1. DEFINED TERMS.

2. AMENDMENT TO FINANCING AGREEMENT.

3. REPRESENTATIONS AND WARRANTIES.

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

5. SECTION MISCELLANEOUS.

VARI–LITE INTERNATIONAL, INC. AND SUBSIDIARIES

VARI–LITE INTERNATIONAL, INC. AND SUBSIDIARIES

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

0001104659-02-002514.txt : 20020515 0001104659-02-002514.hdr.sgml : 20020515 20020515141444 ACCESSION NUMBER: 0001104659-02-002514 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20020331 FILED AS OF DATE: 20020515 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: 1934 Act SEC FILE NUMBER: 000-23159 FILM NUMBER: 02650772 BUSINESS ADDRESS: STREET 1: 201 REGAL ROW CITY: DALLAS STATE: TX ZIP: 75247 BUSINESS PHONE: 2146301963 10-Q 1 j3862_10q.htm 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION

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, 2002

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 May 10, 2002, 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, 2002

PART I. - FINANCIAL INFORMATION

Item 1.	Financial Statements:

	Condensed Consolidated Balance Sheets as of September 30, 2001 and March 31, 2002

	Condensed Consolidated Statements of Income and Comprehensive Income for the three months ended March 31, 2001 and 2002

	Condensed Consolidated Statements of Income and Comprehensive Income for the six months ended March 31, 2001 and 2002

	Condensed Consolidated Statements of Cash Flows for the six months ended March 31, 2001 and 2002

	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 4.	Submission of Matters to a Vote of Security Holders

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, 2001			March 31, 2002
ASSETS
CURRENT ASSETS:
Cash	$	3,686		$	1,673
Receivables, less allowance for doubtful accounts of $603 and $732	9,679			8,665
Inventory	15,388			15,960
Prepaid expense and other current assets	783			1,701
TOTAL CURRENT ASSETS	29,536			27,999
EQUIPMENT AND OTHER PROPERTY:
Lighting and sound equipment	103,032			104,690
Machinery and tools	3,578			3,573
Furniture and fixtures	4,207			4,565
Office and computer equipment	10,501			10,326
	121,318			123,154
Less accumulated depreciation and amortization	72,712			76,709
	48,606			46,445
OTHER ASSETS	2,076			1,946
TOTAL ASSETS	$	80,218		$	76,390
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses	$	8,079		$	9,566
Unearned revenue	1,201			867
Income taxes payable	146			328
Current portion of long-term obligations	4,893			4,710
TOTAL CURRENT LIABILITIES	14,319			15,471
LONG-TERM OBLIGATIONS	18,363			16,478
DEFERRED INCOME TAXES	2,209			1,399
TOTAL LIABILITIES	34,891			33,348
COMMITMENTS AND CONTINGENCIES (Note 4)	—			—
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
Accumulated other comprehensive income (loss) - foreign currency translation adjustment	791			(231		)
Retained earnings	18,911			17,648
TOTAL STOCKHOLDERS’ EQUITY	45,327			43,042
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	80,218		$	76,390

See notes to condensed consolidated financial statements.

VARI–LITE INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

For the Three Months Ended March 31, 2001 and 2002

(Unaudited)

(In thousands except share data)

	2001			2002
Rental revenues	$	11,414		$	10,451
Product sales and services revenues	6,923			4,161
TOTAL REVENUES	18,337			14,612
Rental cost	5,576			5,521
Product sales and services cost	4,234			2,499
TOTAL COST OF SALES	9,810			8,020
GROSS PROFIT	8,527			6,592
Selling, general and administrative expense	7,229			6,730
Research and development expense	1,183			954
TOTAL OPERATING EXPENSES	8,412			7,684
OPERATING INCOME (LOSS)	115			(1,092		)
Interest expense (net)	491			251
LOSS BEFORE INCOME TAX	(376		)	(1,343		)
Income tax benefit	(147		)	(531		)
NET LOSS	(229		)	(812		)
Other comprehensive loss - foreign currency translation adjustments	(247		)	(400		)
COMPREHENSIVE LOSS	$	(476	)	$	(1,212	)

WEIGHTED AVERAGE BASIC AND DILUTED SHARES OUTSTANDING	7,800,003			7,800,003

PER SHARE INFORMATION BASIC AND DILUTED:
Net loss	$	(0.03	)	$	(0.10	)

See notes to condensed consolidated financial statements.

VARI–LITE INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

For the Six Months Ended March 31, 2001 and 2002

(Unaudited)

(In thousands except share data)

	2001			2002
Rental revenues	$	29,336		$	21,570
Product sales and services revenues	9,379			9,817
TOTAL REVENUES	38,715			31,387
Rental cost	12,755			10,617
Product sales and services cost	6,226			6,123
TOTAL COST OF SALES	18,981			16,740
GROSS PROFIT	19,734			14,647
Selling, general and administrative expense	16,092			13,630
Research and development expense	2,398			2,494
TOTAL OPERATING EXPENSES	18,490			16,124
Gain on the sale of concert sound reinforcement business	7,100			—
OPERATING INCOME (LOSS)	8,344			(1,477		)
Interest expense (net)	1,562			609
INCOME (LOSS) BEFORE INCOME TAX	6,782			(2,086		)
Income tax expense (benefit)	2,608			(824		)
NET INCOME (LOSS)	4,174			(1,262		)
Other comprehensive loss – foreign currency translation adjustments	(561		)	(1,022		)
COMPREHENSIVE INCOME (LOSS)	$	4,735		$	(2,284	)

WEIGHTED AVERAGE BASIC SHARES OUTSTANDING	7,800,003			7,800,003
WEIGHTED AVERAGE DILUTED SHARES OUTSTANDING	7,871,165			7,800,003

PER SHARE INFORMATION BASIC AND DILUTED:
Net income (loss)	$	0.53		$	(0.16	)

See notes to condensed consolidated financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Six Months Ended March 31, 2001 and 2002

(Unaudited)

(In thousands)

	2001			2002
Cash flows from operating activities:
Net income (loss)	$	4,174		$	(1,262	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	5,220			5,219
Amortization of note discount and deferred loan fees	335			84
Provision for doubtful accounts	30			161
Deferred income taxes	2,097			(810		)
Gain on sale of concert sound reinforcement business	(7,100		)	—
Loss on sale of equipment and other property	130			51
Net change in assets and liabilities:
Accounts receivable	219			854
Prepaid expenses	(1,170		)	(918		)
Inventory	(1,430		)	(571		)
Other assets	(499		)	62
Accounts payable, accrued liabilities and income taxes payable	(2,060		)	1,669
Unearned revenue	(1,032		)	(333		)
Net cash provided by (used in) operating activities	(1,086		)	4,206

