligations approximated fair value as of September 30, 1998 and 1999. EQUITY-BASED COMPENSATION SFAS No. 123 establishes a method of accounting whereby recognized option pricing models are used to estimate the fair value of equity based compensation, including options. The Company has elected, as provided by SFAS No. 123, not to recognize compensation expense for employee equity based compensation as calculated under SFAS No. 123, but will recognize any related expense in accordance with the provisions of APB Opinion No. 25. Disclosure of amounts required by SFAS 123 are included in Note G. INCOME TAXES The Company accounts for income taxes under the provisions of SFAS No. 109, "Accounting for Income Taxes," and files a consolidated federal income tax return. Deferred tax assets and liabilities are recorded based on the difference between the tax basis of assets and liabilities and their carrying amounts for financial reporting purposes, referred to as temporary differences. Provision is made for deferred taxes relating to temporary differences in the recognition of income and expense for financial reporting and for income tax purposes. F-9 VARI-LITE INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED SEPTEMBER 30, 1997, 1998 AND 1999 (IN THOUSANDS EXCEPT SHARE DATA) NOTE B--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED) NET INCOME PER SHARE Net income per share is calculated by dividing net income by the weighted average shares outstanding for the applicable period. Common stock equivalents, including warrants and options, are included, to the extent considered dilutive, using the treasury stock method and are assumed to be outstanding for the full period in the period of issuance. Options to purchase 556,000 and 736,100 shares of Common Stock at prices ranging from $1.125 to $13.20 were outstanding at September 30, 1998 and 1999, respectively, but were not included in the computation of diluted EPS because exercise prices of the options were greater than the average market price of the common shares. Warrants to purchase 242,233 and 296,057 shares of Common Stock at a price of $12.00 and $3.75 were outstanding at September 30, 1998 and 1999, respectively, but were not included in the computation of diluted EPS as they were antidilutive. ACCOUNTING STANDARDS CHANGES In 1998, the Accounting Standards Executive Committee ("AcSEC") issued Statement of Position ("SOP") 98-5, "Reporting on the Costs of Start-Up Activities," which requires that such costs be expensed as incurred. The Company's practice had been to record the costs of bringing significant new operations into operation as deferred charges and to amortize them over periods of not more than five years. The Company early adopted the SOP effective October 1, 1997, with a 1998 first quarter pre-tax charge of $282 ($195 after taxes, or $0.02 per basic and diluted share) as a cumulative effect of this accounting change. NEW ACCOUNTING PRONOUNCEMENTS In 1998, SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" was issued. This standard, which establishes new accounting and reporting standards for derivative financial instruments, must be adopted no later than 2001. The Company is currently analyzing the effect of this standard and does not expect it to have a material effect on the Company's consolidated financial position, results of operations or cash flows. SEGMENT REPORTING In June 1997, SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information", was issued, effective for fiscal years beginning after December 15, 1997. This Statement requires that public business enterprises report financial and descriptive information about their reportable operating segments. The Company operates in geographic segments located in North America, Europe and the Pacific Rim. The Company markets its products and services to the entertainment industry, including concert touring, theatre, television and film and corporate events markets. Depending on the circumstances, the Company solicits business from lighting and set designers and consultants, sound engineers, artist managers, producers, production managers and production companies, promoters, corporations and business associations. No customer has accounted for more than 10% of the Company's revenues for at least the last three fiscal years. The Company does not rely on any major customer for a significant amount of its operations. See Note M for segment information. F-10 VARI-LITE INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED SEPTEMBER 30, 1997, 1998 AND 1999 (IN THOUSANDS EXCEPT SHARE DATA) NOTE C--INVENTORY: Inventory consists of the following:
1998 1999 -------- -------- Raw materials............................................... $5,283 $5,854 Work in progress............................................ 616 587 Finished goods.............................................. 176 145 ------ ------ $6,075 $6,586 ====== ======
NOTE D--OTHER ASSETS: Other assets consist of the following:
1998 1999 -------- -------- Patents and trademarks...................................... $5,686 $3,170 Goodwill.................................................... 1,299 2,482 Deferred financing costs.................................... 426 900 Other, including sales-type lease receivables............... 1,144 1,555 ------ ------ 8,555 8,107 Less accumulated amortization............................... (334) (783) ------ ------ $8,221 $7,324 ====== ======
Included in the amount of patents and trademarks are the amounts capitalized by the Company relating to patent infringement suits in which the Company is the plaintiff (See Note F). F-11 VARI-LITE INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED SEPTEMBER 30, 1997, 1998 AND 1999 (IN THOUSANDS EXCEPT SHARE DATA) NOTE E--LONG-TERM OBLIGATIONS: Long-term obligations expressed in U.S. dollars consist of the following:
1998 1999 -------- -------- Revolving lines of credit: U.S. dollars............................................ $34,000 $33,360 British pounds sterling................................. 8,500 7,330 Japanese yen............................................ 981 2,587 French franc............................................ 1,340 1,222 ------- ------- Total revolving lines of credit....................... 44,821 44,499 Advances from distributors................................ 1,228 279 Obligations under capital leases with interest at 2.3% to 3.5%, maturities through 2003........................... 1,171 647 Term loans with interest at 7.5% to 8.7%.................. 3,113 2,625 ------- ------- 50,333 48,050 Less current portion...................................... (3,049) (8,591) ------- ------- $47,284 $39,459 ======= =======
Based on the outstanding amounts under the $50,000 multicurrency revolving credit facility (the "New Credit Facility") as of September 30, 1998 and 1999, the weighted average interest rates were 7.80% and 8.42%, respectively. On December 19, 1997, the Company entered into the New Credit Facility and canceled its existing credit facility. As of September 30, 1999, the commitment under the New Credit Facility, as amended on August 25, 1999, was $49,000. At September 30, 1999, the commitment under the New Credit Facility was $47,300. The commitment under the New Credit Facility decreases to $46,500 on March 31, 2000, $38,000 on April 30, 2000 and the loan matures on January 1, 2001. As of September 30, 1999, the Company has a principal payment of approximately $6,500 due in April 2000. The Company has used proceeds of approximately $3,300 from asset sales and equipment financings to reduce this obligation subsequent to September 30, 1999. The Company expects that it will be able to meet its remaining obligation on April 30, 2000 through the use of funds from operations, the deferral of certain planned capital expenditures, debt financings and refinancings or asset dispositions. In the event that the Company does not meet its obligation on April 30, 2000, the lenders will be entitled to pursue all rights available under the New Credit Facility. Subsequent to September 30, 1999, the Company was in violation of two technical covenants for its New Credit Facility. On January 11, 2000, the Company signed an amendment to its New Credit Facility that waived the violations and modified the covenants and eliminated the Company's ability to borrow foreign currencies and establish LIBOR borrowings under the facility. Borrowings under the amended New Credit Facility were $44,499 at September 30, 1999 and bear interest at the lender's base rate plus a rate margin ranging from 1.00% to 3.50% (8.42% as of September 30, 1999) based upon the Company's ratio of Adjusted Funded Debt to EBITDA (as defined in F-12 VARI-LITE INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED SEPTEMBER 30, 1997, 1998 AND 1999 (IN THOUSANDS EXCEPT SHARE DATA) NOTE E--LONG-TERM OBLIGATIONS: (CONTINUED) the New Credit Facility) and are secured by substantially all of the assets owned by the Company's domestic subsidiaries and a pledge of 65% of the outstanding capital stock of the Company's foreign subsidiaries. A commitment fee is charged on the average daily unused portion of the New Credit Facility at a rate ranging from 0.20% to 0.50% per annum based upon the ratio of Adjusted Funded Debt to EBITDA. The amended New Credit Facility contains compliance covenants, including requirements that the Company achieve certain financial ratios. In addition, the amended New Credit Facility places limitations on annual capital expenditures and on the ability to incur additional indebtedness, make certain loans or investments, sell assets, pay dividends or reacquire the Company's stock. At September 30, 1998, the Company had interest rate swap agreements with two of its primary lenders relating to a notional principal amount of $24,200, which effectively changed the Company's variable LIBOR interest rate exposure on a substantial portion of its U.S. dollar borrowings to a fixed weighted average interest rate of 7.79%. The interest rate swap agreements matured in 1999 ($4,200) and 2003 ($20,000). In August 1999, the Company terminated the interest rate swap agreements for $300 in cash which was recorded as a gain and is included in selling, general and administrative expenses in the accompanying financial statement. In December 1997, the Company expensed deferred financing costs related to the prior debt facility of $737 (net of tax benefit of $481) relating to the early extinguishment of debt, which have been reflected in the consolidated statements of income as an extraordinary loss for the year ended September 30, 1998. In 1999, the Company wrote off a portion of the deferred financing costs related to the New Credit Facility as a result of the modification in terms. The write-off of $271 is included in the interest expense in the accompanying financial statements. In connection with certain distributor agreements, the Company has received advances to provide the necessary funds for construction of the leased lighting systems (see Note H). The remaining balances outstanding under such borrowings at September 30, 1998 and 1999, were $1,228 and $279, respectively. Equipment with a net book value of approximately $3,900 at September 30, 1999 ($6,600 at September 30, 1998) has been pledged to the distributors as collateral for such loans. The interest rate on all of the notes ranged from 3% to 7% for the years ended September 30, 1998 and 1999. Substantially all the advances are nonrecourse and are repaid from the Company's portion of the rental revenue earned on the associated leases. Maturities of long-term obligations, including capital lease obligations, are approximately as follows:
1998 1999 -------- -------- Year one.................................................. $ 3,049 $ 8,591 Year two.................................................. 4,488 39,090 Year three................................................ 6,610 357 Year four................................................. 6,186 12 Year five................................................. 30,000 -- ------- ------- $50,333 $48,050 ======= =======
F-13 VARI-LITE INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED SEPTEMBER 30, 1997, 1998 AND 1999 (IN THOUSANDS EXCEPT SHARE DATA) NOTE F--COMMITMENTS AND CONTINGENCIES: In the ordinary course of its business, the Company is from time to time threatened with or named as a defendant in various lawsuits, including patent infringement claims. Additionally, the Company has filed lawsuits claiming infringements of its patents by third parties for which the Company has been subject to counterclaims. In August 1995, the Company brought suit asserting a number of claims of infringement of several of its patents by High End Systems, Inc. seeking monetary damages and injunctive relief to prevent future patent infringement (the "High End Lawsuit"). In December, 1998, the court approved a negotiated settlement between the Company and High End, the specific terms of which are confidential, but included a cash settlement paid to the Company, a cross license of certain patents and authorization for High End to continue to sell all of the products that were subject to the suit. In December 1998, the Company brought a similar suit against Martin Gruppen A/S and Martin Professional A/S (collectively"Martin"). In July 1999, the court entered a preliminary injunction which prohibits Martin from making, using, leasing or offering for sale or lease in the United States, or importing into the United States, certain Martin products, Martin was subsequently denied a stay of execution pending appeal and is pursuing an appeal to the injunction. The Company will continue with the suit, which is expected to go to trial in late 2000. In November 1999, four automated lighting manufacturers, Coemar S.p.A., Clay Paky S.p.A., SGM Elettronica, s.r.l. and Studio Due s.r.l., each filed suit against the Company. Each of the lawsuits seeks declaration from the court that one of the Company's patents, the subject of the High End lawsuit and the litigation with Martin, is invalid, unenforceable and/or not infringed by each of the lighting manufacturers. The Company has filed motions to dismiss these lawsuits. NOTE G--STOCKHOLDERS' EQUITY: On October 15, 1997, in conjunction with the Company's reincorporation in Delaware and an initial public offering, the Board of Directors of the Company created a new class of common stock and authorized 40,000,000 shares. As a result of the reincorporation, stockholders received 3.76368 shares of common stock for each share of the Company's Class A common stock and Class B common stock held by the stockholders. Share amounts and the weighted average shares outstanding for all periods presented give effect to the recapitalization of the common stock. In addition, the Company authorized 10,000,000 shares of preferred stock which the Company's Board of Directors may issue for such consideration and on such terms as it deems desirable, including voting and conversion rights that could adversely affect the holders of common stock. The Company filed a Registration Statement (Commission file no. 333-33559) for the public offering of 2,000,000 shares of common stock with the Securities and Exchange Commission, which became effective October 16, 1997. The shares were sold for $12.00 per share for an aggregate amount of $24,000. All of the shares sold were offered by the Company. The net offering proceeds to the Company of $21,282 were used to repay indebtedness under the Company's Credit Facility. On September 27, 1999, the Board of Directors approved the adoption of a Stockholders Rights Plan (the "Rights Plan"). The Rights Plan is designed to provide protection against coercive or unfair takeover F-14 VARI-LITE INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED SEPTEMBER 30, 1997, 1998 AND 1999 (IN THOUSANDS EXCEPT SHARE DATA) NOTE G--STOCKHOLDERS' EQUITY: (CONTINUED) tactics. Under the Rights Plan, the Company made a dividend distribution of one preferred stock purchase right for each share of common stock held of record as of September 27, 1999. Each right entitles the holder to buy one-one thousandth of a share of the Company's Series A Junior Participating Preferred Stock at an initial exercise price of $8.50. The Rights will be exercisable only if a person or group acquires beneficial ownership of 15% or more of the Company's common stock or announces a tender offer which would result in such a person or group beneficially owning 15% or more of the Company's common stock. At that time, each Right not owned by such person or group will entitle its holder to purchase, at the Rights then current exercise price, shares of the Company's common stock having a value of twice the Right's exercise price. The Rights are redeemable by the Company and expire on September 26, 2009. The Company adopted a fixed option plan during fiscal 1998 which reserves shares of common stock for issuance to executives, key employees and directors. No compensation cost has been recognized for the stock options which were issued at or above fair value at the date of grant in fiscal 1998 and 1999. Had compensation cost for the Company's stock option plans been determined based on the fair value at the grant date for awards in fiscal 1998 and 1999 consistent with the provisions in SFAS no. 123, the Company's net loss and loss per share would have been as follows:
1998 1999 -------- -------- Net loss.................................................. $(3,911) $(3,200) Basic and diluted net loss per share...................... $ (0.51) $ (0.41)
The weighted-average fair value of the individual options granted during fiscal 1998 and 1999 is estimated at $4.44 and $1.52, respectively, on the date of grant. The fair values were determined using a Black-Scholes option pricing model with the following assumptions for 1998 and 1999: Dividend yield.............................................. 0 Volatility.................................................. 30% Risk-free interest rate..................................... 6% Expected life............................................... 5 yrs.
Under the plan, the total number of stock options that may be granted is 800,000. The price of the options granted pursuant to the plan will be equal to the fair market value of the common stock on the F-15 VARI-LITE INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED SEPTEMBER 30, 1997, 1998 AND 1999 (IN THOUSANDS EXCEPT SHARE DATA) NOTE G--STOCKHOLDERS' EQUITY: (CONTINUED) date of grant. The options vest over a two month to five year period and expire after ten years from the date of grant.
1998 1999 -------------------- -------------------- WEIGHTED- WEIGHTED- AVERAGE AVERAGE OPTIONS EXERCISE OPTIONS EXERCISE (000) PRICE (000) PRICE -------- --------- -------- --------- Outstanding--Beginning of year........................... -- $ -- 556 $ 12.00 Granted.................................................. 576 12.00 651 3.07 Exercised................................................ -- -- -- -- Forfeited................................................ (20) 12.00 (74) (7.91) Canceled or expired...................................... -- -- (397) (11.87) --- ------ ---- ------- Outstanding--End of year................................. 556 12.00 736 4.58 === ==== Exercisable--End of year................................. 8 13.20 33 12.61 === ====
At September 30, 1999, exercise prices, number of options outstanding and remaining contractual life are as follows:
OUTSTANDING EXERCISABLE ---------------------------------------- -------------------- WEIGHTED- WEIGHTED- REMAINING AVERAGE NUMBER AVERAGE CONTRACTUAL NUMBER EXERCISE EXERCISE PRICE (000) EXERCISE PRICE LIFE (YEARS) (000) PRICE - -------------- -------- -------------- ------------ -------- --------- $1.125..................................... 170 $1.125 9.9 -- -- $3.75...................................... 444 $ 3.75 8.25 -- -- $12.00..................................... 80 $12.00 8.04 16 $12.00 $13.20..................................... 42 $13.20 3.04 17 $13.20
On November 28, 1998, the Company cancelled options to acquired 12,000 shares of Common Stock at $7.875, 6,000 shares of Common Stock at $11.875 and 378,700 shares of Common Stock at $12.00. The Company simultaneously issued options to acquire 396,700 shares of Common Stock at $3.75 per share which was above the fair market value on the date of grant In July 1996, in connection with an amendment to the Company's Credit Facility, the Company issued warrants to purchase up to 242,233 shares of Common Stock at an exercise price based on the Company's earnings as defined in the warrant agreement ($11.53 per share). These warrants were valued at $600 and recorded in stockholders' equity. The terms of the warrants also provide for registration rights and adjustments to the price and number of shares in certain circumstances. In August 1999, as part of an amendment to the Company's Credit Facility, the Company issued additional warrants to purchase 53,824 shares of Common Stock at $3.75 per share, which was above the fair market value on the date of issuance. Accordingly, these warrants were assigned no value. The amendment also repriced the warrants to purchase 242,233 shares from a price of $11.53 per share to $3.75 per share. In connection with the repricing, the value of the warrants were written off to additional paid in capital. The warrants expire on December 31, 2004 and as of September 30, 1999, no warrants had been exercised. F-16 VARI-LITE INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED SEPTEMBER 30, 1997, 1998 AND 1999 (IN THOUSANDS EXCEPT SHARE DATA) NOTE H--LEASES: AS LESSOR As lessor, the Company has agreements whereby it has leased certain lighting equipment to various distributors. These agreements are accounted for as operating leases. Under the terms of these agreements, these distributors have the exclusive right for a specified time period to market the lighting equipment by subrental within defined territories. The distributors' lease payments to the Company are based on a pre-determined percentage of the gross rental revenue received by the distributors from their subrental of the lighting equipment and amounted to approximately $4,197, $2,693 and $1,253 for the years ended September 30, 1997, 1998, and 1999, respectively. The lighting equipment under these leasing arrangements had a net book value of approximately $8,231, $6,594 and $3,850 at September 30, 1997, 1998 and 1999, respectively. The Company is also the lessor under sales-type leases. Leases classified as sales-type leases generally stipulate that all lease payments be made within 30 days of the commencement of the lease term; however, the Company has also entered into certain sales-type leases that allow for periodic payment throughout the term of the lease. The Company recorded revenues of $8,699, $1,154 and $4,665 and cost of products and services of $1,955, $369 and $1,674 for the years ended September 30, 1997, 1998 and 1999, respectively, related to sales-type leases. Equipment under leases which do not qualify as sales-type leases, including distributor leases and dealer leases, are accounted for as operating leases. Under dealer leases, dealers receive exclusive rights to subrent the Company's lighting equipment in certain geographic areas. The Company provides the lighting equipment to the dealers, who pay a monthly rental fee to the Company. Future minimum lease payments receivable on non-cancelable operating leases at September 30, 1999, are as follows:
OPERATING --------- Year one.................................................... $ 366 Year two.................................................... 168 Year three.................................................. 27 ------ Total minimum lease payments................................ $ 561 ======
AS LESSEE The Company leases certain computers and equipment. The following is a summary of assets held under capital leases:
1998 1999 -------- -------- Computers and equipment under capital leases.............. $ 4,455 $ 4,070 Less accumulated depreciation............................. (3,090) (3,263) ------- ------- Property under capital leases, net........................ $ 1,365 $ 807 ======= =======
F-17 VARI-LITE INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED SEPTEMBER 30, 1997, 1998 AND 1999 (IN THOUSANDS EXCEPT SHARE DATA) NOTE H--LEASES: (CONTINUED) The Company also leases manufacturing facilities and office space. The future minimum lease payments as of September 30, 1999, including those which relate to capital leases and are included in long-term obligations, are as follows:
CAPITAL OPERATING -------- --------- Year one................................................... $ 376 $1,366 Year two................................................... 190 1,245 Year three................................................. 118 1,140 Year four.................................................. -- 964 Year five.................................................. -- 601 Thereafter................................................. -- 1,573 ----- ------ Total minimum lease payments............................... 684 $6,889 ====== Less amount representing interest.......................... (37) ----- Present value of net minimum lease payments................ 647 Less current portion....................................... (351) ----- Long-term lease obligations................................ $ 296 =====
