-----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, NzlmDbOmvzPQzU7pAzlDx/yUJRjmXGn3TGbNzVTStbaeVo7KoW1HeNRWPeDVHh9N MtiSq8gBTeZB+RB/lFGZVw== 0000912057-01-516067.txt : 20010516 0000912057-01-516067.hdr.sgml : 20010516 ACCESSION NUMBER: 0000912057-01-516067 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20010515 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-Q SEC ACT: SEC FILE NUMBER: 000-23159 FILM NUMBER: 1638779 BUSINESS ADDRESS: STREET 1: 201 REGAL ROW CITY: DALLAS STATE: TX ZIP: 75247 BUSINESS PHONE: 2146301963 10-Q 1 a2048988z10-q.txt 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001 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 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 the number of shares outstanding of each of the Issuer's classes of common stock, as of the latest practicable date: As of May 11, 2001, there were 7,800,003 shares of Common Stock outstanding. VARI-LITE INTERNATIONAL, INC. INDEX TO QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2001
Page PART I. - FINANCIAL INFORMATION Item 1. Financial Statements: Condensed Consolidated Balance Sheets as of September 30, 2000 and March 31, 2001.............................. 3 Condensed Consolidated Statements of Income and Comprehensive Income for the three months ended March 31, 2000 and 2001.......... 4 Condensed Consolidated Statements of Income and Comprehensive Income for the six months ended March 31, 2000 and 2001............ 5 Condensed Consolidated Statements of Cash Flows for the six months ended March 31, 2000 and 2001....................... 6 Notes to Condensed Consolidated Financial Statements............... 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.......................................... 13 Item 3. Quantitative and Qualitative Disclosures About Market Risk......... 17 PART II. - OTHER INFORMATION Item 1. Legal Proceedings.................................................. 18 Item 4. Submission of Matters to a Vote of Security Holders................ 18 Item 6. Exhibits and Reports on Form 8-K................................... 18 SIGNATURES................................................................. 19
2 VARI-LITE INTERNATIONAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (IN THOUSANDS EXCEPT SHARE DATA) ASSETS
SEPTEMBER 30, MARCH 31, 2000 2001 -------------- ---------- CURRENT ASSETS: Cash $ 4,315 $ 3,651 Receivables, less allowance for doubtful accounts of $740 and $665.................... 12,369 9,685 Inventory............................................................................. 13,695 15,125 Prepaid expense and other current assets.............................................. 1,352 2,436 -------------- ---------- TOTAL CURRENT ASSETS.............................................................. 31,731 30,897 EQUIPMENT AND OTHER PROPERTY: Lighting and sound equipment.......................................................... 123,210 100,259 Machinery and tools................................................................... 5,678 3,410 Furniture and fixtures................................................................ 5,089 4,293 Office and computer equipment......................................................... 10,377 10,612 Work in progress and raw materials inventory.......................................... 680 - -------------- ---------- 145,034 118,574 Less accumulated depreciation and amortization.................................... 84,097 68,018 -------------- ---------- 60,937 50,556 OTHER ASSETS............................................................................... 2,035 2,256 -------------- ---------- TOTAL ASSETS...................................................................... $ 94,703 $ 83,709 ============== ========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable and accrued expenses................................................. $ 10,873 $ 6,885 Unearned revenue...................................................................... 3,272 1,907 Income taxes payable.................................................................. 82 447 Current portion of long-term obligations.............................................. 19,599 5,849 -------------- ---------- TOTAL CURRENT LIABILITIES......................................................... 33,826 15,088 LONG-TERM OBLIGATIONS...................................................................... 18,136 19,029 DEFERRED INCOME TAXES...................................................................... 993 3,090 -------------- ---------- TOTAL LIABILITIES................................................................. 52,955 37,207 COMMITMENTS AND CONTINGENCIES (Note 8) - - STOCKHOLDERS' EQUITY: Preferred Stock, $0.10 par value (10,000,000 shares authorized; no shares issued)..... - - 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............................................................ 25,026 25,026 Stockholder notes receivable.......................................................... (19) - Accumulated other comprehensive income (loss) - foreign currency translation adjustment......................................................................... (319) 242 Retained earnings..................................................................... 16,461 20,635 -------------- ---------- TOTAL STOCKHOLDERS' EQUITY........................................................ 41,748 46,502 -------------- ---------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........................................ $ 94,703 $ 83,709 ============== ==========
See notes to condensed consolidated financial statements. 3 VARI-LITE INTERNATIONAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 2001 (UNAUDITED) (IN THOUSANDS EXCEPT SHARE DATA)
2000 2001 --------- --------- Rental revenues............................................................. $16,432 $11,414 Product sales and services revenues......................................... 4,287 6,923 --------- --------- TOTAL REVENUES......................................................... 20,719 18,337 Rental cost................................................................. 8,033 5,576 Product sales and services cost............................................. 2,450 4,234 --------- --------- TOTAL COST OF SALES.................................................... 10,483 9,810 --------- --------- GROSS PROFIT........................................................... 10,236 8,527 Selling, general and administrative expense................................. 9,755 7,229 Research and development expense............................................ 1,272 1,183 --------- --------- TOTAL OPERATING EXPENSES............................................... 11,027 8,412 --------- --------- OPERATING INCOME (LOSS)..................................................... (791) 115 Interest expense (net)...................................................... 1,260 491 --------- --------- LOSS BEFORE INCOME TAX...................................................... (2,051) (376) Income tax benefit.......................................................... (810) (147) --------- --------- NET LOSS.................................................................... (1,241) (229) Other comprehensive loss - foreign currency translation adjustments......... (143) (247) --------- --------- COMPREHENSIVE LOSS.......................................................... $ (1,384) $ (476) ========= ========= WEIGHTED AVERAGE BASIC AND DILUTED SHARES OUTSTANDING...................... 7,800,003 7,800,003 ========= ========= PER SHARE INFORMATION BASIC AND DILUTED: Net loss................................................................ $ (0.16) $ (0.03) ========= =========
See notes to condensed consolidated financial statements. 4 VARI-LITE INTERNATIONAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME FOR THE SIX MONTHS ENDED MARCH 31, 2000 AND 2001 (UNAUDITED) (IN THOUSANDS EXCEPT SHARE DATA)
2000 2001 --------- --------- Rental revenues............................................................. $40,308 $29,336 Product sales and services revenues......................................... 8,090 9,379 --------- --------- TOTAL REVENUES......................................................... 48,398 38,715 Rental cost................................................................. 18,877 12,755 Product sales and services cost............................................. 4,848 6,226 --------- --------- TOTAL COST OF SALES.................................................... 23,725 18,981 --------- --------- GROSS PROFIT........................................................... 24,673 19,734 Selling, general and administrative expense................................. 19,635 16,092 Research and development expense............................................ 2,467 2,398 --------- --------- TOTAL OPERATING EXPENSES............................................... 22,102 18,490 --------- --------- Gain on sale of concert sound reinforcement business........................ - 7,100 --------- --------- OPERATING INCOME............................................................ 2,571 8,344 Interest expense (net)...................................................... 2,520 1,562 --------- --------- INCOME BEFORE INCOME TAX.................................................... 51 6,782 Income tax expense.......................................................... 20 2,608 --------- --------- NET INCOME.................................................................. 31 4,174 Other comprehensive loss - foreign currency translation adjustments......... (500) (432) Reclassification adjustment - sale of continental European operations....... - 993 --------- --------- COMPREHENSIVE INCOME (LOSS)................................................. $ (469) $ 4,735 ========= ========= WEIGHTED AVERAGE BASIC SHARES OUTSTANDING................................... 7,800,003 7,800,003 ========= ========= WEIGHTED AVERAGE DILUTED SHARES OUTSTANDING................................. 7,833,682 7,871,165 ========= ========= PER SHARE INFORMATION BASIC AND DILUTED: Net income.............................................................. $ 0.00 $ 0.53
See notes to condensed consolidated financial statements. 5 VARI-LITE INTERNATIONAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED MARCH 31, 2000 AND 2001 (UNAUDITED) (IN THOUSANDS)