Cash flows from investing activities:
Capital expenditures, including rental equipment	(5,318		)	(3,594		)
Proceeds from sale of concert sound reinforcement business	11,946			—
Proceeds from sale of European operations	5,258			—
Proceeds from sale of equipment	29			47
Net cash provided by (used in) investing activities	11,915			(3,547		)

Cash flows from financing activities:
Proceeds from issuance of debt	32,226			28,691
Principal payments on debt	(42,998		)	(30,560		)
Proceeds from payments on stockholder notes receivable	19			—
Net cash used in financing activities	(10,753		)	(1,869		)
Effect of exchange rate changes on cash and cash equivalents	(740		)	(803		)
Net decrease in cash during the period	(664		)	(2,013		)
Cash, beginning of period	4,315			3,686
Cash, end of period	$	3,651		$	1,673
Supplemental Cash Flow Information
Cash paid for interest expense	$	1,471		$	729
Cash paid for income taxes	$	187		$	366

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 six-month periods ended March 31, 2002 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, 2002.

Certain reclassifications have been made to the March 31, 2001 consolidated financial statements to conform to the presentation in the March 31, 2002 consolidated financial statements.

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, 2001.

2. Inventory

Inventory consists of the following:

	September 30, 2001		March 31, 2002
Raw materials	$	13,086	$	13,882
Work in progress	567		726
Finished goods	1,735		1,352
	$	15,388	$	15,960

3. 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 and continental European rental operations and the funding of the London Bank Loans (hereinafter defined) to reduce borrowings under the Old Credit Facility to $10,000.

On December 29, 2000, Vari-Lite, Inc. (“Vari-Lite”), entered a new credit facility (the “New Credit Facility”), which includes the $12,000 Term Loan, the $5,000 Revolver and the

$3,000 Capital Expenditure Loan. 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). As of March 31, 2002, there was $2,259 outstanding under the Revolver. Prior to January 15, 2002, all outstanding borrowings under the New Credit Facility bore interest at the lender’s base rate or LIBOR, plus a rate margin of 0.75% and 2.50%, respectively. Since January 15, 2002, all outstanding balances under the New Credit Facility 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, as amended on March 31, 2002. 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, September 27, 2001 and March 25, 2002, the Company’s London subsidiary entered into British pounds sterling loans of 4,000 (USD 5,800), 500 (USD 727) and 400 (USD 570), respectively, with a U. K. bank (collectively, the “London Bank Loans”.) The London Bank Loans accrue interest at the rate of 9.10%, 7.78% and 7.77% per annum, respectively, and amortize over 48 months, 60 months and 60 months, respectively. The London Bank Loans are secured by all of the assets of the Company’s London operations and 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 $1,135 and $137 for the six-month periods ending March 31, 2001 and 2002, respectively, and borrowings outstanding under this type of financing at March 31, 2001 and 2002 were approximately $3,572 and $1,306, respectively.

4. Commitments and Contingencies

In the ordinary course of its business, the Company is from time to time threatened with or named as a defendant in various lawsuits, including patent infringement claims. The Company is not currently involved in any material legal proceedings.

5. 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, 2001 and 2002 is presented below:

	Three Months Ended
	North America		Asia			Europe			Intercompany			Total
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

	Three Months Ended
	North America			Asia			Europe			Intercompany			Total
March 31, 2002:
Net Revenues from unaffliliated customers	$	9,596		$	1,873		$	3,143		$	—		$	14,612
Intersegment sales	5,350			12			42			(5,404		)	—
Total net revenues	14,946			1,885			3,185			(5,404		)	14,612
Operating loss	(753		)	(198		)	(141		)	—			(1,092		)
Depreciation and amortization	2,002			53			560			—			2,615
Total assets	62,724			7,595			15,045			(8,974		)	76,390

	Six Months Ended
	North America		Asia		Europe		Intercompany			Total
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

	Six Months Ended
	North America			Asia		Europe		Intercompany			Total
March 31, 2002:
Net Revenues from unaffliliated customers	$	19,113		$	5,230	$	7,044	$	—		$	31,387
Intersegment sales	7,490			17		42		(7,549		)	—
Total net revenues	26,603			5,247		7,086		(7,549		)	31,387
Operating income (loss)	(2,746		)	703		566		—			(1,477		)
Depreciation and amortization	3,975			99		1,145		—			5,219
Total assets	62,724			7,595		15,045		(8,974		)	76,390

6. Net Loss Per Share

Basic net loss per share is computed based upon the weighted average number of common shares outstanding. Diluted net loss per share reflects the dilutive effect, if any, of stock options and warrants.

	Three Months ended March 31,		Six Months ended March 31,
	2001	2002	2001	2002
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	—	—	71,162	—
Shares used in calculating diluted net loss per share	7,800,003	7,800,003	7,871,165	7,800,003

For the three-month period ended March 31, 2001 and 2002, net loss per share excludes stock options of 693,700 and 724,200, respectively, and warrants of 296,057 and 296,057, respectively, which were anti-dilutive. For the six-month period ended March 31, 2001, net income per share excludes stock options of 622,538 and warrants of 296,057 which were anti-dilutive, but includes 71,162 options which were dilutive. For the six-month period ended March 31, 2002, net loss per share excludes stock options of 724,200 and warrants of 296,057 which were anti-dilutive.

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.

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

Results of Operations

Three Months Ended March 31, 2002 Compared to Three Months Ended March 31, 2001

Revenues. Total revenues decreased 20.3%, or $3.7 million, to $14.6 million in the three-month period ended March 31, 2002, compared to $18.3 million in the three-month period ended March 31, 2001. The revenue decrease was attributable primarily to the factors set forth below.

Rental Revenues. Rental revenues decreased 8.4%, or $1.0 million, to $10.4 million in the three-month period ended March 31, 2002, compared to $11.4 million in the three-month period ended March 31, 2001. This decrease was due to the weak economy combined with the ongoing effects of the September 11, 2001 attacks.

Product Sales and Services Revenues. Product sales and services revenues decreased 39.9%, or $2.7 million, to $4.2 million in the three-month period ended March 31, 2002, compared to $6.9 million in the three-month period ended March 31, 2001. This decrease was primarily due to a $2.6 million decrease in revenue resulting from the closing of the Company’s corporate meeting and special events management business in April 2001.