Rental expense for the years ended September 30, 1997, 1998 and 1999 was $2,616, $2,809 and $3,100, respectively. In December 1995, the Company entered into a lease with an unaffiliated developer for land. Rent expense under this lease was $388, $388 and $99 for the years ended September 30, 1997, 1998 and 1999. In December, 1998, the lease was canceled as a result of the sale of the land by the lessor, resulting in a gain to the Company of approximately $500 which is included in selling, general and administrative expense in the accompanying financial statements. NOTE I--IMPAIRMENT OF ASSETS: During fiscal 1998, the Company made a strategic decision to dispose of its Irideon-Registered Trademark- architectural automated lighting product line. As a result of this decision, the Irideon-Registered Trademark- assets were written down to their net realizable value in accordance with SFAS No. 121. This resulted in a pre-tax charge of $3,542 (or $2,179 after taxes, $0.28 per basic and diluted share). On October 30, 1998, the Company sold substantially all of the Irideon-Registered Trademark- assets for their net book value. NOTE J--RESTRUCTURING COSTS: In the fourth quarter of fiscal 1999, the Company recorded a pretax charge of $600 (or $369 after tax benefit, $0.05 per basic and diluted share) for the estimated costs of restructuring Company's operations. The charge includes severance payments and other costs associated with the terminations of approximately 15 employees. The charge also includes the cost associated with terminating leases and the write off of the net book value of leasehold improvements associated with the closing of two offices. Communication of the employee terminations and office closings occurred prior to September 30, 1999 and severance F-18 VARI-LITE INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED SEPTEMBER 30, 1997, 1998 AND 1999 (IN THOUSANDS EXCEPT SHARE DATA) NOTE J--RESTRUCTURING COSTS: (CONTINUED) payments are expected to be completed by the end of 2000. In the fourth quarter of fiscal 1998, the Company recorded a pretax charge of $1,080 (or $664 after tax benefit, $0.09 per basic and diluted share) for the estimated costs of restructuring the Company's operations. The costs were comprised primarily of severance payments and other employee related costs associated with terminating the employment of approximately 75 people. The following represents a rollforward of the restructuring accrual which is included in accounts payable and accrued expenses in the accompanying financial statements: Balance at September 30, 1998............................... $1,080 Severance payments to employees............................. (977) Legal fees.................................................. (54) Other....................................................... (9) Restructuring accrual recorded.............................. 600 ------ Balance at September 30, 1999............................... $ 640 ======
NOTE K--INCOME TAXES: The provision (benefit) for income taxes consists of the following:
1997 1998 1999 -------- -------- -------- Current: U.S. Federal.............................................. $ -- $ -- $ -- State..................................................... 38 33 8 International............................................. 1,408 917 461 Deferred: U.S. Federal.............................................. 927 (2,244) (1,608) State..................................................... 367 (264) (262) International............................................. 176 (807) (324) ------ ------- ------- Provision (benefit) for income taxes........................ 2,916 (2,365) (1,725) Less: Deferred income taxes related to extraordinary losses................................................ -- (452) -- Deferred income taxes related to cumulative effect of change in accounting principle........................ -- (128) -- ------ ------- ------- Provision (benefit) excluding income taxes related to extraordinary losses and cumulative effect of change in accounting principle...................................... $2,916 $(1,785) $(1,725) ====== ======= =======
F-19 VARI-LITE INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED SEPTEMBER 30, 1997, 1998 AND 1999 (IN THOUSANDS EXCEPT SHARE DATA) NOTE K--INCOME TAXES: (CONTINUED) A reconciliation of income taxes computed at the U.S. Federal statutory tax rate to the provision for income tax is as follows:
1997 1998 1999 -------- -------- -------- Income tax expense at U.S. Federal statutory rate........... $2,463 $(2,036) $(1,485) International taxes......................................... 287 (167) (126) State taxes................................................. 267 (240) (131) Foreign and general business tax credits.................... -- -- -- Other--primarily permanent differences...................... (101) 78 17 ------ ------- ------- $2,916 $(2,365) $(1,725) ====== ======= =======
Deferred income taxes reflect the net tax effects of deductible temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The tax effects of significant items comprising the Company's net deferred income taxes, consist of the following:
1998 1999 -------- -------- Deferred tax asset Foreign tax credit carryover.............................. $ 2,615 $ 2,615 Net operating loss carryover.............................. 2,406 6,890 Alternative minimum tax credit carryover.................. 507 507 Reserve for loss on sale of Irideon....................... 1,345 -- Restructuring reserve..................................... 352 -- Other tax asset items..................................... 1,861 1,849 Deferred tax liability Depreciation.............................................. (10,549) (12,270) Other tax liability items................................. (1,701) (561) -------- -------- Total....................................................... (3,164) (970) Less: Valuation allowance................................... (544) (544) -------- -------- Net deferred income taxes................................... $ (3,708) $ (1,514) ======== ========
For tax purposes, the Company has approximately $2,615 of foreign tax credits that expire in 2000 through 2002 and a net operating loss carryover of $19,686 that will expire in 2011 through 2019. In addition, approximately $507 of alternative minimum tax credits (which do not expire) are available to offset future regular tax liability. The benefit of this tax credit carryforward has been recognized for financial statement purposes as part of deferred taxes. In fiscal 1998 and 1999, there was a valuation allowance of $544 related to foreign tax credits. International income taxes relate to the Company's operations in England, Japan, Belgium, Sweden, Spain, France and Hong Kong, as well as to withholding taxes on revenue generated by the Company's foreign distributors. F-20 VARI-LITE INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED SEPTEMBER 30, 1997, 1998 AND 1999 (IN THOUSANDS EXCEPT SHARE DATA) NOTE L--EMPLOYEE BENEFIT PLANS: The Company has a defined contribution 401(k) plan in which substantially all its U.S. employees can elect to be participants. Under the terms of the 401(k) plan, employees can defer up to 20% of their earnings up to the permitted maximum as defined by IRS regulations. The Company matches 50% of the employee's contribution up to 5% of the employee's earnings during the plan year. During the years ended September 30, 1997, 1998 and 1999, the Company's cost to match employee contributions was approximately $257, $274 and $310, respectively. Substantially all employees of the Company's London-based operations may elect to be participants in the Vari-Lite Europe Pension Plan. The plan is a defined contribution plan under which employees may contribute up to 3% of their base salaries. The Company makes contributions at a rate of 200% of the employee contributions, with additional contributions made for certain key employees. The Company incurred costs of $203, $231 and $208, representing matching contributions for the years ended September 30, 1997, 1998 and 1999, respectively. The Company adopted an employee stock ownership plan ("ESOP"), effective January 1, 1995, in which its U.S. employees are eligible to participate after completing one year of service, attaining age twenty-one and being a participant making elective deferrals in the Company's 401(k) Plan. Each year the Company may make discretionary contributions of stock to the ESOP as determined by the Board of Directors or a committee thereof. Participants' interests in the ESOP are distributed in the form of cash or stock upon normal retirement, disability, death or at a specific time after any other termination of employment. The Company adopted an employee stock equivalence plan ("ESEP") for the Company's non-U.S. subsidiaries, effective January 1, 1995, in which its employees are eligible to participate after completing one year of service, attaining age twenty-one and for London-based employees, participating in the VLEH Pension Plan. Each year the Company may make discretionary contributions of stock to the ESEP as determined by the Board of Directors or a committee thereof. Participants' interests in the ESEP are distributed in the form of cash upon normal retirement, disability, death or at a specific time after any other termination of employment. In 1997, the Company accrued $250 and subsequently in 1998 made a cash contribution to the Trustee who in turn purchased 68,000 shares on the open market. In 1998, the Company accrued $250 and subsequently in 1999 made a cash contribution to the Trustee who in turn purchased 91,000 shares on the open market. In 1999, the Company has accrued $250 for contribution to the ESOP and ESEP. NOTE M--SEGMENT INFORMATION: In 1999, the Company adopted SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," which supersedes SFAS No. 14, "Financial Reporting for Segments of a Business Enterprise." SFAS No. 131 establishes standards for the reporting by public business enterprises of information about product lines, geographic areas and major customers. The method for determining what information to report is based on the way that management organizes the operation segments within the Company for making operational decisions and assessments of financial performance. The Company's chief operating decision maker is considered to be the Company's Chief Executive Office ("CEO"). The CEO reviews financial information presented on a consolidated basis accompanied by disaggregated F-21 VARI-LITE INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED SEPTEMBER 30, 1997, 1998 AND 1999 (IN THOUSANDS EXCEPT SHARE DATA) NOTE M--SEGMENT INFORMATION: (CONTINUED) information about revenues by geographic region for purposes of making operating decisions and assessing financial performance. The Company has three reportable segments: North America, Europe and Pacific Rim, which are organized, managed and analyzed geographically and operate in a single industry segment. Information about the Company's operations for the fiscal years ended September 30, 1997, 1998 and 1999 is presented below:
PACIFIC NORTH AMERICA RIM EUROPE INTERCOMPANY TOTAL ------------- -------- -------- ------------ -------- SEPTEMBER 30, 1997: Net Revenues from unaffliliated customers............................ $48,525 $10,667 $31,466 $ -- $ 90,658 Intersegment sales..................... 8,593 -- -- (8,593) -- ------- ------- ------- -------- -------- Total net revenues................... 57,118 10,667 31,466 (8,593) 90,658 Operating income....................... 6,638 2,350 1,983 -- 10,971 Depreciation and amortization.......... 9,158 138 2,367 -- 11,663 Total segment assets................... 84,882 5,716 18,406 (12,300) 96,704 SEPTEMBER 30, 1998: Net Revenues from unaffliliated customers............................ $47,953 $ 9,858 $30,565 $ -- $ 88,376 Intersegment sales..................... 6,039 -- -- (6,039) -- ------- ------- ------- -------- -------- Total net revenues................... 53,992 9,858 30,565 (6,039) 88,376 Operating income (loss)................ (1,884) 1,384 (1,157) -- (1,657) Depreciation and amortization.......... 10,506 157 2,915 -- 13,578 Total segment assets................... 99,409 5,599 17,265 (7,646) 114,627 SEPTEMBER 30, 1999: Net Revenues from unaffliliated customers............................ $47,598 $11,668 $32,266 $ -- $ 91,532 Intersegment sales..................... 20,065 -- -- (20,065) -- ------- ------- ------- -------- -------- Total net revenues..................... 67,663 11,668 32,266 (20,065) 91,532 Operating income (loss)................ 680 1,306 (1,950) -- 36 Depreciation and amortization.......... 12,421 139 2,806 -- 15,366 Total segment assets................... 93,747 7,585 15,386 (9,018) 107,700
NOTE N--RELATED PARTY TRANSACTIONS: Certain directors provided consulting services to the Company and received fees totaling approximately $234, $241 and $241 for the years ended September 30, 1997, 1998 and 1999, respectively. At September 30, 1998 and 1999, the Company had notes receivable from stockholders totaling $82 and $30, respectively, related to common stock purchases. The notes bear interest at 9.75% and are collateralized by 16,937 shares of common stock as of September 30, 1999. The Company received from certain stockholders of the Company $2,623, $2,303 and $51 in the years ended September 30, 1997, 1998 and 1999, respectively, for the rental of automated lighting products and other services. F-22 VARI-LITE INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED SEPTEMBER 30, 1997, 1998 AND 1999 (IN THOUSANDS EXCEPT SHARE DATA) NOTE O--QUARTERLY RESULTS OF OPERATIONS (UNAUDITED): The following summarizes the unaudited quarterly results of operations for the years ended September 30, 1997, 1998 and 1999:
YEAR ENDED SEPTEMBER 30, 1997 ------------------------------------------------ DECEMBER 31 MARCH 31 JUNE 30 SEPTEMBER 30 ----------- -------- -------- ------------ Total Revenues.................................... $22,326 $22,384 $22,185 $23,763 Operating income.................................. 2,424 2,265 2,954 3,328 Net income........................................ 926 820 1,210 1,373 Net income per basic and diluted share............ 0.16 0.14 0.21 0.23 Common stock price per share High............................................ N/A N/A N/A N/A Low............................................. N/A N/A N/A N/A
YEAR ENDED SEPTEMBER 30, 1998 ------------------------------------------------ DECEMBER 31 MARCH 31 JUNE 30 SEPTEMBER 30 ----------- -------- -------- ------------ Total Revenues.................................... $22,519 $19,227 $22,529 $24,101 Operating income (loss)........................... 2,808 (128) 662 (4,999) Net income (loss)................................. 326 (421) 0 (3,527) Net income per basic and diluted share............ 0.04 (0.05) 0.00 (0.46) Common stock price per share High............................................ 13.125 12.688 10.000 6.375 Low............................................. 11.750 11.375 5.750 2.000
YEAR ENDED SEPTEMBER 30, 1999 ------------------------------------------------ DECEMBER 31 MARCH 31 JUNE 30 SEPTEMBER 30 ----------- -------- -------- ------------ Total Revenues.................................... $25,248 $23,170 $20,066 $23,048 Operating income (loss)........................... 1,454 302 (699) (1,021) Net income (loss)................................. 242 (409) (1,100) (1,376) Net income per basic and diluted share............ 0.03 (0.05) (0.14) (0.18) Common stock price per share High............................................ 4.750 4.250 2.813 2.125 Low............................................. 2.000 2.625 2.000 0.875
The Company early adopted SOP 98-5 and restated 1998 first quarter results to record a pre-tax charge of $282 as a cumulative effect of change in accounting principle. The operating loss for the quarter ended September 30, 1998, includes charges totaling $4,600 for the write-down of impaired Irideon-Registered Trademark- assets to their net realizable value and employee termination costs associated with restructuring the Company's operations. The operating loss for the quarter ended September 30, 1999, includes charges totaling $600 for employee termination costs associated with restructuring the Company's operations. F-23 SCHEDULE II VARI-LITE INTERNATIONAL, INC. VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED SEPTEMBER 30, 1997, 1998 AND 1999 (in thousands of dollars)
CHARGED TO WRITE-OFFS BEGINNING COSTS AND AND DISCOUNTS ENDING DESCRIPTION BALANCE EXPENSES ALLOWED BALANCE - ----------- --------- ---------- ------------- -------- September 30, 1997 Allowances deducted from assets to which they apply Allowance for doubtful accounts................... $348 $134 $(32) $450 Allowance for excess and obsolete inventory....... 386 23 -- 409 September 30, 1998 Allowances deducted from assets to which they apply Allowance for doubtful accounts................... 450 641 (191) 900 Allowance for excess and obsolete inventory....... 409 15 -- 424 September 30, 1999 Allowances deducted from assets to which they apply Allowance for doubtful accounts................... 900 140 (320) 720 Allowance for excess and obsolete inventory....... 424 200 -- 624
S-1 EX-3.3 2 EXHIBIT 3.3 CERTIFICATE OF DESIGNATION OF RIGHTS, PREFERENCES AND PRIVILEGES OF SERIES A JUNIOR PARTICIPATING PREFERRED STOCK OF VARI-LITE INTERNATIONAL, INC. The undersigned, H.R. Brutsche III and Jerome L. Trojan do hereby certify: 1. That they are the duly elected and acting Chief Executive Officer and Secretary, respectively, of Vari-Lite International, Inc., a Delaware corporation (the "Corporation"). 2. That pursuant to the authority conferred upon the Board of Directors by the Certificate of Incorporation of the said Corporation, the said Board of Directors on September 14, 1999 adopted the following resolution creating a series of 50,000 shares of Preferred Stock designated as Series A Junior Participating Preferred Stock: "RESOLVED, that pursuant to the authority vested in the Board of Directors of the corporation by the Certificate of Incorporation, the Board of Directors does hereby provide for the issue of a series of Preferred Stock of the Corporation and does hereby fix and herein state and express the designations, powers, preferences and relative and other special rights and the qualifications, limitations and restrictions of such series of Preferred Stock as follows: 1. DESIGNATION AND AMOUNT. The shares of such series shall be designated as "Series A Junior Participating Preferred Stock," par value $0.10 per share (the "Series A Junior Preferred Stock"), and the number of shares constituting such series shall be 50,000. 2. DIVIDENDS AND DISTRIBUTIONS. (a) Subject to the prior and superior rights of the holders of any shares of any series of Preferred Stock ranking prior and superior to the shares of Series A Junior Preferred Stock with respect to dividends, the holders of shares of Series A Junior Preferred Stock in preference to the holders of Common Stock and of any other junior stock, shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available therefor, dividends payable quarterly on the first day of January, April, July and October (each such date being referred to herein as a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of Series A Junior Preferred Stock, in an amount per share (rounded to the nearest cent) equal to the greater of (a) $1.00 or (b) subject to the provision for adjustment hereinafter set forth, 1,000 times the aggregate per share amount of all cash dividends, and 1,000 times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions other than a dividend payable in shares of Common Stock or a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise), declared on the Common Stock, since the immediately preceding Quarterly Dividend Payment Date, or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Series A Junior Preferred Stock. If the Corporation shall at any time after the record date for the initial distribution of the Corporation's Preferred Stock Purchase Rights pursuant to the Rights Agreement between the Corporation and ChaseMellon Shareholder Services, L.L.C., as Rights Agent (the "Rights Declaration Date"), (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the amount to which holders of shares of Series A Junior Preferred Stock were entitled immediately prior to such event under clause (b) of the preceding sentence shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (b) The Corporation shall declare a dividend or distribution on the Series A Junior Preferred Stock as provided in paragraph (a) above immediately after it declares a dividend or distribution on the Common Stock (other than a dividend payable in shares of Common Stock); provided that, if no dividend or distribution shall have been declared on the Common Stock during the period between any Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a dividend of $1.00 per share on the Series A Junior Preferred Stock shall nevertheless be payable on such subsequent Quarterly Dividend Payment Date. (c) Dividends shall begin to accrue and be cumulative on outstanding shares of Series A Junior Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issue of such shares of Series A Junior Preferred Stock, unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of shares of Series A Junior Preferred Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Series A Junior Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of shares of Series A Junior Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be no more than 60 days prior to the date fixed for the payment thereof. 3. VOTING RIGHTS. The holders of shares of Series A Junior Preferred Stock shall have the following voting rights: (a) Subject to the provision for adjustment hereinafter set forth, each share of Series A Junior Preferred Stock shall entitle the holder thereof to 1,000 votes on all matters submitted to a vote of the stockholders of the Corporation. If the Corporation shall at any time after the Rights Declaration Date (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the number of votes per share to which holders of shares of Series A Junior Preferred Stock were entitled immediately prior to such event shall be adjusted by multiplying such number by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. -2- (b) Except as otherwise provided herein, or under applicable law, the holders of shares of Series A Junior Preferred Stock and the holders of shares of Common Stock shall vote together as one class on all matters submitted to a vote of stockholders of the Corporation. (c) Except as otherwise provided herein, in the Certificate of Incorporation, or under applicable law, holders of Series A Junior Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Stock as set forth herein) for taking any corporate action. 4. CERTAIN RESTRICTIONS. (a) Whenever quarterly dividends or other dividends or distributions payable on the Series A Junior Preferred Stock as provided in Section 2 are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on shares of Series A Junior Preferred Stock outstanding shall have been paid in full, the Corporation shall not: (i) declare or pay or set apart for payment any dividends or make any other distributions on, or redeem or purchase or otherwise acquire, directly or indirectly, for consideration any shares of any class of stock of the Corporation ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Junior Preferred Stock; (ii) declare or pay dividends on or make any other distributions on any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Junior Preferred Stock, except dividends paid ratably on the Series A Junior Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled; (iii) redeem or purchase or otherwise acquire, directly or indirectly, for consideration shares of any stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Junior Preferred Stock, provided that the Corporation may at any time redeem, purchase or otherwise acquire shares of any such parity stock in exchange for shares of any stock of the Corporation ranking junior (either as to dividends or upon dissolution, liquidation or winding up) to the Series A Junior Preferred Stock; or (iv) purchase or otherwise acquire for consideration any shares of Series A Junior Preferred Stock, or any shares of stock ranking on a parity with the Series A Junior Preferred Stock, except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes. (b) The Corporation shall not permit any subsidiary of the Corporation to purchase or otherwise acquire for consideration any shares of stock of the Corporation unless the -3- Corporation could, under paragraph (a) of this Section 4, purchase or otherwise acquire such shares at such time and in such manner. 5. REACQUIRED SHARES. Any shares of Series A Junior Preferred Stock purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and cancelled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of Preferred Stock and may be reissued as part of a new series of Preferred Stock to be created by resolution or resolutions of the Board of Directors, subject to the conditions and restrictions on issuance set forth herein. 