AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 20, 1998
REGISTRATION NO. 333-46235
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 3
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
PRODUCTION RESOURCE GROUP, L.L.C.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 3999 14-1786937
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD (I.R.S. EMPLOYER
OF INCORPORATION OR INDUSTRIAL CLASSIFICATION IDENTIFICATION NUMBER)
ORGANIZATION) CODE NUMBERS)
PRG FINANCE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 6799 14-1801689
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD (I.R.S. EMPLOYER
OF INCORPORATION OR INDUSTRIAL CLASSIFICATION IDENTIFICATION NUMBER)
ORGANIZATION) CODE NUMBERS)
SHOWPAY, L.L.C.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 8999 86-0884814
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD (I.R.S. EMPLOYER
OF INCORPORATION OR INDUSTRIAL CLASSIFICATION IDENTIFICATION NUMBER)
ORGANIZATION) CODE NUMBERS)
PRG PLANNING & DEVELOPMENT, L.L.C.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 3999 14-1796155
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD (I.R.S. EMPLOYER
OF INCORPORATION OR INDUSTRIAL CLASSIFICATION IDENTIFICATION NUMBER)
ORGANIZATION) CODE NUMBERS)
ECTS, A SCENIC TECHNOLOGY COMPANY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 3999 16-1796155
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD (I.R.S. EMPLOYER
OF INCORPORATION OR INDUSTRIAL CLASSIFICATION IDENTIFICATION NUMBER)
ORGANIZATION) CODE NUMBERS)
ATTRACTION MANAGEMENT LLC
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 8999 86-0889506
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD (I.R.S. EMPLOYER
OF INCORPORATION OR INDUSTRIAL CLASSIFICATION IDENTIFICATION NUMBER)
ORGANIZATION) CODE NUMBERS)
================================================================================
539 TEMPLE HILL ROAD
NEW WINDSOR, NEW YORK 12553
(914) 567-5700
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA
CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
-----------------------
ROBERT A. MANNERS, ESQ.
PRODUCTION RESOURCE GROUP, L.L.C.
539 TEMPLE HILL ROAD
NEW WINDSOR, NEW YORK 12553
(914) 567-5700
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF AGENT FOR SERVICE)
-----------------------
WITH A COPY TO:
JOSEPH W. BARTLETT, ESQ.
MORRISON & FOERSTER LLP
1290 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10104
(212) 468-8000
APPROXIMATE DATE OF COMMENCEMENT OF SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
CALCULATION OF REGISTRATION FEE
==================================================================================================
PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH AMOUNT MAXIMUM AGGREGATE AMOUNT OF
CLASS OF SECURITIES TO BE OFFERING PRICE OFFERING REGISTRATION
TO BE REGISTERED REGISTERED PER UNIT(1) PRICE(1) FEE
- -------------------------------------------------------------------------------------------------
11 1/2% Senior Subordinated Notes
due 2008........................ $100,000,000 100% $100,000,000 $29,500(2)
Guarantees........................ N/A N/A N/A (3)
==================================================================================================
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457.
(2) Previously paid.
(3) No separate fee is payable pursuant to Rule 457(n).
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SUCH
SECTION 8(A), MAY DETERMINE.
================================================================================
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED MAY 20, 1998
PRODUCTION RESOURCE GROUP, L.L.C.
PRG FINANCE CORPORATION
PRG PLANNING & DEVELOPMENT, L.L.C
ECTS, A SCENIC TECHNOLOGY COMPANY, INC.
SHOWPAY, LLC
ATTRACTION MANAGEMENT LLC
OFFER TO EXCHANGE
ALL OUTSTANDING
11 1/2% SENIOR SUBORDINATED NOTES DUE 2008
($100,000,000 PRINCIPAL AMOUNT OUTSTANDING)
FOR 11 1/2% SENIOR SUBORDINATED NOTES DUE 2008
------------------------------
The Exchange Offer and withdrawal rights will expire at 5:00 p.m., New York
City time, on July 2, 1998 (as such date may be extended, the "Expiration
Date").