Rental Cost. Rental cost in the three-month period ended March 31, 2002 was unchanged compared to the three-month period ended March 31, 2001. However, rental cost as a percentage of rental revenues increased to 52.8% in the three-month period ended March 31, 2002, from 48.9% in the three-month period ended March 31, 2001. This increase was due to depreciation expense representing a higher percentage of revenues during the three-month period ended March 31, 2002 as a result of decreased revenues due to difficult economic conditions.

Product Sales and Services Cost. Product sales and services cost decreased 41.0%, or $1.7 million, to $2.5 million in the three-month period ended March 31, 2002, compared to $4.2 million in the three-month period ended March 31, 2001. This decrease was primarily due to the closing of the Company’s corporate meeting and special events management business in April 2001. Product sales and services cost as a percentage of product sales and services revenues decreased to 60.1% in the three-month period ended March 31, 2002, from 61.2% in the three-month period ended March 31, 2001 as a result of the closing of the Company's corporate meeting and special events management business which had higher costs as a percentage of revenue.

Selling, General and Administrative Expense. Selling, general and administrative expense decreased 6.9%, or $0.5 million, to $6.7 million in the three-month period ended March 31, 2002, compared to $7.2 million in the three-month period ended March 31, 2001. This decrease was due to the closing of the Company’s corporate meeting and special events management business in April 2001, as well as expense reduction efforts undertaken in the first quarter of fiscal 2002. This expense as a percentage of total revenues increased to 46.1% in the three-month period ended March 31, 2002, from 39.4% in the three-month period ended March 31, 2001 as a result of decreased revenues.

Research and Development Expense. Research and development expense decreased 19.4%, or $0.2 million, to $1.0 million in the three-month period ended March 31, 2002, compared to $1.2 million in three-month period ended March 31, 2001. This decrease was primarily due to expense reduction efforts undertaken in the first quarter of fiscal 2002. This expense as a percentage of total revenues for the period ended March 31, 2002 was 6.5%, unchanged from the three-month period ended March 31, 2001.

Interest Expense. Interest expense decreased 48.9%, or $0.2 million, to $0.3 million in the three-month period ended March 31, 2002, compared to $0.5 million in the three-month period ended March 31, 2001, as a result of reduced borrowings and lower interest rates in the three-month period ended March 31, 2002 as well as interest income of $0.1 million from an income tax refund.

Income Taxes. The effective tax rate in the three-month periods ended March 31, 2002 and 2001 were 39.5% and 39.1%, respectively.

Six Months Ended March 31, 2002 Compared to Six Months Ended March 31, 2001

Revenues. Total revenues decreased 18.9%, or $7.3 million, to $31.4 million in the six-month period ended March 31, 2002, compared to $38.7 million in the six-month period ended March 31, 2001. The revenue decrease was attributable primarily to the factors set forth below.

Rental Revenues. Rental revenues decreased 26.5%, or $7.7 million, to $21.6 million in the six-month period ended March 31, 2002, compared to $29.3 million in the six-month period ended March 31, 2001. This decrease was due to the weak economy combined with the ongoing effects of the September 11, 2001 attacks and the sale of the Company’s concert sound reinforcement business in November 2000 which accounted for $1.6 million in revenues in the six-month period ended March 31, 2001.

Product Sales and Services Revenues. Product sales and services revenues increased 4.7%, or $0.4 million, to $9.8 million in the six-month period ended March 31, 2002, compared to $9.4 million in the six-month period ended March 31, 2001. This increase was due to a $4.1 million increase in sales of VARI*LITEÒ automated lighting equipment which was partially offset by a $3.7 million decrease in revenue due to the closing of the Company’s corporate meeting and special events management business in April 2001.

Rental Cost. Rental cost decreased 16.8%, or $2.2 million, to $10.6 million in the six-month period ended March 31, 2002, compared to $12.8 million in the six-month period ended March 31, 2001. This decrease was due to reduced revenues as a result of a weak economy and the sale of the Company’s concert sound reinforcement business in November 2000. Rental cost as a percentage of rental revenues increased to 49.2% in the six-month period ended March 31, 2002, from 43.5% in the six-month period ended March 31, 2001. This increase was due to depreciation expense representing a higher percentage of revenues during the six-month period ended March 31, 2002 as a result of decreased revenues due to difficult economic conditions.

Product Sales and Services Cost. Product sales and services cost decreased 1.7%, or $0.1 million, to $6.1 million in the six-month period ended March 31, 2002, compared to $6.2 million in the six-month period ended March 31, 2001. This decrease was due to a $2.5 million decrease in product sales and services cost associated with the closing of the Company’s corporate meeting and special events management business in April 2001 offset by $2.4 million increase in cost of sales of VARI*LITEÒ automated lighting equipment.

Product sales and services cost as a percentage of product sales and services revenues decreased to 62.4% in the six-month period ended March 31, 2002, from 66.4% in the six-month period ended March 31, 2001 as a result of improved manufacturing efficiencies and the closing of the Company's corporate meeting and special events management business which had higher costs as a percentage of revenue.

Selling, General and Administrative Expense. Selling, general and administrative expense decreased 15.3%, or $2.5 million, to $13.6 million in the six-month period ended March 31, 2002, compared to $16.1 million in the six-month period ended March 31, 2001. This decrease was primarily due to the sale of the Company’s concert sound reinforcement business in November 2000 and the closing of the Company’s corporate meeting and special events management business in April 2001, as well as expense reduction efforts undertaken in the first quarter of fiscal 2002. This expense as a percentage of total revenues increased to 43.4% in the six-month period ended March 31, 2002, from 41.6% in the six-month period ended March 31, 2001 as a result of decreased revenues.

Research and Development Expense. Research and development expense in the six-month period ended March 31, 2002 was unchanged as compared to the six-month period ended March 31, 2001. However, this expense as a percentage of total revenues increased to 7.9% in the six-month period ended March 31, 2002, from 6.2% in the six-month period ended March 31, 2001, as a result of decreased revenues.

Interest Expense. Interest expense decreased 61.0%, or $1.0 million, to $0.6 million in the six-month period ended March 31, 2002, compared to $1.6 million in the six-month period ended March 31, 2001, as a result of reduced borrowings and lower interest rates in the six-month period ended March 31, 2002 as well as interest income of $0.1 million from an income tax refund.