2000 2001 --------- --------- Cash flows from operating activities: Net income............................................................................ $ 31 $ 4,174 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization..................................................... 7,080 5,220 Amortization of note discount and deferred loan fees.............................. 94 335 Provision for doubtful accounts................................................... 30 30 Deferred income taxes............................................................. (249) 2,097 Gain on sale of concert sound reinforcement business.............................. - (7,100) Gain on sale of equipment and other property...................................... (583) 130 Net change in assets and liabilities: Accounts receivable........................................................... 1,629 219 Prepaid expenses.............................................................. (3) (1,170) Inventory..................................................................... (1,324) (1,430) Other assets.................................................................. (1) (499) Accounts payable, accrued liabilities and income taxes payable................ (2,249) (2,060) Unearned revenue.............................................................. (307) (1,032) --------- --------- Net cash provided by (used in) operating activities........................... 4,148 (1,086) Cash flows from investing activities: Capital expenditures, including rental equipment...................................... (2,341) (5,318) Proceeds from sale of concert sound reinforcement business............................ - 11,946 Proceeds from sale of European operations............................................. - 5,258 Proceeds from sale of equipment....................................................... 1,528 29 --------- --------- Net cash (used in) provided by investing activities........................... (813) 11,915 Cash flows from financing activities: Proceeds from issuance of debt........................................................ 22,809 32,226 Principal payments on debt............................................................ (23,215) (42,998) Principal payments on distributor advances............................................ (51) - Proceeds from payments on stockholder notes receivable................................ 6 19 --------- --------- Net cash used in financing activities......................................... (451) (10,753) Effect of exchange rate changes on cash and cash equivalents............................... (97) (740) --------- --------- Net increase (decrease) in cash during the period.......................................... 2,787 (664) Cash, beginning of period.................................................................. 1,969 4,315 --------- --------- Cash, end of period........................................................................ $ 4,756 $ 3,651 ========= ========= SUPPLEMENTAL CASH FLOW INFORMATION Cash paid for interest expense........................................................ $ 2,336 $ 1,471 Cash paid for income taxes............................................................ $ 583 $ 187
See notes to condensed consolidated financial statements. 6 VARI-LITE INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (IN THOUSANDS EXCEPT SHARE DATA) 1. Interim Financial Information The accompanying unaudited condensed consolidated financial statements of Vari-Lite International, Inc. (the "Company") have been prepared by the Company in accordance with generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, the condensed consolidated financial statements contain all adjustments, consisting of normal recurring adjustments, considered necessary to present fairly the consolidated financial position, results of operations and cash flows of the Company. The results of operations for the three and six-month periods ended March 31, 2001 are not necessarily indicative of the results of operations that may be expected for any other interim periods or for the fiscal year ending September 30, 2001. For further information, refer to the consolidated financial statements and accompanying notes included in the Company's Annual Report on Form 10-K for the year ended September 30, 2000. Certain prior year balances have been reclassified to conform to the current year presentation. 2. Inventory Inventory consists of the following:
September 30, March 31, 2000 2001 ------- ------- Raw materials..................................... $12,341 $13,393 Work in progress.................................. 698 685 Finished goods.................................... 656 1,047 ------- ------- $13,695 $15,125 ======= =======
3. Segment Reporting The Company's chief operating decision maker is considered to be the Company's Chief Operating Officer ("COO"). The COO reviews financial information presented on a consolidated basis accompanied by disaggregated information about revenues by geographic region and by product lines for purposes of making operating decisions and assessing financial performance. The Company has three reportable segments: North America, Europe and Asia, which are organized, managed and analyzed geographically and operate in a single industry segment. Information about the Company's operations for the three and six-month periods ended March 31, 2000 and 2001 is presented below: 7 VARI-LITE INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (IN THOUSANDS EXCEPT SHARE DATA)
THREE MONTHS ENDED ---------------------------------------------------------- NORTH AMERICA ASIA EUROPE INTERCOMPANY TOTAL ------------- ---- ------- ------------ ----- MARCH 31, 2000: Net Revenues from unaffliliated customers......................... $12,834 $1,563 $ 6,322 $ - $ 20,719 Intersegment sales................................................ 5,656 - - (5,656) - ------- ------ ------- ----------- -------- Total net revenues............................................. 18,490 1,563 6,322 (5,656) 20,719 Operating income (loss)........................................... 1,534 (937) 569 (1,957) (791) Depreciation and amortization..................................... 3,028 45 432 - 3,505 Total assets...................................................... 90,689 7,555 14,836 (9,038) 104,042 MARCH 31, 2001: Net Revenues from unaffliliated customers.......................... $14,679 $1,162 $ 2,496 $ - $ 18,337 Intersegment sales................................................ 1,724 3 (5) (1,722) - ------- ------ ------- ----------- -------- Total net revenues............................................. 16,403 1,165 2,491 (1,722) 18,337 Operating income (loss)........................................... 216 (755) 654 - 115 Depreciation and amortization..................................... 1,898 44 607 - 2,549 Total assets...................................................... 68,374 8,525 15,590 (8,780) 83,709 SIX MONTHS ENDED ---------------------------------------------------------- NORTH AMERICA ASIA EUROPE INTERCOMPANY TOTAL ------------- ---- ------- ------------ ----- MARCH 31, 2000: Net Revenues from unaffliliated customers......................... $27,259 $5,808 $15,331 $ - $ 48,398 Intersegment sales................................................ 10,933 - - (10,933) - ------- ------ ------- ----------- -------- Total net revenues............................................. 38,192 5,808 15,331 (10,933) 48,398 Operating income (loss)........................................... 4,116 (42) 2,426 (3,929) 2,571 Depreciation and amortization..................................... 6,044 92 944 - 7,080 Total assets...................................................... 90,689 7,555 14,836 (9,038) 104,042 MARCH 31, 2001: Net Revenues from unaffliliated customers.......................... $27,213 $5,330 $ 6,172 $ - $ 38,715 Intersegment sales................................................ 3,099 38 5 (3,142) - ------- ------ ------- ----------- -------- Total net revenues............................................. 30,312 5,368 6,177 (3,142) 38,715 Operating income.................................................. 5,778 1,013 1,553 - 8,344 Depreciation and amortization..................................... 3,876 121 1,223 - 5,220 Total assets...................................................... 68,374 8,525 15,590 (8,780) 83,709
8 VARI-LITE INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (IN THOUSANDS EXCEPT SHARE DATA) 4. Debt On December 19, 1997, the Company entered into a $50,000 multicurrency revolving credit facility (the "Old Credit Facility") and canceled its existing credit facility. Borrowings under the Old Credit Facility were $32,200 at September 30, 2000. Subsequent to September 30, 2000, the Company used proceeds of $22,200 from the sale of the Company's concert sound reinforcement business, the sale of the Company's continental European rental operations and the funding of the London Bank Loan (hereinafter defined) to reduce borrowings under the Old Credit Facility to $10,000. On December 29, 2000, Vari-Lite, Inc. a wholly owned subsidiary of the Company ("Vari-Lite"), entered into a three-year $24,500 credit facility (the "New Credit Facility") which includes a $12,000 term loan (the "Term Loan"), a $5,000 revolving credit facility (the "Revolver") and a $3,000 term commitment to fund capital expenditures (the "Capital Expenditure Loan"). The Revolver and the Capital Expenditure Loan commitments will increase to $7,500 and $5,000, respectively, by January 15, 2002, if the Company achieves specific financial performance. The Term Loan and Capital Expenditure Loan amortize over 84 months (subject to a balloon payment on termination of the New Credit Facility as discussed below). Borrowings under the Revolver are subject to availability under a borrowing base of eligible inventory and accounts receivable (as defined in the New Credit Facility). Initially, all outstanding borrowings under the New Credit Facility bear interest at the lender's base rate or LIBOR, plus a rate margin of .75% and 2.50%, respectively. Beginning on January 15, 2002, all outstanding balances under the New Credit Facility will bear interest at the lender's base rate or LIBOR, plus a rate margin ranging from 0.25% to 0.75% or 2.00% to 2.50%, respectively, based upon the Company's ratio of Adjusted Funded Debt to EBITDA (as defined in the New Credit Facility). The New Credit Facility is guaranteed by the Company and is secured by all of the stock and substantially all of the assets of Vari-Lite, and a pledge of 65% of the outstanding capital stock of the Company's foreign subsidiaries. A commitment fee of 0.25% is charged on the average daily unused portion of the New Credit Facility. The New Credit Facility contains compliance covenants, including requirements that the Company achieve certain financial ratios. In addition, the 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. The New Credit Facility terminates on December 31, 2003. Upon termination of the New Credit Facility, the entire outstanding indebtedness thereunder becomes due and payable in full. On November 23, 2000, the Company entered into a British pounds sterling 4,000 (USD 5,800) term loan with a United Kingdom bank (the "London Bank Loan"). The London Bank Loan, which accrues interest at the rate of 9.1% per annum and amortizes over 48 months, is secured by all of the assets of the Company's London operations. Other terms of the London Bank 9 VARI-LITE INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (IN THOUSANDS EXCEPT SHARE DATA) Loan include certain financial covenants, limitations on capital expenditures and intercompany payments and the guarantee of the Company. The Company has borrowed money to purchase computer equipment and office furniture and fixtures and conventional lighting equipment. These loans are typically amortized over three years and bear interest at various rates ranging from 1.50% to 10.35%. Proceeds received under this type of financing were approximately $1,879 and $1,135 for the six-month periods ending March 31, 2000 and 2001, respectively, and borrowings outstanding under this type of financing at March 31, 2000 and 2001 were approximately $3,587 and $3,572, respectively. 5. Net Income Per Share Basic earnings per share are computed based upon the weighted average number of common shares outstanding. Diluted earnings per share reflects the dilutive effect, if any, of stock options and warrants.
