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 JUNE 30, 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 incorporation or organization)	(I.R.S. Employer 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 ý   No o

Indicate the number of shares outstanding of each of the Issuer’s classes of common stock, as of the latest practicable date:  As of August 10, 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 JUNE 30, 2001

PART I. - FINANCIAL INFORMATION
Item 1. Financial Statements:
	Condensed Consolidated Balance Sheets as of September 30, 2000 and June 30, 2001
	Condensed Consolidated Statements of Income and Comprehensive Income for the three months ended June 30, 2000 and 2001
	Condensed Consolidated Statements of Income and Comprehensive Income for the nine months ended June 30, 2000 and 2001
	Condensed Consolidated Statements of Cash Flows for the nine months ended June 30, 2000 and 2001
	Notes to Condensed Consolidated Financial Statements
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES

VARI–LITE INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands except share data)

		September 30, 2000			June 30, 2001
ASSETS
CURRENT ASSETS:
	Cash	$	4,315		$	2,494
	Receivables, less allowance for doubtful accounts of $740 and $374	12,369			9,411
	Inventory	13,695			16,017
	Prepaid expense and other current assets	1,352			1,390
	TOTAL CURRENT ASSETS	31,731			29,312
EQUIPMENT AND OTHER PROPERTY:
	Lighting and sound equipment	123,210			102,224
	Machinery and tools	5,678			3,443
	Furniture and fixtures	5,089			4,172
	Office and computer equipment	10,377			10,601
	Work in progress and raw materials inventory	680			-
		145,034			120,440
	Less accumulated depreciation and amortization	84,097			70,371
		60,937			50,069
OTHER ASSETS		2,035			2,215
	TOTAL ASSETS	$	94,703		$	81,596
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
	Accounts payable and accrued expenses	$	10,873		$	7,739
	Unearned revenue	3,272			1,766
	Income taxes payable	82			380
	Current portion of long–term obligations	19,599			4,934
	TOTAL CURRENT LIABILITIES	33,826			14,819
LONG–TERM OBLIGATIONS		18,136			19,148
DEFERRED INCOME TAXES		993			2,309
	TOTAL LIABILITIES	52,955			36,276
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		)	361
	Retained earnings	16,461			19,334
	TOTAL STOCKHOLDERS' EQUITY	41,748			45,320
	TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	94,703		$	81,596

See notes to condensed consolidated financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

For the Three Months Ended June 30, 2000 and 2001

(Unaudited)

(In thousands except share data)

		2000			2001
Rental revenues		$	17,869		$	12,572
Product sales and services revenues		3,640			3,012
	TOTAL REVENUES	21,509			15,584
Rental cost		8,262			6,264
Product sales and services cost		2,228			1,892
	TOTAL COST OF SALES	10,490			8,156
	GROSS PROFIT	11,019			7,428
Selling, general and administrative expense		8,533			7,910
Research and development expense		1,287			1,318
Impairment of assets		650			-
	TOTAL OPERATING EXPENSES	10,470			9,228
OPERATING INCOME (LOSS)		549			(1,800		)
Interest expense (net)		1,196			351
LOSS BEFORE INCOME TAX		(647		)	(2,151		)
Income tax benefit		(255		)	(850		)
NET LOSS		(392		)	(1,301		)
Other comprehensive gain (loss) – foreign currency translation adjustments		(329		)	118
COMPREHENSIVE LOSS		$	(721	)	$	(1,183	)
WEIGHTED AVERAGE BASIC  AND DILUTED SHARES OUTSTANDING		7,800,003			7,800,003
PER SHARE INFORMATION
BASIC AND DILUTED:
	Net loss	$	(0.05	)	$	(0.17	)

See notes to condensed consolidated financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

For the Nine  Months Ended June 30, 2000 and 2001

(Unaudited)

(In thousands except share data)

		2000			2001
Rental revenues		$	58,177		$	41,908
Product sales and services revenues		11,730			12,391
	TOTAL REVENUES	69,907			54,299
Rental cost		27,139			19,019
Product sales and services cost		7,076			8,118
	TOTAL COST OF SALES	34,215			27,137
	GROSS PROFIT	35,692			27,162
Selling, general and administrative expense		28,168			24,002
Research and development expense		3,754			3,716
Impairment of assets		650			-
	TOTAL OPERATING EXPENSES	32,572			27,718
Gain on sale of concert sound reinforcement business		-			7,100
OPERATING INCOME		3,120			6,544
Interest expense (net)		3,716			1,913
INCOME (LOSS) BEFORE INCOME TAX		(596		)	4,631
Income tax expense (benefit)		(235		)	1,758
NET INCOME (LOSS)		(361		)	2,873
Other comprehensive loss – foreign currency translation adjustments		(829		)	(314		)
Reclassification adjustment – sale of continental European operations		-			993
COMPREHENSIVE INCOME (LOSS)		$	(1,190	)	$	3,552
WEIGHTED AVERAGE BASIC SHARES OUTSTANDING		7,800,003			7,800,003
WEIGHTED AVERAGE DILUTED SHARES OUTSTANDING		7,800,003			7,876,463
PER SHARE INFORMATION
BASIC:
	Net income (loss)	$	(0.05	)	$	0.37
DILUTED:
	Net income (loss)	$	(0.05	)	$	0.36

See notes to condensed consolidated financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Nine Months Ended June 30, 2000 and 2001

(Unaudited)

(In thousands)

					2000			2001
Cash flows from operating activities:
	Net income (loss)				$	(361	)	$	2,873
	Adjustments to reconcile net income (loss) to net cash provided by operating activities:
		Depreciation and amortization			10,536			7,823
		Amortization of note discount and deferred loan fees			141			362
		Provision for doubtful accounts			83			138
		Impairment of assets			650			-
		Deferred income taxes			(591		)	1,316
		Gain on sale of concert sound reinforcement business			-			(7,100		)
		Gain (loss) on sale of equipment and other property			(1,882		)	80
			Net change in assets and liabilities:
				Accounts receivable	1,131			385
				Prepaid expenses	(428		)	(124		)
				Inventory	(5,923		)	(2,322		)
				Other assets	(469		)	(460		)
				Accounts payable, accrued liabilities and income taxes payable	965			(1,272		)
				Unearned revenue	987			(1,173		)
				Net cash provided by operating activities	4,839			526
Cash flows from investing activities:
	Capital expenditures, including rental equipment				(2,470		)	(7,460		)
	Proceeds from sale of concert sound reinforcement business				-			11,946
	Proceeds from sale of European operations				-			5,258
	Proceeds from sale of equipment				3,687			71
			Net cash provided by investing activities		1,217			9,815
Cash flows from financing activities:
	Proceeds from issuance of debt				27,805			49,288
	Principal payments on debt				(31,795		)	(60,603		)
	Principal payments on distributor advances				(263		)	-
	Proceeds from payments on stockholder notes receivable				8			19
				Net cash used in financing activities	(4,245		)	(11,296		)
Effect of exchange rate changes on cash and cash equivalents					(306		)	(866		)
Net increase (decrease) in cash during the period					1,505			(1,821		)
Cash, beginning of period					1,969			4,315
Cash, end of period					$	3,474		$	2,494
Supplemental Cash Flow Information
	Cash paid for interest expense				$	4,160		$	1,936
	Cash paid for income taxes				$	614		$	267

See notes to condensed consolidated financial statements.