Production Resource Group, L.L.C., a Delaware limited liability company
(the "Company"), and PRG Finance Corporation, a Delaware corporation ("Finance
Corp." and, together with the Company, the "Issuers"), hereby offer (the
"Exchange Offer"), upon the terms and subject to the conditions set forth in
this Prospectus and the accompanying letter of transmittal (the "Letter of
Transmittal"), to exchange $1,000 in principal amount of its 11 1/2% Senior
Subordinated Notes due 2008 (the "New Notes") for each $1,000 in principal
amount of its outstanding 11 1/2% Senior Subordinated Notes due 2008 (the "Old
Notes") (the Old Notes and the New Notes are collectively referred to herein as
the "Notes"). The Notes are fully and unconditionally guaranteed on a senior
subordinated basis by the Company's existing domestic Restricted Subsidiaries
and all domestic Restricted Subsidiaries created or acquired by the Company in
the future. An aggregate principal amount of $100,000,000 of Old Notes is
outstanding. See "The Exchange Offer." As of April 30, 1998, after giving
effect to the Transactions (as defined) the Company had $4.4 million of
consolidated Senior Debt outstanding and no debt which was subordinate to the
Notes.
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. The Letter of Transmittal states
that by so acknowledging and by delivering a prospectus, a broker-dealer will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. If any holder of Old Notes is an affiliate of the Company, is
engaged in or intends to engage in or has any arrangement or understanding
with any person to participate in the distribution of the New Notes to be
acquired in the Exchange Offer, such holder (i) could not rely on the
applicable interpretations of the Securities and Exchange Commission (the
"Commission") enunciated in EXXON CAPITAL or interpretive letters to similar
effect and (ii) must comply with the registration and prospectus delivery
requirements of the Securities Act of 1933, as amended (the "Securities Act")
in connection with any resale transaction. This Prospectus, as it may be amended
or supplemented from time to time, may be used by a broker-dealer in connection
with resales of New Notes received in exchange for Notes where such Notes were
acquired by such broker-dealer as a result of market-making activities or other
trading activities. The Company has agreed that, starting on the Expiration Date
(as defined herein) and ending on the close of business one year after the
Expiration Date, it will make this Prospectus available to any broker-dealer for
use in connection with any such resale. See "Plan of Distribution."
(continued on next page)
------------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR A DISCUSSION OF CERTAIN FACTORS
WHICH SHOULD BE CONSIDERED BY HOLDERS IN EVALUATING THE EXCHANGE OFFER.
------------------------------
THE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS , 1998
The Company will accept for exchange any and all Old Notes that are validly
tendered prior to 5:00 p.m., New York City time, on the Expiration Date. Tenders
of Old Notes may be withdrawn at any time prior to 5:00 p.m., New York City
time, on the Expiration Date. The Exchange Offer is not conditioned upon any
minimum principal amount of the Old Notes being tendered for exchange. However,
the Exchange Offer is subject to the terms and provisions of the Registration
Rights Agreement, dated as of December 24, 1997 (the "Registration Rights
Agreement"), between the Company, Bear, Stearns & Co. Inc., BT Alex. Brown
Incorporated, Morgan Stanley & Co. Incorporated and BNY Capital Markets, Inc.
(together, the "Initial Purchasers"). The Old Notes may be tendered only in
multiples of $1,000. See "The Exchange Offer."
The Old Notes were issued in a transaction (the "Initial Offering")
pursuant to which the Issuers issued an aggregate of $100,000,000 principal
amount of the Old Notes to the Initial Purchaser on December 24, 1997 (the
"Closing Date") pursuant to a Purchase Agreement, dated December 19, 1997 (the
"Purchase Agreement"), among the Company, Finance Corp., a wholly-owned
subsidiary of the Company, PRG Planning and Development, L.L.C. a Delaware
limited liability company and a 99% owned subsidiary of the Company ("P&D"),
ECTS, A Scenic Technology Company, Inc., a Delaware corporation and wholly-owned
subsidiary of the Company ("ECTS"), Showpay, LLC, a Delaware limited liability
company and wholly-owned subsidiary of the Company ("Showpay"), and Attraction
Management LLC, a Delaware limited liability company and a wholly-owned
subsidiary of the Company ("Attraction" and, together with P&D, ECTS and
Showpay, the "Guarantors") and the Initial Purchasers. The Initial Purchasers
subsequently resold the Old Notes in reliance on Rule 144A under the Securities
Act. The Company and the Initial Purchasers also entered into the Registration
Rights Agreement pursuant to which the Company granted certain registration
rights for the benefit of the holders of the Old Notes. The Exchange Offer is
intended to satisfy certain of the Company's obligations under the Registration
Rights Agreement with respect to the Old Notes. The New Notes will be
obligations of the Company evidencing the same indebtedness as the old Notes and
will be issued under and entitled to the benefits of the Indenture, dated as of
December 24, 1997 (the "Indenture"), between the Company and First Union
National Bank as trustee (in such capacity, the "Trustee"). The form and terms
of the New Notes will be registered under the Securities Act and, therefore,
such New Notes will not be subject to certain transfer restrictions,
registration rights and related Special Interest (as defined) provisions
applicable to the Old Notes. See "The Exchange Offer -- Purpose and Effect."