Three Months ended Six Months ended March 31, March 31, ------------------------- ------------------------ 2000 2001 2000 2001 ---- ---- ---- ---- Weighted average shares outstanding... 7,800,003 7,800,003 7,800,003 7,800,003 Dilutive effect of stock options and warrants after application of treasury stock method............ - - 33,679 71,162 --------- --------- --------- --------- Shares used in calculating diluted income per share................. 7,800,003 7,800,003 7,833,682 7,871,165 ========= ========= ========= =========
For the three-month period ended March 31, 2000 and 2001, earnings per share excludes stock options of 762,200 and 693,700, respectively, and warrants of 296,057 and 296,057, respectively, which are anti-dilutive. For the six-month period ended March 31, 2000 and 2001, earnings per share excludes stock options of 728,521 and 622,538, respectively, and 296,057 warrants which were anti-dilutive. 6. Accounting Standards Changes In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities." As amended by SFAS No. 137 and SFAS No. 138, the Statement is effective for all fiscal years beginning after June 15, 2000. SFAS No. 133, as amended, establishes accounting and reporting standards for derivative instruments, including certain deriavative 10 VARI-LITE INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (IN THOUSANDS EXCEPT SHARE DATA) instruments embedded in other contracts and for hedging activities. Under SFAS No. 133, certain contracts that were not formerly considered derivatives may now meet the definition of a derivative. The Company adopted SFAS No. 133 effective October 1, 2000. The adoption of SFAS No. 133 did not have a significant impact on the financial position or results of operations of the Company because the Company does not have significant derivative activity. 7. Dispositions On October 26, 2000, the Company sold 100% of its interest in Vari-Lite International Europe, B.V. ("VLI Europe") and 0.4% of its interest in Vari-Lite Production Services, SAS and Vari-Lite sold all of the VARI*LITE(R) lighting equipment used in those operations. VLI Europe owned 100% of Vari-Lite Production Services, N.V., 99.6% of Vari-Lite Production Services, SAS and 100% of Vari-Lite Production Services, AB. This transaction resulted in a pre-tax charge of $3,200 which was recorded as an asset impairment in the fourth quarter of fiscal year 2000. On November 17, 2000, the Company transferred substantially all of the assets of Showco, Inc. to Clearsho, Inc. ("Clearsho"), which assumed certain of Showco's contract liabilities, in exchange for the sole membership interest in Clearsho. On November 17, 2000, Showco sold 100% of its interest in Clearsho which resulted in a net pre-tax gain of $7,100. 8. Commitments, Contingencies and 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 November 1999, Coemar S.p.A. and Clay Paky S.p.A. filed separate lawsuits against the Company in the United States District Court for the Southern District of New York. The suits were transferred to the United States District Court for the Northern District of Texas on July 12, 2000. The lawsuits seek declarations from the court that a certain patent of the Company is invalid, unenforceable and/or not infringed by Coemar S.p.A. and Clay Paky S.p.A. In December 2000, the Company negotiated a settlement with Coemar S.p.A. and Clay Paky S.p.A, the specific terms of which are confidential, but included a cash settlement paid to the Company and authorization for Coemar S.p.A. and Clay Paky S.p.A to continue to sell all existing products that were subject to the Company's patents. The lawsuits are currently stayed pending dismissal. 11 VARI-LITE INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (IN THOUSANDS EXCEPT SHARE DATA) 9. Pro Forma Financial Statements Pro forma adjustments to the condensed consolidated statement of operations for the three and six months ended March 31, 2000 and 2001 reflect adjustments to eliminate the results of the continental European operations sold in October 2000 and Showco sold in November 2000 (See Note 7) and the reduction of interest expense as a result of the decrease in debt. The Pro Forma Financial Statements are presented for informational purposes only and do not purport to be indicative of the results of operations that actually would have been achieved had the disposition been consummated on the financial statement date or for any future period.
Three Months Ended Six Months Ended March 31 March 31 2000 2001 2000 2001 ---- ---- ---- ---- Total revenues................. $16,085 $18,337 $37,366 $37,088 Total cost of sales............ 7,925 9,810 17,815 18,318 ------- ------- ------- ------- Gross profit................... 8,160 8,527 19,551 18,770 Total operating expenses....... 9,426 8,392 18,933 18,114 ------- ------- ------- ------- Operating income (loss)........ (1,266) 135 618 656 Interest expense (net)......... 882 186 1,755 945 ------- ------- ------- ------- Loss before income taxes....... (2,148) (51) (1,137) (289) Income tax benefit............. (848) (20) (449) (185) ------- ------- ------- ------- Net loss....................... $(1,300) $ (31) $ (688) $ (104) ======= ======= ======= =======
12 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 2001 COMPARED TO THREE MONTHS ENDED MARCH 31, 2000 REVENUES. Total revenues decreased 11.5%, or $2.4 million, to $18.3 million in the three-month period ended March 31, 2001, compared to $20.7 million in the three-month period ended March 31, 2000. The revenue decrease was attributable primarily to the factors set forth below. RENTAL REVENUES. Rental revenues decreased 30.5%, or $5.0 million, to $11.4 million in the three-month period ended March 31, 2001, compared to $16.4 million in the three-month period ended March 31, 2000. This decrease was primarily due the sale the Company's continental European rental operations in October 2000 and the sale of its concert sound reinforcement business in November 2000. PRODUCT SALES AND SERVICES REVENUES. Product sales and services revenues increased 61.5%, or $2.6 million, to $6.9 million in the three-month period ended March 31, 2001, compared to $4.3 million in the three-month period ended March 31, 2000. This increase was primarily due to sales of new and used VARI*LITE(R) automated lighting equipment. RENTAL COSTS. Rental cost decreased 30.6%, or $2.5 million, to $5.6 million in the three-month period ended March 31, 2001, compared to $8.0 million in the three-month period ended March 31, 2000. The decrease was primarily due to the sale of the Company's continental European rental operations in October 2000 and the sale of its concert sound reinforcement business in November 2000. Rental cost as a percentage of rental revenues in the three-month period ended March 31, 2001 was unchanged compared to the three-month period ended March 31, 2000 at 48.9%. PRODUCT SALES AND SERVICES COSTS. Product sales and services cost increased 72.8%, or $1.8 million, to $4.2 million in the three-month period ended March 31, 2001, compared to $2.5 million in the three-month period ended March 31, 2000. Product sales and services cost as a percentage of product sales and services revenues increased to 61.2% in the three-month period ended March 31, 2001, from 57.1% in the three-month period ended March 31, 2000, primarily due to the higher costs associated with the manufacture of new automated lighting equipment sold in the three-month period ended March 31, 2001 as compared to the lower costs associated with the sale of used automated lighting equipment in the three-month period ended March 31, 2000. SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and administrative expense decreased 25.9%, or $2.5 million, to $7.2 million in the three-month period ended March 31, 2001, compared to $9.8 million in the three-month period ended March 31, 2000. This expense as a percentage of total revenues decreased to 39.4% in the three-month period ended March 31, 2001, from 47.1% in the three-month period ended March 31, 2000, primarily due to the sale of the Company's continental European rental operations in October 2000, the sale of its concert sound reinforcement business in November 2000 and the closing of the Company's Hong Kong rental operations during the three-months ended March 31, 2001. 13 RESEARCH AND DEVELOPMENT EXPENSE. Research and development expense decreased 7.0%, or $0.1 million, to $1.2 million in the three-month period ended March 31, 2001, compared to $1.3 million in the three-month period ended March 31, 2000. This expense as a percentage of total revenues increased to 6.5% in the three-month period ended March 31, 2001, from 6.1% in the three-month period ended March 31, 2000 as a result of decreased revenues for the period ended March 31, 2001. INTEREST EXPENSE. Interest expense decreased 61.0%, or $0.8 million, to $0.5 million in the three-month period ended March 31, 2001, compared to $1.3 million in the three-month period ended March 31, 2000 as a result of a lower debt balance and a lower interest rate in the three-month period ended March 31, 2001. INCOME TAXES. The effective tax rate in the three-month periods ended March 31, 2001 and 2000 were 39.1% and 39.5%, respectively. SIX MONTHS ENDED MARCH 31, 2001 COMPARED TO SIX MONTHS ENDED MARCH 31, 2000 REVENUES. Total revenues decreased 20.0%, or $9.7 million, to $38.7 million in the six-month period ended March 31, 2001, compared to $48.4 million in the six-month period ended March 31, 2000. The revenue decrease was attributable primarily to the factors set forth below. RENTAL REVENUES. Rental revenues decreased 27.2%, or $11.0 million, to $29.3 million in the six-month period ended March 31, 2001, compared to $40.3 million in the six-month period ended March 31, 2000. This decrease was primarily due the sale of the Company's continental European rental operations in October 2000 and the sale of its concert sound reinforcement business in November 2000 which accounted for $1.6 million of rental revenues in the six-month period ended March 31, 2001 compared to $11.0 million in the six-month period ended March 31, 2000. PRODUCT SALES AND SERVICES REVENUES. Product sales and services revenues increased 15.9%, or $1.3 million, to $9.4 million in the six-month period ended March 31, 2001, compared to $8.1 million in the six-month period ended March 31, 2000. This increase was primarily due to the sale of new and used VARI*LITE(R) automated lighting equipment. RENTAL COSTS. Rental cost decreased 32.4%, or $6.1 million, to $12.8 million in