Income Taxes. The effective tax rate in the six-month periods ended March 31, 2002 and 2001 were 39.5% and 38.5%, 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 customers. The Company’s operating activities used cash flow of $1.1 million for the six-month period ended March 31, 2001 and generated cash flow of $4.2 million in the six-month period ended March 31, 2002.

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 Loans 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 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). As of March 31, 2002, there was $2.3 million outstanding under the Revolver. Prior to January 15, 2002, all outstanding borrowings under the New Credit Facility bore interest at the lender’s base rate or LIBOR, plus a rate margin of 0.75% and 2.50%, respectively. Since January 15, 2002, all outstanding balances under the New Credit Facility 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, as amended on March 31, 2002. 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, September 27, 2001 and March 25, 2002, the Company’s London subsidiary entered into British pounds sterling loans of 4.0 million (USD 5.8 million), 0.5 million (USD 0.7 million) and 0.4 million (USD 0.6 million), respectively, with a U. K. bank (collectively, the “London Bank Loans”.) The London Bank Loans accrue interest at the rate of 9.10%, 7.78% and 7.77% per annum, respectively, and amortize over 48 months, 60 months and 60 months, respectively. The London Bank Loans are secured by all of the assets of the Company’s London operations and 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 1.50% to 10.35%. Proceeds received under this type of financing were approximately $1.1 million and $0.1 million for the six-month periods ending March 31, 2001 and 2002, respectively, and borrowings outstanding under this type of financing at March 31, 2001 and 2002 were approximately $3.6 million and $1.3 million, respectively.

The Company’s business requires significant capital expenditures. Capital expenditures for the six months ended March 31, 2001 and 2002 were approximately $5.3 million and $3.6 million, respectively, of which approximately $4.6 million and $3.3 million were for rental and demo 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.

Management believes that cash flow generated from operations and borrowing capacity under the New Credit Facility will be sufficient to meet the anticipated operating cash needs and capital expenditures 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 Company’s ability to market, sell and support products, competition, the success of the Company’s research and development programs, the ability to achieve competitive and technological advances, 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 Company’s ability to market, sell and support products; technological changes; reliance on intellectual property; dependence on entertainment industry; competition; dependence on management; foreign exchange risk; international trade risk; dependence on key suppliers; and dependence on manufacturing facility. 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.

The Company does not believe that the market risks for the three and six-month periods ended March 31, 2002 substantially changed from those risks outlined for the year ended September 30, 2001 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. The Company is not currently involved in any material legal proceedings.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

On March 1, 2002, the Annual Meeting of Stockholders was held in Dallas, Texas. The stockholders were asked to elect two Class II directors to serve until 2005. The vote was as follows:

	For	Against or Withheld	Abstentions
James H. Clark, Jr.	6,740,837	59,014	0
John R. Rettberg	6,773,966	25,885	0

Messrs. H.R. Brutsche´ III, John D. Maxson, William C. Scott, J. Anthony Smith and J.R.K. Tinkle will continue as directors of the Company.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

3.4 Amendment to the By-Laws of the Company dated as of February 15, 2002.

10.70 Master Lease Purchase Agreement, dated March 25, 2002, between Vari-Lite Europe, Ltd. and Barclays Mercantile Business Finance Limited.

10.71 Amendment No. 4, dated March 31, 2002, to the Financing Agreement, dated as of December 29, 2000, between Vari-Lite, Inc. and U.S. Bank National Association, formerly known as Firstar Bank, National Association.

(b) No reports on Form 8-K were filed for the quarter ended March 31, 2002.

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 10, 2002	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-3.4 3 j3862_ex3d4.htm EX-3.4 RESOLUTIONS BY THE UNANIMOUS WRITTEN CONSENT OF THE BOARD OF DIRECTORS OFVARI-LITE INTERNATIONAL, INC

Exhibit 3.4

RESOLUTIONS BY THE UNANIMOUS

WRITTEN CONSENT OF THE BOARD OF DIRECTORS OF

VARI-LITE INTERNATIONAL, INC.

February 15, 2002

Pursuant to Section 141(f) of the Delaware General Corporation Law, the undersigned, being all of the directors of Vari-Lite International, Inc., a Delaware corporation (the “Company”), hereby declare that when they have signed this consent, or a counterpart hereof, the following resolutions shall then be consented to, approved of and adopted to the same extent and to have the same force and effect as if adopted at a special meeting of the Board of Directors (the “Board”) duly called and held for the purpose of acting upon proposals to adopt such resolutions:

WHEREAS, the Board deems and declares it desirable for, and in the best interests of, the Company and its stockholders to amend the By-Laws of the Company to more accurately reflect provisions contained in the Certificate of Incorporation of the Company; and

WHEREAS, the Board is empowered by the Delaware General Corporation Law and Article Nine and Article Fifteen of the Certificate of Incorporation of the Company to amend the By-Laws;

NOW, THEREFORE, BE IT RESOLVED, that Article III, Section 6 of the By-Laws of the Company be amended in its entirety to read as follows:

“Section 6. Vacancies. Vacancies and newly created directorships resulting from any increase in the authorized number of directors may be filled only by a majority of the directors then serving, though less than a quorum, or by a sole remaining director. Directors so chosen shall serve for a term expiring at the annual meeting of stockholders at which the term of the class to which they have been elected expires or until their successors are duly elected and qualified, unless sooner displaced. If there are no directors then serving, then an election of directors may be held in the manner provided by statute.”

RESOLVED FURTHER, that the Secretary of the Company be, and hereby is, authorized and directed to certify a copy of the First Amendment to the By-Laws of the Company as the First Amendment to the By-Laws of the Company effective as of February 15, 2002 and insert such copy in the minute book of the Company; and

RESOLVED FURTHER, that the officers of the Company be and hereby are authorized, empowered and directed to do or cause to be done all other things and acts, to execute and deliver or cause to be executed and delivered all other instruments, documents and certificates and to pay or cause to be paid all costs, fees, expenses and taxes as may be, in their sole judgment, necessary, proper or advisable in order to carry out and comply with the purposes and intent of the foregoing resolutions; and that all of the acts and deeds of the officers of the Company which are consistent with the purposes and intent of such resolutions be and hereby are, in all respects, approved, confirmed and adopted as the acts and deeds of the Company.

IN WITNESS WHEREOF, the undersigned, being all of the directors of the Company, have executed this consent as of the date first above written.