The New Notes will bear interest at the rate of 11 1/2% per annum, payable
semi-annually in arrears on January 15 and July 15 of each year, commencing July
15, 1998, and will mature on January 15, 2008. Holders whose Old Notes are
accepted for exchange will have the right to receive interest accrued thereon
from the date of the original issuance to the date of issuance of the New Notes,
such interest to be payable with the first interest payment on the New Notes.
The Notes will be guaranteed by all of the Company's present and future domestic
Restricted Subsidiaries (as defined). Except as set forth below, the New Notes
will not be redeemable at the option of the Issuers prior to January 15, 2003.
Thereafter, the Notes will be subject to redemption at any time at the option of
the Issuers, in whole or in part, at the redemption prices set forth herein,
plus accrued and unpaid interest and Liquidated Damages (as defined), if any,
thereon to the date fixed for redemption. In addition, at any time prior to
January 15, 2001, the Issuers may redeem up to 35% of the aggregate principal
amount of the New Notes at a redemption price of 110% of the principal amount
thereof, plus accrued and unpaid interest and Liquidated Damages, if any,
thereon to the date fixed for redemption, with the net cash proceeds of one or
more public offerings of Capital Stock (as defined) of the Company (other than
Disqualified Stock (as defined)), provided that at least 65% of the aggregate
principal amount of the Notes originally issued remains outstanding immediately
after the occurrence of each such redemption. At any time prior to January 15,
2003, the Issuers may redeem the New Notes, in whole or in part, at a redemption
price equal to 100% of the principal amount thereof plus the applicable
Make-Whole Premium (as defined). In the event of a Change of Control (as
defined), the Issuers will be required to make an offer to each holder of Notes
to repurchase all or any part of such holder's Notes at a repurchase price equal
to 101% of the principal amount thereof, plus accrued and unpaid interest and
Liquidated Damages, if any, thereon to the date fixed for repurchase. See "Risk
Factors--Change of Control" and "Description of Notes."
The New Notes are general unsecured obligations of the Issuers,
subordinated in right of payment to all existing and future Senior Debt (as
defined) of the Issuers. As of April 30, 1998, after giving effect to the
Transactions (as defined), the Issuers would have had $4.4 million of
consolidated Senior Debt outstanding. In addition, upon consummation of the
Exchange Offer, the Company will have $100 million of total commitments under
the Amended Credit Facility (as defined), of which approximately $14.6 million
would have been available as of April 30, 1998, after giving effect to the
Transactions and the terms of the Amended Credit Facility.
The Company is making the Exchange Offer in reliance on its interpretation
of the position of the Staff of the Commission as set forth in certain
interpretive letters issued to third parties in other transactions. However, the
Company has not sought its own interpretive letter, and there can be no
assurance that the Commission would make a similar determination with respect to
the Exchange Offer. Based on the Commission interpretations, the Company
believes that New Notes issued pursuant to the Exchange Offer to any holder of
Old Notes in exchange for Old Notes may be offered for resale, resold and
otherwise transferred by such holder (other than a broker-dealer who purchased
Old Notes directly from the Company for resale pursuant to Rule 144A under the
Securities Act or any other available exemption under the Securities Act)
without further compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that such holder is not an affiliate
of the Company, is acquiring the New Notes in the ordinary course of business
and is not participating, and has no arrangement or understanding with any
person to participate, in the distribution of the New Notes. Holders wishing to
accept the Exchange Offer must represent to the Company that such conditions
have been met. In addition, if such holder is not a broker-dealer, it must
represent that it is not engaged in, and does not intend to engage in, a
distribution of the New Notes. Each broker-dealer that receives New Notes for
its own account in exchange for Old Notes, where such Notes were acquired by
such broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such New Notes. See "The Exchange Offer - Resales of the New
Notes" and "Plan of Distribution." This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of New Notes received in exchange for Old Notes where such Old
Notes were acquired by such broker-dealer as a result of market-making or other
trading activities.