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 nine-month periods ended June 30, 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, 2000		June 30, 2001
Raw materials	$	12,341	$	13,494
Work in progress	698		551
Finished goods	656		1,972
	$	13,695	$	16,017

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 nine-month periods ended June 30, 2000 and 2001 is presented below:

		Three Months Ended
		North America			Asia			Europe		Intercompany			Total
June 30, 2000:
Net Revenues from unaffliliated customers		$	13,709		$	2,061		$	5,739	$	-		$	21,509
Intersegment sales		4,311			232			894		(5,437		)	-
	Total net revenues	18,020			2,293			6,633		(5,437		)	21,509
Operating income (loss)		1,544			(24		)	822		(1,793		)	549
Depreciation and amortization		2,855			42			558		-			3,455
Total assets		89,765			7,351			18,541		(11,226		)	104,431
June 30, 2001:
Net Revenues from unaffliliated customers		$	10,860		$	1,425		$	3,299	$	-		$	15,584
Intersegment sales		2,229			9			27		(2,265		)	-
	Total net revenues	13,089			1,434			3,326		(2,265		)	15,584
Operating income (loss)		(1,621		)	(256		)	246		(169		)	(1,800		)
Depreciation and amortization		1,963			50			590		-			2,603
Total assets		66,493			7,703			17,020		(9,620		)	81,596
		Nine Months Ended
		North America			Asia			Europe		Intercompany			Total
June 30, 2000:
Net Revenues from unaffliliated customers		$	40,968		$	7,869		$	21,070	$	-		$	69,907
Intersegment sales		15,244			232			894		(16,370		)	-
	Total net revenues	56,212			8,101			21,964		(16,370		)	69,907
Operating income (loss)		5,660			(66		)	3,248		(5,722		)	3,120
Depreciation and amortization		8,900			134			1,502		-			10,536
Total assets		89,765			7,351			18,541		(11,226		)	104,431
June 30, 2001:
Net Revenues from unaffliliated customers		$	38,073		$	6,755		$	9,471	$	-		$	54,299
Intersegment sales		5,328			47			32		(5,407		)	-
	Total net revenues	43,401			6,802			9,503		(5,407		)	54,299
Operating income		4,157			757			1,799		(169		)	6,544
Depreciation and amortization		5,838			172			1,813		-			7,823
Total assets		66,493			7,703			17,020		(9,620		)	81,596

4.  Debt

             On December 19, 1997, the Company entered into a $50,000 multicurrency revolving credit  facility (the “Old 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 0.75% 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's U.K. subsidiary 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 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 1.62% to 10.35%.  Proceeds received under this type of financing were approximately $2,562 and $1,135 for the nine-month periods ending June 30, 2000 and 2001, respectively, and borrowings outstanding under this type of financing at June 30, 2000 and 2001 were approximately $4,040 and $2,367, 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 June 30,		Nine Months ended June 30,
	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	-	-	-	76,460
Shares used in calculating diluted income per share	7,800,003	7,800,003	7,800,003	7,876,463

             For the three-month period ended June 30, 2000 and 2001, earnings per share excludes stock options of 686,900 and 739,700, respectively, and warrants of 296,057 and 296,057, respectively, which are anti-dilutive.  For the nine-month period ended June 30, 2000, earnings per share excludes stock options of 686,900 and warrants of 296,057 which are anti-dilutive. For the nine-month period ended June 30, 2001, earnings per share excludes warrants of 296,057 which are 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 derivative 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*LITEÒ 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.

9. Pro Forma Financial Statements

             Pro forma adjustments to the condensed consolidated statement of operations for the three and nine months ended June 30, 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 June 30						Nine Months Ended June 30
	2000			2001			2000			2001
Total revenues	$	15,751		$	15,584		$	53,116		$	52,672
Total cost of sales	7,214			8,156			25,029			26,474
Gross profit	8,537			7,428			28,087			26,198
Total operating expenses	9,020			9,228			27,953			27,340
Operating income (loss)	(483		)	(1,800		)	134			(1,142		)
Interest expense (net)	795			351			2,550			989
Loss before income taxes	(1,278		)	(2,151		)	(2,416		)	(2,131		)
Income tax benefit	(505		)	(849		)	(954		)	(913		)
Net loss	$	(773	)	$	(1,301	)	$	(1,462	)	$	(1,218	)

ITEM   2.          MANAGEMENT’S      DISCUSSION AND    ANALYSIS      OF        FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

Results of Operations

Three Months Ended June 30, 2001 Compared to Three Months Ended June 30, 2000

             Revenues.   Total revenues decreased 27.6%, or $5.9 million, to $15.6 million in the three-month period ended June 30, 2001, compared to $21.5 million in the three-month period ended June 30, 2000.  The revenue decrease was attributable primarily to the factors set forth below.

             Rental Revenues. Rental revenues decreased 29.6%, or $5.3 million, to $12.6 million in the three-month period ended June 30, 2001, compared to $17.9 million in the three-month period ended June 30, 2000.  This decrease was primarily due to the sale of the Company’s continental European rental operations in October 2000, concert sound reinforcement business in November 2000 and decreased revenues as a result of difficult economic conditions.

             Product Sales and Services Revenues.  Product sales and services revenues decreased 17.3%, or $0.6 million, to $3.0 million in the three-month period ended June 30, 2001, compared to $3.6 million in the three-month period ended June 30, 2000. This decrease was primarily due the closing of the Company’s corporate meeting and special events management business in April 2001 due to the loss of the business' largest customer.