6. LIQUIDATION, DISSOLUTION OR WINDING UP. (a) Upon any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, no distribution shall be made to the holders of shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Junior Preferred Stock unless, prior thereto, the holders of shares of Series A Junior Preferred Stock shall have received an amount equal to 1,000 times the par value per share, plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment (the "Series A Liquidation Preference"). Following the payment of the full amount of the Series A Liquidation Preference, no additional distributions shall be made to the holders of shares of Series A Junior Preferred Stock unless, prior thereto, the holders of shares of Common Stock shall have received an amount per share (the "Common Adjustment") equal to the quotient obtained by dividing (i) the Series A Liquidation Preference by (ii) 1,000 (as appropriately adjusted as set forth in paragraph (c) below to reflect such events as stock splits, stock dividends and recapitalizations with respect to the Common Stock) (such number in clause (ii) being hereinafter referred to as the "Adjustment Number"). Following the payment of the full amount of the Series A Liquidation Preference and the Common Adjustment in respect of all outstanding shares of Series A Junior Preferred Stock and Common Stock, respectively, holders of Series A Junior Preferred Stock and holders of shares of Common Stock shall receive their ratable and proportionate share of the remaining assets to be distributed in the ratio of the Adjustment Number to 1 with respect to such Series A Junior Preferred Stock and Common Stock, on a per share basis, respectively. (b) If there are not sufficient assets available to permit payment in full of the Series A Liquidation Preference and the liquidation preferences of all other series of Preferred Stock, if any, which rank on a parity with the Series A Junior Preferred Stock, then such remaining assets shall be distributed ratably to the holders of all such shares in proportion to their respective liquidation preferences. If there are not sufficient assets available to permit payment in full of the Common Adjustment, then such remaining assets shall be distributed ratably to the holders of Common Stock. (c) If the Corporation shall at any time after the Rights Declaration Date (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the Adjustment Number in effect immediately prior to such event shall be adjusted by multiplying such Adjustment Number by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator -4- of which is the number of shares of Common Stock that were outstanding immediately prior to such event. 7. CONSOLIDATION, MERGER, SHARE EXCHANGE, ETC. If the Corporation shall enter into any consolidation, merger, share exchange, combination or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case the shares of Series A Junior Preferred Stock shall at the same time be similarly exchanged or changed in an amount per share (subject to the provision for adjustment hereinafter set forth) equal to 1,000 times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Common Stock is changed or exchanged. If the Corporation shall at any time after the Rights Declaration Date (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the amount set forth in the preceding sentence with respect to the exchange or change of shares of Series A Junior Preferred Stock shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. 8. NO REDEMPTION. The shares of Series A Junior Preferred Stock shall not be redeemable. 9. RANKING. The Series A Junior Preferred Stock shall rank junior to all other series of the Corporation's Preferred Stock as to the payment of dividends and the distribution of assets, unless the terms of any such series shall provide otherwise. 10. AMENDMENT. The Certificate of Incorporation shall not be amended in any manner which would materially alter or change the powers, preferences or special rights of the Series A Junior Preferred Stock so as to affect them adversely without the affirmative vote of the holders of two-thirds or more of the outstanding shares of Series A Junior Preferred Stock, voting together as a single voting group. 11. FRACTIONAL SHARES. Series A Junior Preferred Stock may be issued in fractions of a share which shall entitle the holder, in proportion to such holder's fractional shares, to exercise voting rights, receive dividends, participate in distributions and to have the benefit of all other rights of holders of Series A Junior Preferred Stock. -5- IN WITNESS WHEREOF, the Corporation has caused this certificate to be duly executed by H.R. Brutsche III, its Chief Executive Officer, and attested by Jerome L. Trojan, its Secretary, this 24th day of September, 1999. VARI-LITE INTERNATIONAL, INC. By: /s/ H.R. Brutsche III ------------------------------------------ H.R. Brutsche III, Chief Executive Officer ATTEST: /s/ Jerome L. Trojan - ------------------------------- Jerome L. Trojan, Secretary -6- EX-4.3 3 EXHIBIT 4.3 EXHIBIT 4.3 - -------------------------------------------------------------------------------- THE SECURITIES REPRESENTED BY THIS CERTIFICATE OR INSTRUMENT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD, PLEDGED OR TRANSFERRED IN THE ABSENCE OF REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT OR LAWS. SUCH SECURITIES ARE ALSO SUBJECT TO CERTAIN RESTRICTIONS UPON TRANSFER, AS SET FORTH IN THAT CERTAIN WARRANT AGREEMENT DATED JULY 31, 1996, AS SUPPLEMENTED BY THAT CERTAIN SUPPLEMENT TO WARRANT AGREEMENT DATED AS OF AUGUST 31, 1999. - -------------------------------------------------------------------------------- VARI-LITE INTERNATIONAL, INC. Common Stock Purchase Warrant Representing Right To Purchase Shares of Common Stock of Vari-Lite International, Inc. No. A-5 FOR VALUE RECEIVED, VARI-LITE INTERNATIONAL, INC., a Delaware corporation (the "Company"), hereby certifies that CHASE BANK OF TEXAS, N.A. (the "Holder'), is entitled, subject to the provisions of this Warrant, to purchase from the Company, at any time or from time to time during the Exercise Period (as hereinafter defined), a total of 53,824 shares (as such number of shares may be adjusted pursuant to the terms hereof and pursuant to Section 2.01 of the Warrant Agreement (as hereinafter defined), the "Warrant Shares") of Common Stock (as defined in the Warrant Agreement), at a price per share equal to the Exercise Price (as hereinafter defined). This Warrant is issued to the Holder (together with such other warrants as may be issued in exchange, transfer or replacement of this Warrant, the "Warrants") pursuant to the Warrant Agreement and entities the Holder to purchase the Warrant Shares (as hereinafter defined) and to exercise the other rights, powers and privileges hereinafter provided, all on the terms and conditions and pursuant to the provisions set forth herein and in the Warrant Agreement. Section 1. DEFINITIONS. Terms defined in the Warrant Agreement (as hereinafter defined) and not otherwise defined herein have, as used herein, the respective meanings provided for therein. The following additional terms, as used herein, have the following respective meanings: "Common Stock" shall mean and include collectively the Company's authorized Common Stock, $0.10 par value, as constituted on the date hereof. "Date of Issuance" shall have the meaning ascribed to such term in Section 8 hereof. "Distributions" shall have the meaning ascribed to such term in Section 4.1(c) hereof. "Exercise Period" shall mean the period of time between the Date of Issuance and 5:00 P.M. (New York City time) on December 31, 2004. "Exercise Price" shall mean an amount, per share, equal to $3.75; PROVIDED, HOWEVER, that such amount is subject to adjustment as set forth in Section 4 hereof. "Fair Market Value" shall mean, as of any date of determination, with respect to any class of equity security of the Company (including any equity security issuable upon exercise of any warrant (including the Warrants) or option to acquire such equity security), (x) if there is a Qualified Public Market for such class of equity security the value per share determine pursuant to clause (i) or (ii) below of this definition or (y) if there is no such Qualified Public Market, the value determined pursuant to clause (iii) below of this definition: (i) if such equity security is listed on a national securities exchange or admitted to unlisted trading privileges on such an exchange, the average last reported sale price (as reported in THE WALL STREET JOURNAL) of a share of such equity security over the 21 trading day period immediately prior to the date of determination or if no such sale is made on any such day, the mean of the closing bid and asked prices for such day on such exchange; or (ii) if such equity security is not so listed or admitted to unlisted trading privileges, the average mean of the last bid and asked prices reported for a share of such equity security over the 21 trading day period immediately prior to the date of determination (A) by the National Association of Securities Dealers Automatic Quotation System or (B) if reports are unavailable under clause (A) above by the National Quotation Bureau Incorporated; or (iii) if such equity security is not so listed or admitted to unlisted trading privileges and bid and asked prices are not so reported, then the Company shall give prompt, written notice to each Holder of the need to determine the Fair Market Value of such equity security, as well as a statement of the fair market value of such equity security determined by the Board of Directors of the Company. In such event, the Fair Market Value of such equity security shall be the fair market value per share agreed to by the Board of Directors of the Company AND the Required Holders; PROVIDED, HOWEVER, if no such agreement is -2- reached within thirty (30) days of the date on which the event for which the Fair Market Value is required to be determined occurs, then the Fair Market Value shall be determined as follows: the Company and the Required Holders shall each designate promptly in a written notice to the other its determination of the fair market value of such equity security as of the applicable reference date, and the fair market value of such equity security of the as applicable reference date shall then be determined by a nationally recognized independent appraiser (the "Independent Financial Expert") selected by the Required Holders from a group of three appraisers chosen by the Company (with whom the Company does not have an existing business relationship) and the Required Holders assuming an arm's-length private sale between a willing buyer and a willing seller, neither acting under compulsion. The determination by the Independent Financial Expert of the Fair Market Value shall be final and binding on the Company and all Holders. The costs and expenses of any such Independent Financial Expert making such valuation shall be paid by the Company, except that such expenses shall be borne solely by the Holders (on a pro rata basis) to the extent that the Independent Financial Expert concludes that the valuation of such equity security made by the Board of Directors of the Company is within ten percent (10%) of the Fair Market Value. For the purposes of the valuations set forth in clauses (i), (ii) or (iii) above, any equity securities issued by the Company to employees of the Company pursuant to its employee stock option plan or any other employee benefit plan shall be deemed to have a Fair Market Value equal to (A) twenty-five percent (25%) less than the value otherwise determined pursuant to clause (i) or (ii) above, or (B) twenty-five percent (25%) less than the fair market value otherwise determined pursuant to clause (iii) above. "Independent Financial Expert" shall have the meaning provided in the definition of "Fair Market Value." "Offering Price" shall have the meaning ascribed to such term in Section 4.1(b) hereof. "Qualified Public Market" shall mean with respect to the Common Stock or other equity securities in the Company, an active trading market on a national securities exchange or over-the-counter market which consists of such publicly held Common Stock or other equity securities in the Company, with a minimum market value of $10,000,000 for such Common Stock or other equity securities. A "Qualified Public Market" shall be deemed to exist if the financial parameters set forth in the immediately preceding sentence have bee a met for the Common Stock or such other equity securities for a period of 21 consecutive days. "Warrant Agreement" shall mean the Warrant Agreement, dated as of July 31, 1996, between the Company and the Initial Holders, as supplemented by Supplement to Warrant Agreement dated as of August 31, 1999, and as such agreement shall be further modified, amended and supplemented and in effect from time to time. -3- Section 2. EXERCISE OF WARRANT: CANCELLATIONS OF WARRANT. This Warrant may be exercised in whole or in part, at any time or from time to time, during the Exercise Period, by presentation and surrender hereof to the Company at its principal office at the address set forth in Section 12 hereof (or at such other address as the Company may after the date hereof notify the Holder in writing), with the Purchase Form annexed hereto as Exhibit A duly executed and accompanied by either (at the option of the Holder) proper payment in cash or check equal to the Exercise Price for the Warrant Shares for which this Warrant is being exercised. Notwithstanding the foregoing, if less than all of this Warrant is to be exercised, the Holder may, at its option, in lieu of delivery of the cash or check described in the immediately preceding sentence, elect to exercise this Warrant and to pay the Exercise Price by delivering to the Company a duly completed and executed Purchase Form providing for the payment of the Exercise Price by cancellation of a number of Warrant Shares having a Fair Market Value equal to the Exercise Price of the Warrant Shares issuable upon such exercise. Upon receipt by the Company of this Warrant and such Purchase Form, together with the Exercise Price for the Warrant Shares for which this Warrant is being exercised, the Holder shall be deemed to be the holder of record of the number of Warrant Shares specified in such Purchase Form, notwithstanding that the transfer books of the Company shall then be closed or that certificates (if any) representing the Warrant Shares shall not then be actually delivered to the Holder. The Company shall pay any and all documentary stamp or similar issue taxes payable in respect of the issue of the Warrant Shares. If this Warrant should be exercised in part only, the Company shall, upon surrender of this Warrant, execute and deliver a new Warrant evidencing the rights of the Holder thereof to purchase the balance of the Warrant Shares issuable hereunder. Section 3. EXCHANGE, TRANSFER, ASSIGNMENT OR LOSS OF WARRANT. This Warrant is exchangeable, without expense, at the option of the Holder, upon presentation and surrender hereof to the Company for other Warrants of different denominations, entitling the Holder to purchase in the aggregate the same number of Warrant Shares. The Holder of this Warrant shall be entitled, without obtaining the consent of the Company, to transfer or assign its interest in (and rights under) this Warrant in whole or in part to any Person or Persons, subject to the provisions of Section 6 of the Warrant Agreement. Upon surrender of this Warrant to the Company, with the Assignment Form annexed hereto as Exhibit B duly executed and funds sufficient to pay any transfer tax, the Company shall, without charge, execute and deliver a new Warrant or Warrants in the name of the assignee or assignees named in such Assignment Form and, if the Holder's entire interest is not being assigned, in the name of the Holder, and this Warrant shall promptly be canceled. An assigning Holder shall give prompt written notice to SunTrust Bank, Atlanta of the consummation of any such assignment (with it being understood that this sentence shall be of no force and effect if SunTrust Bank, Atlanta is no longer a Holder or Agent, as defined in the Credit Agreement). This Warrant may be divided or combined with other Warrants that carry the same rights upon presentation hereof at the office of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued and signed by the Holder hereof. Upon receipt by the Company of evidence satisfactory to it of the loss, theft, destruction or mutilation of this Warrant, and (in the case of loss, theft or destruction) of reasonably satisfactory indemnification (including, if required in the reasonable judgment of the Company, a statement of net worth of such Holder that is at a level -4- reasonably satisfactory to the Company), and upon surrender and cancellation of this Warrant, if mutilated, the Company shall execute and deliver a new Warrant of like tenor and date. Section 4.1. ADJUSTMENT OF NUMBER OF WARRANT SHARES AND EXERCISE PRICE. The number of Warrant Shares purchasable pursuant hereto and the Exercise Price, each shall be subject to adjustment from time to time on and after the Date of Issuance as hereinafter provided in this Section 4.1. (a) In case the Company shall at any time after the Date of Issuance (i) declare or pay a dividend in shares of Common Stock or make a distribution in shares of Common Stock, (ii) subdivide its outstanding shares of Common Stock, (iii) combine its outstanding shares of Common Stock into a smaller number of shares of Common Stock or (iv) issue any shares of its capital stock or other assets in a reclassification or reorganization of the Common Stock (including any such reclassification in connection with a consolidation or merger in which the Company is the continuing entity), then (x) the securities purchasable pursuant hereto shall be adjusted to the number of Warrant Shares and amount of any other securities, cash or other property of the Company which the Holder would have owned or have been entitled to receive after the happening of any of the events described above, had this Warrant been exercised immediately prior to the happening of such event or any record date with respect thereto, and (y) the Exercise Price shall be adjusted to equal the Exercise Price immediately prior to the adjustment multiplied by a fraction, (A) the numerator of which is the number of Warrant Shares for which this Warrant is exercisable immediately prior to the adjustment, and (B) the denominator of which is the number of shares for which this Warrant is exercisable immediately after such adjustment. The adjustments made pursuant to this Section 4.1(a) shall become effective immediately after the effective date of the event creating such right of adjustment, retroactive to the record date, if any, for such event. Any Warrant Shares purchasable as a result of such adjustment shall not be issued prior to the effective date of such event. (b) In case the Company shall issue shares of its Common Stock or issue rights, options or warrants to subscribe for or purchase, or other securities exchangeable for or convertible into, shares of its Common Stock (any such rights, options, warrants or other securities being herein called "Rights") (excluding (i) shares issued in a transaction covered by Section 4.1(a) hereof, (ii) shares issued upon conversion, exercise or exchange of Rights issued after the date hereof (provided that appropriate adjustments were made hereunder upon the issuance of such Rights) or (iii) the Warrants and any Warrant Shares issued on exercise thereof) at an issuance, subscription, offering, exercise or conversion price (the "Offering Price") per share which is lower than the Fair Market Value on the date of such issuance or grant, whether or not such Rights are immediately exercisable or convertible, then (x) the number of Warrant Shares issuable hereunder after such issuance or, grant shall be determined by multiplying the number of Warrant Shares immediately prior to any adjustments in connection with such issuance or grant by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding (exclusive of any treasury shares) immediately prior to the date of issuance or grant of such shares of Common Stock or Rights (assuming that all shares of Common Stock into which all outstanding rights, options, warrants and convertible securities excluding the Rights are exercisable or convertible are outstanding) plus the number of additional shares of Common -5- Stock issued and the number of shares of Common Stock that would be issued upon exercise of the Rights, and the denominator of which shall be the number of shares of Common Stock outstanding (exclusive of any treasury shares) immediately prior to the issuance or grant of such Common Stock or Rights (assuming that all shares of Common Stock into which all outstanding rights, options, warrants and convertible securities excluding the Rights are exercisable or convertible are outstanding) plus the number of shares which the aggregate Offering Price of the total number of shares of Common Stock issued or issuable upon exercise of the Rights would purchase at the Fair Market Value on the date of such issuance or grant, and (y) the Exercise Price shall be adjusted by multiplying the then existing Exercise Price by fraction (A) the numerator of which shall be the number of Warrant Shares for which this Warrant is exercisable immediately prior to such issuance or grant, and (B) the denominator of which shall be the number of Warrant Shares for which this Warrant is exercisable immediately after such issuance or grant; PROVIDED that to the extent any such Rights so issued expire or are canceled or redeemed without having been exercised or converted, the number of Warrant Shares issuable hereunder and the Exercise Price shall again be adjusted to reflect such expiration, cancellation or redemption of such Rights. Such adjustments shall be made whenever such shares of Common Stock or Rights are issued or granted. For purposes of this Section 4.1(b), the Offering Price per share of Common Stock shall in the case of Rights be determined by dividing (x) the total amount received or receivable by the Company in consideration of the issuance of such Rights (net of expenses) plus the total consideration payable to the Company upon exercise thereof by (y) the total number of shares of Common Stock to be issued pursuant to such Rights. (c) In case the Company shall distribute to all holders of its shares of Common Stock or rights, options, warrants to subscribe for or purchase, or other securities exchangeable for or convertible into, shares of Common Stock, evidences of its Indebtedness or assets (including securities and cash dividends), but excluding dividends or distributions of the type referred to in Section 4.1(a) above or rights, options, warrants or other securities referred to in Section 4.1(b) above (collectively, "Distributions"), then (x) the number of Warrant Shares issuable hereunder after any such Distribution shall be determined by multiplying the number of Warrant Shares immediately prior to such Distribution by a fraction, the numerator of which shall be the Fair Market Value of the Common Stock on the record date for such Distribution, and the denominator of which shall be such Fair Market Value of the Common Stock, less the then fair market value (as determined by the Board of Directors of the Company, with the Company providing prompt written notice to each Holder of such determination) of the portion of the assets or evidences of Indebtedness so distributed applicable to one share of Common Stock, and (y) the Exercise Price shall be adjusted by multiplying the then existing Exercise Price by a fraction, (A) the numerator of which shall be the number of Warrant Shares for which this Warrant is exercisable immediately prior to such Distribution, and (B) the denominator of which shall be the number of Warrant Shares for which this Warrant is exercisable immediately after such Distribution. Such adjustments shall be made successively whenever any such Distribution is made and shall become effective on the date the Distribution is made retroactive to the record date for the determination of shareholders entitled to receive such Distribution. In the event that the Required Holders disagree with the Company's determination of the fair market value of any assets or evidences of Indebtedness pursuant to this Section 4.1(c), then such fair market value shall be determined by an Independent Financial Expert selected by the Required Holders and the -6- Company in accordance with the procedures set forth in clause (iii) of the definition of "Fair Market Value." (d) For the purpose of this Section 4.1 and Section 4.2 hereof, the term "'shares of Common Stock" shall mean (i) the classes of stock designated as the Common Stock of the Company as of the date hereof, (ii) any other class of stock resulting from successive changes or reclassifications of such shares consisting solely of changes in par value, or from par value to no par value, or from no par value to par value, or (iii) any other capital stock of the Company which is not by its terms restricted in amount or timing to the entitlement to dividends or in the distribution of assets upon the voluntary or involuntary liquidation, dissolution or winding up of the Company. In the event that at any time, as a result of an adjustment made pursuant to this Section 4.1, the Holder shall become entitled to receive any securities of the Company other than shares of Common Stock, thereafter the number of such other securities so receivable upon exercise of this Warrant shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as. practicable to the provisions with respect to the Warrant Shares contained in this Section 4. Section 4.2. REORGANIZATION, MERGER, ETC. If any capital reorganization, reclassification or similar transaction involving the capital stock of the Company (other than as specified in Section 4.l(a) hereof), any consolidation, merger or business combination of the Company with another corporation or the sale or conveyance of all or any substantial part of its assets to another corporation, shall be effected in such a way that holders of the shares of Common Stock shall be entitled to receive stock, securities or assets (including, without limitation, cash) with respect to or in exchange for shares of the Common Stock, then, prior to and as a condition of such reorganization, reclassification, similar transaction, consolidation, merger, business combination, sale or conveyance, lawful and adequate provision shall be made whereby the Holder shall thereafter have the right to purchase and receive upon the basis and upon the terms and conditions specified in this Warrant and in lieu of the Warrant Shares of the Company immediately theretofore purchasable and receivable upon the exercise of this Warrant, such shares of stock, securities or assets as may be issued or payable with respect to or in exchange for a number of outstanding Warrant Shares equal to the number of Warrant Shares immediately theretofore purchasable and receivable upon the exercise of this Warrant had such reorganization, reclassification, similar transaction, consolidation, merger, business combination, sale or conveyance not taken place. The Company shall not effect any such consolidation, merger, business combination, sale or conveyance unless prior to or simultaneously with the consummation thereof the survivor or successor corporation (if other than the Company) resulting from such consolidation or merger or the corporation purchasing such assets shall assume by written instrument executed and sent to the Holder, the obligation to deliver to the Holder such shares of stock, securities or assets as, in accordance with the foregoing provisions, the Holder may be entitled to receive. 