There has previously been only a limited secondary market, and no public
market, for the Old Notes. The Old Notes are eligible for trading in the Private
Offering, Resales and Trading through Automatic Linkages ("PORTAL") market. In
addition, the Initial Purchasers have advised the Company that they currently
intend to make a market in the New Notes; however, the Initial Purchasers are
not obligated to do so and any market making activities may be discontinued by
the Initial Purchasers at any time. Therefore, there can be no assurance that an
active market for the New Notes will develop. If such trading market develops
for the New Notes, future trading prices will depend on many factors, including,
among other things, prevailing interest rates, the Company's results of
operations and the market for similar securities. Depending on such factors, the
New Notes may trade at a discount from their face value. See "Risk Factors -
Lack of Public Market."
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF OLD NOTES IN ANY JURISDICTION IN WHICH
THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE
SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
The Old Notes were issued originally in global form (the "Global Old
Note"). The Global Old Note was deposited with, or on behalf of, The Depository
Trust Company ("DTC"), as the initial depository with respect to the Old Notes
(in such capacity, the "Depositary"). The Global Old Note is registered in the
name of Cede & Co. ("Cede"), as nominee of DTC, and beneficial interests in the
Global Old Note are shown on, and transfers thereof are effected only through,
records maintained by the Depositary and its participants, and anyone holding a
beneficial interest in an Old Note registered in the name of such a participant,
to transfer interests in the Old Notes electronically in accordance with the
Depositary's established procedures without the need to transfer a physical
certificate. New Notes issued in exchange for the Global Old Note will also be
issued initially as a note in global form (the "Global New Note," and, together
with the Global Old Note, the "Global Notes") and deposited with, or on behalf
of, the Depositary. After the initial issuance of the Global New Note, New Notes
in certificated form will be issued in exchange for a holder's proportionate
interest in the Global New Note only as set forth in the Indenture.
The Company will not receive any proceeds from this Exchange Offer.
Pursuant to the Registration Rights Agreement, the Company will bear certain
registration expenses.
TABLE OF CONTENTS
Page
----
Available Information..................................................... i
Prospectus Summary........................................................ 1
Risk Factors.............................................................. 10
The Company............................................................... 15
The Exchange Offer........................................................ 17
Use of Proceeds........................................................... 24
Capitalization............................................................ 25
Selected Combined Financial Data.......................................... 26
Pro Forma Combined Financial Data (Unaudited)............................. 28
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 34
Business.................................................................. 41
Management................................................................ 51
Certain Transactions...................................................... 56
Principal Unitholders..................................................... 57
Description of Operating Agreement........................................ 59
Description of Other Indebtedness......................................... 62
Description of Notes...................................................... 64
Certain U.S. Federal Income Tax Considerations............................ 91
Plan of Distribution...................................................... 95
Legal Matters............................................................. 96
Experts................................................................... 96
Index to Combined Financial Statements.................................... F-1
AVAILABLE INFORMATION
The Company is filing a registration statement on Form S-4 (together with
any amendments thereto, the "Registration Statement") with the Commission under
the Securities Act with respect to the New Notes. This Prospectus, which
constitutes a part of the Registration Statement, omits certain information
contained in the Registration Statement and reference is made to the
Registration Statement and the exhibits and schedules thereto for further
information with respect to the Company and the New Notes offered hereby. This
Prospectus contains summaries of the material terms and provisions of certain
documents and in each instance reference is made to the copy of such document
filed as an exhibit to the Registration Statement. Each such summary is
qualified in its entirety by such reference.
The Company and each of the Subsidiary Guarantors (unless it obtains
exemptive relief from the Commission or no-action relief from the Commission
staff) will be subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, will file reports, proxy statements and other information with the
Commission. Such reports, proxy statements and other information can be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the following regional offices of the Commission: Chicago Regional Office,
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60061;
and New York Regional Office, 7 World Trade Center, Suite 1300, New York, New
York 10048. In addition, certain of the information regarding the Company will
be available on the World Wide Web by accessing the Securities and Exchange
Commission web site at http://www.sec.gov. Copies of such material can be
obtained at prescribed rates from the Public Reference Section of the Commission
at its principal office at 450 Fifth Street, N.W., Washington, D.C. 20549. The
Company may seek exemptive relief from the Commission or no-action relief from
the Commission Staff with respect to the Exchange Act reporting and
informational requirements of those Subsidiary Guarantors for which separate
reports and financial statements would not be material to investors because such
Subsidiary Guarantors do not have material assets, liabilities or operations.