the six-month period ended March 31, 2001, compared to $18.9 million in the six-month period ended March 31, 2000. Rental cost as a percentage of rental revenues decreased to 43.5% in the six-month period ended March 31, 2001, from 46.8% in the six-month period ended March 31, 2000. The decrease in rental cost as a percentage of total rental revenues was primarily due to the sale of the Company's continental European operations in October 2000 and the sale of its concert sound reinforcement business in November 2000. PRODUCT SALES AND SERVICES COSTS. Product sales and services cost increased 28.4%, or $1.4 million, to $6.2 million in the six-month period ended March 31, 2001, compared to $4.8 million in the six-month period ended March 31, 2000. Product sales and services cost as a percentage of product sales and services revenues increased to 66.4% in the six-month period ended March 31, 2001, from 14 59.9% in the six-month period ended March 31, 2000, primarily due to the higher costs associated with the manufacture of new automated lighting equipement sold in the six-month period ended March 31, 2001 as compared to the lower costs associated with the sale of used automated lighting equipment in the six-month period ended March 31, 2000. SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and administrative expense decreased 18.0%, or $3.5 million, to $16.1 million in the six-month period ended March 31, 2001, compared to $19.6 million in the six-month period ended March 31, 2000. This decrease is primarily due to the sale of the Company's continental European rental operations in October 2000, the sale of its concert sound reinforcement business in November 2000 and the closing of the Company's Hong Kong rental operations in the six-months ended March 31, 2001. This expense as a percentage of total revenues increased to 41.6% in the six-month period ended March 31, 2001, from 40.6% in the six-month period ended March 31, 2000. RESEARCH AND DEVELOPMENT EXPENSE. Research and development expense decreased 2.8%, or $0.1 million, to $2.4 million in the six-month period ended March 31, 2001, compared to $2.5 million in the six-month period ended March 31, 2000. This expense as a percentage of total revenues increased to 6.2% in the six-month period ended March 31, 2001, from 5.1% in the six-month period ended March 31, 2000 as a result of decreased revenues for the period ended March 31, 2000. INTEREST EXPENSE. Interest expense decreased 38.0%, or $1.0 million, to $1.6 million in the six-month period ended March 31, 2001, compared to $2.5 million in the six-month period ended March 31, 2000 as a result of a lower debt balance and a lower interest rate in the six-month period ended March 31, 2001. INCOME TAXES. The effective tax rate in the six-month periods ended March 31, 2001 and 2000 were 38.5% and 39.2%, respectively. 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 $4.1 million in the six-month period ended March 31, 2000 and used cash flow of $1.1 million for the six-month period ended March 31, 2001. On December 19, 1997, the Company entered into the Old Credit Facility and canceled its existing credit facility. Borrowings under the Old Credit Facility were $32.2 million at September 30, 2000. Subsequent to September 30, 2000, the Company used proceeds of $22.2 million from the sale of the Company's concert sound reinforcement business, the sale of the Company's continental European rental operations and the funding of the London Bank Loan to reduce borrowings under the Old Credit Facility to $10.0 million. On December 29, 2000, Vari-Lite entered into the New Credit Facility which includes the $12.0 Term Loan, the $5.0 million Revolver and the $3.0 million Capital Expenditure Loan. The Revolver and the Capital Expenditure Loan commitments will increase to $7.5 million and $5.0 million, respectively, by January 15, 2002, if the Company achieves specific financial performance. The Term Loan and 15 Capital Expenditure Loan amortize over 84 months (subject to a balloon payment on termination of the New Credit Facility as discussed below). Borrowings under the Revolver are subject to availability under a borrowing base of eligible inventory and accounts receivable (as defined in the New Credit Facility). Initially, all outstanding borrowings under the New Credit Facility bear interest at the lender's base rate or LIBOR, plus a rate margin of .75% and 2.50%, respectively. Beginning on January 15, 2002, all outstanding balances under the New Credit Facility will bear interest at the lender's base rate or LIBOR, plus a rate margin ranging from 0.25% to 0.75% or 2.00% to 2.50%, respectively, based upon the Company's ratio of Adjusted Funded Debt to EBITDA (as defined in the New Credit Facility). The New Credit Facility is guaranteed by the Company and is secured by all of the stock and substantially all of the assets of Vari-Lite, and a pledge of 65% of the outstanding capital stock of the Company's foreign subsidiaries. A commitment fee of 0.25% is charged on the average daily unused portion of the New Credit Facility. The New Credit Facility contains compliance covenants, including requirements that the Company achieve certain financial ratios. In addition, the 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. The New Credit Facility terminates on December 31, 2003. Upon termination of the New Credit Facility, the entire outstanding indebtedness thereunder becomes due and payable in full. On November 23, 2000, the Company entered into the British pounds sterling 4.0 million (USD 5.8 million) London Bank Loan. The London Bank Loan, which accrues interest at the rate of 9.1% per annum and amortizes over 48 months, is secured by all of the assets of the Company's London operations. Other terms of the London Bank Loan include certain financial covenants, limitations on capital expenditures and intercompany payments and the guarantee of the Company. The Company has borrowed money to purchase computer equipment and office furniture and fixtures and conventional lighting equipment. These loans are amortized over six months to five years and bear interest at various rates ranging from 1.50% to 10.35%. Proceeds received under this type of financing were approximately $1.9 million and $1.1 million for the six-month periods ending March 31, 2000 and 2001, respectively, and borrowings outstanding under this type of financing at March 31, 2000 and 2001 were approximately $3.6 million for both years. The Company's business requires significant capital expenditures. Capital expenditures for the six months ended March 31, 2000 and 2001 were approximately $2.3 million and $5.3 million, respectively, of which approximately $1.6 million and $4.6 million were for rental equipment inventories. The majority of the Company's revenues are generated through the rental of automated lighting systems and, as such, the Company must maintain a significant amount of rental equipment to meet customer demands. The Company had a working capital deficit of $32.3 million at March 31, 2000 and a working capital surplus of $15.8 million at March 31, 2001. The working capital deficit at March 31, 2000 was primarily due to the scheduled maturity of the New Credit Facility on January 1, 2001, which was recorded as current debt as of March 31, 2000. The working capital surplus at March 31, 2001 is primarily the result of the refinancing of the Company's senior bank debt and the overall reduction in outstanding debt. 16 Management believes that cash flow generated from operations and borrowing capacity under the New Credit Facility will be sufficient to meet the Company's anticipated operating cash and capital expenditure needs for the next twelve months. 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, sell and support products, the level of competition, the success of the Company's research and development programs, the Company's 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. 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; the success of the Company to market, sell and support products; technological changes; reliance on intellectual property; dependence on the entertainment industry; competition; dependence on management; foreign exchange risk; international trade risk; dependence on key suppliers and dependence on manufacturing facility. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described herein. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company does not believe that the market risks for the three-month and six-month periods ended March 31, 2001 substantially changed from those risks outlined for the year ended September 30, 2000 in the Company's Form 10-K. 17 PART II OTHER INFORMATION ITEM 1. 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 November 1999, Coemar S.p.A. and Clay Paky S.p.A. filed separate lawsuits against the Company in the United States District Court for the Southern District of New York. The suits were transferred to the United States District Court for the Northern District of Texas on July 12, 2000. The lawsuits seek declarations from the court that a certain patent of the Company is invalid, unenforceable and/or not infringed by Coemar S.p.A. and Clay Paky S.p.A. In December 2000, the Company negotiated a settlement with Coemar S.p.A. and Clay Paky S.p.A, the specific terms of which are confidential, but included a cash settlement paid to the Company and authorization for Coemar S.p.A. and Clay Paky S.p.A to continue to sell all existing products that were subject to the Company's patents. The lawsuits are currently stayed pending dismissal. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On March 2, 2001, the Annual Meeting of Stockholders was held in Dallas, Texas. The stockholders were asked to elect one Class I director to serve until 2004. The vote was as follows:
Against or For Withheld Abstentions --- -------- ----------- John D. Maxson 6,676,782 34,830 1,088,391
Messrs. Brutsche', Clark, Rettberg and Smith will continue as directors of the Company. Subsequent to the Annual Meeting of Stockholders on March 2, 2001, the Company's Board of Directors appointed Jon Tinkle and William Scott to serve as directors of the Company. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 10.58 Employment Agreement, dated January 1, 2001, between the Company and T. Clay Powers 10.59 Employment Agreement, dated January 1, 2001 , between the Company and Jerome L. Trojan III