             Rental Costs.  Rental cost decreased 24.2%, or $2.0 million, to $6.3 million in the three-month period ended June 30, 2001, compared to $8.3 million in the three-month period ended June 30, 2000.  The decrease was primarily due to the sale of the Company’s continental European rental operations in October 2000 and concert sound reinforcement business in November 2000.  Rental cost as a percentage of rental revenues increased to 49.8% in the three-month period ended June 30, 2001, from 46.2% in the three-month period ended June 30, 2000.  This increase is due to decreased revenues and pricing pressures as a result of difficult economic conditions.

             Product Sales and Services Costs.  Product sales and services cost decreased 15.1%, or $0.3 million, to $1.9 million in the three-month period ended June 30, 2001, compared to $2.2 million in the three-month period ended June 30, 2000 as a result of decreased product sales and services revenues.  Product sales and services cost as a percentage of product sales and services revenues increased to 62.8% in the three-month period ended June 30, 2001, from 61.2% in the three-month period ended June 30, 2000.

             Selling, General and Administrative Expense. Selling, general and administrative expense decreased 7.3%, or $0.6 million, to $7.9 million in the three-month period ended June 30, 2001, compared to $8.5 million in the three-month period ended June 30, 2000.  This decrease was primarily due to the sale of the Company’s continental European rental operations in October 2000 and its concert sound reinforcement business in November 2000 and the closing of the Company’s Hong Kong rental operations in January 2001 and corporate meeting and special events management business in April 2001. This expense as a percentage of total revenues increased to 50.8% in the three-month period ended June 30, 2001, from 39.7% in the three-month period ended June 30, 2000, due to the aforementioned divestitures and business closings and decreased revenues as a result of difficult economic conditions.

             Research and Development Expense.  Research and development expense in the three-month period ended June 30, 2001 was approximately the same as in three-month period ended June 30, 2000.  This expense as a percentage of total revenues increased to 8.5% in the three-month period ended June 30, 2001, from 6.0% in the three-month period ended June 30, 2000 as a result of decreased revenues for the period ended June 30, 2001.

             Interest Expense.  Interest expense decreased 70.7%, or $0.8 million, to $0.4 million in the three-month period ended June 30, 2001, compared to $1.2 million in the three-month period ended June 30, 2000 as a result of a lower debt balance and a lower interest rate in the three-month period ended June 30, 2001.

             Income Taxes. The effective tax rate in the three-month periods ended June 30, 2001 and 2000 were 39.5% and 39.4%, respectively.

Nine Months Ended June 30, 2001 Compared to Nine Months Ended June 30, 2000

             Revenues.   Total revenues decreased 22.3%, or $15.6 million, to $54.3 million in the nine-month period ended June 30, 2001, compared to $69.9 million in the nine-month period ended June 30, 2000.  The revenue decrease was attributable primarily to the factors set forth below.

             Rental Revenues. Rental revenues decreased 28.0%, or $16.3 million, to $41.9 million in the nine-month period ended June 30, 2001, compared to $58.2 million in the nine-month period ended June 30, 2000.  This decrease was primarily due the sale of the Company’s continental European rental operations in October 2000 and concert sound reinforcement business in November 2000 which collectively accounted for $1.6 million of rental revenues in the nine-month period ended June 30, 2001 compared to $16.8 million in the nine-month period ended June 30, 2000.

             Product Sales and Services Revenues.  Product sales and services revenues increased 5.6%, or $0.7 million, to $12.4 million in the nine-month period ended June 30, 2001, compared to $11.7 million in the nine-month period ended June 30, 2000. This increase was primarily due to the sale of new and used automated lighting equipment, partially offset by the closing of the Company’s corporate meeting and special events management business in April 2001.

             Rental Costs.  Rental cost decreased 29.9%, or $8.1 million, to $19.0 million in the nine-month period ended June 30, 2001, compared to $27.1 million in the nine-month period ended June 30, 2000.  Rental cost as a percentage of rental revenues decreased to 45.4% in the nine-month period ended June 30, 2001, from 46.6% in the nine-month period ended June 30, 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 concert sound reinforcement business in November 2000.

             Product Sales and Services Costs.  Product sales and services cost increased 14.7%, or $1.0 million, to $8.1 million in the nine-month period ended June 30, 2001, compared to $7.1 million in the nine-month period ended June 30, 2000.  Product sales and services cost as a percentage of product sales and services revenues increased to 65.5% in the nine-month period ended June 30, 2001, from 60.3% in the nine-month period ended June 30, 2000, primarily due to the higher costs associated with the manufacture and sale of new automated lighting equipment sold in the nine-month period ended June 30, 2001 as compared to the lower costs associated with the sale of used automated lighting equipment in the nine-month period ended June 30, 2000.

             Selling, General and Administrative Expense. Selling, general and administrative expense decreased 14.8%, or $4.2 million, to $24.0 million in the nine-month period ended June 30, 2001, compared to $28.2 million in the nine-month period ended June 30, 2000. This decrease is primarily due to the sale of the Company’s continental European rental operations in October 2000 and concert sound reinforcement business in November 2000 and the closing of the Company's Hong Kong rental operations in January 2001 and corporate meeting and special events management business in April 2001. This expense as a percentage of total revenues increased to 44.2% in the nine-month period ended June 30, 2001, from 40.3% in the nine-month period ended June 30, 2000, as a result of decreased revenues for the period ended June 30, 2001.

             Research and Development Expense. Research and development expense in the nine-month period ended June 30, 2001 was approximately the same as in nine-month period ended June 30, 2000.  This expense as a percentage of total revenues increased to 6.8% in the nine-month period ended June 30, 2001, from 5.4% in the nine-month period ended June 30, 2000 as a result of decreased revenues for the period ended June 30, 2001.

             Interest Expense.  Interest expense decreased 48.5%, or $1.8 million, to $1.9 million in the nine-month period ended June 30, 2001, compared to $3.7 million in the nine-month period ended June 30, 2000 as a result of a lower debt balance and a lower interest rate in the nine-month period ended June 30, 2001.

             Income Taxes. The effective tax rate in the nine-month periods ended June 30, 2001 and 2000 were 38.0% and 39.4%, 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 $4.8 million and $0.5 million in the nine-month periods ended June 30, 2000 and 2001, respectively.

             On December 19, 1997, the Company entered into the Old 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, and 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 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 0.75% 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's U.K. subsidiary 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 three to five years and bear interest at various rates ranging from 1.62% to 10.35%.  Proceeds received under this type of financing were approximately $2.6 million and $1.1 million for the nine-month periods ending June 30, 2000 and 2001, respectively, and borrowings outstanding under this type of financing at June 30, 2000 and 2001 were approximately $4.0 million and $2.4 million, respectively.