The Company has agreed that, whether or not it is required to do so by the
rules and regulations of the Commission, for so long as any of the Notes remain
outstanding, it will furnish to the holders of the Notes and submit to the
Commission (unless the Commission will not accept such materials) (i) all
quarterly and annual financial information that would be required to be
contained in a filing with the Commission on Forms 10-Q and 10-K if the Company
were required to file such forms, including a "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and, with respect to
the annual information only, a report thereon by the Company's independent
accountants, and (ii) all reports that would be required to be filed with the
Commission on Form 8-K if the Company were required to file such reports. In
addition, for so long as any of the Notes remain outstanding, the Company has
agreed to make available to any prospective purchaser of the Notes in connection
with any sale thereof the information required by Rule 144A(d)(4) under the
Securities Act.
FORWARD-LOOKING STATEMENTS
CERTAIN STATEMENTS CONTAINED IN THIS PROSPECTUS UNDER "SUMMARY,"
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" AND "BUSINESS," IN ADDITION TO CERTAIN STATEMENTS CONTAINED
ELSEWHERE IN THIS PROSPECTUS, ARE "FORWARD-LOOKING STATEMENTS" WITHIN THE
MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 AND ARE THUS
PROSPECTIVE. BECAUSE THE COMPANY IS NOT YET SUBJECT TO THE REPORTING
REQUIREMENTS OF THE EXCHANGE ACT, THE COMPANY IS NOT PERMITTED TO RELY ON THE
SAFE HARBOR FOR FORWARD LOOKING STATEMENTS PROVIDED BY SECTION 27A(b)(2)(D) OF
THE SECURITIES ACT AND SECTION 21E(b)(2)(D) OF THE EXCHANGE ACT WITH RESPECT TO
THIS OFFERING. NONETHELESS, SUCH FORWARD-LOOKING STATEMENTS ARE SUBJECT TO
RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH COULD CAUSE ACTUAL RESULTS TO
DIFFER MATERIALLY FROM FUTURE RESULTS EXPRESSED OR IMPLIED BY SUCH FORWARD-
LOOKING STATEMENTS. THE MOST SIGNIFICANT OF SUCH RISKS, UNCERTAINTIES AND OTHER
FACTORS ARE DISCUSSED UNDER THE HEADING "RISK FACTORS," BEGINNING ON PAGE 10 OF
THIS PROSPECTUS, AND PROSPECTIVE INVESTORS ARE URGED TO CAREFULLY CONSIDER SUCH
FACTORS.
As used herein, "Chrysler(R)" means Chrysler Corporation, "Disney(R)" means
The Walt Disney Company, "General Motors" means General Motors Corporation,
"Glaxo Wellcome(TM)" means Glaxo Wellcome plc, "IBM(R)" means International
Business Machines Corporation, "Iomega(R)" means Iomega Corporation, "Mercedes
Benz(R)" means Mercedes Benz AG, "Nike(R)" means Nike, Inc. and
"Toyota(R)/Lexus(R)" means Toyota Motor Corporation and its Lexus car division.
All registered trademarks used herein are the property of their respective
owners.
As used herein, "Mr. Harris" means Jeremiah J. Harris.
ii
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and historical financial statements, including the notes thereto,
included elsewhere in this Prospectus. Unless the context otherwise requires,
references herein to the "Company" refers to Production Resource Group, L.L.C.,
a Delaware limited liability company, and its subsidiaries and predecessors. The
Company acquired the net assets of Bash Theatrical Lighting, Inc. and four
affiliated entities (collectively, "Bash") and Design Dynamics, Inc. ("Design
Dynamics") in August 1997 and June 1997, respectively, and acquired the net
assets of Pro-Mix, Inc. ("Pro-Mix") on January 2, 1998. See "The Company."
Unless otherwise specified, pro forma financial information for the year ended
December 31, 1997 contained in this Prospectus gives effect to (i) the
acquisitions of the net assets of Bash and Design Dynamics and the acquisition
of the net assets of Pro-Mix (collectively, the "Acquisitions") as if such
Acquisitions had occurred on January 1, 1997 and (ii) the Initial Offering and
the application of net proceeds therefrom as described under "Use of Proceeds."