4.3. OTHER EVENTS. If any event occurs as to which the foregoing provisions of Section 4.1 or 4.2 are not strictly applicable or, if strictly applicable, would not, in the good faith judgment of the Board of Directors of the Company, fairly and adequately protect the purchase rights represented by the Warrants in accordance with the essential intent and principles of such -7- provisions, then such Board of Directors shall, subject to the provisions of Section 4.7 hereof, make such adjustments in the application of such provisions, in accordance with such essential intent and principles, as shall be reasonably necessary in the good faith opinion of such Board of Directors, to protect such purchase rights as aforesaid. 4.4. STATEMENT ON WARRANT CERTIFICATES. Irrespective of any adjustments in the Exercise Price or the number or kind of Warrant Shares, this Warrant may continue to express the same price and number and kind of shares as are stated on the front page hereof. 4.5. EXCEPTIONS TO ADJUSTMENT. Anything herein to the contrary notwithstanding, the Company shall not be required to make any adjustment of the number of Warrant Shares issuable hereunder or to the Exercise Price in the case of (i) the issuance of the Warrants or the issuance of shares of the Common Stock (or other securities) upon exercise of the Warrants, or (ii) any event following the consummation of a Qualified Public Offering. 4.6. TREASURY SHARES. The number of shares of the Common Stock outstanding at any time shall not include treasury shares or shares owned or held by or for the account of the Company or any of its subsidiaries, and the disposition of any such shares shall be considered an issue or sale of the Common Stock for the purposes of this Section 4. 4.7. COMPANY TO PREVENT DILUTION. In case at any time or from time to time conditions arise by reason of action taken by the Company or any of its subsidiaries which are not adequately covered by the provisions of this Section 4, or which might adversely affect the exercise rights of the Holders, the Board of Directors of the Company shall make any adjustments necessary with respect to both the number of Warrant Shares into which this Warrant is exercisable and the Exercise Price, on a basis consistent with the standards established in the other provisions of this Section 4, so as to preserve, without dilution, the rights of the Holders. Upon the request of any of the Holders, the Company shall retain the services of the Company's independent public auditors to review such conditions and provide an agreed upon procedures letter as to the calculation of the adjustment under the terms of this Agreement, including any comparisons of information to the books and records of the Company and any mathematical calculations made. 4.8. ADJUSTMENT NOTICES TO HOLDER. Upon any increase or decrease in the number of Warrant Shares purchasable upon the exercise of this Warrant or the Exercise Price the Company shall, within 15 days thereafter, deliver written notice thereof to all Holders, which notice shall state the increased or decreased number of Warrant Shares purchasable upon the exercise of this Warrant, setting forth in reasonable detail the method of calculation and the facts upon which such calculations are based. Upon request of the Holder, the Company also shall require the Company's independent public auditors to provide an agreed upon procedures letter as to the calculation of such adjustment under the terms of this Agreement, including any comparisons of information to the books and records of the Company and any mathematical calculations made. If the Company shall fail to so timely deliver any notice required pursuant to this Section 4.8, the Exercise Period shall be extended until the Holder shall have received the proper notification under this Section 4.8. -8- 5.1. SPECIAL COVENANTS OF THE COMPANY. The Company covenants and agrees that until this Warrant has been exercised in full: (a) The Company shall not, by amendment of its Articles of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, directly or indirectly avoid or seek to avoid the observance or performance of any of the terms of this Warrant or the Warrant Agreement, but shall at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the Holder against dilution or other impairment. Without limiting the generality of the foregoing, the Company (i) shall not increase the par value of any shares of Common Stock above the Exercise Price payable upon exercise of this Warrant, and (ii) shall take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and non-assessable Warrant Shares upon the exercise of this Warrant. (b) If any Warrant Shares require registration with or approval of any governmental authority under any federal law (other than the Securities Act) or under any state law before such Warrant Shares may be issued upon exercise of this Warrant, the Company shall, at its expense, as expeditiously as possible use its best efforts to cause such Warrant Shares to be duly registered or approved, as the case may be. (c) If at any time the Common Stock is listed on any national securities exchange (as defined in the Exchange Act), the Company shall, at its expense, obtain and maintain the approval for listing on each such exchange upon official notice of issuance of all Warrant Shares upon the exercise of the Warrants at the time outstanding and maintain the listing of such Warrant Shares after their issuance; and the Company shall so list on such national securities exchange, shall register under the Exchange Act (and any similar state statute then in effect) and shall maintain such listing of, any other securities that at any time are issuable upon exercise of the Warrants, if and at the time that any securities of the same class shall be listed on such national securities exchange by the Company. 5.2. PRO RATA PURCHASE. If at any time the Company or any of its Affiliates shall make an offer to all of its shareholders to purchase any shares of Common Stock, the Company shall make such offer PRO RATA to all Holders of outstanding Warrant Shares and Warrants, and any purchase shall be allocated PRO RATA among the Holders of Warrant Shares and Warrants accepting the offer to purchase. Further, if at any time the Company or any of its Affiliates shall make an offer to any of the Holders to purchase any of the Warrants or Warrant Shares, the Company shall make such offer PRO RATA to all Holders of outstanding Warrants and Warrant Shares, and any purchase shall be allocated PRO RATA among the Holders of Warrants and Warrant Shares accepting the offer to purchase. This Section 5.2 shall not apply to a purchase of Warrants or Warrant Shares by the Company under Section 6.02 of the Warrant Agreement. Section 6. NOTIFICATION BY THE COMPANY. In case at any time while this Warrant remains outstanding: -9- (i) the Company shall declare any dividend or make any distribution upon its Common Stock or any other class of its capital stock; or (ii) the Company shall offer for subscription PRO RATA to the holders of its Common Stock or any other class of its capital stock any additional shares of stock of any class or any other securities convertible into or exchangeable for shares of stock or any rights or options to subscribe thereto; or (iii) the Board of Directors of the Company shall authorize any capital reorganization, reclassification or similar transaction involving the capital stock of the Company, or a sale or conveyance of all or a substantial part of the assets of the Company, or a consolidation, merger or business combination of the Company with another Person; or (iv) actions or proceedings shall be authorized or commenced for a voluntary or involuntary dissolution, liquidation or winding-up of the Company; then, in any one or more of such cases, the Company shall give written notice to the Holder, at the earliest time legally practicable (and not less than 30 days before any record date or other date set for definitive action) of the date on which (A) the books of the Company shall close or a record shall be taken for such dividend, distribution or subscription rights or options or (B) such reorganization, reclassification, sale, conveyance, consolidation, merger, dissolution, liquidation or winding-up shall take place or be voted on by shareholders of the Company, as the case may be. Such notice shall also specify the date as of which the holders of the Common Stock of record shall participate in said dividend, distribution, subscription rights or options or shall be entitled to exchange their Common Stock for securities or other property deliverable upon such reorganization, reclassification, sale, conveyance, consolidation, merger, dissolution, liquidation or winding-up, as the case may, be. If the action in question or the record date is subject to the effectiveness of a registration statement under the Securities Act or to a favorable vote of shareholders, the notice required by this Section 6 shall so state. Section 7. NO VOTING RIGHTS: LIMITATIONS OF LIABILITY. Prior to exercise, this Warrant will not entitle the Holder to any voting rights or other rights as a shareholder of the Company. No provision hereof, in the absence of affirmative action by the Holder to exercise this Warrant, and no enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of the Holder for the purchase price of the Warrant Shares pursuant to the exercise hereof. Section 8. DATE OF ISSUANCE. The date the Company initially issues this Warrant will be deemed to be the 'Date of Issuance" hereof and of each new Warrant issued in exchange, transfer or replacement hereof, regardless of the number of times new certificates representing the unexpired and unexercised rights formerly represented by this Warrant shall be issued. -10- Section 9. AMENDMENT AND WAIVER. (a) No failure or delay of the Holder in exercising any power or right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the Holder are cumulative and not exclusive of any rights or remedies which it would otherwise have. The provisions of this Warrant may be amended, modified or waived with (and only with) the written consent of the Company and the Required Holders. (b) No notice or demand on the Company in any case shall entitle the Company to any other or further notice or demand in similar or other circumstances. Section 10. NO FRACTIONAL WARRANT SHARES. The Company shall not be required to issue stock certificates representing fractions of Warrant Shares, but shall in respect of any fraction of a Warrant Share make a payment in cash based on the then Fair Market Value of the Common Stock after giving effect to the full exercise or conversion of the Warrants. Section 11. RESERVATION OF WARRANT SHARES. The Company shall authorize, reserve and keep available at all times, free from preemptive rights, a sufficient number of Warrant Shares to satisfy the requirements of this Warrant. Section 12. NOTICES. All notices, requests, consents and other communication., hereunder shall be in writing (including, telegraphic, telex, facsimile or cable communication) and delivered, mailed telegraphed, telexed, telecopied or cabled: (i) if to the Holder, to its address as set forth in records of the Company; and (ii) if to the Company, to Vari-Lite International, Inc., at 201 Regal Row, Dallas Texas 75247, Telecopier No.: (214) 819-3247, Attention: H.R. Brutsche III or at such other address as may have been furnished to the Holder in writing by the Company. All such communications shall be deemed to have been duly given when transmitted by telex or telecopier, delivered to the telegraph or cable office or personally delivered or, iii the case of a mailed notice, upon receipt, in each case given or addressed as aforesaid. Section 13. HEADINGS. The headings of the Sections and subsections of this Warrant are inserted for convenience only and shall not be deemed to constitute a part of this Warrant. Section 14. GOVERNING LAW; CONSENT TO JURISDICTION. THIS WARRANT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. If any action or proceeding shall be brought by the Holder in order to enforce any right of obligation in respect of this Warrant, the Company hereby consents and will submit to the jurisdiction of any state or federal court of competent jurisdiction sitting within the area comprising the Southern District of New York on the date of this Warrant, and agrees that venue will be proper in any such court. -11- Section 15. BINDING EFFECT. The terms and provisions of this Warrant shall inure to the benefit of the Holder and its successors and assigns and shall be binding upon the Company and its successors and assigns, including, without limitations any Person succeeding to the Company by merger, consolidation or acquisition of all or substantially all of the Company's assets. -12- IN WITNESS WHEREOF, the seal of the Company and the signature of its duly authorized officer have been affixed hereto as of August 31, 1999. VARI-LITE INTERNATIONAL, INC. By: ----------------------- H.R. Brutsche III President [CORPORATE SEAL] Attest: ------------------------------ Name: Title: Warrant Signature Page -13- EXHIBIT A TO WARRANT PURCHASE FORM To Be Executed by the Holder Desiring to Exercise a Warrant of Vari-Lite International, Inc. The undersigned holder hereby exercises the right to purchase _______ shares of Common Stock covered by the within Warrant, according to the conditions thereof, and herewith makes payment in full of the Exercise Price of such shares, in the amount of $______________. Name of Holder: ------------------------------------------- Signature: --------------------------------- Title: ------------------------------------- Address: ----------------------------------- ------------------------------------------- Dated: ----------------------- EXHIBIT B TO WARRANT ASSIGNMENT FORM To Be Executed by the Holder Desiring to Transfer a Warrant of Vari-Lite International, Inc. FOR VALUE RECEIVED, the undersigned holder hereby sells, assigns and transfers unto _____________ the right to purchase _______________ shares of Common Stock covered by the within Warrant, and does hereby irrevocably constitute and appoint Attorney to transfer the said Warrant on the books of the Company (as defined in such Warrant), with full power of substitution. Name of Holder: ------------------------------------------- Signature: --------------------------------- Title: ------------------------------------- Address: ----------------------------------- ------------------------------------------- Dated: ------------------------ In the presence of - ------------------------------ NOTICE: The signature to the foregoing Assignment Form must correspond to the name as written upon the face of the within Warrant in every detail, without alteration or enlargement or any change whatsoever. EX-4.4 4 EXHIBIT 4.4 EXHIBIT 4.4 FIRST AMENDMENT TO COMMON STOCK PURCHASE WARRANT THIS FIRST AMENDMENT TO COMMON STOCK PURCHASE WARRANT (this "Amendment") made and entered into effective as of August 31, 1999, by and between VARI-LITE INTERNATIONAL, INC., a Delaware corporation (the "Company") that is the successor by merger to Vari-Lite International, Inc., a Texas corporation, and BROWN BROTHERS HARRIMAN & CO. (the "Holder"). W I T N E S S E T H: WHEREAS, pursuant to the terms of a certain Warrant Agreement dated as of July 31, 1996, by and among Vari-Lite International, Inc., a Texas corporation, the Holder, NBD Bank, SunTrust Bank, Atlanta, and Comerica Bank-Texas (the "Warrant Agreement"), Vari-Lite International, Inc. issued to the Holder a Common Stock Purchase Warrant No. A-1 representing the right of the Holder to purchase 14,301 shares of Class B Common Stock of Vari-Lite International, Inc. (the "Warrant"); WHEREAS, the Company is the successor by merger to Vari-Lite International, Inc., a Texas corporation and, as a result of such merger transaction, the Warrant now represents the right of the Holder to purchase 53,824 shares of the Common Stock of the Company; WHEREAS, in consideration of the Holder entering into a certain Amendment No. 5 to Credit Agreement dated as of August 25, 1999, among the Company, the Holder, the other "Lenders" that are parties thereto, SunTrust Bank, Atlanta, as Agent and Collateral Agent, the Company has agreed to reduce the "Exercise Price" as provided in the Warrant; NOW, THEREFORE, for and in consideration of the premises, and for Ten Dollars ($10.00) and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the Company, the parties hereto, intending to be legally bound, agree as follows: 1. DEFINED TERMS. Except as otherwise expressly provided herein, capitalized terms used in this Amendment that are defined in the Warrant are used herein with the respective meanings assigned to such capitalized terms in the Warrant. 2. AMENDMENT TO SECTION 1. Section 1 of the Warrant is hereby amended by deleting the defined term "Exercise Price" and the accompanying definition for such term in their entirety and substituting the following defined term and accompanying definition in lieu thereof: "Exercise Price" shall mean an amount, per share, equal to $3.75; PROVIDED, HOWEVER, that the Exercise Price shall be subject to adjustment as set forth in Section 4 hereof. 3. AMENDMENT TO SECTION 3. Section 3 of the Warrant is hereby amended by deleting the fourth sentence of said Section 3 in its entirety and substituting in lieu thereof the following sentence: An assigning Holder shall give prompt written notice to SunTrust Bank, Atlanta of the consummation of any such assignment (with it being understood that this sentence shall be of no force and effect if SunTrust Bank, Atlanta is no longer a Holder or an "Agent" for the lenders under the primary bank credit facility of the Company and/or its subsidiaries). 4. RATIFICATION OF WARRANT. Except as expressly amended hereby, all terms, covenants and conditions of the Warrant shall remain in full force and effect, and the parties hereto do expressly ratify and confirm the Warrant as amended herein. 5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company, without limiting the representations and warranties provided in the Warrant and the Warrant Agreement, represents and warrants to the Holder as follows: (a) The execution, delivery and performance by the Company of this Amendment are within the Company's corporate powers, have been duly authorized by all necessary corporate action (including any necessary shareholder action) and do not and will not (i) violate any provision of any law, rule or regulation, any judgment, order or ruling of any court or governmental agency, the certificate of incorporation or bylaws of the Company, or any indenture, agreement or other instrument to which the Company is a party or by which the Company or any of its properties is bound, or (ii) be in conflict with, result in a breach of, or constitute with notice or lapse of time or both a default under any such indenture, agreement or other instrument. (b) This Amendment constitutes the legal, valid and binding obligation of the Company, enforceable against it in accordance with its terms. 6. BINDING NATURE. This Amendment shall be binding upon and inure to the benefit of the parties hereto, and their respective successors and assigns. 7. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. 8. ENTIRE UNDERSTANDING. This Amendment sets forth the entire understanding of the parties with respect to the matters set forth herein, and shall supersede any prior negotiations or agreements, whether written or oral, with respect thereto. 9. COUNTERPARTS. This Amendment may be executed in any number of counterparts and by the different parties hereto in separate counterparts and may be delivered by telecopier. Each counterpart so executed and delivered shall be deemed an original and all of which taken together shall constitute but one and the same instrument. -2- IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed and delivered by their duly authorized officers effective as of the date first above written. VARI-LITE INTERNATIONAL, INC. By: ______________________________ Name: Title: Attest: ______________________________ Name: Title: [CORPORATE SEAL] PER PRO BROWN BROTHERS HARRIMAN & CO. By: _______________________________ Name: Title: -3- EX-4.5 5 EXHIBIT 4.5 EXHIBIT 4.5 FIRST AMENDMENT TO COMMON STOCK PURCHASE WARRANT THIS FIRST AMENDMENT TO COMMON STOCK PURCHASE WARRANT (this "Amendment") made and entered into effective as of August 31, 1999, by and between VARI-LITE INTERNATIONAL, INC., a Delaware corporation (the "Company") that is the successor by merger to Vari-Lite International, Inc., a Texas corporation, and SUNTRUST BANK, ATLANTA (the "Holder"). W I T N E S S E T H: WHEREAS, pursuant to the terms of a certain Warrant Agreement dated as of July 31, 1996, by and among Vari-Lite International, Inc., a Texas corporation, the Holder, NBD Bank, SunTrust Bank, Atlanta, and Comerica Bank-Texas (the "Warrant Agreement"), Vari-Lite International, Inc. issued to the Holder a Common Stock Purchase Warrant No. A-1 representing the right of the Holder to purchase 14,301 shares of Class B Common Stock of Vari-Lite International, Inc. (the "Warrant"); WHEREAS, the Company is the successor by merger to Vari-Lite International, Inc., a Texas corporation and, as a result of such merger transaction, the Warrant now represents the right of the Holder to purchase 53,824 shares of the Common Stock of the Company; WHEREAS, in consideration of the Holder entering into a certain Amendment No. 5 to Credit Agreement dated as of August 25, 1999, among the Company, the Holder, the other "Lenders" that are parties thereto, and Brown Brothers Harriman & Co., as Co-Agent, the Company has agreed to reduce the "Exercise Price" as provided in the Warrant; NOW, THEREFORE, for and in consideration of the premises, and for Ten Dollars ($10.00) and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the Company, the parties hereto, intending to be legally bound, agree as follows: 1. DEFINED TERMS. Except as otherwise expressly provided herein, capitalized terms used in this Amendment that are defined in the Warrant are used herein with the respective meanings assigned to such capitalized terms in the Warrant. 2. AMENDMENT TO SECTION 1. Section 1 of the Warrant is hereby amended by deleting the defined term "Exercise Price" and the accompanying definition for such term in their entirety and substituting the following defined term and accompanying definition in lieu thereof: "Exercise Price" shall mean an amount, per share, equal to $3.75; PROVIDED, HOWEVER, that the Exercise Price shall be subject to adjustment as set forth in Section 4 hereof. 