             The Company’s business requires significant capital expenditures.  Capital expenditures for the nine months ended June 30, 2000 and 2001 were approximately $2.5 million and $7.5 million, respectively, of which approximately $2.0 million and $6.7 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 $27.4 million at June 30, 2000 and a working capital surplus of $14.5 million at June 30, 2001. The working capital deficit at June 30, 2000 was primarily due to the scheduled maturity of the Old Credit Facility on January 1, 2001, which was recorded as current debt as of June 30, 2000.  The working capital surplus at June 30, 2001 is primarily the result of the refinancing of the Old Credit Facility with the New Credit Facility and the overall reduction in outstanding debt.

             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 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 nine-month periods ended June 30, 2001 substantially changed from those risks outlined for the year ended September 30, 2000 in the Company’s Form 10-K.

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 6.			EXHIBITS AND REPORTS ON FORM 8-K
	(a)	Exhibits
			10.60	Employment Agreement, dated July 11, 2001, between the Company and Robert H. Schacherl
			10.61	Amendment No. 1, dated March 30, 2001, to the Financing Agreement, dated as of December 29, 2000, between Vari-Lite, Inc. and Firstar Bank, National Association
			10.62	Amendment No. 2, dated June 30, 2001, to the Financing Agreement, dated as of December 29, 2000, between Vari-Lite, Inc. and Firstar Bank, National Association.
	(b)	No reports on Form 8-K were filed for the quarter ended June 30, 2001.

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:	August 10, 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)

EX-10.60

EXECUTIVE EMPLOYMENT AGREEMENT

             This Agreement, dated as of July 11, 2001, is by and between Vari-Lite, Inc., a Delaware corporation (the “Company”), and Bob Schacherl (“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 of Sales for 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 $175,000 (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.

             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 six month period after the end of the Term (as determined without regard to the termination), payable in accordance with the Company’s normal payroll practices.

             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 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 six month period after the end of the Term (as determined without regard to the termination), payable in accordance with the Company’s normal payroll practices.  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.          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 two years 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 9 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 or continuing to own, as a passive investor, his existing shares in High End Systems, Inc.  Executive agrees that the foregoing covenants in this Section 9 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 9 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.

             10.        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.

             11.        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.

             12.        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.

             13.        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, Inc.
201 Regal Row
Dallas, Texas 75247
Telecopy:
Attn:    President

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:

Bob Schacherl
5903 Hayden’s Cove
Austin, TX 78730

or such other address as either party hereto shall specify pursuant to this Section 13 from time to time.

             14.        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.

             15.        Amendments and Modifications.  This Agreement may be amended or modified only by a writing signed by both parties hereto.

             16.        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.

             17.        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.

             18.        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.

             IN WITNESS WHEREOF, the parties hereto have executed this Agreement, as of the date first written above.

Vari-Lite International, Inc.
By:
	T. Clay Powers, President
Bob Schacherl

EX-10.61

AMENDMENT NO. 1
TO
FINANCING AGREEMENT

                           This AMENDMENT NO. 1 TO FINANCING AGREEMENT (this “Amendment”), made as of March 30, 2001, between FIRSTAR BANK, NATIONAL ASSOCIATION, a national banking association (“Bank”) and VARI-LITE, INC., a Delaware corporation (“Borrower”),

WITNESSETH:

                           WHEREAS, Borrower and Bank have entered into that certain Financing Agreement, dated as of December 29, 2000 (the “Financing Agreement”), pursuant to which Bank has made certain loans and financial accommodations available to Borrower; and

                           WHEREAS, Borrower and Bank desire to amend the Financing Agreement as hereinafter set forth;

                           NOW, THEREFORE, in consideration of the mutual promises and agreements contained herein and other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, Bank and Borrower agree as follows:

1.  DEFINED TERMS.

                           Each defined term used herein and not otherwise defined herein has the meaning ascribed to such term in the Financing Agreement.

2.  AMENDMENT TO FINANCING AGREEMENT.

                           The Financing Agreement is amended, effective as of the date of this Agreement, as follows:

                           2.1        Amendment to Exhibit J. Exhibit J to the Financing Agreement is amended in its entirety to read as set forth on Exhibit J attached hereto and by reference made a part hereof.

                           2.2        Amendment to Section 8.7 of the Financing Agreement—Certified Quarterly Financial Statements. Section 8.7 of the Financing Agreement is amended in its entirety to read as follows:

                                        Section 8.7 — Certified Quarterly Financial Statements.

                                        Promptly when available and in any event not later than forty-five (45) days after the end of each quarter, Borrower shall furnish to Bank quarterly financial statements, on a consolidated basis, showing International’s financial condition and results of International's operations for the periods of time covered by such statements in such detail as Bank may from time to time require, prepared in accordance with generally accepted accounting principles consistently applied and containing all disclosures required to fully and accurately present the financial position and results of International and to make such statements not misleading under the circumstances, and in each instance certified by the chief financial officer or other responsible officer of International as being filed with the Securities and Exchange Commission.  Said statements shall include: (i) a comparison prepared by International of its projected financial position and results of operations of International provided for in Section 8.6 hereof with the actual financial position and results of operations of International and an explanation of any variations between them; and (ii) a comparison between actual calculated results and the covenanted results for each of the Financial Covenants contained in Exhibit  J attached hereto and incorporated herein by reference.

3.  REPRESENTATIONS AND WARRANTIES.

                           Borrower represents and warrants to Bank as follows:

                           3.1        The Amendment.  This Amendment has been duly and validly executed by an authorized executive officer of Borrower and constitutes the legal, valid and binding obligation of Borrower enforceable against Borrower in accordance with its terms.

                           3.2        Financing Agreement.  The Financing Agreement as amended by this Amendment remains in full force and effect and remains the valid and binding obligation of Borrower enforceable against Borrower in accordance with its terms.  Borrower hereby ratifies and confirms the Financing Agreement as amended by this Amendment.

                           3.3        Nonwaiver. Neither the execution, delivery, performance or effectiveness of this Amendment shall operate nor be deemed to be nor construed as a waiver (i) of any right, power or remedy of Bank under the Financing Agreement, nor (ii) of any term, provision, representation, warranty or covenant contained in the Financing Agreement or any other documentation executed in connection therewith.  Further, none of the provisions of this Amendment shall constitute, or be deemed to be or construed as, a waiver of any Event of Default under the Financing Agreement as amended by this Amendment.