The Acquisitions and the Initial Offering and the application of net proceeds
therefrom are referred to collectively herein as the "Transactions".
The Company
The Company is a leading integrator, fabricator and supplier of a broad
range of products and services for the live entertainment (live theater, concert
touring and special events), corporate events (trade and industrial shows) and
themed entertainment (gaming, theme parks and themed retail) markets. The
Company's products and services include (i) scenery and exhibit fabrication,
(ii) computerized motion and show control systems, including its proprietary
Stage Command System(R), (iii) automated lighting systems and related products,
(iv) project management, which encompasses design engineering, budgeting,
logistical coordination and installation and (v) with the acquisition of Pro-Mix
in January 1998, theatrical audio equipment and related products. Depending
upon its clients' needs, the Company's highly-skilled staff can integrate some
or all of these products and services to produce creative, technically
sophisticated and visually "spectacular" productions, events or attractions. For
financial and accounting purposes, the Company operated in 1997 through four
segments: lighting systems and products; scenery automation and fabrication;
event services and themed attraction permanent installation ("themed
attraction") which management decided to discontinue in 1998. These segments
provide the Company's products and services (other than theatrical audio and
related products) set forth above to the markets that it serves as follows: (i)
the lighting systems and products segment provides automated lighting systems
and related products for sale or rental; (ii) the scenery automation and
fabrication segment fabricates scenery for sale and provides computerized motion
and show control equipment, primarily for rental; (iii) the event services
segment provides a variety of services for corporate clients including exhibit
fabrication and project management for trade and industrial shows and (iv) the
themed attraction segment, provided large-scale, fixed-price, "turn-key"
permanent installations. See "Selected Combined Financial Data," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Company's Combined Financial Statements and the Notes thereto included
elsewhere in this prospectus. The Company's principal production and
distribution facilities are located in six states, including major entertainment
and convention centers such as the New York metropolitan area, Las Vegas and
Orlando. On a pro forma basis, after giving effect to the Transactions, the
Company generated revenues and EBITDA (as defined) from continuing
operations of $108.1 million and $22.4 million, respectively, for the year ended
December 31, 1997.
The Company initially developed its technical and creative expertise in
live theater and industrial shows and subsequently applied such expertise to a
broader range of corporate events and the themed entertainment market. In the
live entertainment market, the Company's products and services are featured in
23 of the 33 current Broadway shows, including Beauty & the Beast(TM), Les
Miserables(TM), Miss Saigon(TM), The Phantom of the Opera(TM), Ragtime(TM) and
Titanic(TM). In recent years, the Company has applied its technical and creative
expertise in live entertainment to the corporate events and themed entertainment
markets. In the corporate events market, the Company has served as project
manager for trade and industrial shows for a diverse base of large
multi-national corporations such as Chrysler(R), General Motors(R), Glaxo
Wellcome(TM), IBM(R), Mercedes Benz(R), Nike(R) and Toyota(R)/Lexus(R). In the
themed entertainment market, the Company has participated in the fabrication of
several multi-million dollar attractions, including Terminator 2-3D(TM) at
Universal Studios Florida(R), Star Trek, The Experience(SM) at the Las Vegas
Hilton(R) and Nike(R)'s flagship superstore in New York City.
The Company estimates that the live entertainment, corporate events and
themed entertainment markets for sales of its products and services exceeded $11
billion in 1996. The live entertainment market includes live theater, concert
tours and special events such as the Olympics, political conventions and
debates, and televised award ceremonies. The corporate events market includes
industrial shows (primarily single corporation events such as large sales
meetings and new product launches) and trade shows. The themed entertainment
market includes various attractions within gaming, theme park and themed retail
establishments. While the Company will continue to provide lighting and audio
products and scenic elements in the themed entertainment market, it has
discontinued providing permanent installation of themed attractions. The markets
served by the Company are growing and the Company believes that such markets
will continue to grow as a result of favorable industry trends. In addition, the
Company believes that the demand for its products and services will continue to
grow as corporations increasingly utilize more sophisticated technology and
theatrical techniques to promote their corporate
1
or brand identities, differentiate their product offerings and attract new
customers. See "Business--Markets Overview."