	/s/ H.R. Brutsche´ III
	H.R. Brutsche´ III

	/s/ James H. Clark, Jr.
	James H. Clark, Jr.

	/s/ John D. Maxson
	John D. Maxson

	/s/ John R. Rettberg
	John R. Rettberg

	/s/ William C. Scott
	William C. Scott

	/s/ J. Anthony Smith
	J. Anthony Smith

	/s/ J.R.K. Tinkle
	J.R.K. Tinkle

CERTIFICATE OF AMENDMENT

TO THE BY-LAWS

The undersigned Secretary of Vari-Lite International, Inc., a Delaware corporation (the “Company”), hereby certifies that the following is an amendment to the By-Laws of the Company adopted by the Board of Directors of the Company effective as of February 15, 2002:

	/s/ Jerome L. Trojan III
	Jerome L. Trojan III, Secretary

EX-10.70 4 j3862_ex10d70.htm EX-10.70 RESOLUTIONS BY THE UNANIMOUS WRITTEN CONSENT OF THE BOARD OF DIRECTORS OFVARI-LITE INTERNATIONAL, INC

Exhibit 10.70

DATED 2002

VARI-LITE EUROPE LIMITED

-and-

BARCLAYS BANK PLC

CHARGE

HIRE AGREEMENTS

THIS DEED is made as follows:-

Date	1.1	The date of this deed is 2002

Parties	1.2	The parties are:-

Company		“the Company”: VARI-LITE EUROPE LIMITED (Co No 2876045) of 20-22 Fairway Drive, Greenford, Middlesex UB6 8PW;

Lender		“the Lender”: BARCLAYS BANK PLC of 54 Lombard Street, London EC3P 3AH (which expression shall include the Lender’s successors and assigns and whose address for all correspondence in connection with this mortgage is) BARCLAYS MERCANTILE BUSINESS FINANCE LIMITED of Churchill Plaza, Churchill Way, Basingstoke, Hampshire RG21 7GP);

Interpretation	1.4	In this deed references to statutory provisions include references to those provisions as amended or re-enacted and the following expressions have the meaning respectively stated against them:-

Definitions		“Principal Agreement”:	any chattel mortgage now or hereafter granted by the Company to the Lender or any company acting as agent for the Lender;

		“Equipment”:	items mortgaged by the Company to the Lender under a Principal Agreement;

		“Agreement”:	an agreement under which the Company lets Equipment to a customer; and

		“the Property Charged”:	the Agreements together with the other property referred to in clauses 2 below.

Construction	1.5	The marginal notes are for ease of reference only and do not affect the interpretation of this deed. The benefit of this deed and the security created

		hereby shall enure for the benefit of the Lender’s successors and assigns and any company for which the Lender may be acting as agent.

Charge	2.	The Company charges with full title guarantee in favour of the Lender as a first fixed and specific charge of all its rights, title and interest in the Agreements together with the benefit of all guarantees, indemnities, negotiable instruments, securities and insurance policies taken by the Company in respect of such Sub-Agreements and together with the benefit of any supplemental or collateral agreement entered into by the Company under which the Company undertakes to maintain or service Equipment.

Discharge of this Security	3.	When:-

		(a)	all sums payable by the Company, and

		(b)	all liabilities (whether actual or contingent) of the Company

		to the Lender under the Principal Agreements shall have been respectively paid and discharged, the Lender will at any time thereafter at the request and cost of the Company release the Property Charged to the Company.

Covenants by the Company	4.	The Company covenants with the Lender during the continuance of this security.

Payments to Lender	4.1	To procure that all monies arising under or in respect of the Property Charged are paid by the payer to the Lender (as mortgagee) or as the Lender shall from time to time direct.

Payments to Company	4.2	Without prejudice to the Company’s obligation under 4.1 above, so far as any monies referred to in that clause are received by the Company by accident or mistake or for any reason whatsoever forthwith to pay such monies to the Lender (as mortgagee) or deal with the same in like manner as the Lender shall have directed under clause 4.1 above, and in the meantime to hold the monies in trust for the Lender.

Not to Encumber	4.3	Not to create any further mortgage or charge whatsoever on the Property Charged or to sell the Property Charged or to deal with any moneys payable under or in respect of the Property Charged otherwise than in accordance with the terms of this deed.

Power of Sale	5.1	The powers of sale and of appointment of a receiver and other powers conferred by the Law of Property Act 1925 on mortgagees and by this deed on the Lender shall arise and be exercisable at any time after the occurrence of a Default Event as defined in the Principal Agreements which is continuing unwaived or unremedied. Section 103 of the Law of Property Act 1925 shall not apply to this security or any sale made by virtue hereof.

Lender to be Entitled to Exercise Powers of Receiver	5.2	At any time after the statutory power of sale shall have become exercisable under clause 5.1 above, the Lender may by itself or its servants or agents (without appointing a receiver) exercise all or any part of the powers conferred on a receiver hereunder and so that the Lender shall not thereby become liable to account as mortgagee in possession.

Powers of Receiver	5.3	Any receiver appointed by the Lender hereunder shall be deemed to be the agent of the Company and not of the Lender. The receiver shall have, inter alia, power to collect and pay to the Lender all sums due from any one or more of the following:-

		(a)	any hirer under any of the agreements comprised in the Property Charged;

		(b)	any guarantor or indemnifier under any contract of guarantee or indemnity given in connection with any of the Property Charged; and

		(c)	any insurer in respect of the Equipment; and

		inter alia, further power to do any one or more of the following: -

		i)	enforce by legal proceedings or other lawful act or procedure the duties and obligations

			imposed upon the parties to any agreement comprised in the Property Charged;

		ii)	give all such notices as he may consider expedient by reason of the acts and omissions of any of the parties to any agreement comprised in the Property Charged and to receive notices thereunder;

		iii)	sell or concur in selling any of the Property Charged on such terms and conditions as he shall think fit and to carry any such sale into effect in the name and on behalf of the company;

		iv)	make any arrangement or comprise or settlement which he or the Company shall think fit;

		v)	appoint managers, officers and agents for any of the aforesaid purposes at such salaries as he may determine and to dismiss them;

		vi)	do all such other acts and things as he may consider incidental or conducive to any of the matters or powers aforesaid and to make any arrangements with regard to the Property Charged which he considers expedient in the interests of the Company;

		vii)	have access to and make use of the premises plant equipment and accounting and other records of the Company and the services of its staff for all or any of the purpose aforesaid.