                           3.4        Reference to and Effect on the Financing Agreement.  Upon the effectiveness of this Amendment, each reference in the Financing Agreement to “this Agreement”, “hereunder”, “hereof”, “herein”, or words of like import shall mean and be a reference to the Financing Agreement as amended hereby, and each reference to the Financing Agreement in any other document, instrument or agreement executed and/or delivered in connection with the Financing Agreement shall mean and be a reference to the Financing Agreement as amended hereby.

                           3.5        Claims and Defenses.  As of the date of this Amendment, Borrower has no defenses, claims, counterclaims or setoffs with respect to the Financing Agreement or its Obligations thereunder or with respect to any actions of the Bank or any of its officers, directors, shareholders, employees, agents or attorneys, and Borrower irrevocably and absolutely waives any such defenses, claims, counterclaims and setoffs and releases the Bank and each of its officers, directors, shareholders, employees, agents and attorneys from the same.

4.  CONDITIONS PRECEDENT TO EFFECTIVENESS OF THIS AMENDMENT NO. 1.

                           In addition to all of the other conditions and agreements set forth herein, the effectiveness of this Amendment is subject to the each of the following conditions precedent:

                           4.1        Amendment No. 1 to Financing Agreement.  Bank shall have received an original counterpart of this Amendment No. 1 to Financing Agreement, executed and delivered by a duly authorized officer of Borrower.

                           4.2        Acknowledgment of Guarantor.  Bank shall have received an original of the attached Acknowledgment of Vari-Lite International, Inc., a Delaware corporation, executed and delivered by a duly authorized officer of Vari-Lite International, Inc..

                           4.3        No Material Adverse Change.  There shall have occurred no material and adverse change in the Borrower’s assets, liabilities or financial condition since the date of the last Financials delivered by Borrower to Bank nor shall there have been any material damage to or loss of any of Borrower’s assets or properties since such date.

5.  SECTION   MISCELLANEOUS.

                           5.1        Governing Law.  This Amendment has been delivered and accepted at and shall be deemed to have been made at Cleveland, Ohio.  This Amendment shall be interpreted and the rights and liabilities of the parties hereto determined in accordance with the laws of the State of Ohio, without regard to principles of conflict of law, and all other laws of mandatory application.

                           5.2        Severability.  Each provision of this Amendment shall be interpreted in such manner as to be valid under applicable law, but if any provision hereof shall be invalid under applicable law, such provision shall be ineffective to the extent of such invalidity, without invalidating the remainder of such provision or the remaining provisions hereof.

                           5.3        Counterparts.  This Amendment may be executed in one or more counterparts, each of which, when taken together, shall constitute but one and the same agreement.

                           IN WITNESS WHEREOF, Borrower has caused this Amendment No. 1 to Financing Agreement to be duly executed and delivered by its duly authorized officer as of the date first above written.

Signed and acknowledged in the presence of:	VARI-LITE, INC.
	By:
Name:
	Its:
Name:

STATE OF	)
	)ss:
COUNTY OF	)

                           The foregoing instrument was acknowledged before me this ___ day of May, 2001, by _______________, the ___________________ of Vari-Lite, Inc., a Delaware corporation, on behalf of the corporation.

Notary Public                                              

Accepted at Cleveland, Ohio,
Effective as of  March 30, 2001.FIRSTAR BANK, NATIONAL ASSOCIATION

By:

Its:

ACKNOWLEDGMENT OF GUARANTOR

                           The undersigned, Vari-Lite International, Inc., a Delaware corporation, having guaranteed all of the obligations of Vari-Lite, Inc. to Firstar Bank, National Association (“Bank”), hereby acknowledges and agrees, effective as of March 30, 2001, to the terms of the foregoing Amendment No. 1 to Financing Agreement.  The undersigned represents and warrants to Bank that the Guaranty executed and delivered by the undersigned to Bank, dated as of December 29, 2000, remains the valid and binding obligation of the undersigned, enforceable against it in accordance with its terms.

		VARI-LITE INTERNATIONAL, INC.
		By:
		Its:
STATE OF	)
	)ss:
COUNTY OF	)

                           The foregoing instrument was acknowledged before me this ___ day of May, 2001, by ___________________, the ________________ of VARI-LITE INTERNATIONAL, INC., a Delaware corporation, on behalf of the company.

Notary Public                                             

Exhibit J
Financial Covenants

Financial Covenants.  Borrower agrees that it shall:

(A)	Net Capital Expenditures.  Not make nor permit International to make  Net Capital Expenditures in an aggregate amount exceeding $9,000,000 for any fiscal year.
(B)	Earnings Before Interest, Taxes, Depreciation and Amortization.  Not permit International’s Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA") to be less than the following amounts for the following periods:

EBIDTA	Period
$ 2,931,000	10/01/00 - 12/31/00
$ 6,234,000	10/01/00 - 03/31/01
$ 9,875,000	10/01/00 - 06/30/01
$14,532,000	10/01/00 - 09/30/01
$16,123,000	01/01/01 - 12/31/01
$16,272,000	04/01/01 - 03/31/02
$15,834,000	07/01/01 - 06/30/02
$15,447,000	10/01/01 - 09/30/02
$16,314,000	01/01/02 - 12/31/02
$16,882,000	04/01/02 - 03/31/03
$17,385,000	07/01/02 - 06/30/03
$18,123,000	10/01/02 - 09/30/03

(C) Net Worth.  Not permit International’s Net Worth to be less than the following amounts as of the following dates:

Net Date	Period
$45,000,000	12/31/00
$45,000,000	03/31/01
$45,000,000	06/30/01
$45,000,000	09/30/01
$46,000,000	12/31/01
$46,000,000	03/31/02
$46,000,000	06/30/02
$46,000,000	09/30/02
$47,750,000	12/31/02
$47,750,000	03/31/03
$47,750,000	06/30/03
$47,750,000	09/30/03

(D) Maximum Debt.  Not permit International’s Total Funded Indebtedness to exceed the following amounts at any time during the following periods:

Total Funded Indebtedness	Period
$29,000,000	01/01/01 - 06/30/01
$27,000,000	07/01/01 - 09/30/01
$25,000,000	10/01/01 - 12/31/01
$25,000,000	01/01/02 - 03/31/02
$25,000,000	04/01/02 - 06/30/02
$25,000,000	07/01/02 - 09/30/02
$25,000,000	10/01/02 - 12/31/02
$27,000,000	01/01/03 - 03/31/03
$27,000,000	04/01/03 - 06/30/03
$27,000,000	07/01/03 - 09/30/03
$27,000,000	at any time thereafter