3. AMENDMENT TO SECTION 3. Section 3 of the Warrant is hereby amended by deleting the fourth sentence of said Section 3 in its entirety and substituting in lieu thereof the following sentence: An assigning Holder shall give prompt written notice to SunTrust Bank, Atlanta of the consummation of any such assignment (with it being understood that this sentence shall be of no force and effect if SunTrust Bank, Atlanta is no longer a Holder or an "Agent" for the lenders under the primary bank credit facility of the Company and/or its subsidiaries). 4. RATIFICATION OF WARRANT. Except as expressly amended hereby, all terms, covenants and conditions of the Warrant shall remain in full force and effect, and the parties hereto do expressly ratify and confirm the Warrant as amended herein. 5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company, without limiting the representations and warranties provided in the Warrant and the Warrant Agreement, represents and warrants to the Holder as follows: (a) The execution, delivery and performance by the Company of this Amendment are within the Company's corporate powers, have been duly authorized by all necessary corporate action (including any necessary shareholder action) and do not and will not (i) violate any provision of any law, rule or regulation, any judgment, order or ruling of any court or governmental agency, the certificate of incorporation or bylaws of the Company, or any indenture, agreement or other instrument to which the Company is a party or by which the Company or any of its properties is bound, or (ii) be in conflict with, result in a breach of, or constitute with notice or lapse of time or both a default under any such indenture, agreement or other instrument. (b) This Amendment constitutes the legal, valid and binding obligation of the Company, enforceable against it in accordance with its terms. 6. BINDING NATURE. This Amendment shall be binding upon and inure to the benefit of the parties hereto, and their respective successors and assigns. 7. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. 8. ENTIRE UNDERSTANDING. This Amendment sets forth the entire understanding of the parties with respect to the matters set forth herein, and shall supersede any prior negotiations or agreements, whether written or oral, with respect thereto. 9. COUNTERPARTS. This Amendment may be executed in any number of counterparts and by the different parties hereto in separate counterparts and may be delivered by telecopier. Each counterpart so executed and delivered shall be deemed an original and all of which taken together shall constitute but one and the same instrument. - 2 - IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed and delivered by their duly authorized officers effective as of the date first above written. VARI-LITE INTERNATIONAL, INC. By: ----------------------------------- Name: Title: Attest: ----------------------------------- Name: Title: [CORPORATE SEAL] SUNTRUST BANK, ATLANTA By: ----------------------------------- Name: Title: - 3 - EX-4.6 6 EXHIBIT 4.6 EXHIBIT 4.6 FIRST AMENDMENT TO COMMON STOCK PURCHASE WARRANT THIS FIRST AMENDMENT TO COMMON STOCK PURCHASE WARRANT (this "Amendment") made and entered into effective as of August 31, 1999, by and between VARI-LITE INTERNATIONAL, INC., a Delaware corporation (the "Company") that is the successor by merger to Vari-Lite International, Inc., a Texas corporation, and COMERICA BANK-TEXAS (the "Holder"). W I T N E S S E T H: WHEREAS, pursuant to the terms of a certain Warrant Agreement dated as of July 31, 1996, by and among Vari-Lite International, Inc., a Texas corporation, the Holder, NBD Bank, SunTrust Bank, Atlanta, and Comerica Bank-Texas (the "Warrant Agreement"), Vari-Lite International, Inc. issued to the Holder a Common Stock Purchase Warrant No. A-1 representing the right of the Holder to purchase 14,301 shares of Class B Common Stock of Vari-Lite International, Inc. (the "Warrant"); WHEREAS, the Company is the successor by merger to Vari-Lite International, Inc., a Texas corporation and, as a result of such merger transaction, the Warrant now represents the right of the Holder to purchase 53,824 shares of the Common Stock of the Company; WHEREAS, in consideration of the Holder entering into a certain Amendment No. 5 to Credit Agreement dated as of August 25, 1999, among the Company, the Holder, the other "Lenders" that are parties thereto, SunTrust Bank, Atlanta, as Agent and Collateral Agent, and Brown Brothers Harriman & Co., as Co-Agent, the Company has agreed to reduce the "Exercise Price" as provided in the Warrant; NOW, THEREFORE, for and in consideration of the premises, and for Ten Dollars ($10.00) and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the Company, the parties hereto, intending to be legally bound, agree as follows: 1. DEFINED TERMS. Except as otherwise expressly provided herein, capitalized terms used in this Amendment that are defined in the Warrant are used herein with the respective meanings assigned to such capitalized terms in the Warrant. 2. AMENDMENT TO SECTION 1. Section 1 of the Warrant is hereby amended by deleting the defined term "Exercise Price" and the accompanying definition for such term in their entirety and substituting the following defined term and accompanying definition in lieu thereof: "Exercise Price" shall mean an amount, per share, equal to $3.75; PROVIDED, HOWEVER, that the Exercise Price shall be subject to adjustment as set forth in Section 4 hereof. 3. AMENDMENT TO SECTION 3. Section 3 of the Warrant is hereby amended by deleting the fourth sentence of said Section 3 in its entirety and substituting in lieu thereof the following sentence: An assigning Holder shall give prompt written notice to SunTrust Bank, Atlanta of the consummation of any such assignment (with it being understood that this sentence shall be of no force and effect if SunTrust Bank, Atlanta is no longer a Holder or an "Agent" for the lenders under the primary bank credit facility of the Company and/or its subsidiaries). 4. RATIFICATION OF WARRANT. Except as expressly amended hereby, all terms, covenants and conditions of the Warrant shall remain in full force and effect, and the parties hereto do expressly ratify and confirm the Warrant as amended herein. 5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company, without limiting the representations and warranties provided in the Warrant and the Warrant Agreement, represents and warrants to the Holder as follows: (a) The execution, delivery and performance by the Company of this Amendment are within the Company's corporate powers, have been duly authorized by all necessary corporate action (including any necessary shareholder action) and do not and will not (i) violate any provision of any law, rule or regulation, any judgment, order or ruling of any court or governmental agency, the certificate of incorporation or bylaws of the Company, or any indenture, agreement or other instrument to which the Company is a party or by which the Company or any of its properties is bound, or (ii) be in conflict with, result in a breach of, or constitute with notice or lapse of time or both a default under any such indenture, agreement or other instrument. (b) This Amendment constitutes the legal, valid and binding obligation of the Company, enforceable against it in accordance with its terms. 6. BINDING NATURE. This Amendment shall be binding upon and inure to the benefit of the parties hereto, and their respective successors and assigns. 7. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. 8. ENTIRE UNDERSTANDING. This Amendment sets forth the entire understanding of the parties with respect to the matters set forth herein, and shall supersede any prior negotiations or agreements, whether written or oral, with respect thereto. 9. COUNTERPARTS. This Amendment may be executed in any number of counterparts and by the different parties hereto in separate counterparts and may be delivered by telecopier. Each counterpart so executed and delivered shall be deemed an original and all of which taken together shall constitute but one and the same instrument. -2- IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed and delivered by their duly authorized officers effective as of the date first above written. VARI-LITE INTERNATIONAL, INC. By: ------------------------------------- Name: Title: Attest: --------------------------------- Name: Title: [CORPORATE SEAL] COMERICA BANK-TEXAS By: ------------------------------------- Name: Title: -3- EX-4.7 7 EXHIBIT 4.7 EXHIBIT 4.7 FIRST AMENDMENT TO COMMON STOCK PURCHASE WARRANT THIS FIRST AMENDMENT TO COMMON STOCK PURCHASE WARRANT (this "Amendment") made and entered into effective as of August 31, 1999, by and between VARI-LITE INTERNATIONAL, INC., a Delaware corporation (the "Company") that is the successor by merger to Vari-Lite International, Inc., a Texas corporation, and THE FIRST NATIONAL BANK OF CHICAGO (the "Holder") as successor to NBD Bank. W I T N E S S E T H: WHEREAS, pursuant to the terms of a certain Warrant Agreement dated as of July 31, 1996, by and among Vari-Lite International, Inc., a Texas corporation, the Holder, NBD Bank, SunTrust Bank, Atlanta, and Comerica Bank-Texas (the "Warrant Agreement"), Vari-Lite International, Inc. issued to the Holder a Common Stock Purchase Warrant No. A-1 representing the right of the Holder to purchase 21,458 shares of Class B Common Stock of Vari-Lite International, Inc. (the "Warrant"); WHEREAS, the Company is the successor by merger to Vari-Lite International, Inc., a Texas corporation and, as a result of such merger transaction, the Warrant represents the right of the Holder to purchase 80,761 shares of the Common Stock of the Company; WHEREAS, in consideration of the Holder entering into a certain Amendment No. 5 to Credit Agreement dated as of August 25, 1999, among the Company, the Holder, the other "Lenders" that are parties thereto, SunTrust Bank, Atlanta, as Agent and Collateral Agent, and Brown Brothers Harriman & Co., as Co-Agent, the Company has agreed to reduce the "Exercise Price" as provided in the Warrant; NOW, THEREFORE, for and in consideration of the premises, and for Ten Dollars ($10.00) and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the Company, the parties hereto, intending to be legally bound, agree as follows: 1. DEFINED TERMS. Except as otherwise expressly provided herein, capitalized terms used in this Amendment that are defined in the Warrant are used herein with the respective meanings assigned to such capitalized terms in the Warrant. 2. AMENDMENT TO SECTION 1. Section 1 of the Warrant is hereby amended by deleting the defined term "Exercise Price" and the accompanying definition for such term in their entirety and substituting the following defined term and accompanying definition in lieu thereof: "Exercise Price" shall mean an amount, per share, equal to $3.75; PROVIDED, HOWEVER, that the Exercise Price shall be subject to adjustment as set forth in Section 4 hereof. 3. AMENDMENT TO SECTION 3. Section 3 of the Warrant is hereby amended by deleting the fourth sentence of said Section 3 in its entirety and substituting in lieu thereof the following sentence: An assigning Holder shall give prompt written notice to SunTrust Bank, Atlanta of the consummation of any such assignment (with it being understood that this sentence shall be of no force and effect if SunTrust Bank, Atlanta is no longer a Holder or an "Agent" for the lenders under the primary bank credit facility of the Company and/or its subsidiaries). 4. RATIFICATION OF WARRANT. Except as expressly amended hereby, all terms, covenants and conditions of the Warrant shall remain in full force and effect, and the parties hereto do expressly ratify and confirm the Warrant as amended herein. 5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company, without limiting the representations and warranties provided in the Warrant and the Warrant Agreement, represents and warrants to the Holder as follows: (a) The execution, delivery and performance by the Company of this Amendment are within the Company's corporate powers, have been duly authorized by all necessary corporate action (including any necessary shareholder action) and do not and will not (i) violate any provision of any law, rule or regulation, any judgment, order or ruling of any court or governmental agency, the certificate of incorporation or bylaws of the Company, or any indenture, agreement or other instrument to which the Company is a party or by which the Company or any of its properties is bound, or (ii) be in conflict with, result in a breach of, or constitute with notice or lapse of time or both a default under any such indenture, agreement or other instrument. (b) This Amendment constitutes the legal, valid and binding obligation of the Company, enforceable against it in accordance with its terms. 6. BINDING NATURE. This Amendment shall be binding upon and inure to the benefit of the parties hereto, and their respective successors and assigns. 7. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. 8. ENTIRE UNDERSTANDING. This Amendment sets forth the entire understanding of the parties with respect to the matters set forth herein, and shall supersede any prior negotiations or agreements, whether written or oral, with respect thereto. 9. COUNTERPARTS. This Amendment may be executed in any number of counterparts and by the different parties hereto in separate counterparts and may be delivered by telecopier. Each counterpart so executed and delivered shall be deemed an original and all of which taken together shall constitute but one and the same instrument. -2- IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed and delivered by their duly authorized officers effective as of the date first above written. VARI-LITE INTERNATIONAL, INC. By: ----------------------------------------- Name: Title: Attest: ------------------------------------- Name: Title: [CORPORATE SEAL] THE FIRST NATIONAL BANK OF CHICAGO By: ----------------------------------------- Name: Title: -3- EX-4.8 8 EXHIBIT 4.8 EXHIBIT 4.8 SUPPLEMENT TO WARRANT AGREEMENT THIS SUPPLEMENT TO WARRANT AGREEMENT ( this "Supplement") is made and entered into as of August 31, 1999, by and among VARI-LITE INTERNATIONAL, INC., a Delaware corporation (the "Company") that is the successor by merger to Vari-Lite International, Inc., a Texas corporation, BROWN BROTHERS HARRIMAN & CO., THE FIRST NATIONAL BANK OF CHICAGO (as successor to NBD Bank), SUNTRUST BANK, ATLANTA, COMERICA BANK-TEXAS (collectively, the "Initial Holders"), and CHASE BANK OF TEXAS, N.A. ("CBT"). W I T N E S S E T H: WHEREAS, Vari-Lite International, Inc., a Texas corporation, and the Initial Holders entered into a certain Warrant Agreement dated as of July 31, 1996 (the "Warrant Agreement"), pursuant to which Vari-Lite International, Inc. issued to the Initial Holders common stock purchase warrants (the "Initial Warrants") in respect of the Class B Common Stock of Vari-Lite International, Inc.; WHEREAS, the Company is the successor by merger to Vari-Lite International, Inc., a Texas corporation and, as a result of such merger transaction, the Initial Warrants now represent the rights of the Initial Holders to purchase shares of the Common Stock of the Company; WHEREAS, in consideration of the Initial Holders and CBT entering into a certain Amendment No. 5 to Credit Agreement dated as of August 25, 1999, among the Company, the Initial Holders, CBT, SunTrust Bank, Atlanta, as Agent and Collateral Agent, and Brown Brothers Harriman & Co., as Co-Agent, the Company has agreed to reduce the exercise price as now in effect with respect to the Initial Warrants and to issue to CBT a common stock purchase warrant to purchase 53,824 shares of Common Stock of the Company on the same terms and conditions as the Initial Warrants, after giving effect to such reduction in the exercise price thereof; WHEREAS, the Company, the Initial Holders, and CBT are entering into this Supplement for the purposes of effecting the foregoing agreements; NOW, THEREFORE, for and in consideration of the premises, and for Ten Dollars ($10.00) and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the Company, the parties hereto, intending to be legally bound, agree as follows: 1. DEFINED TERMS. Except as otherwise expressly provided herein, capitalized terms used in this Supplement that are defined in the Warrant Agreement are used herein with the respective meanings assigned to such capitalized terms in the Warrant Agreement. 2. ISSUANCE OF WARRANT TO CBT. In consideration of the premises set forth herein, the Company hereby issues to CBT a Common Stock Purchase Warrant (No. A-5), in the form of EXHIBIT A attached to this Supplement (the "CBT Warrant"), representing the right of CBT to purchase 53,824 shares of the Common Stock of the Company, subject to the terms and conditions set forth in the Warrant Agreement, as supplemented hereby, and in the CBT Warrant; PROVIDED, HOWEVER, that the number of Warrant Shares contemplated by this paragraph 2 and the CBT Warrant shall be subject to further adjustment in accordance with the anti-dilution provisions contained in the CBT Warrant. The CBT Warrant shall be subject to the terms and conditions, and entitled to the benefits, of all provisions of the Warrant Agreement, as supplemented hereby, including without limitation, provisions for registration rights granted to each Holder of Warrants. 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby restates and reaffirms, as of the date hereof and after giving effect to this Supplement and the issuance of the CBT Warrant, each of the representations and warranties made to each Holder in Section 3 of the Warrant Agreement, except that, with respect to Section 3.05 of the Warrant Agreement, the Company hereby represents and warrants as follows: The Company's Form 10-Q filed with the Securities and Exchange Commission for the fiscal quarter ending June 30, 1999 accurately sets forth the respective numbers of authorized and issued and outstanding shares of Common Stock of the Company on a fully diluted basis, other than options issued to employees in the ordinary course of business subsequent to June 30, 1999. 4. REPRESENTATIONS AND WARRANTIES OF CBT. CBT, by its acceptance of the CBT Warrant, represents and warrants that (i) CBT is acquiring the CBT Warrant and the related Warrant Shares for its own account for investment purposes only and not as nominee or agent for any other Person and not for offer or sale in any manner that would be in violation of the securities laws of the United States of America or any state thereof, without prejudice, however, to its right at all times to sell or otherwise dispose of all or any part of said CBT Warrant or Warrant Shares under a registration under the Securities Act or any applicable state securities laws or under an exemption from such registration available under such Act or any applicable state securities laws, and (ii) CBT is an "accredited" investor within the meaning of Regulation D promulgated under the Securities Act. 5. ADDITION OF CBT AS INITIAL HOLDER AND HOLDER. From and after the effective date of this Supplement, CBT shall be deemed an "Initial Holder" and "Holder" for all purposes of the Warrant Agreement and shall be a party to the Warrant Agreement to the same extent, and with the same rights and other effect, as the other Initial Holders at the time of the effectiveness of this Warrant Agreement. 6. REFERENCES TO WARRANTS AND COMMON STOCK. The parties acknowledge and agree that (i) all references in the Warrant Agreement to a "Warrant" or "Warrants" shall include the CBT Warrant, and (ii) all references in the Warrant Agreement and the Warrants to "Class A Common Stock" or "Class B Common Stock" shall be deemed to mean and refer to the Common Stock of the Company. After giving effect to the issuance of the CBT Warrant, the Warrant Shares -2- represented by the issued and outstanding Warrants to the Holders (including CBT) are as follows:
HOLDER WARRANT SHARES Brown Brothers Harriman & Co. 53,824 The First National Bank of Chicago 80,761 SunTrust Bank, Atlanta 53,824 Comerica Bank-Texas 53,824 Chase Bank of Texas, N.A. 53,824
7. RATIFICATION OF WARRANT AGREEMENT. Except as expressly amended and supplemented hereby, all terms, covenants and conditions of the Warrant Agreement shall remain in full force and effect, and the parties hereto do expressly ratify and confirm the Warrant Agreement as amended and supplemented hereby. 8. BINDING NATURE. This Supplement shall be binding on and shall inure to the benefit of the parties hereto and their respective successors and assigns. 9. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. 10. ENTIRE UNDERSTANDING. This Supplement sets forth the entire understanding of the parties with respect to the matters set forth herein, and shall supersede any prior negotiations or agreements, whether written or oral, with respect thereto. 11. COUNTERPARTS. This Supplement may be executed in any number of counterparts and by the different parties hereto in separate counterparts and may be delivered by telecopier. Each counterpart so executed and delivered shall be deemed an original and all of which taken together shall constitute but one and the same instrument. -3- IN WITNESS WHEREOF, the parties hereto have caused this Supplement to be executed and delivered by their duly authorized officers as of the date first above written. VARI-LITE INTERNATIONAL, INC. By: ------------------------------------- Name: Title: Attest: --------------------------------- Name: Title: [CORPORATE SEAL] PER PRO BROWN BROTHERS HARRIMAN & CO. By: ------------------------------------- Name: Title: THE FIRST NATIONAL BANK OF CHICAGO By: ------------------------------------- Name: Title: SUNTRUST BANK, ATLANTA By: ------------------------------------- Name: Title: -4- COMERICA BANK-TEXAS By: ------------------------------------- Name: Title: CHASE BANK OF TEXAS, N.A. By: ------------------------------------- Name: Title: -5- EX-10.45 9 EXHIBIT 10.45 AMENDMENT NO. 5 TO CREDIT AGREEMENT THIS AMENDMENT NO. 5 TO CREDIT AGREEMENT (this "AMENDMENT") effective as of August 25, 1999, by and among VARI-LITE INTERNATIONAL, INC., a Delaware corporation (the "BORROWER"), SUNTRUST BANK, ATLANTA, BROWN BROTHERS HARRIMAN & CO., CHASE BANK OF TEXAS, N.A. (FORMERLY KNOWN AS TEXAS COMMERCE BANK NATIONAL ASSOCIATION), COMERICA BANK-TEXAS and THE FIRST NATIONAL BANK OF CHICAGO (collectively, the "LENDERS"), SUNTRUST BANK, ATLANTA, as agent and collateral agent for the Lenders (in such capacities, the "AGENT" and "COLLATERAL AGENT", respectively), and BROWN BROTHERS HARRIMAN & CO, as co-agent for the Lenders (in such capacity, the "CO-AGENT"). W I T N E S S E T H: WHEREAS, Borrower, the Lenders, the Agent, the Collateral Agent, and the Co-Agent are parties to a certain Multicurrency Credit Agreement dated as of December 19, 1997, as 1amended by a certain Amendment No. 1 to Credit Agreement dated as of April 21, 1998, by a certain Amendment No. 2 to Credit Agreement dated as of July 31, 1998, by a certain Amendment No. 3 to Credit Agreement dated as of September 30, 1998, and by a certain Amendment No. 4 to Credit Agreement dated as of April 1, 1999 (as so amended, the "CREDIT AGREEMENT"; defined terms used herein without definition shall have the meanings ascribed to such terms in the Credit Agreement); WHEREAS, Borrower and the Lenders have agreed to amend the Credit Agreement as more specifically set forth below; NOW, THEREFORE, for and in consideration of the mutual covenants contained herein and other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, agree as follows: SECTION 1. AMENDMENTS TO CREDIT AGREEMENT. Subject to the satisfaction of the conditions precedent set forth in Section 2 hereof, and effective as of the Effective Date (as hereinafter defined), the Credit Agreement is hereby amended as follows: 1.1 SECTION 1.01 of the Credit Agreement is hereby amended by deleting in its entirety the defined terms "APPLICABLE MARGIN", "ASSET SALE", "CHANGE IN CONTROL", "CONSOLIDATED NET INCOME", "MASTER SYNDICATED LOAN COMMITMENT", "MULTICURRENCY SYNDICATED LOAN COMMITMENT", "REQUIRED LENDERS", "REVOLVER/MULTICURRENCY MATURITY DATE" and "SWING LINE LENDER" and their accompanying definitions, and substituting in lieu thereof the following defined terms and accompanying definitions: "APPLICABLE MARGIN" shall mean (x) with respect to all outstanding Advances through August 25, 1999, the percentage determined pursuant to the definition of "APPLICABLE MARGIN" as defined in the Agreement immediately prior to the effectiveness of Amendment No. 5, and (y) on and after August 25, 1999, with respect to all outstanding Advances for any day, the applicable percentage determined from the chart set forth on SCHEDULE 1.01-AM, based on Borrower's Adjusted Funded Debt/EBITDA Ratio calculated as the relevant determination date. The Adjusted Funded Debt/EBITDA Ratio and the resulting Applicable Margin shall be determined quarterly, based upon the financial statements delivered to the Lenders pursuant to SECTION 6.07(a) or SECTION 6.07(b) hereof, as the case may be, in accordance with SECTION 6.08(b), with such Applicable Margin to be effective with respect to calculations based upon the financial statements delivered pursuant to SECTION 6.07 as of the first day of the second fiscal quarter immediately following the fiscal quarter for which such financial statements are delivered (for example, the Applicable Margin effective with