(b) No reports on Form 8-K were filed for the quarter ended March 31, 2001. 18 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. VARI-LITE INTERNATIONAL, INC. Date: MAY 11, 2001 By: /s/ JEROME L. TROJAN III ---------------- ------------------------------------ Jerome L. Trojan III Vice President - Finance, Chief Financial Officer, Treasurer and Secretary (Principal Financial and Accounting Officer) 19 EX-10.58 2 a2048988zex-10_58.txt EXHIBIT 10.58 EXECUTIVE EMPLOYMENT AGREEMENT This Agreement, dated as of January 1, 2001, is by and between Vari-Lite International, Inc., a Delaware corporation (the "Company"), and T. Clay Powers ("Executive"). W I T N E S S E T H: WHEREAS, Executive possesses significant knowledge and information in matters relating to the Business (as defined below), which knowledge and information will be increased, developed and enhanced through his continued employment by the Company; and WHEREAS, the parties hereto desire to enter into an agreement for the Company's continued employment of Executive on the terms and conditions contained herein; NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements contained herein, and certain other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. EMPLOYMENT AND DUTIES. The Company hereby employs Executive, and Executive hereby accepts employment with the Company, to serve as President of the Company. In such capacity, Executive shall report to the Chief Executive Officer of the Company and shall devote his full working time, attention and energies to the diligent performance of such services and duties as from time to time may be designated by the Chief Executive Officer of the Company. Executive shall not, without the prior written consent of the Company, directly or indirectly, at any time while employed by the Company, engage in any venture or activity that the Company, in its sole discretion, determines interferes with Executive's performance of his duties and responsibilities as an employee of the Company. 2. TERM. The term of this Agreement and Executive's employment hereunder (the "Term") shall commence as of the date hereof and, unless sooner terminated in accordance with the termination provisions hereof, shall continue for one year (the "Initial Term"), and thereafter shall renew for successive one-year periods unless either party hereto delivers to the other party at least 30 days prior to the expiration of the Initial Term, or the expiration date of any subsequent one-year renewal period, written notice of the election not to renew the Term. 3. COMPENSATION. The Company shall compensate Executive as follows: (a) BASE SALARY. During the Term, the Company shall pay to Executive an annual salary of $275,000 (the "Base Salary"), payable in arrears and in accordance with the Company's normal payroll practices as in effect from time to time. The Base Salary may be increased, but not decreased, from time to time as the Compensation Committee of the Company's Board of Directors determines, in its sole discretion. (b) BENEFITS AND PERQUISITES. Executive shall be entitled to vacation and employee benefits (including bonus plans offered to management employees generally) in accordance with the policies of the Company in effect from time to time. The Company may change or amend any of the benefits it provides at any time. (c) EXPENSE REIMBURSEMENT. The Company shall reimburse Executive for all reasonable expenses properly incurred by Executive in the performance of Executive's duties hereunder, in accordance with policies established from time to time by the Company. 1 4. TERMINATION BY THE COMPANY WITHOUT CAUSE. The Company may terminate Executive's employment with the Company at any time and for any reason other than for Cause (as defined below), including Employer electing not to renew the Initial Term or any Renewal Term, as the case may be, pursuant to Section 2. In the event of any such termination, the Company shall pay Executive the Base Salary through the end of the Term (as determined without regard to the termination), payable in accordance with the Company's normal payroll practices. In addition, the Company will (a) continue to pay Executive the Base Salary for a one-year period after the end of the Term (as determined without regard to the termination), payable in accordance with the Company's normal payroll practices, and (b) pay the applicable health insurance premiums for Employee and his dependents during the continuation coverage period provided under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA"), from and after the date Employee's employment hereunder is terminated through the earlier of (i) the date Employee is employed by another employer, (ii) the date no further payments are due under the preceding clause (a), or (iii) the expiration of 18 months. 5. TERMINATION BY THE COMPANY FOR CAUSE. The Company may terminate Executive's employment with the Company at any time for Cause by delivering to Executive written notice of termination supported by a reasonably detailed statement of the relevant facts and reason for termination. In the event of any such termination, the Company shall pay Executive the Base Salary accrued and unpaid through the date of termination, payable in accordance with the Company's normal payroll practices. As used herein, "Cause" means (a) Executive has breached Section 10 or 11 hereof, (b) Executive has used alcohol or drugs on the job or in a manner affecting his job performance, (c) Executive has been grossly negligent in the performance or has intentionally not performed Executive's material duties and responsibilities hereunder, continuing for 10 days after receipt of written notice of such performance or lack of performance, (d) Executive has committed acts of willful dishonesty, fraud or material misconduct with respect to the business or affairs of the Company, or (e) Executive has been found guilty of or has pled nolo contendere to the commission of a felony offense. 6. VOLUNTARY TERMINATION BY EXECUTIVE. Executive may terminate his employment with the Company at any time for any reason other than for Good Reason (as defined below) upon delivering 30 days' prior written notice to the Company. In the event of any such termination, the Company shall pay Executive the Base Salary accrued and unpaid through the date of termination, payable in accordance with the Company's normal payroll practices. 7. TERMINATION BY DEATH OR DISABILITY. (a) DEATH. If Executive dies during the Term, the Company shall pay Executive's estate the Base Salary through the end of the Term (as determined without regard to the termination), payable in accordance with the Company's normal payroll practices. (b) DISABILITY. If, as a result of Executive's incapacity due to physical or mental illness or injury, Executive shall have been absent from the full-time performance of his duties with the Company (i) for a period of three consecutive months or (ii) for shorter periods aggregating 180 or more business days in any 12-month period and, within 30 days after written notice of termination is thereafter given by the Company, Executive shall not have returned to the full-time performance of his duties, the Company may terminate Executive's employment with the Company. In the event of any such termination, the Company shall pay Executive the Base Salary through the end of the Term (as determined without regard to the termination), payable in accordance with the Company's normal payroll practices. 8. TERMINATION BY EXECUTIVE FOR GOOD REASON. Executive may terminate his employment with the Company for Good Reason at any time by delivering 30 days' prior written notice to the 2 Company. In the event of any such termination, the Company shall pay Executive the Base Salary through the end of the Term (as determined without regard to the termination), payable in accordance with the Company's normal payroll practices. In addition, the Company will (a) continue to pay Executive the Base Salary for a one-year period after the end of the Term (as determined without regard to the termination), payable in accordance with the Company's normal payroll practices, and (b) pay the applicable health insurance premiums for Employee and his dependents during the continuation coverage period provided under COBRA from and after the date Employee's employment hereunder is terminated through the earlier of (i) the date Employee is employed by another employer, (ii) the date no further payments are due under the preceding clause (a), or (iii) the expiration of 18 months. As used herein, "Good Reason" means (a) Executive has been assigned any duties inconsistent in any material manner with, or suffered any adverse material change in, Executive's position, duties, responsibilities or status with the Company, (b) the Company has reduced the Base Salary, or (c) the Company has failed to pay the Base Salary, and in any case the Company fails to remedy such matter within 10 days of receiving written notice from Executive of his intention to terminate his employment based thereon. 9. TERMINATION BY EXECUTIVE UPON CHANGE IN CONTROL. (a) Upon the occurrence of a Change in Control (as defined below), Executive shall have the option to terminate his employment with the Company by delivering written notice of his election to exercise such option to the Company within 30 days of the occurrence of a Change in Control. In the event of any such termination, the Company shall pay Executive the Base Salary accrued and unpaid through the date of termination, payable in accordance with the Company's normal payroll practices. In addition, the Company will (i) continue to pay Executive the Base Salary for a three-year period after the date of termination, payable in accordance with the Company's normal payroll practices, and (ii) pay the applicable health insurance premiums for Employee and his dependents during the continuation coverage period provided under COBRA from and after the date Employee's employment hereunder is terminated through the earlier of (1) the date Employee is employed by another employer, or (2) the expiration of 18 months. (b) As used herein, "Change in Control" means the occurrence of any of the following: (i) any person (as defined in Section 3(a)(9) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and as used in Sections 13(d) and 14(d)2 thereof), excluding the Company, any Affiliates (as defined below) of the Company or any employee benefit plan sponsored or maintained by the Company or its Affiliates (including any trustee of any such plan acting in its capacity as trustee), becomes the "beneficial owner" (as defined in Rule 13d-3 of the Exchange Act) of securities of the Company representing more than 51% of the total combined voting power of the Company's then outstanding securities; (ii) the merger, consolidation or other business combination of the Company with another entity (a "Transaction"), other than a Transaction involving only the Company's Affiliates or a Transaction immediately following which the stockholders of the Company immediately prior to the Transaction continue to have a majority of the voting power in the resulting entity; (iii) the individuals who, on the date hereof, constitute the Board of Directors of the Company (and any new director whose appointment or election was approved or recommended by the then current Board of Directors) cease (for any reason other than death) to constitute at least a majority of the number of directors of the Board; or 3 (iv) the approval by the stockholders of the Company of any plan of complete liquidation of the Company or an agreement for the sale of all or substantially all of the Company's assets, other than the sale of all or substantially all of the assets of the Company to any of the Company's Affiliates or a sale to any entity of which the stockholders of the Company immediately prior to the sale continue to have a majority of the voting power. As used herein, "Affiliates" has the meaning set forth under the definition of "affiliates" in Rule 405 of the Securities Act of 1933, as amended. 