(E) Leverage Ratio.  Not permit International’s Leverage Ratio to exceed the following ratios as of the following dates:

Leverage Ratio	Date
4.65 to 1	03/31/01
2.73 to 1	06/30/01
2.25 to 1	09/30/01
2.25 to 1	12/31/01
2.25 to 1	03/31/02
2.00 to 1	06/30/02
2.00 to 1	09/30/02
1.80 to 1	12/31/02
1.75 to 1	03/31/03
1.65 to 1	06/30/03
1.65 to 1	09/30/03

(F) Total Debt Service Ratio.  Not permit International’s Total Debt Service Ratio to be less than the following ratios as of the following dates:

Total Debt Service Ratio	Date
1.05 to 1	09/30/01
1.10 to 1	12/31/01
1.10 to 1	03/31/02
1.10 to 1	06/30/02
1.10 to 1	09/30/02
1.20 to 1	12/31/02
1.20 to 1	03/31/03
1.20 to 1	06/30/03
1.20 to 1	09/30/03

II.		Definitions
	(A)		The term "Net Capital Expenditures" for purposes of this Exhibit J shall mean the sum of  (a) International’s consolidated capital expenditures (including, but not by way of limitation, expenditures for fixed assets or leases capitalized or required to be capitalized on International’s consolidated books by purchase, lease-purchase agreement, option or otherwise), minus  (b) the net book value of capital assets previously sold and replaced by such capital expenditures.
	(B)		The term "Earnings Before Interest, Taxes, Depreciation, and Amortization" or "EBITDA"for purposes of this Exhibit J shall mean International’s consolidated earnings from operations before income taxes and interest income or expense plus depreciation, plus amortization of all non-cash charges, all as determined in accordance with generally accepted accounting principles, and shall not include any gains or losses from the sale of assets outside the normal course of business or any other extraordinary accounting adjustments or non-recurring items of income or loss.
	(C)		The term "Net Worth" for purposes of this Exhibit J shall mean the total of International’s consolidated shareholders equity, as determined in accordance with generally accepted accounting principles, consistently applied.
	(D)		The term "Total Funded Indebtedness" for purposes of this Exhibit J shall have the meaning and be determined in accordance with generally accepted accounting principles consistently applied by International on a consolidated basis in accordance with past practices.

	(E)	The term "Leverage Ratio" for purposes of this Exhibit J shall mean:
		1.          As of 03/31/01,  the ratio of Total Funded Indebtedness as of such date to EBITDA as measured from 10/01/00 to 03/31/01;
		2.          As of 06/30/01, the ratio of Total Funded Indebtedness as of such date to EBITDA as measured from 10/01/00 to 06/30/01;
		3.          As of 09/30/01, the ratio of Total Funded Indebtedness as of such date to EBITDA as measured from 10/01/00 to 09/30/01; and
		4.          As of 12/31/01 and as of the last day of any fiscal quarter thereafter, the ratio of Total Funded Indebtedness as of such date to EBITDA as measured on a four quarter trailing basis.
(F)		The term “Unfunded Capital Expenditure Payments” for purposes of this Exhibit J shall mean the amount of consolidated capital expenditures of International which are not financed under the CapEx Facility nor any other financing arrangement with any other person.
(G)		The term "Total Debt Service Ratio" for purposes of this Exhibit J shall mean:
		1.          For the period commencing on the 07/01/01 and ending on 09/30/01, the ratio of (a) EBITDA as measured from 01/01/01 to 09/30/01 to (b) the sum of  (i) the total consolidated and regularly scheduled principal and interest payments of Total Funded Indebtedness for the period 01/01/01 to 09/30/01,  plus  (ii) Unfunded Capital Expenditure Payments for the period 01/01/01 to 09/30/01, minus (iii) the US $1,000,000 Japanese principal payment paid by Vari-Lite Asia, Inc. in March, 2001;
		2.          For the period commencing on the 10/01/01 and ending on 12/31/01, the ratio of (a) EBITDA as measured on a four quarter trailing basis to (b) the sum of  (i) the total consolidated and regularly scheduled principal and interest payments of Total Funded Indebtedness for such four quarter trailing period,  plus (ii) Unfunded Capital Expenditure Payments for such four quarter trailing period,  minus  (iii) the US $1,000,000 Japanese principal payment paid by Vari-Lite Asia, Inc. in March, 2001, plus (iv) the amount of taxes paid by International on a consolidated basis during such four quarter trailing period, minus (v) the amount of Japanese taxes paid by Vari-Lite Asia, Inc. in February, 2001; and
		3.          For all periods after 12/31/01, the ratio of (a) EBITDA as measured on a four quarter trailing basis to (b) the sum of  (i) the total consolidated and regularly scheduled principal and interest payments of Total Funded Indebtedness for such four quarter trailing period,  plus (ii) Unfunded Capital Expenditure Payments for such four quarter trailing period, plus (iii) the amount of taxes paid by International on a consolidated basis during such four quarter trailing period.

EX-10.62

AMENDMENT NO. 2
TO
FINANCING AGREEMENT

                           This AMENDMENT NO. 2 TO FINANCING AGREEMENT (this “Amendment”), made as of June 30, 2001, between FIRSTAR BANK, NATIONAL ASSOCIATION, a national banking association (“Bank”) and VARI-LITE, INC., a Delaware corporation (“Borrower”),

WITNESSETH:

                           WHEREAS, Borrower and Bank have entered into that certain Financing Agreement, dated as of December 29, 2000, as amended by that certain Amendment No. 1 to Financing Agreement, dated as of March 30, 2001 (as so amended, the “Financing Agreement”), pursuant to which Bank has made certain loans and financial accommodations available to Borrower; and

                           WHEREAS, Borrower and Bank desire to further amend the Financing Agreement as hereinafter set forth;

                           NOW, THEREFORE, in consideration of the mutual promises and agreements contained herein and other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, Bank and Borrower agree as follows:

1.  DEFINED TERMS.

                           Each defined term used herein and not otherwise defined herein has the meaning ascribed to such term in the Financing Agreement.

2.  AMENDMENT TO FINANCING AGREEMENT.

                           The Financing Agreement is amended, effective as of the date of this Agreement, as follows:

             Amendment to Exhibit J. Exhibit J to the Financing Agreement is amended in its entirety to read as set forth on Exhibit J attached hereto and by reference made a part hereof.