respect to all outstanding Advances as of the first day of the third fiscal quarter shall be calculated based upon the financial statements delivered for the first fiscal quarter of Borrower). Notwithstanding the foregoing, at any time during which Borrower has failed to deliver the financial statements and certificates within five (5) Business Days after the same are required to be delivered by SECTION 6.07(a), (b), and (c), as applicable, the Applicable Margin with respect to the Advances then outstanding shall be the highest applicable rate that may be charged at such time to Borrower as set forth on SCHEDULE 1.01-AM. "ASSET SALE" shall mean the sale (including any transaction that has the economic effect of a sale), transfer or other disposition (by way of merger or otherwise, including sales in connection with any sale and leaseback transaction, or as a result of a condemnation event or casualty event) by Borrower or any Consolidated Company to any Person, other than to Borrower or any other Consolidated Company, of (i) any shares of capital stock or other equity or ownership interests of any Person owned by Borrower or any Consolidated Company, or (ii) any other assets of Borrower or any other Consolidated Company (other than personal property inventory or obsolete or worn out assets, in each case sold or otherwise disposed of in the ordinary course of business). "CHANGE IN CONTROL" shall mean and be deemed to occur on the earliest of, and upon any subsequent occurrence of: (a) any individual, entity, or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended) shall acquire the stock of Borrower resulting in beneficial ownership (within the meaning of Rule 13d-3 promulgated under such Act) of more than 30% (or, in the case of Tony Smith (a member of Borrower's Board of Directors) or any such group with which Tony Smith is included for purposes of aggregating such beneficial ownership, 40%)) of the combined voting power of the then outstanding capital stock of Borrower entitled to vote for the election of a majority of the members of the Board of Directors of Borrower; or (b) a change in the Board of Directors of Borrower shall occur such that, as of any date, a majority of the Board of Directors of Borrower consists of individuals who 2 were not either (i) directors of Borrower as of the corresponding date of the previous year, (ii) selected or nominated to be selected to become directors by the Board of Directors of Borrower of which a majority consisted of individuals described in clause (i), or (iii) selected or nominated to be selected to become directors by the Board of Directors of Borrower of which a majority consisted of individuals described in clause (i) and individuals described in clause (ii). "CONSOLIDATED NET INCOME (LOSS)" shall mean, for any fiscal period of Borrower, (i) the net income (or loss) of the Consolidated Companies on a consolidated basis for such period (taken as a single accounting period), PLUS (ii) without duplication, the net income (or loss) of any Person accrued for such fiscal period prior to the date such Person becomes a Subsidiary of Borrower or is merged into or consolidated with any Consolidated Company or all or substantially all of such Person's assets are acquired by any Consolidated Company (as determined from audited financial statements of such Person or other financial reports reasonably acceptable to the Required Lenders) as determined in conformity with GAAP, PLUS (iii) to the extent deducted therefrom, High End Lawsuit Expensed Amounts for such period, but excluding therefrom (to the extent otherwise included therein and not including High End Lawsuit Expensed Amounts) (x) any items of gain (but not excluding any items of loss) that were included in determining such Consolidated Net Income (Loss) and were (1) extraordinary, non-recurring, or otherwise not realized in the ordinary course of business, or (2) the result of any Asset Sale, and (y) the income of any Consolidated Company to the extent that the declaration or payment of dividends or similar distributions by such Consolidated Company of that income is not at the time permitted by operation of the terms of its charter or other organizational documents or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation. "MASTER SYNDICATED LOAN COMMITMENT" shall mean, at any time for each Lender, the amount of such commitment as in effect at such time as set forth for such Lender on SCHEDULE 2.01(PART I) attached to Amendment No. 5, as the same may be increased or decreased from time to time as a result of any reduction thereof pursuant to SECTION 2.05, any amendment thereof pursuant to SECTION 10.02, or any assignment thereof pursuant to SECTION 10.06. "MULTICURRENCY SYNDICATED LOAN SUBCOMMITMENT" shall mean, at any time for each Lender, the amount of such commitment as in effect at such time as set forth for such Lender on SCHEDULE 2.01(PART II) attached to Amendment No. 5, as the same may be increased or decreased from time to time as a result of any reduction thereof pursuant to SECTION 2.05, any amendment thereof pursuant to SECTION 10.02, or any assignment thereof pursuant to SECTION 10.06. "REQUIRED LENDERS" shall mean at any time Lenders holding 100% of the then aggregate amount of the Master Syndicated Loan Commitments, or if the Master Syndicated Loan Commitments have been terminated, the Lenders holding 100% of the outstanding Loans. 3 "REVOLVER/MULTICURRENCY MATURITY DATE" shall mean the earlier of (i) January 1, 2001, and (ii) the date on which all amounts outstanding under this Agreement have been declared or have automatically become due and payable pursuant to the provisions of Article VIII. "SWING LINE LENDER" shall mean (i) SunTrust Bank, Atlanta, and (ii) each other Lender extending to Borrower a Swing Line Commitment hereunder, or all of such Lenders, as the context may require. 1.2 SECTION 1.01 of the Credit Agreement is hereby amended by adding the following defined terms and accompanying definitions in proper alphabetical order: "AMENDMENT NO. 5" shall mean that certain Amendment No. 5 to Credit Agreement effective as of August 25, 1999, by and among Borrower, the Agent, Collateral Agent, the Co-Agent, and the Lenders, as the same may be amended, restated and supplemented from time to time. "CAPITAL INTERESTS" shall mean, with respect to (i) any corporation, the common stock, preferred stock, and any shares or other equivalents (however designated) of any other corporate stock, of such corporation, (ii) any limited liability company or unlimited liability company, the membership or ownership interests in such company, (iii) any partnership, the partnership interests (whether general, special or limited) in such partnership, (iv) any trust, the shares of beneficial interest in such trust, whether common, preferred, or other, and (v) any other organization, the equivalent equity or ownership interests, together in each case with any and all warrants, options and similar rights to purchase or otherwise acquire any of the foregoing. "DEBT ISSUANCE" shall mean, without duplication, any issuance, sale, or other delivery by any Consolidated Company to any other Person (other than to another Consolidated Company) of any instrument, agreement, or other document evidencing Indebtedness for money borrowed by such Consolidated Company, except (i) in respect of purchase money Indebtedness described in SECTION 7.02(b), or (ii) where all of the proceeds of such Indebtedness are being used to refinance existing Indebtedness of such Consolidated Company where the refinancing Indebtedness (x) has a later final maturity than the Indebtedness being refinanced, (y) provides for an interest rate that does not exceed the interest rate then in effect with respect to the Indebtedness being refinanced, and (z) does not provide for negative amortization, equity participations, preferences, or other interest rate increases based on any performance-related criteria. "EQUITY ISSUANCE" shall mean, without duplication, any issuance or sale by any Consolidated Company to any Person (other than to another Consolidated Company) of its Capital Interests. "LEASED ASSET VALUE" shall mean, with respect to any asset that is being leased by any Consolidated Company pursuant to any Synthetic Lease or capital lease entered into 4 after September 30, 1999, the fair market value of such asset as of the date such Consolidated Company first enters into such Synthetic Lease or capital lease. "LITIGATION PROCEEDS" shall mean, collectively, all amounts paid to any Consolidated Company in satisfaction or settlement of any claims, causes of action, suits, or other legal proceedings, including pending and threatened litigation, arbitration, and mediation proceedings, brought or threatened by or on behalf of such Consolidated Company, excluding any such claims, causes of action, suits, or other proceedings for the collection of amounts due from customers in respect of property purchased or leased from such Consolidated Company, or in respect of services rendered by such Consolidated Company, in each case in the ordinary course of business. "MANDATORY PREPAYMENT EVENT" shall mean each Asset Sale, Debt Issuance, Equity Issuance, and the receipt of any Litigation Proceeds. "NET CASH PROCEEDS" shall mean, without duplication, (a) with respect to any Asset Sale, the cash proceeds thereof (including cash and cash equivalents and cash payments received by way of deferred payment of principal pursuant to a note or installment receivable or otherwise), net of (i) reasonable and customary costs of sale paid on an arm's length basis to third Persons and (ii) payment of the principal amount of any Indebtedness secured by a Lien on such property to the extent required to be repaid under the terms thereof as a result of such Asset Sale; (b) with respect to any Debt Issuance or Equity Issuance, the cash proceeds thereof, net of reasonable and customary costs paid on an arm's length basis to third Persons, including underwriting commissions, placement fees, mortgage brokerage commissions and fees, and attorneys' fees; and (c) with respect to any Litigation Proceeds, the amount of such proceeds LESS, except in the case of Litigation Proceeds received from High End Systems, Inc. or any of its affiliates or any other Person on its or their behalf, the amount of any attorneys' fees payable in respect of such Litigation Proceeds as a contingent fee payable only upon receipt by the Consolidated Companies of such Litigation Proceeds. 1.3 SECTION 2.05 of the Credit Agreement is hereby amended by (i) designating the existing text of SECTION 2.05 as subsection (a) thereof, and (ii) adding a new subsection (b) to SECTION 2.05, as follows: (b) Each of the Master Syndicated Loan Commitment and Multicurrency Syndicated Loan Subcommitment of each Lender shall automatically be proportionately and permanently reduced on the dates and in the amounts set forth on SCHEDULE 2.01 (PARTS I AND II); PROVIDED, HOWEVER, that with respect to the required reductions of the Master Syndicated Loan Commitments and Multicurrency Syndicated Loan Subcommitments scheduled to take effect on December 31, 1999, March 31, 2000 and April 30, 2000, in the aggregate amounts of $11,000,000 and $4,400,000, respectively, if prior to such dates there has occurred any reduction(s) in the Master Syndicated Loan Commitments and Multicurrency Syndicated Loan Subcommitments as a result of mandatory prepayments as provided in the immediately following sentence in this SECTION 2.05(b), then the amount of the scheduled reduction(s) in Master Syndicated 5 Loan Commitments and Multicurrency Syndicated Loan Subcommitments on December 31, 1999, March 31, 2000, and April 30, 2000, shall be decreased (applied in chronological order of such scheduled reduction(s)) by the aggregate amount of such prior reductions in such Commitments. Each of the Master Syndicated Loan Commitment and Multicurrency Syndicated Loan Subcommitment of each Lender shall automatically be proportionately and permanently reduced by the amount required to be paid to such Lender pursuant to the mandatory prepayments required to be made by Borrower pursuant to SECTION 2.06(d), PROVIDED THAT, in the case of any mandatory prepayment in respect of Litigation Proceeds received from High End Systems, Inc., or any of its affiliates or any other Person on its or their behalf, the amount of such reductions in the Master Syndicated Loan Commitments shall be limited to an amount equal to the lesser of (i) $1,000,000, and (ii) fifty percent (50%) of such aggregate mandatory prepayments (together with a proportionate reduction in the Multicurrency Syndicated Loan Subcommitments). No reduction of the Master Syndicated Loan Commitments or Multicurrency Syndicated Loan Subcommitments shall reduce the Swing Line Loan Commitments then in effect. 1.4 SECTION 2.06 of the Credit Agreement is hereby amended by adding a new subsection (d) at the end of said SECTION 2.06, as follows: (d) Not later than the second Business Day following the occurrence, consummation or completion of each Mandatory Prepayment Event, Borrower shall pay to the Lenders an amount equal to the Net Cash Proceeds received in respect of such Mandatory Prepayment Event to prepay principal amounts outstanding under the Loans; PROVIDED, HOWEVER, that no such mandatory prepayment shall be required to be made in respect of Net Cash Proceeds representing payment by High End Systems, Inc., or any of its affiliates or any other Person on its or their behalf, of its regularly scheduled quarterly payment of Litigation Proceeds to any Consolidated Company arising from the proceeding in the Federal District court of the Northern District of Texas, but any prepayment of such Litigation Proceeds shall require a mandatory prepayment of such amount pursuant to this SECTION 2.06(d). Each mandatory prepayment of Loans pursuant to this SECTION 2.06(d) shall be applied ratably among the Lenders and, in the case of outstanding Multicurrency Syndicated Advances, to the respective Advances as designated by Borrower (or if no such designation is made, then as determined by the Agent), and, in the case of other Loans, shall be applied first to Base Rate Advances to the full extent thereof before application to Eurodollar Advances. 1.5 ARTICLE III of the Credit Agreement is hereby amended by adding a new SECTION 3.20 at the end of said ARTICLE III, as follows: SECTION 3.20. CONSIDERATION FOR AMENDMENT NO. 5. In consideration of the Lenders entering into Amendment No. 5, Borrower agrees that it will (i) pay to the Agent for the ratable benefit of the Lenders, on December 31, 1999, a fee in an amount equal to the aggregate amount of the Master Syndicated Loan Commitments in effect on December 31, 1999, MULTIPLIED BY one-half of one percent (1/2%), and (ii) execute, 6 deliver, and perform all of its obligations under the agreements and documents described or referred to in SECTION 6.16 of the Agreement. 1.6 SECTION 6.07 of the Credit Agreement is hereby amended by deleting subsections (c) and (u) of said SECTION 6.07 in their entirety and substituting in lieu thereof the following subsections (c) and (u): (c) NO DEFAULT/COMPLIANCE CERTIFICATE. Together with the financial statements required pursuant to subsections (a) and (b) above, a certificate of a member of Senior Management of Borrower (i) to the effect that, based upon a review of the activities of the Consolidated Companies and such financial statements during the period covered thereby, there exists no Event of Default and no Default under this Agreement, or if there exists an Event of Default or a Default hereunder, specifying the nature thereof and the proposed response thereto, and (ii) demonstrating with reasonable detail compliance as at the end of such fiscal year or such fiscal quarter with SECTION 6.08, SECTION 6.12, SECTIONS 7.01 through 7.05, and SECTIONS 7.13 through 7.15; (u) MONTHLY FINANCIAL STATEMENTS AND REPORTS. As soon as available and in any event within 30 days after the end of each calendar month of each fiscal year of Borrower, (i) a consolidated balance sheet and consolidated statements of income and shareholders' equity (including itemization of Capital Expenditures and all capital leases, Synthetic Leases and operating leases entered into by any Consolidated Company) for such month, presented on a consolidated basis, all in reasonable detail and certified by the chief financial officer or principal accounting officer of Borrower that such financial statements fairly present in all material respects the results of operations and cash flows for such monthly period (subject to normal year-end audit adjustments), (ii) utilization reports for automated luminaires, by location, in such detail as the Agent may reasonable request, and (iii) together with the financial statements required pursuant to clause (i) above, a certificate of a member of Senior Management of Borrower (x) to the effect that, based upon a review of the activities of the Consolidated Companies and such financial statements during the period covered thereby, there exists no Event of Default and no Default under this Agreement, or if there exists an Event of Default or a Default hereunder, specifying the nature thereof and the proposed response thereto, (y) demonstrating in reasonable detail compliance as at the end of such calendar month with Section 6.08(e), and (z) describing in reasonable detail (including whether such restructuring charges are cash or non-cash) any restructuring charges recognized by the Consolidated Companies in connection with consolidating operations, closing or relocating facilities, terminating or relocating employees, and other similar actions taken to reduce costs; and 1.7 SECTION 6.08 of the Credit Agreement is hereby amended by deleting said SECTION 6.08 in its entirety and substituting in lieu thereof the following SECTION 6.08: 7 SECTION 6.08. FINANCIAL COVENANTS. (a) LEVERAGE RATIO. Maintain as of the last day of each fiscal quarter of Borrower, a maximum Leverage Ratio of no greater than the amounts specified below for the period(s) indicated:
END OF FISCAL QUARTER MAXIMUM LEVERAGE RATIO --------------------- ---------------------- 4th fiscal quarter of 1998 fiscal year through 2nd fiscal quarter of 1999 fiscal year 57.0% 3rd fiscal quarter of 1999 fiscal year 56.0% 4th fiscal quarter of 1999 fiscal year 58.5% 1st fiscal quarter of 2000 fiscal year 61.0% 2nd fiscal quarter of 2000 fiscal year 58.0% 3rd fiscal quarter of 2000 fiscal year 54.5% 4th fiscal quarter of 2000 fiscal year and thereafter 53.0%
(b) ADJUSTED FUNDED DEBT/EBITDA. Maintain as of the last day of each fiscal quarter of Borrower, a maximum Adjusted Funded Debt/EBITDA Ratio of no greater than the amounts specified below for the period(s) indicated:
MAXIMUM ADJUSTED FUNDED END OF FISCAL QUARTER DEBT/EBITDA RATIO --------------------- ----------------------- 4th fiscal quarter of 1998 fiscal year and 1st fiscal quarter of 1999 fiscal year 3.70:1.00 2nd fiscal quarter of 1999 fiscal year 3.30:1.00 8 3rd fiscal quarter of 1999 fiscal year 3.35:1.00 4th fiscal quarter of 1999 fiscal year 3.40:1.00 1st fiscal quarter of 2000 fiscal year 3.70:1.00 2nd fiscal quarter of 2000 fiscal year 3.40:1.00 3rd fiscal quarter of 2000 fiscal year 2.68:1.00 4th fiscal quarter of 2000 fiscal year and thereafter 2.27:1.00
(c) FIXED CHARGE COVERAGE. Maintain as of the last day of each fiscal quarter of Borrower, a minimum Fixed Charge Coverage Ratio of no less than the amounts specified below for the period(s) indicated:
MINIMUM FIXED CHARGE END OF FISCAL QUARTER COVERAGE RATIO --------------------- -------------------- 4th fiscal quarter of 1998 fiscal year and 1st fiscal quarter of 1999 fiscal year 0.54:1.00 2nd fiscal quarter of 1999 fiscal year 0.66:1.00 3rd fiscal quarter of 1999 fiscal year 0.75:1.00 4th fiscal quarter of 1999 fiscal year 0.85:1.00 1st fiscal quarter of 2000 fiscal year 0.90:1.00 2nd fiscal quarter of 2000 fiscal year 0.95:1.00 3rd fiscal quarter of 2000 fiscal year 1.00:1.00 9 4th fiscal quarter of 2000 fiscal year and thereafter 1.25:1.00
(d) CONSOLIDATED NET WORTH. Maintain as of the last day of each fiscal quarter of Borrower, a Consolidated Net Worth equal to or greater than the Minimum Compliance Level. The "Minimum Compliance Level" shall, as of any date of determination, equal (x) the sum of (1) $41,000,000, PLUS (2) an additional amount calculated as of the last day of each fiscal year of Borrower, commencing with the fiscal year ending September 30, 1998, equal to 50% of the Consolidated Net Income for such fiscal year of Borrower then ending, PLUS (3) without duplication of any amount reflected in the preceding clause (2), the amount of any gain recognized by Borrower in the settlement of pending litigation that is included in the calculation of Consolidated Net Worth, and PLUS (4) the net proceeds of any equity offering consummated by any Consolidated Company since the last date of the determination of the Minimum Compliance Level, LESS (y) the aggregate amount of restructuring charges, not to exceed $2,000,000, recognized by the Consolidated Companies in connection with consolidating operations, closing or relocating facilities, terminating or relocating employees, and other similar actions to reduce costs, to the extent such charges result in a reduction of Borrower's Consolidated Net Worth; PROVIDED, HOWEVER, in the event that the Consolidated Companies suffer a net loss for any fiscal year, Consolidated Net Income shall be deemed to be $0, and further provided that amounts calculated pursuant to clauses (2), (3) and (4) above shall be permanent increases in the Minimum Compliance Level so that in no event shall the Minimum Compliance Level at any date of determination be less than the amount required at any preceding date of determination. (e) MONTHLY EBITDA. Maintain for each calendar month set forth below a minimum Consolidated EBITDA of no less than the amount specified below for such calendar month; PROVIDED, HOWEVER, that the failure of Borrower to maintain such minimum Consolidated EBITDA for any such calendar month shall not constitute an Event of Default hereunder if, on a cumulative basis for such calendar month and (except for July 1999) the preceding calendar month(s) during the period commencing July 1999, Borrower has maintained a minimum cumulative Consolidated EBITDA of no less than the amount specified below for such calendar month:
MINIMUM MONTHLY MINIMUM CUMULATIVE CALENDAR MONTH CONSOLIDATED EBITDA CONSOLIDATED EBITDA -------------- ------------------- ------------------- July 1999 $ 980,000 $ 980,000 August 1999 1,234,000 2,214,000 September 1999 910,000 3,124,000 October 1999 1,723,000 4,847,000 10 November 1999 1,328,000 6,175,000 December 1999 1,565,000 7,740,000 January 2000 1,356,000 9,096,000 February 2000 1,372,000 10,468,000 March 2000 1,964,000 12,432,000 April 2000 1,360,000 13,792,000 May 2000 1,728,000 15,520,000 June 2000 1,425,000 16,945,000 July 2000 1,588,000 18,533,000 August 2000 1,867,000 20,400,000 September 2000 1,722,000 22,122,000 October 2000 1,723,000 23,845,000 November 2000 1,328,000 25,173,000 December 2000 1,565,000 26,738,000