Further powers of Indulgence by Lender	5.4	The Lender may at any time from time to time without discharging or in any way affecting the security hereby created or the rights of the Lender against the Company hereunder grant time or any other indulgence to the Company or any person referred to in clause 5.3 above.

Further Assurances	6.1	The Company covenants with the Lender that the Company shall at any time and from time to time, if and when required by the Lender so to do, execute to the Lender or as the Lender shall direct, such further deeds and documents as the Lender shall

		require of and on all the Company’s rights title and interest in the Property Charged to secure all money and liabilities hereby agreed to be paid or intended to be hereby secured, such deeds and documents to be prepared by or on behalf of the Lender at the cost of the Company and to be in such form as the Lender may require.

Lender to be Attorney of Company	6.2	The Company hereby irrevocably appoints the Lender and the persons deriving title under the Lender and its substitutes and any receiver, or either or both of them, to be the attorney for the Company and in the Company’s name and on its behalf and as its act and deed or otherwise to sign seal and deliver and otherwise perfect any such deed and document specified in clause 6.1 above or (without executing any such deed or document) any deed, assurance or act which may be required or may be deemed proper on any sale, lease, sub-lease or disposition by the Lender or by any receiver as aforesaid of the Property Charged under any power of sale, leasing or other disposition applicable thereto.

Protection of Other Securities of the Lender	6.3	Nothing herein contained shall operate so as to merge or otherwise prejudice or affect any bill, note, agreement, guarantee, mortgage or other security which the Lender may from time to time have for any money intended to be hereby secured (whether from the Company or any other person) or any right or remedy of the Lender thereunder.

Certificate of Officer of Lender as Evidence	7.	A certificate by the Secretary or other officer of the Lender as to the money and liabilities for the time being due or incurred to the Lender from or by the Company shall be conclusive evidence against the Company in any legal proceedings.

Continuing Security	8.	This deed shall constitute and be a continuing security to the Lender notwithstanding any settlement of account or other matter or thing whatsoever.

Consolidation Not Allowed	9.	Section 93 of the Law of Property Act 1925 (which restricts the consolidation of mortgages) shall not apply to this deed.

Notices	10.	Any notice served under this deed shall be

sufficiently served if sent by pre-paid letter post to the respective addresses above (or such changed address as one party may notify to the other) and proof of dispatch shall be conclusive evidence of receipt by the addressee in due course of transmission.

IN WITNESS of which this deed was executed and is delivered on and takes effect from the day and year first before written

THE COMMON SEAL OF the Company was affixed to this deed in the presence of:- (or where no seal is to be affixed) EXECUTED as a Deed by the Company acting by: -	)
	)
	)
	)
	)
	)


		Director	/s/ H.R. Brutsche´ III


		Secretary	/s/ Sarah Blair

MORTGAGE

(Fixed)

Parties	This mortgage is made between the Borrower named below and Barclays Bank PLC (Company Number 1026167) (“the Lender” which expression shall include the Lender’s successors and assigns) of 54 Lombard Street, London EC3P 3AH and whose address for all correspondence in connection with this mortgage is Barclays Mercantile Business Finance Limited of Churchill Plaza, Churchill Way, Basingstoke, Hampshire RG21 7GP.

Date and Definitions	1.1 The date of this mortgage is 2002
	In this mortgage the following expressions have the meanings respectively set out against them:-

	“Borrower”;	Vari-Lite Europe Limited of 20-22 Fairway Drive, Greenford, Middlesex, UB6 8PW (registered England No. 2876045);

	“Goods”;	the goods, particulars of which are set out in the Schedule to this mortgage together with all component parts, accessories, improvements and renewals and all books, manuals, handbooks, technical data, drawings, schedules and other documentation and any amendments to them belonging to the Goods;

	“Loan”;	£400,000 or the balance for the time being outstanding;

	“Instalment Dates”;	the day of each month in each year in which the Loan is outstanding the first Instalment Date being 2000;

	“Instalments”;	60 monthly payments of £8,066.29 payable on the Instalment Dates;

	“Base Rate”;	Finance House Base Rate as from time to time published in the Financial Times or other newspaper or, in default of such publication whilst any sum is outstanding under this mortgage, such alternative equivalent base rate as shall be agreed between the parties or, in default of agreement, settled by the President for the time being of the Institute of Chartered

		Accountants in England and Wales or his nominee acting as an expert;

	“Termination Sum”;	the balance of unpaid Instalments less a rebate of interest calculated by the Lender for early repayment;

	“Insurances”;	all policies and contracts of insurance taken out or to be taken out in respect of the Goods, including all claims and benefits arising under them and returns of premium;

	“Security Interest”;	any mortgage, charge, pledge, lien or other encumbrance;

	“Total Loss”;	actual or constructive total loss or as compromised or agreed or arranged with the insurers of the Goods;

	“Default Events”;	any of the events stated in clause 9 below;

	“Working Day”;	any day, except Saturdays, on which the clearing banks in the City of London are (or would be but for strike, lockout or other stoppage, affecting particular banks or banks generally) open during banking hours.

Interpretation	1.2 In this mortgage the masculine includes the feminine and the neuter, and the singular includes the plural. If the Borrower is two or more persons, that expression includes all such persons (and each of them) and their liability under this mortgage is joint and several. The rights and obligations of the Borrower hereunder are personal to the Borrower and shall not be capable of being assigned or transferred.

Construction	1.3 The marginal notes are for ease of reference only and do not affect the construction of this mortgage. Any reference in this deed to a statutory provision shall be construed as a reference to that provision as from time to time amended or re-enacted. The benefit of this deed and the security created hereby shall enure for the benefit of the Lender’s successors and assigns and any company for which the Lender may be acting as agent.

Instalments	2.1 The Borrower shall pay to the Lender on the Instalment Dates the Instalments which comprise repayments of principal and payments of interest.

Interest	2.2 If the Borrower does not make payment of any Instalment on the relevant Instalment Date or any other sum payable under this mortgage within 10 days of the Lender’s demand, the Borrower shall pay interest to the Lender if demanded by the

	Lender at the rate of Finance House Base Rate plus 5% per annum calculated on a day to day basis from the due date to the date of receipt by the Lender both before and after judgement.

Early Settlement	2.3 As an alternative to payment of Instalments the Lender will accept the Termination Sum in full settlement of the Loan with interest.

Non-Working Day	2.4 Any amount payable to the Lender on a day which is not a Working Day will be payable on the preceding Working Day.