3.  REPRESENTATIONS AND WARRANTIES.

                           Borrower represents and warrants to Bank as follows:

             3.1        The Amendment.  This Amendment has been duly and validly executed by an authorized executive officer of Borrower and constitutes the legal, valid and binding obligation of Borrower enforceable against Borrower in accordance with its terms.

             3.2        Financing Agreement.  The Financing Agreement as amended by this Amendment remains in full force and effect and remains the valid and binding obligation of Borrower enforceable against Borrower in accordance with its terms.  Borrower hereby ratifies and confirms the Financing Agreement as amended by this Amendment.

             3.3        Nonwaiver. Neither the execution, delivery, performance or effectiveness of this Amendment shall operate nor be deemed to be nor construed as a waiver (i) of any right, power or remedy of Bank under the Financing Agreement, nor (ii) of any term, provision, representation, warranty or covenant contained in the Financing Agreement or any other documentation executed in connection therewith.  Further, none of the provisions of this Amendment shall constitute, or be deemed to be or construed as, a waiver of any Event of Default under the Financing Agreement as amended by this Amendment.

             3.4        Reference to and Effect on the Financing Agreement.  Upon the effectiveness of this Amendment, each reference in the Financing Agreement to “this Agreement”, “hereunder”, “hereof”, “herein”, or words of like import shall mean and be a reference to the Financing Agreement as amended hereby, and each reference to the Financing Agreement in any other document, instrument or agreement executed and/or delivered in connection with the Financing Agreement shall mean and be a reference to the Financing Agreement as amended hereby.

             3.5        Claims and Defenses.  As of the date of this Amendment, Borrower has no defenses, claims, counterclaims or setoffs with respect to the Financing Agreement or its Obligations thereunder or with respect to any actions of the Bank or any of its officers, directors, shareholders, employees, agents or attorneys, and Borrower irrevocably and absolutely waives any such defenses, claims, counterclaims and setoffs and releases the Bank and each of its officers, directors, shareholders, employees, agents and attorneys from the same.

4.  CONDITIONS PRECEDENT TO EFFECTIVENESS OF THIS AMENDMENT NO. 2.

             In addition to all of the other conditions and agreements set forth herein, the effectiveness of this Amendment is subject to the each of the following conditions precedent:

             4.1        Amendment No. 2 to Financing Agreement.  Bank shall have received an original counterpart of this Amendment No. 2 to Financing Agreement, executed and delivered by a duly authorized officer of Borrower.

             4.2        Acknowledgment of Guarantor.  Bank shall have received an original of the attached Acknowledgment of Vari-Lite International, Inc., a Delaware corporation, executed and delivered by a duly authorized officer of Vari-Lite International, Inc..

             4.3        No Material Adverse Change.  There shall have occurred no material and adverse change in the Borrower’s assets, liabilities or financial condition since the date of the last Financials delivered by Borrower to Bank nor shall there have been any material damage to or loss of any of Borrower’s assets or properties since such date.

             4.4        Amendment Fee.  Borrower shall have paid Bank an amendment fee in an amount of Twenty Thousand Dollars ($20,000.00).

5.  SECTION   MISCELLANEOUS.

             5.1        Governing Law.  This Amendment has been delivered and accepted at and shall be deemed to have been made at Cleveland, Ohio.  This Amendment shall be interpreted and the rights and liabilities of the parties hereto determined in accordance with the laws of the State of Ohio, without regard to principles of conflict of law, and all other laws of mandatory application.

             5.2        Severability.  Each provision of this Amendment shall be interpreted in such manner as to be valid under applicable law, but if any provision hereof shall be invalid under applicable law, such provision shall be ineffective to the extent of such invalidity, without invalidating the remainder of such provision or the remaining provisions hereof.

             5.3        Counterparts.  This Amendment may be executed in one or more counterparts, each of which, when taken together, shall constitute but one and the same agreement.

[REMAINDER OF PAGE INTENTIONALLY BLANK]

                           IN WITNESS WHEREOF, Borrower has caused this Amendment No. 2 to Financing Agreement to be duly executed and delivered by its duly authorized officer as of the date first above written.

Signed and acknowledged	VARI-LITE, INC.
in the presence of:
_________________________	By:___________________________
Name:____________________
	Its:__________________________
_________________________
Name:____________________

STATE OF	)
	) ss:
COUNTY OF	)

             The foregoing instrument was acknowledged before me this ___ day of August, 2001, by _______________, the ___________________ of Vari-Lite, Inc., a Delaware corporation, on behalf of the corporation.

	Notary Public
Accepted at Cleveland, Ohio,
Effective as of June 30, 2001.
FIRSTAR BANK, NATIONAL ASSOCIATION
By:
Its:

                                                                  ACKNOWLEDGMENT OF GUARANTOR

                           The undersigned, Vari-Lite International, Inc., a Delaware corporation, having guaranteed all of the obligations of Vari-Lite, Inc. to Firstar Bank, National Association (“Bank”), hereby acknowledges and agrees, effective as of June 30, 2001, to the terms of the foregoing Amendment No. 2 to Financing Agreement.  The undersigned represents and warrants to Bank that the Guaranty executed and delivered by the undersigned to Bank, dated as of December 29, 2000, remains the valid and binding obligation of the undersigned, enforceable against it in accordance with its terms.

		VARI-LITE INTERNATIONAL, INC.
		By:
		Its:
STATE OF
	)
	)ss:
COUNTY OF
	)

                           The foregoing instrument was acknowledged before me this ___ day of August, 2001, by ___________________, the ________________ of VARI-LITE INTERNATIONAL, INC., a Delaware corporation, on behalf of the company.