10. COVENANT AGAINST COMPETITION AND EMPLOYMENT. Executive shall not, directly or indirectly, individually or on behalf of any Person (as defined below) other than the Company, (i) for as long as Executive continues to receive the Base Salary hereunder, and (ii) in the case of a termination of Executive's employment with the Company pursuant to Section 5 or 6 for an additional period of one year after such termination: (a) engage in, have an equity or profit interest in, or render services of any kind or nature to any Person engaged in the Business within the Territory (as defined below); (b) solicit, call upon or attempt to obtain business from any Customer (as defined below) for the purpose of providing that Customer with any product or service provided by the Company or any competitive product; or (c) employ or offer to employ any employee of the Company. For these purposes, an employee of the Company shall be deemed to be an employee of the Company while employed by the Company and for a period of 60 days thereafter. Nothing contained in this Section 10 shall be construed to prohibit Executive from owning either of record or beneficially not more than 1% of the shares or other equity interest of any publicly traded Person. Executive agrees that the foregoing covenants in this Section 10 impose a reasonable restraint on Executive in light of the activities and business of Company as of the date hereof and that the enforcement of the non-competition provisions in this Section 10 by the Company will not interfere with Executive's ability to pursue a proper livelihood. Executive acknowledges and agrees that the enforcement of this Agreement is necessary to ensure the preservation and continuity of the goodwill of the Company. As used herein, the following terms shall have the meanings indicated: "Business" means the design, manufacture and/or distribution of automated or conventional lighting equipment and/or related services. "Customer" means all Persons (a) who purchased products from, or utilized the services of, the Company while Executive was employed by the Company, (b) who Executive solicited on behalf of the Company, (c) whose dealings with the Company were coordinated or supervised, in whole or in part, by Executive, or (d) about whom Executive obtained Confidential Information (as defined below). "Person" means any individual, corporation, limited liability company, partnership, joint venture, association, trust, unincorporated organization or other entity. "Territory" means anywhere in the world. 4 11. CONFIDENTIAL INFORMATION. Executive shall not, except with the prior written approval of the Company, disclose Confidential Information to any Person, or use Confidential Information for personal financial gain or other reason not in the Company's best interest at any time either during or after the Term for whatever reason, except that these restrictions shall not apply to (a) information that shall become publicly known through no fault of Executive, (b) information that is disclosed to Executive by a third party that has legitimate and unrestricted possession thereof and the unrestricted right to make such disclosure, (c) information that Executive can demonstrate was within his legitimate and unrestricted possession prior to the time of his employment with the Company, or (d) other information not rising to the level of a trade secret at any time after two years from and after the end of the Term. "Confidential Information" means all business records, trade secrets, know-how concerning marketing, customer lists or compilations, sources of supply, manufacturing techniques, pricing information, financial information, personnel data, information contained in any documents prepared by or for the Company and its employees at the Company's expense or on the Company's time or otherwise in furtherance of the Company's business, and made available only to the Company and such of its authorized agents as may be necessary to further the Company's business, and other confidential information used and/or obtained by Executive in the course of his employment by the Company. Executive shall return to the Company all Confidential Information and any and all copies of the same in his control upon termination of employment with the Company for any reason whatsoever. 12. ASSIGNMENT. This Agreement may not be assigned or transferred by Executive, in whole or in part, without the prior written consent of the Company, and any assignment in violation of this Section shall be void. The Company shall have the right to assign this Agreement and any of its rights hereunder to an affiliate of the Company, or as a part of a sale or transfer of the stock, assets or business of the Company or any substantial portion thereof. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto, and their respective heirs, successors and permitted assigns. 13. RELIEF. A breach or threatened breach of any of the terms of this Agreement by Executive would result in material and irreparable damage and injury to the Company, and it would be difficult or impossible to establish the full monetary value of such damage. Therefore, the Company shall be entitled to injunctive relief by a court of appropriate jurisdiction in the event of Executive's breach or threatened breach of any of the terms hereunder, without the necessity of having to post bond or other collateral in connection therewith. The Company's right to an injunction will not prohibit the Company from pursuing other remedies, including the recovery of damages. 14. NOTICE. All notices and communications required or permitted hereunder shall be in writing and may be given by (a) depositing the same in the United States mail, addressed to the party to be notified, postage prepaid and registered or certified with return receipt requested, (b) telecopy, (c) overnight delivery service, or (d) hand delivery. Such notice shall be deemed received (i) on the first business day after it was actually received if sent by overnight delivery service, (ii) on the day it was delivered if hand delivered, (iii) on the day the telecopy is transmitted to the proper telecopy number if sent by telecopy or (iv) on the third business day following the date on which it is so mailed. For purposes of notice, the address of the parties shall be: If to the Company: Vari-Lite International, Inc. 201 Regal Row Dallas, Texas 75247 Telecopy: Attn: Chief Executive Officer 5 with a copy (which shall not constitute notice) to: Gardere Wynne Sewell LLP 1601 Elm Street 3000 Thanksgiving Tower Dallas, Texas 75201 Telecopy: 214-999-3683 Attn: Alan J. Perkins If to Executive: T. Clay Powers 10505 Vinemont Dallas, Texas 75218 Telecopy: 214-327-5170 or such other address as either party hereto shall specify pursuant to this Section 14 from time to time. 15. NON-WAIVER. No failure on the part of either party hereto to exercise, and no delay by either party hereto in exercising any right, power, or remedy under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or remedy by either party hereto preclude any other or further exercise thereof or the exercise by such party of any other right, power or remedy. No express waiver or assent by either party hereto of any breach of or default in any term or condition of this Agreement by the other party shall constitute a waiver of or an assent to any succeeding breach of or default in the same or any other term or condition hereof. 16. AMENDMENTS AND MODIFICATIONS. This Agreement may be amended or modified only by a writing signed by both parties hereto. 17. GOVERNING LAW. This Agreement shall be construed in accordance with the laws of the State of Texas, without regard to the choice of law provisions, statutes, regulations or principles of this or any other jurisdiction. 18. REFORMATION AND SEVERABILITY. If any provision of this Agreement is held to be illegal, invalid or unenforceable under present or future laws effective during the term hereof, such provision shall be fully severable and this Agreement shall be construed and enforced as if such illegal, invalid or unenforceable provision never comprised a part hereof, and the remaining provisions hereof shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or by its severance herefrom. Furthermore, in lieu of such illegal, invalid or unenforceable provision, there shall be added automatically as part of this Agreement, a provision as similar in its terms to such illegal, invalid or unenforceable provision as may be possible and be legal, valid and enforceable. 19. COUNTERPARTS. This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute but one and the same instrument. Facsimile transmission of any signed original document or retransmission of any signed facsimile transmission shall be deemed the same as delivery of an original. At the request of either party hereto, the parties hereto will confirm facsimile transmission by signing a duplicate original document. 