Sums Secured	3. This Mortgage secures to the Lender repayment of the Loan, the payment of interest on the Loan and the payment from time to time of all other sums due from the Borrower to the Lender on any account whatsoever. If a Default Event occurs all amounts secured by this mortgage shall become immediately due and payable. The Borrower covenants to pay all such monies to the Lender.

Costs	4. Any legal or other costs, charges or expenses payable by the Borrower to the Lender under the provisions of this mortgage are payable by the Borrower to the Lender with value added tax thereon (if any). Legal Costs are payable on a full indemnity basis as between solicitor and own client.

Warranties by Borrower	5. The Borrower warrants to the Lender that the Borrower:-

	(i)	lawfully owns and is in possession of the Goods and that it and the Insurances are free of any Security Interest (other than any Security Interest created or subsisting with the written consent of the Lender);

	(ii)	is not subject to any prohibition or restriction of its right or ability to enter into this mortgage;

	(iii)	has power by its memorandum of association and has taken all corporate action necessary to enter into this mortgage;

	(iv)	has not suffered or there have not occurred any Default Events which are unremedied.

Mortgage	6. The Borrower hereby mortgages and charges with full title guarantee to the Lender all its right, title and interest in the Goods as security for all sums payable by the Borrower to the Lender, as referred to in clause 1 above.

Undertakings by Borrower	7. The Borrower:-

	(i)	shall at its own expense keep the Goods in good working order and condition;

	(ii)	shall not use or permit the Goods to be used in

	contravention of any statute or regulation or for any purpose for which they are not designed or reasonably suitable and shall take all reasonable steps to ensure that the use and operation of the Goods is by skilled personnel and is without risks to health and safety;

(iii)	shall not (except with the consent of the Lender) sell, transfer, demise, let on hire or otherwise part with possession of the Goods or create or allow to arise any Security Interest in the Goods;

(iv)	shall maintain all records, logs and other records required by the manufacturers of the Goods;

(v)	shall replace any component, part or item of the Goods where necessary provided that such replacement is of at least equivalent value and condition when compared to the original;

(vi)	shall cause any alterations to the Goods that are from time to time required by law to be made at the Borrower’s expense, but shall not otherwise alter the Goods otherwise than by way of improvement;

(vii)	shall notify the Lender within 24 hours following:-

	(a)	demand of the whereabouts of the Goods;

	(b)	any occurrence as a result of which the Goods are or are likely become a Total Loss;

	(c)	the occurrence of any of the Default Events referred to in clause 9(ii) to (viii) below inclusive;


(viii)	shall permit any person authorised by the Lender at all reasonable times upon at least 24 hours notice (unless a Default Event is continuing unremedied or unwaived in which case no notice will be required) to inspect the Goods and permit on procure the granting of permission for such person to enter any land or premises where the Goods may be situated;

(ix)	shall pay on demand to the Lender with interest all its costs and expenses incurred in:-

	(a)	the advance of the Loan and the acceptance and registration of this mortgage;

	(b)	the preservation of the Lender’s security in the Goods;

		(c)	the exercise by the Lender of any of its powers under this mortgage and in ascertaining the whereabouts and/or safekeeping of the Goods;

		(d)	any legal proceedings instituted by the Lender under this mortgage.

Insurances	8.1 The Insurances shall be effected and maintained by the Borrower at all times while any amount is secured by this mortgage and shall be endorsed with a note of the Lender’s interest.

Risks Insured	8.2 The Insurances shall be all insurable risks cover under policies, on terms, subject only to exclusions and/or an excess approved by the Lender and with insurers acceptable to the Lender.

Sum Insured	8.3 The Goods shall be insured for their market value as agreed by the parties or, failing agreement, as determined, at the expense of the Borrower, by a valuer acceptable to the parties.

Premiums	8.4 The Borrower shall pay punctually all premiums payable by the Borrower in respect of the Insurances and, on request, produce receipts or other proof of payment to the Lender.

Application of Insurance Proceeds	8.5 The Lender may elect to require the Borrower to apply any proceeds of the Insurances received by it in making good the loss, repairing the damage, or satisfying the liability in respect of which the claim was made or in satisfaction of any amount secured by this mortgage and pending such election such proceeds shall be held in trust for the Lender.

Insurance Warranties	8.6 The Borrower shall not use and shall not allow the Goods to be used other than in conformity with the terms of the Insurances, including any express or implied warranties, without the prior written consent of the insurers and without paying any extra premium required.

Lender may Insure	8.7 If the Borrower fails to effect or maintain the Insurances, the Lender may effect such Insurances at the Borrower’s expense to be reimbursed to the Lender on demand with interest.

Default Events	9. The following are the Default Events:-

	(i)	the Borrower does not pay any sum of money secured by this mortgage within 10 days of the due date for payment (unless the Lender elects in its absolute discretion to accept late payment);

	(ii)	the Borrower enters into or attempts to enter into a composition or arrangement with its creditors or any

		of them;

	(iii)	a receiver or administrative receiver is appointed of the Borrower’s assets or any of them or a meeting, whether formal or informal, is called of the Borrower’s creditors or any of them;

	(iv)	the petition for the appointment to the Borrower of an administrator is presented or the Borrower goes into liquidation, except for a voluntary liquidation for the purpose of amalgamation or reconstruction on terms previously approved by the Lender in writing;

	(v)	the levy against the Goods of any distress or execution which is not paid out within 10 Working Days of written request so requiring from the Lender to the Borrower;

	(vi)	any of the warranties in clause 5 above proves to be incorrect, inaccurate or misleading in any material respect;

	(vii)	the Goods are a Total Loss;

	(viii)	the Borrower is unable to pay its debts within the meaning of Section 123 of the Insolvency Act 1986;

	(ix)	the Lender’s Security is in the Lender’s reasonable opinion in jeopardy in any material respect;

	(x)	any company in the Barclays PLC group withdraws any facility or demands payment as a result of a default of the Borrower;

	(xi)	the Borrower fails to comply with any of its obligations, covenants or undertakings contained in this deed (other than those relating to the payment of money) and such default (if in the opinion of the Lender it is capable of remedy) is not remedied to the Lender’s satisfaction within 10 days after the occurrence of such failure.