1.8 ARTICLE VI of the Credit Agreement is hereby amended by adding new SECTIONS 6.14 through 6.17 at the end of said ARTICLE VI, as follows: SECTION 6.14. FOREIGN COLLATERAL. Not later than November 20, 1999, Borrower shall, and shall cause its Subsidiaries to, execute and deliver to Collateral Agent, for the ratable benefit of the Lenders and Agent, agreements and other documents in form and substance satisfactory to Collateral Agent granting and conveying a first-priority perfected Lien on all tangible and intangible personal property of such Subsidiaries located outside the United States, including, without limitation, such instruments and other agreements as may be necessary or appropriate to evidence obligations of such Subsidiaries being secured by such Lien. Borrower shall further cause to be delivered to Collateral Agent such other agreements, instruments, and other documents constituting appropriate collateral filings, recordings and registrations, and reports, certificates and opinions of counsel evidencing and confirming the validity, perfection, priority and enforceability of such Liens. SECTION 6.15. COLLATERAL ASSIGNMENT OF LITIGATION PROCEEDS. Not later than August 31, 1999, Borrower shall execute and deliver, and cause to be executed and 11 delivered, to Collateral Agent for the ratable benefit of the Lenders and Agents, a collateral assignment of all Litigation Proceeds, in form and substance satisfactory to Collateral Agent, together with such other documents as Collateral Agent may require in order to evidence such collateral assignment, together with appropriate collateral filings, recordings and registrations, and reports, certificates and opinions of counsel evidencing and confirming the validity, perfection, priority and enforceability of the Lien granted and conveyed by such collateral assignment. SECTION 6.16. WARRANT DOCUMENTS. Not later than August 31, 1999, Borrower shall execute and deliver to the Lenders an amendment and supplement to the Warrant Agreement dated as of July 31, 1996, among Vari-Lite International, Inc. and certain of the Lenders, amendments of the common stock purchase warrants issued pursuant to the terms of such Warrant Agreement, and additional common stock purchase warrants to Chase Bank of Texas, N.A., all in form and substance satisfactory to the Lenders, implementing and effecting the requirements of the letter agreement referred to in SECTION 2(b) of Amendment No. 5. SECTION 6.17. ENGAGEMENT OF CONSULTANT. Not later than September 15, 1999, Borrower shall engage a nationally recognized management consultant firm or group to conduct and assist in an appraisal and evaluation of management, sales and marketing, systems, financial projections and liquidity, and to advise Borrower on improving operating performance that may be implemented by Borrower and the Consolidated Companies in order to improve their respective financial results, including cash flow, which management consultant firm or group and the scope of its engagement must be acceptable to the Required Lenders. Borrower shall cause to be delivered to the Lenders, not later than October 31, 1999, (or such later date as may be consented to in writing by the Required Lenders), a copy of the report of such management consultant firm or group, together with a detailed business plan proposed by Borrower based on such report. The Lenders shall have five (5) Business Days to review and provide comments to Borrower on such business plan, and Borrower shall deliver to the Lenders a final business plan not later than November 15, 1999, which business plan must be satisfactory to the Lenders. 1.9 SECTION 7.02 of the Credit Agreement is hereby amended by deleting subsection (b) of said SECTION 7.02 in its entirety and substituting in lieu thereof the following subsection (b): (b) Any Lien on any property securing Indebtedness incurred or assumed for the purpose of financing all or any part of the acquisition cost of such property, PROVIDED that (i) such Lien does not extend to any other property, (ii) the aggregate amount of Indebtedness secured by all such Liens at any time does not exceed $7,500,000, and (iii) Borrower is in compliance with SECTION 7.13 after giving effect to such transaction; 1.10 SECTION 7.13 of the Credit Agreement is hereby amended by deleting said SECTION 7.13 in its entirety and substituting in lieu thereof the following SECTION 7.13: 12 SECTION 7.13. CAPITAL EXPENDITURES AND LEASED ASSET VALUES. (a) Incur or otherwise permit to be made Capital Expenditures for the periods specified below in an aggregate amount in excess of the amount specified for such period:
FISCAL QUARTER(s) MAXIMUM AMOUNT ----------------- -------------- 1st fiscal quarter of 1999 fiscal year $ 4,500,000 1st and 2nd fiscal quarters of 1999 fiscal year (cumulative total) $ 7,500,000 1st, 2nd and 3rd fiscal quarters of 1999 fiscal year (cumulative total) $10,500,000 1999 fiscal year (cumulative total) $13,000,000
(b) Incur or otherwise permit to be made Capital Expenditures (including, without limitation, the Leased Asset Values of capital leases entered into during such period), or enter into Synthetic Leases in respect of assets having Leased Asset Values, for the periods specified below in an aggregate amount in excess of the amount specified for such period:
FISCAL QUARTER MAXIMUM AMOUNT -------------- -------------- 1st fiscal quarter of 2000 fiscal year $1,900,000 1st and 2nd fiscal quarters of 2000 fiscal year (cumulative total) 3,100,000 1st, 2nd and 3rd Fiscal Quarters of 2000 Fiscal Year (cumulative total) 3,550,000 2000 Fiscal Year (cumulative total) 4,000,000 2000 Fiscal Year and 1st Fiscal Quarter of 2001 (cumulative total) 5,200,000
13 1.11 SECTION 7.15 of the Credit Agreement is hereby amended by deleting said SECTION 7.15 in its entirety and substituting in lieu thereof the following SECTION 7.15: SECTION 7.15. OPERATING LEASES. Enter into or maintain in effect as lessee thereunder operating leases in respect of equipment and other personal property having aggregate payments thereunder in excess of (i) $260,000 in any fiscal quarter of Borrower, or (ii) $1,000,000 in any fiscal year of Borrower. 1.12 SECTION 8.02 of the Credit Agreement is hereby amended by deleting said SECTION 8.02 in its entirety and substituting in lieu thereof the following SECTION 8.02: SECTION 8.02. COVENANTS WITHOUT NOTICE. Borrower (i) shall fail to observe or perform any covenant or agreement contained in SECTIONS 6.07(g) or 6.08, or (ii) shall fail to observe or perform any covenant or agreement contained in SECTION 6.07(a), (b), (c), or (u), SECTION 6.10, or ARTICLE VII, and if capable of being remedied, such failure shall remain unremedied for five (5) days after the earlier of (x) any member of Senior Management of Borrower obtaining knowledge thereof, or (y) written notice thereof having been given to Borrower by any Agent or Lender; 1.13 ARTICLE X of the Credit Agreement is hereby amended by adding new SECTIONS 10.17 and 10.18 at the end of said ARTICLE X, as follows: SECTION 10.17. INDEMNIFICATION FOR CASH MANAGEMENT SERVICES. Borrower agrees to indemnify each Agent and Lender for any loss, cost or expense suffered or incurred by such Agent or Lender in providing concentration account, lockbox, collection, disbursement and other cash management services to Borrower or any of the Consolidated Companies, and the parties acknowledge and agree that all such indemnification obligations shall constitute "Obligations" for all purposes of this Agreement and all other Credit Documents and shall be guaranteed and secured, as the case may be, by the Security Documents. SECTION 10.18. INTEREST. In no event shall the amount of interest, and all other charges, amounts or fees contracted for, charged or collected for the use of money pursuant to this Agreement or the other Credit Documents and deemed to be interest under applicable law (collectively, "INTEREST") exceed the highest rate of Interest allowed by applicable law (the "MAXIMUM RATE"), and in the event any such payment is inadvertently received by any Lender then the excess sum (the "EXCESS") shall be credited as a payment of principal. It is the express intent hereof that Borrower not pay and the Lenders not receive, directly or indirectly in any manner whatsoever, Interest in excess of that which may legally be paid by Borrower under applicable law. By the execution of this Agreement, Borrower covenants that (i) the credit or return of any Excess shall constitute the acceptance by Borrower of such Excess, and (ii) Borrower shall not seek or pursue any other remedy, legal or equitable, against any Lender, based in whole or in part upon contracting for, charging or receiving any Interest in excess of the Maximum Rate. For the purpose of determining whether or not any Excess shall have 14 been contracted for, charged or received by any Lender, all Interest at any time contracted for, charged or received from Borrower in connection with this Agreement or any other Credit Document shall be amortized, pro rated, allocated and spread in equal parts throughout the full term of the Agreement. If the amount of Interest payable for the account of any Lender in respect of any Interest computation period is reduced pursuant to this Section, and the amount of Interest payable for its account in respect of any subsequent Interest computation period would be less than the maximum amount permitted without penalty by applicable law to be charged by such Lender, then the amount of Interest payable for its account in respect of such subsequent Interest computation period shall be automatically increased to such maximum permissible amount; PROVIDED THAT at no time shall the aggregate amount by which Interest paid for the account of any Lender has been increased pursuant to this sentence exceed the aggregate amount by which Interest paid for its account has theretofore been reduced pursuant to this Section. 1.14 The Credit Agreement is hereby amended by (i) adding a new SCHEDULE 1.01-AM to the Credit Agreement in the form attached to this Amendment, and (ii) deleting the existing SCHEDULE 2.01 to the Credit Agreement and substituting in lieu thereof a new SCHEDULE 2.01 in the form attached to this Amendment. SECTION 2. CONDITIONS TO EFFECTIVENESS OF AMENDMENT. This Amendment shall become effective as of the date first above written (the "EFFECTIVE DATE") on the first day when the following conditions have been satisfied: (a) This Amendment shall have been executed and delivered by Borrower, the Lenders, the Agent and the Co-Agent; (b) Borrower shall have executed and delivered to the Lenders a letter agreement pursuant to which Borrower shall have agreed to enter into an amendment and supplement to the Warrant Agreement dated as of July 31, 1996 among Vari-Lite International, Inc. and certain of the Lenders, providing for reductions in the exercise price of the common stock purchase warrants issued pursuant to the terms of such Warrant Agreement, and the issuance of additional common stock purchase warrants to Chase Bank of Texas, N.A., in form and substance satisfactory to the Lenders; (c) The Agent shall have received a certificate of the Secretary or Assistant Secretary of Borrower attaching and certifying copies of the resolutions of the board of directors of Borrower authorizing the execution, delivery and performance of this Amendment and all other documents to be executed and delivered by Borrower pursuant to the terms of this Amendment; (d) The Agent shall have received a certificate of Borrower dated as of the date hereof, signed by the Secretary or an Assistant Secretary of Borrower certifying (i) as to the name(s), true signature(s) and incumbency of the officer(s) of Borrower authorized to execute and deliver this Amendment and each other document being executed and delivered pursuant to the requirements of this Amendment, and (ii) that 15 Borrower's articles or certificate of incorporation and by-laws attached to such certificate have not been amended or modified and are in full force and effect as of the date hereof; (e) The Agent shall have received the favorable opinion of Vinson & Elkins, L.L.P., counsel to Borrower, addressed to the Agents and the Lenders, covering such matters relating to Borrower and the transactions contemplated by this Amendment as the Lenders may request; and (f) The Agent shall have received payment in full from Borrower for all outstanding costs and expenses required to be paid or reimbursed by Borrower under the Credit Agreement, including without limitation, all professional fees and expenses of counsel for the Agents. SECTION 3. WAIVER. The Lenders hereby agree that, to the extent any Event of Default shall have occurred as a result of Borrower's failure to be in compliance as of June 30, 1999, with the financial covenant requirements set forth in SECTION 6.08 of the Credit Agreement, as such financial covenant requirements were in effect immediately prior to the effectiveness of this Amendment, such Event of Default shall be and is hereby waived, such waiver to be effective as of June 30, 1999. SECTION 4. STATUS OF OBLIGATIONS. Borrower hereby confirms and agrees that all Loans and all other Obligations outstanding under the Credit Agreement and the other Credit Documents as of the date hereof were duly and validly created and incurred by Borrower hereunder, that all such outstanding amounts are owed in accordance with the terms of the Credit Agreement and other Credit Documents, and that there are no rights of offset, defense, counterclaim, claim or objection in favor of Borrower arising out of or with respect to any of the Loans or other Obligations of Borrower to the Agents or the Lenders, and any such rights of offset, defense, counterclaim, claims or objections have been and are hereby waived and released by Borrower. SECTION 5. REPRESENTATIONS AND WARRANTIES OF BORROWER. Borrower, without limiting the representations and warranties provided in the Credit Agreement, represents and warrants to the Lenders and the Agents as follows: 5.1 The execution, delivery and performance by Borrower of this Amendment and the other documents being delivered pursuant to this Amendment are within Borrower's corporate powers, have been duly authorized by all necessary corporate action (including any necessary shareholder action) and do not and will not (a) violate any provision of any law, rule or regulation, any judgment, order or ruling of any court or governmental agency, the articles or certificate of incorporation or by-laws of Borrower, or any indenture, agreement or other instrument to which Borrower is a party or by which Borrower or any of its properties is bound or (b) be in conflict with, result in a breach of, or constitute with notice or lapse of time or both a default under any such indenture, agreement or other instrument. 16 5.2 This Amendment and the other documents being delivered pursuant to this Amendment constitute the legal, valid and binding obligations of Borrower, enforceable against Borrower in accordance with their terms. 5.3 After giving effect to this Amendment, no Default or Event of Default has occurred and is continuing as of the Effective Date. SECTION 6. SURVIVAL. Each of the foregoing representations and warranties shall be made at and as of the Effective Date. Each of the foregoing representations and warranties shall constitute a representation and warranty of Borrower under the Credit Agreement, and it shall be an Event of Default if any such representation and warranty shall prove to have been incorrect or false in any material respect at the time when made. Each of the foregoing representations and warranties shall survive and not be waived by the execution and delivery of this Amendment or any investigation by the Lenders or the Agents. SECTION 7. RATIFICATION OF CREDIT AGREEMENT. Except as expressly amended herein, all terms, covenants and conditions of the Credit Agreement and the other Credit Documents shall remain in full force and effect, and the parties hereto do expressly ratify and confirm the Credit Agreement as amended herein. All future references to the Credit Agreement shall be deemed to refer to the Credit Agreement as amended hereby. SECTION 8. RELEASE. In consideration of the amendments and waivers agreed to and granted by the Lenders pursuant to this Amendment, Borrower hereby (a) releases, acquits and forever discharges each Agent, the Co-Agent, each Lender, and each of their respective agents, employees, officers, partners, directors, servants, representatives, attorneys, affiliates, successors and assigns (collectively, the "Released Parties") from any and all liabilities, claims, suits, debts, liens, losses, causes of action, demands, rights, damages, costs and expenses of any kind, character or nature whatsoever, known or unknown, fixed or contingent, that Borrower may have or claim to have against such Lender which might arise out of or be connected with any act of commission or omission of such Lender existing or occurring on or prior to the date of this Amendment, including, without limitation, any claims, liabilities or obligations relating to or arising out of or in connection with the Credit Agreement, any other Credit Documents or this Amendment (including, without limitation, arising out of or in connection with the initiation, negotiation, closing or administration of the transactions contemplated thereby or related thereto), from the beginning of time until the execution and delivery of this release and the effectiveness of this Amendment (the "Released Claims") and (b) agree forever to refrain from commencing, instituting or prosecuting any lawsuit, action or other proceeding against the Released Parties with respect to any and all Released Claims. SECTION 9. INDEMNITY. In consideration of the amendments and waivers agreed to and granted by the Lenders pursuant to this Amendment, Borrower hereby indemnifies each Agent, the Co-Agent and each Lender, and their respective officers, partners, directors, employees, representatives and agents from, and hold each of them harmless against, any and all costs, losses, liabilities, claims, damages or expenses incurred by any of them (whether or not any of them is designated a party thereto) (an "Indemnitee") arising out of or by reason of any investigation, litigation or other proceeding related to this Amendment, the Credit Agreement or 17 any other Credit Documents or any actual or proposed use of the proceeds of any of the Loans, including, without limitation, the reasonable fees and disbursements of counsel (including foreign counsel) incurred in connection with any such investigation, litigation or other proceeding; PROVIDED, HOWEVER, Borrower shall not be obligated to indemnify any Indemnitee for any of the foregoing arising out of such Indemnitee's gross negligence or willful misconduct. SECTION 10. NO OTHER WAIVER, ETC. Borrower hereby agrees that, except as otherwise expressly provided in Section 3 hereof, nothing herein shall constitute a waiver by the Lenders of any Default or Event of Default, whether known or unknown, which may exist under the Credit Agreement. Borrower hereby further agrees that no action, inaction or agreement by the Lenders, including without limitation, any indulgence, waiver, consent or agreement altering the provisions of the Credit Agreement which may have occurred with respect to the non-payment of any obligation under the terms of the Credit Agreement or any portion thereof, or any other matter relating to the Credit Agreement, shall require or imply any future indulgence, waiver, or agreement by the Lenders. SECTION 11. BINDING NATURE. This Amendment shall be binding upon and inure to the benefit of the parties hereto, their respective successors, successors-in-titles, and assigns. SECTION 12. COSTS AND EXPENSES. Borrower shall be responsible for the costs and expenses of the Agents in connection with the preparation, execution and delivery of this Amendment and the other instruments and documents to be delivered hereunder, including, without limitation, the fees and out-of-pocket expenses of counsel for the Agents with respect thereto. SECTION 13. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF GEORGIA. SECTION 14. ENTIRE UNDERSTANDING. This Amendment sets forth the entire understanding of the parties with respect to the matters set forth herein, and shall supersede any prior negotiations or agreements, whether written or oral, with respect thereto. SECTION 15. COUNTERPARTS. This Amendment may be executed in any number of counterparts and by the different parties hereto in separate counterparts and may be delivered by telecopier. Each counterpart so executed and delivered shall be deemed an original and all of which taken together shall constitute but one and the same instrument. [Signatures Set Forth on Next Page] 18 IN WITNESS WHEREOF, the parties hereto have executed this Amendment through their authorized officers as of the date first above written. VARI-LITE INTERNATIONAL, INC. By: ------------------------------------- Name: Title: SUNTRUST BANK, ATLANTA, INDIVIDUALLY AND AS AGENT AND COLLATERAL AGENT By: ------------------------------------- Name: Title: PER PRO BROWN BROTHERS HARRIMAN & CO., INDIVIDUALLY AND AS CO-AGENT By: ------------------------------------- Name: Title: CHASE BANK OF TEXAS, N.A. (FORMERLY TEXAS COMMERCE BANK NATIONAL ASSOCIATION) By: ------------------------------------- Name: Title: 19 COMERICA BANK-TEXAS By: ------------------------------------- Name: Title: THE FIRST NATIONAL BANK OF CHICAGO By: ------------------------------------- Name: Title: 20 ACKNOWLEDGMENT AND AGREEMENT OF GUARANTORS Reference is hereby made to the within and foregoing Amendment No. 5 to Credit Agreement dated as of August 25, 1999, by and among VARI-LITE INTERNATIONAL, INC. ("Borrower"), SUNTRUST BANK, ATLANTA, BROWN BROTHERS HARRIMAN & CO., CHASE BANK OF TEXAS, N.A., COMERICA BANK-TEXAS, N.A., and THE FIRST NATIONAL BANK OF CHICAGO ("Amendment No. 5"; capitalized terms used herein that are defined in Amendment No. 5 or in the "Credit Agreement" as defined in Amendment No. 5 being used herein with the respective meanings assigned to such capitalized terms in Amendment No. 5 or the Credit Agreement, as the case may be). The undersigned, each of which is or has become a Guarantor under the terms of the Guaranty Agreement as provided in the Credit Agreement, hereby acknowledge and agree that (i) each of the undersigned has consented to the foregoing Amendment No. 5, (ii) each of the Guaranty Agreement and the other Credit Documents to which each of the undersigned is a party shall remain in full force and effect on and after the date hereof, and (iii) each of the undersigned hereby reaffirms and restates its obligations and liabilities under the Guaranty Agreement and the other Credit Documents to which each of the undersigned is a party after giving effect to Amendment No. 5. This Acknowledgment and Agreement of Guarantors made and delivered as of August 25, 1999. VARI-LITE, INC. By: ------------------------------------- Name: Title: SHOWCO, INC. By: ------------------------------------- Name: Title: IGNITION! CREATIVE GROUP, INC. By: ------------------------------------- Name: Title: 21 I.R. SUB, INC. (FORMERLY IRIDEON, INC.) By: ------------------------------------- Name: Title: 22 SCHEDULE 1.01 - AM APPLICABLE MARGIN
- -------------------------------------------------------------------------------------------------------------- 4TH FISCAL 1ST FISCAL 2ND FISCAL 3RD FISCAL ADJUSTED FUNDED QUARTER QUARTER QUARTER QUARTER DEBT/ FISCAL YEAR FISCAL YEAR FISCAL YEAR FISCAL YEAR EBITDA RATIO 1999 2000 2000 2000 - -------------------------------------------------------------------------------------------------------------- BASE BASE BASE BASE EURO RATE EURO RATE EURO RATE EURO RATE ADVANCES ADVANCES ADVANCES ADVANCES ADVANCES ADVANCES ADVANCES ADVANCES - -------------------------------------------------------------------------------------------------------------- Greater than or 3.50% 1.00% 4.00% 1.50% 4.25% 1.75% 4.75% 2.25% equal to 3.00:1.00 - -------------------------------------------------------------------------------------------------------------- Less than 3.00% 0.50% 3.50% 1.00% 3.75% 1.25% 4.25% 1.75% 3.00:1.00, but greater than or equal to 2.50:1.00 - -------------------------------------------------------------------------------------------------------------- Less than 2.50% 0.00% 3.00% 0.50% 3.25% 0.75% 3.75% 1.25% 2.50:1.00, but greater than or equal to 2.00:1.00 - -------------------------------------------------------------------------------------------------------------- Less than 2.00% 0.00% 2.50% 0.00% 2.75% 0.25% 3.25% 0.75% 2.00:1.00, but greater than or equal to 1.50:1.00 - -------------------------------------------------------------------------------------------------------------- Less than 1.50% 0.00% 2.00% 0.00% 2.25% 0.00% 2.75% 0.25% 1.50:1.00, but greater than or equal to 1.00:1.00 - -------------------------------------------------------------------------------------------------------------- Less than 1.00:1.00 1.00% 0.00% 1.50% 0.00% 1.75% 0.00% 2.25% 0.00% - -------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------- 4TH FISCAL AFTER 4TH FISCAL ADJUSTED FUNDED QUARTER QUARTER DEBT/ FISCAL YEAR FISCAL YEAR EBITDA RATIO 2000 2000 - ---------------------------------------------------------------------- BASE BASE EURO RATE EURO RATE ADVANCES ADVANCES ADVANCES ADVANCES - ---------------------------------------------------------------------- Greater than or 5.25% 2.75% 6.00% 3.50% equal to 3.00:1.00 - ---------------------------------------------------------------------- Less than 4.75% 2.25% 5.50% 3.00% 3.00:1.00, but greater than or equal to 2.50:1.00 - ---------------------------------------------------------------------- Less than 4.25% 1.75% 5.00% 2.50% 2.50:1.00, but greater than or equal to 2.00:1.00 - ---------------------------------------------------------------------- Less than 3.75% 1.25% 4.50% 2.00% 2.00:1.00, but greater than or equal to 1.50:1.00 - ---------------------------------------------------------------------- Less than 3.25% 0.75% 4.00% 1.50% 1.50:1.00, but greater than or equal to 1.00:1.00 - ---------------------------------------------------------------------- Less than 1.00:1.00 2.75% 0.25% 3.50% 1.00% - ----------------------------------------------------------------------
SCHEDULE 2.01 SCHEDULED REDUCTIONS IN COMMITMENTS PART I. MASTER SYNDICATED LOAN COMMITMENTS ($50,000,000 INITIAL AGGREGATE AMOUNT)
- ----------------------------------------------------------------------------------------------------------------------------------- AMOUNT OF COMMITMENT IN EFFECT AFTER REDUCTION - ----------------------------------------------------------------------------------------------------------------------------------- DATE OF SUNTRUST BANK, BROWN BROTHERS CHASE BANK OF COMERICA THE FIRST AGGREGATE SCHEDULED ATLANTA HARRIMAN & CO. TEXAS, N.A. BANK-TEXAS NATIONAL COMMITMENTS REDUCTION (25% PRO RATA (20% PRO RATA (19% PRO RATA (18% PRO RATA BANK OF SHARE) SHARE) SHARE) SHARE) CHICAGO (18% PRO RATA SHARE) - ----------------------------------------------------------------------------------------------------------------------------------- 06/30/99 $12,250,000 $9,800,000 $9,310,000 $8,820,000 $8,820,000 $49,000,000 - ----------------------------------------------------------------------------------------------------------------------------------- 12/31/99 12,000,000 9,600,000 9,120,000 8,640,000 8,640,000 48,000,000 - ----------------------------------------------------------------------------------------------------------------------------------- 03/31/00 11,625,000 9,300,000 8,835,000 8,370,000 8,370,000 46,500,000 - ----------------------------------------------------------------------------------------------------------------------------------- 04/30/00 9,500,000 7,600,000 7,220,000 6,840,000 6,840,000 38,000,000 - ----------------------------------------------------------------------------------------------------------------------------------- 01/01/01 0 0 0 0 0 0 - -----------------------------------------------------------------------------------------------------------------------------------