6 IN WITNESS WHEREOF, the parties hereto have executed this Agreement, as of the date first written above. Vari-Lite International, Inc. By: ------------------------------------------- H.R. Brutsche III, Chief Executive Officer ------------------------------------------- T. Clay Powers 7 EX-10.59 3 a2048988zex-10_59.txt EXHIBIT 10.59 EXECUTIVE EMPLOYMENT AGREEMENT ------------------------------ This Agreement, dated as of January 1, 2001, is by and between Vari-Lite International, Inc., a Delaware corporation (the "Company"), and Jerome L. Trojan III ("Executive"). W I T N E S S E T H: WHEREAS, Executive possesses significant knowledge and information in matters relating to the Business (as defined below), which knowledge and information will be increased, developed and enhanced through his continued employment by the Company; and WHEREAS, the parties hereto desire to enter into an agreement for the Company's continued employment of Executive on the terms and conditions contained herein; NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements contained herein, and certain other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. EMPLOYMENT AND DUTIES. The Company hereby employs Executive, and Executive hereby accepts employment with the Company, to serve as Vice President-Finance and Chief Financial Officer of the Company. In such capacity, Executive shall report to the President of the Company and shall devote his full working time, attention and energies to the diligent performance of such services and duties as from time to time may be designated by the President of the Company. Executive shall not, without the prior written consent of the Company, directly or indirectly, at any time while employed by the Company, engage in any venture or activity that the Company, in its sole discretion, determines interferes with Executive's performance of his duties and responsibilities as an employee of the Company. 2. TERM. The term of this Agreement and Executive's employment hereunder (the "Term") shall commence as of the date hereof and, unless sooner terminated in accordance with the termination provisions hereof, shall continue for one year (the "Initial Term"), and thereafter shall renew for successive one-year periods unless either party hereto delivers to the other party at least 30 days prior to the expiration of the Initial Term, or the expiration date of any subsequent one-year renewal period, written notice of the election not to renew the Term. 3. COMPENSATION. The Company shall compensate Executive as follows: (a) BASE SALARY. During the Term, the Company shall pay to Executive an annual salary of $180,000 (the "Base Salary"), payable in arrears and in accordance with the Company's normal payroll practices as in effect from time to time. The Base Salary may be increased, but not decreased, from time to time as the Compensation Committee of the Company's Board of Directors determines, in its sole discretion. (b) BENEFITS AND PERQUISITES. Executive shall be entitled to vacation and employee benefits (including bonus plans offered to management employees generally) in accordance with the policies of the Company in effect from time to time. The Company may change or amend any of the benefits it provides at any time. (c) EXPENSE REIMBURSEMENT. The Company shall reimburse Executive for all reasonable expenses properly incurred by Executive in the performance of Executive's duties hereunder, in accordance with policies established from time to time by the Company. 1 4. TERMINATION BY THE COMPANY WITHOUT CAUSE. The Company may terminate Executive's employment with the Company at any time and for any reason other than for Cause (as defined below), including Employer electing not to renew the Initial Term or any Renewal Term, as the case may be, pursuant to Section 2. In the event of any such termination, the Company shall pay Executive the Base Salary through the end of the Term (as determined without regard to the termination), payable in accordance with the Company's normal payroll practices. In addition, the Company will (a) continue to pay Executive the Base Salary for a one-year period after the end of the Term (as determined without regard to the termination), payable in accordance with the Company's normal payroll practices, and (b) pay the applicable health insurance premiums for Employee and his dependents during the continuation coverage period provided under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA"), from and after the date Employee's employment hereunder is terminated through the earlier of (i) the date Employee is employed by another employer, (ii) the date no further payments are due under the preceding clause (a), or (iii) the expiration of 18 months. 5. TERMINATION BY THE COMPANY FOR CAUSE. The Company may terminate Executive's employment with the Company at any time for Cause by delivering to Executive written notice of termination supported by a reasonably detailed statement of the relevant facts and reason for termination. In the event of any such termination, the Company shall pay Executive the Base Salary accrued and unpaid through the date of termination, payable in accordance with the Company's normal payroll practices. As used herein, "Cause" means (a) Executive has breached Section 10 or 11 hereof, (b) Executive has used alcohol or drugs on the job or in a manner affecting his job performance, (c) Executive has been grossly negligent in the performance or has intentionally not performed Executive's material duties and responsibilities hereunder, continuing for 10 days after receipt of written notice of such performance or lack of performance, (d) Executive has committed acts of willful dishonesty, fraud or material misconduct with respect to the business or affairs of the Company, or (e) Executive has been found guilty of or has pled nolo contendere to the commission of a felony offense. 6. VOLUNTARY TERMINATION BY EXECUTIVE. Executive may terminate his employment with the Company at any time for any reason other than for Good Reason (as defined below) upon delivering 30 days' prior written notice to the Company. In the event of any such termination, the Company shall pay Executive the Base Salary accrued and unpaid through the date of termination, payable in accordance with the Company's normal payroll practices. 7. TERMINATION BY DEATH OR DISABILITY. (a) DEATH. If Executive dies during the Term, the Company shall pay Executive's estate the Base Salary through the end of the Term (as determined without regard to the termination), payable in accordance with the Company's normal payroll practices. (b) DISABILITY. If, as a result of Executive's incapacity due to physical or mental illness or injury, Executive shall have been absent from the full-time performance of his duties with the Company (i) for a period of three consecutive months or (ii) for shorter periods aggregating 180 or more business days in any 12-month period and, within 30 days after written notice of termination is thereafter given by the Company, Executive shall not have returned to the full-time performance of his duties, the Company may terminate Executive's employment with the Company. In the event of any such termination, the Company shall pay Executive the Base Salary through the end of the Term (as determined without regard to the termination), payable in accordance with the Company's normal payroll practices. 8. TERMINATION BY EXECUTIVE FOR GOOD REASON. Executive may terminate his employment with the Company for Good Reason at any time by delivering 30 days' prior written notice to the 2 Company. In the event of any such termination, the Company shall pay Executive the Base Salary through the end of the Term (as determined without regard to the termination), payable in accordance with the Company's normal payroll practices. In addition, the Company will (a) continue to pay Executive the Base Salary for a one-year period after the end of the Term (as determined without regard to the termination), payable in accordance with the Company's normal payroll practices, and (b) pay the applicable health insurance premiums for Employee and his dependents during the continuation coverage period provided under COBRA from and after the date Employee's employment hereunder is terminated through the earlier of (i) the date Employee is employed by another employer, (ii) the date no further payments are due under the preceding clause (a), or (iii) the expiration of 18 months. As used herein, "Good Reason" means (a) Executive has been assigned any duties inconsistent in any material manner with, or suffered any adverse material change in, Executive's position, duties, responsibilities or status with the Company, (b) the Company has reduced the Base Salary, or (c) the Company has failed to pay the Base Salary, and in any case the Company fails to remedy such matter within 10 days of receiving written notice from Executive of his intention to terminate his employment based thereon. 9. TERMINATION BY EXECUTIVE UPON CHANGE IN CONTROL. (a) Upon the occurrence of a Change in Control (as defined below), Executive shall have the option to terminate his employment with the Company by delivering written notice of his election to exercise such option to the Company within 30 days of the occurrence of a Change in Control. In the event of any such termination, the Company shall pay Executive the Base Salary accrued and unpaid through the date of termination, payable in accordance with the Company's normal payroll practices. In addition, the Company will (i) continue to pay Executive the Base Salary for a two-year period after the date of termination, payable in accordance with the Company's normal payroll practices, and (ii) pay the applicable health insurance premiums for Employee and his dependents during the continuation coverage period provided under COBRA from and after the date Employee's employment hereunder is terminated through the earlier of (1) the date Employee is employed by another employer, or (2) the expiration of 18 months. (b) As used herein, "Change in Control" means the occurrence of any of the following: (i) any person (as defined in Section 3(a)(9) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and as used in Sections 13(d) and 14(d)2 thereof), excluding the Company, any Affiliates (as defined below) of the Company or any employee benefit plan sponsored or maintained by the Company or its Affiliates (including any trustee of any such plan acting in its capacity as trustee), becomes the "beneficial owner" (as defined in Rule 13d-3 of the Exchange Act) of securities of the Company representing more than 51% of the total combined voting power of the Company's then outstanding securities; (ii) the merger, consolidation or other business combination of the Company with another entity (a "Transaction"), other than a Transaction involving only the Company's Affiliates or a Transaction immediately following which the stockholders of the Company immediately prior to the Transaction continue to have a majority of the voting power in the resulting entity; (iii) the individuals who, on the date hereof, constitute the Board of Directors of the Company (and any new director whose appointment or election was approved or recommended by the then current Board of Directors) cease (for any reason other than death) to constitute at least a majority of the number of directors of the Board; or 3 (iv) the approval by the stockholders of the Company of any plan of complete liquidation of the Company or an agreement for the sale of all or substantially all of the Company's assets, other than the sale of all or substantially all of the assets of the Company to any of the Company's Affiliates or a sale to any entity of which the stockholders of the Company immediately prior to the sale continue to have a majority of the voting power. As used herein, "Affiliates" has the meaning set forth under the definition of "affiliates" in Rule 405 of the Securities Act of 1933, as amended. 