Lender’s Powers	10.1 On the occurrence of a Default Event the Lender may, at any time on the date of the occurrence or any subsequent date, without prejudice to any powers available to a Mortgagee by law, do any of the following by itself or by such agents as it thinks fit and without prior notice to the Borrower:-

	(i)	take possession of the Goods severing them from any land or other goods (but subject to the rights of the hirer under any hire agreement), if necessary, the Borrower reimbursing the Lender any expense incurred or damage suffered on demand with interest;

	(ii)	move the Goods to a safe place;

	(iii)	discharge, settle or take or defend any proceedings in respect of any claims incurred in connection with the Goods or the Insurances and collect on the Insurances and give any good receipts required;

	(iv)	pending sale, insure, maintain, repair, operate, hire out or otherwise use the Goods (but subject to the rights of the hirer under any hire agreement);

	(v)	sell the Goods by public auction or private sale, without advertisement and at such place, at such time and on such terms as the Lender may determine;

	(vi)	do all such other acts and things as may be considered to be necessary for any of the matters or powers aforesaid.

	Section 103 of the Law of Property Act 1925 shall not apply to this security or any sale made by virtue hereof.

Lender not Liable	10.2 The Lender shall not be answerable for any loss occasioned by sale by it of the Goods under this mortgage or any postponement of sale.

Lender’s Receipt	10.3 On any sale of the Goods the Lender’s receipt for the purchase money shall effectively discharge the purchaser. The purchaser shall not be bound to enquire whether the Lender’s power of sale has arisen or is exercisable and shall not be concerned as to how the proceeds of sale are applied.

Application	10.4 All monies received by the Lender in respect of:-

	(i)	sale of the Goods and/or

	(ii)	proceeds of the Insurances which the Lender, in its sole discretion, elects not to release to the Borrower for application by it in accordance with clause 8.5 above;

	shall be applied as follows:-

	FIRST		in payment or reimbursement to the Lender of all costs and expenses incurred by it in connection with this mortgage and the exercise of its powers hereunder;

	SECONDLY		in payment of any accrued but unpaid interest in connection with this mortgage;

	THIRDLY		in repayment or reduction of the Loan;

	FOURTHLY	in payment of any surplus to the Borrower.

Attorney	11. The Borrower hereby irrevocably appoints the Lender as its attorney with full power to substitute any other person, for the Borrower and in the Borrower’s name to sign, seal, deliver and otherwise perfect any deed, assurance or agreement and do anything which may be required for any purpose under or in connection with this mortgage.

Waiver	12. The Lender’s rights and powers under this mortgage shall not be prejudiced or affected by delay or omission on the Lender’s part. If the Lender, on occasion expressly or impliedly waives any of its rights or powers, such waiver shall not prevent the Lender from subsequently acting strictly in accordance with such rights and powers.

Further Assurances	13. The Borrower shall at its own expense sign, seal, deliver and otherwise perfect any deed, assurance or agreement and do anything the Lender may require to perfect or protect the security constituted by this mortgage.

Notices	14. Any notice served under this mortgage shall be sufficiently served if sent by pre-paid letter post to the respective addresses above (or such changed address as one party may notify to the other) and proof of dispatch shall be conclusive evidence of receipt by the addressee in due course of transmission.

Consolidation	15. If the Lender has from the Borrower security over any other property of the Borrower, the Borrower may not redeem such security or the security constituted by this mortgage alone without the prior written consent of the Lender. Section 93 of the Law of Property Act 1925 (which restricts the consolidation of mortgages) shall not apply to the security constituted by this mortgage.

Law	16. This mortgage shall be governed by the laws of England.

Severance	17. Each of the provisions of this deed is severable and distinct from the others and if at any time one or more of such provisions is or becomes invalid illegal or unenforceable, the validity legality and enforceability of the remaining provisions hereof shall not in any way be affected or impaired thereby.

	IN WITNESS of which this deed was executed and is delivered on and takes effect from the day and year first before written.

SCHEDULE - THE GOODS

Date		Description		Bar Codes/Serial Nos.		Approval No.

EX-10.71 5 j3862_ex10d71.htm EX-10.71 JM10737.DOC;1

Exhibit 10.71

AMENDMENT NO. 4

FINANCING AGREEMENT

This AMENDMENT NO. 4 TO FINANCING AGREEMENT (this “Amendment”), made as of March 31, 2002, between U.S. BANK NATIONAL ASSOCIATION (formerly known as 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, Amendment No. 2 to Financing Agreement, dated as of June 30, 2001, and Amendment No. 3 to Financing Agreement, dated as of December 31, 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:

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

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.

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. 4 to Financing Agreement. Bank shall have received an original counterpart of this Amendment No. 4 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 Fifteen Thousand Dollars ($15,000.00).

J-2

VARI-LITE INTERNATIONAL, INC.

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]

J-3

IN WITNESS WHEREOF, Borrower has caused this Amendment No. 4 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.
	Signed and acknowledged in the presence of:
				By:
	Name:
				Its:

	Name:

J-4

STATE OF	)
	) ss:
COUNTY OF	)

The foregoing instrument was acknowledged before me this day of May, 2002, by , the of Vari-Lite, Inc., a Delaware corporation, on behalf of the corporation.


						Notary Public

Accepted at Cleveland, Ohio,

Effective as of March 31 2002.

U.S. BANK NATIONAL ASSOCIATION

By:

Its:

J-5

ACKNOWLEDGMENT OF GUARANTOR

The undersigned, Vari-Lite International, Inc., a Delaware corporation, having guaranteed all of the obligations of Vari-Lite, Inc. to U.S. Bank National Association (formerly known as Firstar Bank, National Association) (“Bank”), hereby acknowledges and agrees, effective as of March 31, 2002, to the terms of the foregoing Amendment No. 4 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.

STATE OF			)
			)ss:
COUNTY OF			)

The foregoing instrument was acknowledged before me this day of May, 2002, by , the of VARI-LITE INTERNATIONAL, INC., a Delaware corporation, on behalf of the company.


				Notary Public

J-6

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 $6,000,000 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
$	7,461,000	10/01/00 - 06/30/01
$	9,491,000	10/01/00 - 09/30/01
$	7,650,000	01/01/01 - 12/31/01
$	6,940,000	04/01/01 - 03/31/02
$	9,550,000	07/01/01 - 06/30/02
$	10,600,000	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

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
$	44,000,000	12/31/01
$	43,041,000	03/31/02
$	44,000,000	06/30/02
$	44,000,000	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
2.90 to 1		12/31/01
3.05 to 1		03/31/02
2.30 to 1		06/30/02
2.05 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
0.60 to 1		12/31/01
0.53 to 1		03/31/02
0.90 to 1		06/30/02
1.00 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.