Notary Public

Exhibit J
Financial Covenants

Financial Covenants.  Borrower agrees that it shall:

(A)	Net Capital Expenditures.  Not make nor permit International to make  Net Capital Expenditures in an aggregate amount exceeding $9,000,000 for any fiscal year.
(B)	Earnings Before Interest, Taxes, Depreciation and Amortization.  Not permit International’s Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA") to be less than the following amounts for the following periods:

EBIDTA		Period
$	2,931,000	10/01/00 - 12/31/00
$	6,234,000	10/01/00 - 03/31/01
$	7,460,000	10/01/00 - 06/30/01
$	9,491,000	10/01/00 - 09/30/01
$	16,123,000	01/01/01 - 12/31/01
$	16,272,000	04/01/01 - 03/31/02
$	15,834,000	07/01/01 - 06/30/02
$	15,447,000	10/01/01 - 09/30/02
$	16,314,000	01/01/02 - 12/31/02
$	16,882,000	04/01/02 - 03/31/03
$	17,385,000	07/01/02 - 06/30/03
$	18,123,000	10/01/02 - 09/30/03

(C)        Net Worth.  Not permit International’s Net Worth to be less than the following amounts as of the following dates:

Net Date		Period
$	45,000,000	12/31/00
$	45,000,000	03/31/01
$	45,000,000	06/30/01
$	44,600,000	09/30/01
$	46,000,000	12/31/01
$	46,000,000	03/31/02
$	46,000,000	06/30/02
$	46,000,000	09/30/02
$	47,750,000	12/31/02
$	47,750,000	03/31/03
$	47,750,000	06/30/03
$	47,750,000	09/30/03

(D)        Maximum Debt.  Not permit International’s Total Funded Indebtedness to exceed the following amounts at any time during the following periods:

Total Funded Indebtedness		Period
$	29,000,000	01/01/01 - 06/30/01
$	27,000,000	07/01/01 - 09/30/01
$	25,000,000	10/01/01 - 12/31/01
$	25,000,000	01/01/02 - 03/31/02
$	25,000,000	04/01/02 - 06/30/02
$	25,000,000	07/01/02 - 09/30/02
$	25,000,000	10/01/02 - 12/31/02
$	27,000,000	01/01/03 - 03/31/03
$	27,000,000	04/01/03 - 06/30/03
$	27,000,000	07/01/03 - 09/30/03
$	27,000,000	at any time thereafter

(E)        Leverage Ratio.  Not permit International’s Leverage Ratio to exceed the following ratios as of the following dates:

Leverage Ratio	Date
4.65 to 1	03/31/01
3.23 to 1	06/30/01
2.56 to 1	09/30/01
2.25 to 1	12/31/01
2.25 to 1	03/31/02
2.00 to 1	06/30/02
2.00 to 1	09/30/02
1.80 to 1	12/31/02
1.75 to 1	03/31/03
1.65 to 1	06/30/03
1.65 to 1	09/30/03

(F)        Total Debt Service Ratio.  Not permit International’s Total Debt Service Ratio to be less than the following ratios as of the following dates:

Total Debt Service Ratio	Date
0.61 to 1	09/30/01
1.10 to 1	12/31/01
1.10 to 1	03/31/02
1.10 to 1	06/30/02
1.10 to 1	09/30/02
1.20 to 1	12/31/02
1.20 to 1	03/31/03
1.20 to 1	06/30/03
1.20 to 1	09/30/03

II.          Definitions

(A)	The term "Net Capital Expenditures" for purposes of this Exhibit J shall mean the sum of  (a) International’s consolidated capital expenditures (including, but not by way of limitation, expenditures for fixed assets or leases capitalized or required to be capitalized on International’s consolidated books by purchase, lease-purchase agreement, option or otherwise), minus  (b) the net book value of capital assets previously sold and replaced by such capital expenditures.
(B)	The term "Earnings Before Interest, Taxes, Depreciation, and Amortization" or "EBITDA"for purposes of this Exhibit J shall mean International’s consolidated earnings from operations before income taxes and interest income or expense plus depreciation, plus amortization of all non-cash charges, all as determined in accordance with generally accepted accounting principles, and shall not include any gains or losses from the sale of assets outside the normal course of business or any other extraordinary accounting adjustments or non-recurring items of income or loss.
(C)	The term "Net Worth" for purposes of this Exhibit J shall mean the total of International’s consolidated shareholders equity, as determined in accordance with generally accepted accounting principles, consistently applied.
(D)	The term "Total Funded Indebtedness" for purposes of this Exhibit J shall have the meaning and be determined in accordance with generally accepted accounting principles consistently applied by International on a consolidated basis in accordance with past practices.

(E)	The term "Leverage Ratio" for purposes of this Exhibit J shall mean:
	1.          As of 03/31/01,  the ratio of Total Funded Indebtedness as of such date to EBITDA as measured from 10/01/00 to 03/31/01;
	2.          As of 06/30/01, the ratio of Total Funded Indebtedness as of such date to EBITDA as measured from 10/01/00 to 06/30/01;
	3.          As of 09/30/01, the ratio of Total Funded Indebtedness as of such date to EBITDA as measured from 10/01/00 to 09/30/01; and
	4.          As of 12/31/01 and as of the last day of any fiscal quarter thereafter, the ratio of Total Funded Indebtedness as of such date to EBITDA as measured on a four quarter trailing basis.
(F)	The term “Unfunded Capital Expenditure Payments” for purposes of this Exhibit J shall mean the amount of consolidated capital expenditures of International which are not financed under the CapEx Facility nor any other financing arrangement with any other person.
(G)	The term "Total Debt Service Ratio" for purposes of this Exhibit J shall mean:
	1.          For the period commencing on the 07/01/01 and ending on 09/30/01, the ratio of (a) EBITDA as measured from 01/01/01 to 09/30/01 to (b) the sum of  (i) the total consolidated and regularly scheduled principal and interest payments of Total Funded Indebtedness for the period 01/01/01 to 09/30/01,  plus  (ii) Unfunded Capital Expenditure Payments for the period 01/01/01 to 09/30/01, minus (iii) the US $1,000,000 Japanese principal payment paid by Vari-Lite Asia, Inc. in March, 2001;
	2.          For the period commencing on the 10/01/01 and ending on 12/31/01, the ratio of (a) EBITDA as measured on a four quarter trailing basis to (b) the sum of  (i) the total consolidated and regularly scheduled principal and interest payments of Total Funded Indebtedness for such four quarter trailing period,  plus (ii) Unfunded Capital Expenditure Payments for such four quarter trailing period,  minus  (iii) the US $1,000,000 Japanese principal payment paid by Vari-Lite Asia, Inc. in March, 2001, plus (iv) the amount of taxes paid by International on a consolidated basis during such four quarter trailing period, minus (v) the amount of Japanese taxes paid by Vari-Lite Asia, Inc. in February, 2001; and
	3.          For all periods after 12/31/01, the ratio of (a) EBITDA as measured on a four quarter trailing basis to (b) the sum of  (i) the total consolidated and regularly scheduled principal and interest payments of Total Funded Indebtedness for such four quarter trailing period,  plus (ii) Unfunded Capital Expenditure Payments for such four quarter trailing period, plus (iii) the amount of taxes paid by International on a consolidated basis during such four quarter trailing period.