10. COVENANT AGAINST COMPETITION AND EMPLOYMENT. Executive shall not, directly or indirectly, individually or on behalf of any Person (as defined below) other than the Company, (i) for as long as Executive continues to receive the Base Salary hereunder, and (ii) in the case of a termination of Executive's employment with the Company pursuant to Section 5 or 6 for an additional period of one year after such termination: (a) engage in, have an equity or profit interest in, or render services of any kind or nature to any Person engaged in the Business within the Territory (as defined below); (b) solicit, call upon or attempt to obtain business from any Customer (as defined below) for the purpose of providing that Customer with any product or service provided by the Company or any competitive product; or (c) employ or offer to employ any employee of the Company. For these purposes, an employee of the Company shall be deemed to be an employee of the Company while employed by the Company and for a period of 60 days thereafter. Nothing contained in this Section 10 shall be construed to prohibit Executive from owning either of record or beneficially not more than 1% of the shares or other equity interest of any publicly traded Person. Executive agrees that the foregoing covenants in this Section 10 impose a reasonable restraint on Executive in light of the activities and business of Company as of the date hereof and that the enforcement of the non-competition provisions in this Section 10 by the Company will not interfere with Executive's ability to pursue a proper livelihood. Executive acknowledges and agrees that the enforcement of this Agreement is necessary to ensure the preservation and continuity of the goodwill of the Company. As used herein, the following terms shall have the meanings indicated: "Business" means the design, manufacture and/or distribution of automated or conventional lighting equipment and/or related services. "Customer" means all Persons (a) who purchased products from, or utilized the services of, the Company while Executive was employed by the Company, (b) who Executive solicited on behalf of the Company, (c) whose dealings with the Company were coordinated or supervised, in whole or in part, by Executive, or (d) about whom Executive obtained Confidential Information (as defined below). "Person" means any individual, corporation, limited liability company, partnership, joint venture, association, trust, unincorporated organization or other entity. "Territory" means anywhere in the world. 4 11. CONFIDENTIAL INFORMATION. Executive shall not, except with the prior written approval of the Company, disclose Confidential Information to any Person, or use Confidential Information for personal financial gain or other reason not in the Company's best interest at any time either during or after the Term for whatever reason, except that these restrictions shall not apply to (a) information that shall become publicly known through no fault of Executive, (b) information that is disclosed to Executive by a third party that has legitimate and unrestricted possession thereof and the unrestricted right to make such disclosure, (c) information that Executive can demonstrate was within his legitimate and unrestricted possession prior to the time of his employment with the Company, or (d) other information not rising to the level of a trade secret at any time after two years from and after the end of the Term. "Confidential Information" means all business records, trade secrets, know-how concerning marketing, customer lists or compilations, sources of supply, manufacturing techniques, pricing information, financial information, personnel data, information contained in any documents prepared by or for the Company and its employees at the Company's expense or on the Company's time or otherwise in furtherance of the Company's business, and made available only to the Company and such of its authorized agents as may be necessary to further the Company's business, and other confidential information used and/or obtained by Executive in the course of his employment by the Company. Executive shall return to the Company all Confidential Information and any and all copies of the same in his control upon termination of employment with the Company for any reason whatsoever. 12. ASSIGNMENT. This Agreement may not be assigned or transferred by Executive, in whole or in part, without the prior written consent of the Company, and any assignment in violation of this Section shall be void. The Company shall have the right to assign this Agreement and any of its rights hereunder to an affiliate of the Company, or as a part of a sale or transfer of the stock, assets or business of the Company or any substantial portion thereof. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto, and their respective heirs, successors and permitted assigns. 13. RELIEF. A breach or threatened breach of any of the terms of this Agreement by Executive would result in material and irreparable damage and injury to the Company, and it would be difficult or impossible to establish the full monetary value of such damage. Therefore, the Company shall be entitled to injunctive relief by a court of appropriate jurisdiction in the event of Executive's breach or threatened breach of any of the terms hereunder, without the necessity of having to post bond or other collateral in connection therewith. The Company's right to an injunction will not prohibit the Company from pursuing other remedies, including the recovery of damages. 14. NOTICE. All notices and communications required or permitted hereunder shall be in writing and may be given by (a) depositing the same in the United States mail, addressed to the party to be notified, postage prepaid and registered or certified with return receipt requested, (b) telecopy, (c) overnight delivery service, or (d) hand delivery. Such notice shall be deemed received (i) on the first business day after it was actually received if sent by overnight delivery service, (ii) on the day it was delivered if hand delivered, (iii) on the day the telecopy is transmitted to the proper telecopy number if sent by telecopy or (iv) on the third business day following the date on which it is so mailed. For purposes of notice, the address of the parties shall be: If to the Company: Vari-Lite International, Inc. 201 Regal Row Dallas, Texas 75247 Telecopy: Attn: Chief Executive Officer 5 with a copy (which shall not constitute notice) to: Gardere Wynne Sewell LLP 1601 Elm Street 3000 Thanksgiving Tower Dallas, Texas 75201 Telecopy: 214-999-3683 Attn: Alan J. Perkins If to Executive: Jerome L. Trojan III 6325 Ellsworth Avenue Dallas, Texas 75214 Telecopy: 214-828-2014 or such other address as either party hereto shall specify pursuant to this Section 14 from time to time. 15. NON-WAIVER. No failure on the part of either party hereto to exercise, and no delay by either party hereto in exercising any right, power, or remedy under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or remedy by either party hereto preclude any other or further exercise thereof or the exercise by such party of any other right, power or remedy. No express waiver or assent by either party hereto of any breach of or default in any term or condition of this Agreement by the other party shall constitute a waiver of or an assent to any succeeding breach of or default in the same or any other term or condition hereof. 16. AMENDMENTS AND MODIFICATIONS. This Agreement may be amended or modified only by a writing signed by both parties hereto. 17. GOVERNING LAW. This Agreement shall be construed in accordance with the laws of the State of Texas, without regard to the choice of law provisions, statutes, regulations or principles of this or any other jurisdiction. 18. REFORMATION AND SEVERABILITY. If any provision of this Agreement is held to be illegal, invalid or unenforceable under present or future laws effective during the term hereof, such provision shall be fully severable and this Agreement shall be construed and enforced as if such illegal, invalid or unenforceable provision never comprised a part hereof, and the remaining provisions hereof shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or by its severance herefrom. Furthermore, in lieu of such illegal, invalid or unenforceable provision, there shall be added automatically as part of this Agreement, a provision as similar in its terms to such illegal, invalid or unenforceable provision as may be possible and be legal, valid and enforceable. 19. COUNTERPARTS. This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute but one and the same instrument. Facsimile transmission of any signed original document or retransmission of any signed facsimile transmission shall be deemed the same as delivery of an original. At the request of either party hereto, the parties hereto will confirm facsimile transmission by signing a duplicate original document. 6 IN WITNESS WHEREOF, the parties hereto have executed this Agreement, as of the date first written above. Vari-Lite International, Inc. By: ------------------------------------------ H.R. Brutsche III, Chief Executive Officer --------------------------------------------- Jerome L. Trojan III 7 -----END PRIVACY-ENHANCED MESSAGE-----