Competitive Strengths
The Company believes that it is well-positioned to capitalize on the growth
of the live entertainment, corporate events and themed entertainment markets as
well as to enhance its market position. The following are, in management's view,
the Company's principal strengths:
Leading Provider. The Company has established itself as a leading provider
of technical and creative products and services in the markets that it serves.
The Company believes that its (i) ability to offer clients fully-integrated
solutions, (ii) staff of highly-skilled project managers, engineers and
craftsmen, (iii) high standards for service and reliability, (iv) ability to
handle multiple large projects simultaneously through its strategically located
facilities and (v) access to capital should allow it to increase its market
share in each of the markets that it serves.
Proprietary Products and Expertise. The Company's proprietary Stage Command
System(R), a state-of-the-art computerized system for moving scenery and other
props, has set the industry standard for motion control systems. Stage Command
System(R) has been used in over 55 theatrical productions and themed attractions
since it was developed by the Company in 1988. The Company also offers
technologically-advanced show control systems, which synchronize the various
physical elements of a production or attraction, including scenery, sound,
lighting and special effects. The Company's motion and show control systems
allow for the addition of more sophisticated production elements on a
cost-effective basis. In addition, the Company's projects often involve
customized products and services that require significant design engineering and
fabrication expertise.
Diverse Client Base. The Company has expanded its revenue base and market
opportunities by applying its expertise in live entertainment to the corporate
events and themed entertainment markets. The Company currently serves a diverse
base of approximately 2,500 clients, ranging from large multi-national
corporations to small local businesses and organizations. The Company's
corporate clients are engaged in a number of different industries, including
automotive, computers, consumer products, entertainment, gaming and
pharmaceuticals.
Strong Client Relationships. The Company has developed strong,
long-standing relationships with many of its clients. For example, in the live
entertainment market, the Company has fabricated scenery and supplied its Stage
Command System(R) for such long-running shows as The Phantom of the Opera(TM)
and Les Miserables(TM). In the corporate events market, the Company has served
as project manager for the annual dealer meetings for Chrysler(R) and Toyota(R)
in each of the past ten years.
Experienced Management Team. Jeremiah J. Harris, the Company's Chairman and
Chief Executive Officer, comes from a family with four generations of experience
in live theater and has over 25 years of experience in providing products and
services for the live entertainment and corporate events markets. Mr. Harris is
supported by a team of ten senior executives with, on average, 14 years of
experience in the business.
Business Strategy
The Company's objective is to become the leading provider of technical and
creative products and services for the live entertainment, corporate events and
themed entertainment markets. The key elements of the Company's business
strategy are as follows:
Leverage Technical and Creative Expertise. The Company intends to leverage
its technical and creative expertise to further penetrate the corporate events
and themed entertainment markets. For example, the Company was awarded the
project management contract for the theater structure at IBM(R)'s Fall COMDEX
exhibit based on its ability to provide a fully-integrated solution. The Company
was required to integrate sophisticated scenery, lighting and audio/visual
equipment; fabricate a 24-foot high, 75-foot long structure containing 90 video
monitors that served as the focal point of IBM(R)'s exhibit; and collaborate
with IBM(R)'s advertising agency to ensure that the
2
exhibit communicated IBM(R)'s new e [sic] business(R) marketing program in a
manner consistent with IBM(R)'s overall marketing strategy.
Expand Product and Service Offering. The Company plans to enhance its
"one-stop shopping" product and service offering by adding complementary
products and services through internal development and acquisitions. For
example, through the acquisition of three lighting providers since 1996, the
Company has become a leading supplier of theatrical lighting systems and related
products in the United States. The Company's acquisition of the net assets of
Pro-Mix, which provides sound equipment and acoustical and sound design
consulting services primarily to the live theater market segment, represents the
most recent example of the Company's strategy to identify and acquire
complementary products and services. See "The Company."
Intensify Cross-Selling Efforts. The Company intends to intensify its
cross-selling efforts. Many of the companies acquired by the Company typically
provided a limited number of products and services to a single market segment.
The Company intends to leverage its existing relationships in order to sell
additional products and services to clients across each of the markets that it
serves. The Company is also creating a management information system that will
track the use of its products and services by client in order to support its
cross-selling efforts.
Develop and Implement Focused Marketing Effort. To enhance the overall
growth of its business and expansion into new markets, the Company is developing
a nationally focused marketing effort under the direction of its recently
appointed Senior Vice President, Marketing and Sales. In connection with this
effort, the Company plans to target large, multi-national corporations with
significant, recurring events that require fully-integrated solutions.