PART II. MULTICURRENCY SYNDICATED LOAN SUBCOMMITMENTS ($20,000,000 INITIAL AGGREGATE AMOUNT)
- ----------------------------------------------------------------------------------------------------------------------------------- AMOUNT OF COMMITMENT IN EFFECT AFTER REDUCTION - ----------------------------------------------------------------------------------------------------------------------------------- DATE OF SUNTRUST BANK, BROWN BROTHERS CHASE BANK OF COMERICA THE FIRST AGGREGATE SCHEDULED ATLANTA HARRIMAN & CO. TEXAS, N.A. BANK-TEXAS NATIONAL COMMITMENTS REDUCTION (25% PRO RATA (20% PRO RATA (19% PRO RATA (18% PRO RATA BANK OF SHARE) SHARE) SHARE) SHARE) CHICAGO (18% PRO RATA SHARE) - ----------------------------------------------------------------------------------------------------------------------------------- 06/30/99 $4,900,000 $3,920,000 $3,724,000 $3,528,000 $3,528,000 $19,600,000 - ----------------------------------------------------------------------------------------------------------------------------------- 12/31/99 4,800,000 3,840,000 3,648,000 3,456,000 3,456,000 19,200,000 - ----------------------------------------------------------------------------------------------------------------------------------- 03/31/00 4,650,000 3,720,000 3,534,000 3,348,000 3,348,000 18,600,000 - ----------------------------------------------------------------------------------------------------------------------------------- 04/30/00 3,800,000 3,040,000 2,888,000 2,736,000 2,736,000 15,200,000 - ----------------------------------------------------------------------------------------------------------------------------------- 01/01/01 0 0 0 0 0 0 - -----------------------------------------------------------------------------------------------------------------------------------
PART III. SWING LINE COMMITMENTS ($5,000,000 TOTAL AGGREGATE AMOUNT) SUNTRUST BANK, ATLANTA ---------------------- Swing Line Commitment: $5,000,000 EX-10.46 10 EXHIBIT 10.46 AMENDMENT NO. 6 AND WAIVER THIS AMENDMENT NO. 6 AND WAIVER (this "AMENDMENT") effective as of December 31, 1999, by and among VARI-LITE INTERNATIONAL, INC., a Delaware corporation (the "BORROWER"), SUNTRUST BANK (FORMERLY SUNTRUST BANK, ATLANTA), BROWN BROTHERS HARRIMAN & CO., CHASE BANK OF TEXAS, N.A. (FORMERLY KNOWN AS TEXAS COMMERCE BANK NATIONAL ASSOCIATION), COMERICA BANK-TEXAS and BANK ONE, NA (FORMERLY THE FIRST NATIONAL BANK OF CHICAGO) (collectively, the "LENDERS"), SUNTRUST BANK, as agent and collateral agent for the Lenders (in such capacities, the "AGENT" and "COLLATERAL AGENT", respectively), and BROWN BROTHERS HARRIMAN & CO, as co-agent for the Lenders (in such capacity, the "CO-AGENT"). W I T N E S S E T H: WHEREAS, Borrower, the Lenders, the Agent, the Collateral Agent, and the Co-Agent are parties to a certain Multicurrency Credit Agreement dated as of December 19, 1997, as amended by a certain Amendment No. 1 to Credit Agreement dated as of April 21, 1998, by a certain Amendment No. 2 to Credit Agreement dated as of July 31, 1998, by a certain Amendment No. 3 to Credit Agreement dated as of September 30, 1998, by a certain Amendment No. 4 to Credit Agreement dated as of April 1, 1999, and by a certain Amendment No. 5 to Credit Agreement dated as of August 25, 1999 (as so amended, the "CREDIT AGREEMENT"; defined terms used herein without definition shall have the meanings ascribed to such terms in the Credit Agreement); WHEREAS, Borrower and the Lenders have agreed to amend the Credit Agreement as more specifically set forth below; NOW, THEREFORE, for and in consideration of the mutual covenants contained herein and other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, agree as follows: SECTION 1. AMENDMENTS TO CREDIT AGREEMENT. Subject to the satisfaction of the conditions precedent set forth in Section 2 hereof, and effective as of the Effective Date (as hereinafter defined), the Credit Agreement is hereby amended as follows: 1.1 SECTION 1.01 of the Credit Agreement is hereby amended by adding the following defined terms and accompanying definitions in proper alphabetical order: "AMENDMENT NO. 6" shall mean that certain Amendment No. 6 and Waiver effective as of December 31, 1999, by and among Borrower, the Agent, Collateral Agent, the Co-Agent, and the Lenders, as the same may be amended, restated and supplemented from time to time. "BUSINESS PLAN" shall mean the detailed business plan of the Borrower to be delivered to the Lenders pursuant to Section 6.17. "CONSULTANT'S REPORT" shall mean the report of Borrower's management consultant to be issued pursuant to the September 15, 1999 engagement letter between the Borrower and such consultant as described in Section 6.17. 1.2 ARTICLE II of the Credit Agreement is hereby amended by adding at the end of said ARTICLE II a new SECTION 2.08 as follows: SECTION 2.08. FUNDING AFTER DECEMBER 31, 1999. (a) Notwithstanding anything to the contrary set forth in SECTION 2.02 or 2.03, effective at all times after December 31, 1999, (i) all Domestic Syndicated Loans and Swing Line Loans shall be made and shall thereafter remain outstanding as Base Rate Advances and shall not be made as Eurodollar Advances or as Transaction Rate Advances, and (ii) all Domestic Syndicated Loans and Swing Line Loans outstanding as Eurodollar Advances or Transaction Rate Advances shall, at the expirations of their current Interest Periods, be converted into and remain outstanding as Base Rate Advances. (b) Notwithstanding anything to the contrary set forth in SECTION 2.04, effective at all times after December 31, 1999, Borrower shall not be entitled to request any Multicurrency Syndicated Loans, and the Multicurrency Syndicated Loan Subcommitment of each Lender is hereby terminated in its entirety. 1.3 SECTION 3.03(d) of the Credit Agreement is hereby amended by deleting the second sentence of said SECTION 3.03(d) in its entirety and substituting in lieu thereof the following sentence: Interest on all outstanding Base Rate Advances shall be payable monthly in arrears on the last calendar day of each month in each year, commencing January 31, 2000. 1.4 SECTION 6.07 of the Credit Agreement is hereby amended by (i) deleting the word "and" at the end of subsection (u) thereof, (ii) re-lettering existing subsection (v) thereof as subsection (y), and (iii) adding new subsections (w) and (x) as follows: (w) 13-WEEK ROLLING CASH FLOW STATEMENTS. As soon as available and in any event within 30 days after the end of each calendar month of each fiscal year of Borrower, commencing January 30, 2000 for the month ending December 31, 1999, a 13-week rolling cash flow statement (with variances for the month and year-to-date); (x) BUSINESS PLAN PROGRESS REPORTS. Not less frequently than semi-monthly, a report in reasonable detail to the Lenders (which report may be 2 submitted by electronic mail) regarding Borrower's progress in implementing certain strategic initiatives identified in the Business Plan; and 1.5 SECTION 6.14 of the Credit Agreement is hereby amended by deleting said SECTION 6.14 in its entirety and substituting in lieu thereof the following SECTION 6.14: SECTION 6.14. FOREIGN COLLATERAL. (a) Not later than 30 days after Borrower's receipt of written notice from the Agent requiring the same (such notice not to be delivered prior to April 1, 2000), Borrower shall, and shall cause its Subsidiaries to, execute and deliver to Collateral Agent for the ratable benefit of the Lenders and Agent, agreements and other documents in form and substance satisfactory to Collateral Agent granting and conveying a first-priority perfected Lien on all tangible and intangible personal property of such Subsidiaries located outside the United States, to the extent a perfected Lien thereon may be created under applicable law, including without limitation, such instruments and other agreement as may be necessary or appropriate to evidence obligations of such Subsidiaries being secured by such Lien. Borrower shall further cause to be delivered to Collateral Agent such other agreements, instruments, and other documents constituting appropriate collateral filings, recordings and registrations, and reports, certificates and opinions of counsel evidencing and confirming the validity, perfection, priority and enforceability of such Liens. (b) Not later than February 20, 2000, Borrower shall submit to the Lenders a certificate (i) confirming that the equipment of Vari-Lite, Inc. used in Borrower's European rental operations has identification tags or other markings that would put third parties on notice that the equipment is owned by Vari-Lite, Inc., rather than by any of the Foreign Subsidiaries, and (ii) attaching true and correct copies of the equipment lease agreements in effect between Vari-Lite, Inc. and those Foreign Subsidiaries that use equipment owned by Vari-Lite, Inc. in their respective rental operations. 1.6 SECTION 6.17 of the Credit Agreement is hereby amended by deleting said SECTION 6.17 in its entirety and substituting in lieu thereof the following SECTION 6.17: SECTION 6.17. BUSINESS PLAN AND CONSULTANT'S REPORT. Borrower shall cause to be delivered to the Lenders not later than January 31, 2000, the proposed final versions of the Business Plan and Consultant's Report. Such proposed final versions shall incorporate the additional information set forth in the letter from Agent to Borrower dated as of December 31, 1999. The Lenders shall have five (5) Business Days to review and provide comments to Borrower on such Business Plan and Consultant's Report, and Borrower shall deliver to the Lenders the final Business Plan and Consultant's Report not later than February 20, 2000, which documents must be satisfactory to the Lenders. 3 1.7 ARTICLE VI of the Credit Agreement is hereby amended by adding a new SECTION 6.18 at the end thereof as follows: SECTION 6.18. ACTIONS REGARDING COLLATERAL. Borrower agrees promptly to take, and cause to be taken, all necessary and appropriate action requested of it by the Collateral Agent in respect of the collateral described in the Security Documents, including without limitation, executing and delivering to Collateral Agent supplemental collateral assignments and related documents and filings in respect of patents and trademarks of Borrower and its Subsidiaries and the equipment lease agreements referred to in SECTION 6.14(b). SECTION 2. CONDITIONS TO EFFECTIVENESS OF AMENDMENT. This Amendment shall become effective as of the date first above written (the "EFFECTIVE DATE") on the first day when the following conditions have been satisfied: (a) This Amendment shall have been executed and delivered by Borrower, the Lenders, the Agent and the Co-Agent; (b) Borrower shall have paid waiver and amendment fees of $10,000 to each Lender, plus an additional $10,000 fee to the Agent (in addition to the waiver and amendment fee paid to it in its capacity as Lender); and (c) The Agent shall have received payment in full from Borrower for all outstanding costs and expenses required to be paid or reimbursed by Borrower under the Credit Agreement, including without limitation, all professional fees and expenses of counsel for the Agent. SECTION 3. WAIVER. The Lenders hereby agree that, to the extent any Default or Event of Default shall have occurred and existed as of December 31, 1999 as a result of the following matters, such Default or Event of Default shall be and is hereby waived by the Lenders effective as of December 31, 1999, as provided below: (1) Borrower's failure to deliver its Business Plan and Consultant's Report as required by SECTION 6.17 of the Credit Agreement as set forth in Amendment No. 5; PROVIDED, HOWEVER, that Borrower acknowledges and agrees that an Event of Default will exist if Borrower fails to satisfy the requirements of SECTION 6.17 of the Credit Agreement as amended by this Amendment No. 6; (2) Borrower's failure to execute and deliver to Collateral Agent the agreements and documents described in SECTION 6.14 of the Credit Agreement as set forth in Amendment No. 5; PROVIDED, HOWEVER, that Borrower acknowledges and agrees that an Event of Default shall exist if Borrower fails to satisfy the requirements of SECTION 6.14 of the Credit Agreement as amended by this Amendment No. 6; and (3) Borrower's failure to deliver the audited financial statements for Borrower's fiscal year ending September 30, 1999 as required by SECTION 6.07(a) of the Credit 4 Agreement; PROVIDED, HOWEVER, that Borrower acknowledges and agrees that an Event of Default shall exist if Borrower fails to furnish to each Lender such audited financial statements as provided in SECTION 6.07(a) on or before January 14, 2000. SECTION 4. STATUS OF OBLIGATIONS. Borrower hereby confirms and agrees that all Loans and all other Obligations outstanding under the Credit Agreement and the other Credit Documents as of the date hereof were duly and validly created and incurred by Borrower hereunder, that all such outstanding amounts are owed in accordance with the terms of the Credit Agreement and other Credit Documents, and that there are no rights of offset, defense, counterclaim, claim or objection in favor of Borrower arising out of or with respect to any of the Loans or other Obligations of Borrower to the Agents or the Lenders, and any such rights of offset, defense, counterclaim, claims or objections have been and are hereby waived and released by Borrower. SECTION 5. REPRESENTATIONS AND WARRANTIES OF BORROWER. Borrower, without limiting the representations and warranties provided in the Credit Agreement, represents and warrants to the Lenders and the Agents as follows: 5.1 The execution, delivery and performance by Borrower of this Amendment and the other documents being delivered pursuant to this Amendment are within Borrower's corporate powers, have been duly authorized by all necessary corporate action (including any necessary shareholder action) and do not and will not (a) violate any provision of any law, rule or regulation, any judgment, order or ruling of any court or governmental agency, the articles or certificate of incorporation or by-laws of Borrower, or any indenture, agreement or other instrument to which Borrower is a party or by which Borrower or any of its properties is bound or (b) be in conflict with, result in a breach of, or constitute with notice or lapse of time or both a default under any such indenture, agreement or other instrument. 5.2 This Amendment and the other documents being delivered pursuant to this Amendment constitute the legal, valid and binding obligations of Borrower, enforceable against Borrower in accordance with their terms. 5.3 After giving effect to this Amendment, no Default or Event of Default has occurred and is continuing as of the Effective Date. SECTION 6. SURVIVAL. Each of the foregoing representations and warranties shall be made at and as of the Effective Date. Each of the foregoing representations and warranties shall constitute a representation and warranty of Borrower under the Credit Agreement, and it shall be an Event of Default if any such representation and warranty shall prove to have been incorrect or false in any material respect at the time when made. Each of the foregoing representations and warranties shall survive and not be waived by the execution and delivery of this Amendment or any investigation by the Lenders or the Agents. SECTION 7. RATIFICATION OF CREDIT AGREEMENT. Except as expressly amended herein, all terms, covenants and conditions of the Credit Agreement and the other Credit Documents shall remain in full force and effect, and the parties hereto do expressly ratify and 5 confirm the Credit Agreement as amended herein. All future references to the Credit Agreement shall be deemed to refer to the Credit Agreement as amended hereby. SECTION 8. RELEASE. In consideration of the amendments and waivers agreed to and granted by the Lenders pursuant to this Amendment, Borrower hereby (a) releases, acquits and forever discharges each Agent, the Co-Agent, each Lender, and each of their respective agents, employees, officers, partners, directors, servants, representatives, attorneys, affiliates, successors and assigns (collectively, the "Released Parties") from any and all liabilities, claims, suits, debts, liens, losses, causes of action, demands, rights, damages, costs and expenses of any kind, character or nature whatsoever, known or unknown, fixed or contingent, that Borrower may have or claim to have against such Lender which might arise out of or be connected with any act of commission or omission of such Lender existing or occurring on or prior to the date of this Amendment, including, without limitation, any claims, liabilities or obligations relating to or arising out of or in connection with the Credit Agreement, any other Credit Documents or this Amendment (including, without limitation, arising out of or in connection with the initiation, negotiation, closing or administration of the transactions contemplated thereby or related thereto), from the beginning of time until the execution and delivery of this release and the effectiveness of this Amendment (the "Released Claims") and (b) agree forever to refrain from commencing, instituting or prosecuting any lawsuit, action or other proceeding against the Released Parties with respect to any and all Released Claims. SECTION 9. INDEMNITY. In consideration of the amendments and waivers agreed to and granted by the Lenders pursuant to this Amendment, Borrower hereby indemnifies each Agent, the Co-Agent and each Lender, and their respective officers, partners, directors, employees, representatives and agents from, and hold each of them harmless against, any and all costs, losses, liabilities, claims, damages or expenses incurred by any of them (whether or not any of them is designated a party thereto) (an "Indemnitee") arising out of or by reason of any investigation, litigation or other proceeding related to this Amendment, the Credit Agreement or any other Credit Documents or any actual or proposed use of the proceeds of any of the Loans, including, without limitation, the reasonable fees and disbursements of counsel (including foreign counsel) incurred in connection with any such investigation, litigation or other proceeding; PROVIDED, HOWEVER, Borrower shall not be obligated to indemnify any Indemnitee for any of the foregoing arising out of such Indemnitee's gross negligence or willful misconduct. SECTION 10. NO OTHER WAIVER, ETC. Borrower hereby agrees that, except as otherwise expressly provided in Section 3 hereof, nothing herein shall constitute a waiver by the Lenders of any Default or Event of Default, whether known or unknown, which may exist under the Credit Agreement. Borrower hereby further agrees that no action, inaction or agreement by the Lenders, including without limitation, any indulgence, waiver, consent or agreement altering the provisions of the Credit Agreement which may have occurred with respect to the non-performance of any obligation under the terms of the Credit Agreement or any portion thereof, or any other matter relating to the Credit Agreement, shall require or imply any future indulgence, waiver, or agreement by the Lenders. 6 SECTION 11. BINDING NATURE. This Amendment shall be binding upon and inure to the benefit of the parties hereto, their respective successors, successors-in-titles, and assigns. SECTION 12. COSTS AND EXPENSES. Borrower shall be responsible for the costs and expenses of the Agents in connection with the preparation, execution and delivery of this Amendment and the other instruments and documents to be delivered hereunder, including, without limitation, the fees and out-of-pocket expenses of counsel for the Agents with respect thereto. SECTION 13. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF GEORGIA. SECTION 14. ENTIRE UNDERSTANDING. This Amendment sets forth the entire understanding of the parties with respect to the matters set forth herein, and shall supersede any prior negotiations or agreements, whether written or oral, with respect thereto. SECTION 15. COUNTERPARTS. This Amendment may be executed in any number of counterparts and by the different parties hereto in separate counterparts and may be delivered by telecopier. Each counterpart so executed and delivered shall be deemed an original and all of which taken together shall constitute but one and the same instrument. 7 IN WITNESS WHEREOF, the parties hereto have executed this Amendment through their authorized officers as of the date first above written. VARI-LITE INTERNATIONAL, INC. By: /s/ Jerry L. Trojan --------------------------------------- Name: Jerry L. Trojan Title: VP-Finance & CFO SUNTRUST BANK (FORMERLY SUNTRUST BANK, ATLANTA), INDIVIDUALLY AND AS AGENT AND COLLATERAL AGENT By: /s/ Byron P. Kurtgis --------------------------------------- Name: Byron P. Kurtgis Title: Director PER PRO BROWN BROTHERS HARRIMAN & CO., INDIVIDUALLY AND AS CO-AGENT By: /s/ Richard J. Ragoza --------------------------------------- Name: Richard J. Ragoza Title: Senior Credit Officer CHASE BANK OF TEXAS, N.A. (FORMERLY TEXAS COMMERCE BANK NATIONAL ASSOCIATION) By: /s/ M. B. Phillips --------------------------------------- Name: M. B. Phillips Title: V.P. 8 COMERICA BANK-TEXAS By: /s/ Robin Kain --------------------------------------- Name: Robin Kain Title: Vice- President BANK ONE, NA (FORMERLY THE FIRST NATIONAL BANK OF CHICAGO) By: /s/ Bradley C. Peters --------------------------------------- Name: Bradley C. Peters Title: Vice President 9 ACKNOWLEDGMENT AND AGREEMENT OF GUARANTORS Reference is hereby made to the within and foregoing Amendment No. 6 and Waiver dated as of December 31, 1999, by and among VARI-LITE INTERNATIONAL, INC. ("Borrower"), SUNTRUST BANK, ATLANTA, BROWN BROTHERS HARRIMAN & CO., CHASE BANK OF TEXAS, N.A., COMERICA BANK-TEXAS, N.A., and THE FIRST NATIONAL BANK OF CHICAGO ("Amendment No. 6"; capitalized terms used herein that are defined in Amendment No. 6 or in the "Credit Agreement" as defined in Amendment No. 6 being used herein with the respective meanings assigned to such capitalized terms in Amendment No. 6 or the Credit Agreement, as the case may be). The undersigned, each of which is or has become a Guarantor under the terms of the Guaranty Agreement as provided in the Credit Agreement, hereby acknowledge and agree that (i) each of the undersigned has consented to the foregoing Amendment No. 6, (ii) each of the Guaranty Agreement and the other Credit Documents to which each of the undersigned is a party shall remain in full force and effect on and after the date hereof, and (iii) each of the undersigned hereby reaffirms and restates its obligations and liabilities under the Guaranty Agreement and the other Credit Documents to which each of the undersigned is a party after giving effect to Amendment No. 6. This Acknowledgment and Agreement of Guarantors made and delivered as of December 31, 1999. VARI-LITE, INC. By: /s/ Jerry L. Trojan --------------------------------------- Name: Jerry L. Trojan Title: VP-Finance & CFO SHOWCO, INC. By: /s/ Jerry L. Trojan --------------------------------------- Name: Jerry L. Trojan Title: VP-Finance & CFO IGNITION! CREATIVE GROUP, INC. By: /s/ Jerry L. Trojan --------------------------------------- Name: Jerry L. Trojan Title: VP-Finance & CFO I.R. SUB, INC. (FORMERLY IRIDEON, INC.) By: /s/ Jerry L. Trojan --------------------------------------- Name: Jerry L. Trojan Title: VP-Finance & CFO 2 EX-23.1 11 EXHIBIT 23.1 EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in the Registration Statement on Form S-8 (Registration No. 333-71823) of Vari-Lite International, Inc. of our report dated December 14, 1999, (January 11, 2000 as to the fifth paragraph of Note E) appearing in this Annual Report on Form 10-K of Vari-Lite International, Inc. for the year ended September 30, 1999. DELOITTE & TOUCHE LLP Dallas, Texas January 13, 2000 EX-27.1 12 EXHIBIT 27.1
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 1999 AND THE CONSOLIDATED STATEMENTS OF INCOME FOR THE TWELVE-MONTH PERIODS ENDED SEPTEMBER 30, 1998 AND 1999 OF VARI-LITE INTERNATIONAL, INC. AS SET FORTH IN THIS FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS 12-MOS SEP-30-1998 SEP-30-1999 OCT-01-1997 OCT-01-1998 SEP-30-1998 SEP-30-1999 3,838 1,969 0 0 14,370 13,776 (899) (720) 6,075 6,586 25,133 23,326 153,018 160,373 71,745 83,323 114,627 107,700 18,931 23,492 47,284 39,459 0 0 0 0 785 785 43,919 42,450 114,627 107,700 13,513 7,669 88,376 91,532 9,880 5,389 43,644 46,950 46,389 44,546 899 720 2,818 4,404 (4,475) (4,368) (1,785) (1,725) (2,690) (2,643) 0 0 (737) 0 (195) 0 (3,622) (2,643) (0.47) (0.34) (0.47) (0.34)
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