Pursue Strategic Acquisitions. Strategic acquisitions have been and will
continue to be an important element of the Company's growth strategy. Each of
the markets that the Company serves has many small local or regional competitors
and, consequently, offers significant consolidation opportunities. The Company
will seek attractively priced acquisitions that expand or complement its
existing product and service offering, enhance relationships with existing
clients, provide an entry into new market segments or expand its operations into
domestic and international entertainment centers where it does not currently
have a significant presence.
Recent Acquisitions
Since January 1996, the Company has completed six acquisitions, which have
expanded the Company's product and service offering, diversified its client base
and substantially increased its revenues and Adjusted EBITDA. On January 2,
1998, the Company acquired the net assets of Pro-Mix, which provides audio
equipment and acoustical and sound design consulting services primarily to the
live theater market segment through its offices located in the New York
metropolitan area and Orlando. In August 1997, the Company acquired the net
assets of Bash, which supplies theatrical lighting systems and related products
through its offices located in the New York metropolitan area, Las Vegas,
Orlando and Baltimore. As a result of the Bash acquisition, the Company has
become a leading supplier of theatrical lighting systems and related products in
the United States. In June 1997, the Company acquired the net assets of Design
Dynamics, located in Denver, which specializes in fabricating trade show
exhibits. In March 1997, the Company acquired the net assets of Thoughtful
Designs, located in Las Vegas, which provides technology design and show control
systems. In February 1996, the Company acquired the net assets of Cinema
Services of Las Vegas, Inc. ("Cinema"), which established the Company's
theatrical lighting capabilities in the large gaming and corporate events
markets in Las Vegas. In January 1996, the Company acquired the net assets of
Vanco Lighting Services, Inc. ("Vanco"), located in Orlando, which established
the Company's theatrical lighting capabilities in the large theme park and
convention markets in Orlando.
Discontinued Operations
On March 2, 1998, the Company decided to discontinue its themed attraction
segment and focus its operations on more profitable business segments. This
included the adoption of a formal plan of discontinuance prepared by management
and reviewed and approved by the Board of Advisors (as defined).
The Initial Offering
The outstanding $100.0 million principal amount of Old Notes were sold by
the Issuers to the Initial Purchasers on the Closing Date pursuant to the
Purchase Agreement among the Company, the Guarantors and the Initial Purchasers.
The Initial Purchasers subsequently resold the Old Notes in reliance on Rule
144A under the Securities Act. The Issuers and the Initial Purchasers also
entered into the Registration Rights Agreement pursuant to which the Company and
the Guarantors granted certain registration rights for the benefit of the
holders of the Old Notes. The Exchange Offer is intended to satisfy certain of
the Company's obligations under the Registration
3
Rights Agreement with respect to the Old Notes. See "The Exchange Offer" and
"The Exchange Offer -- Purpose and Effect."
The Exchange Offer
Securities Offered ....................... Up to $100.0 million principal
amount of 11.50% Senior
Subordinated Notes Due 2008, which
have been registered under the
Securities Act. The form and terms
of the New Notes are substantially
identical to the Old Notes in all
material respects, except that the
New Notes will be registered under
the Securities Act and, therefore,
will not be subject to certain
transfer restrictions, registration
rights and related Special Interest
provisions applicable to the Old
Notes.
The Exchange Offer ....................... The New Notes are being offered in
exchange for up to $100.0 million
principal amount of Old Notes. The
issuance of the New Notes is
intended to satisfy certain
obligations of the Issuers
contained in the Registration
Rights Agreement. See "The Exchange
Offer -- Terms of the Exchange
Offer."
Expiration Date .......................... The Exchange Offer will expire at
5:00 p.m., New York City time, on
July 2, 1998, or such later date
and time to which it is extended.
See "The Exchange Offer -- Terms of
the Exchange Offer."
Withdrawal ............................... Tenders of Old Notes pursuant to
the Exchange Offer may be withdrawn
at any time prior to 5:00 p.m., New
York City time, on the Expiration
Date. See "The Exchange Offer --
Expiration Date: Extensions;
Amendments."
Conditions of the Exchange Offer ......... The Exchange Offer is not
conditioned upon any minimum
principal amount of Old Notes being
tendered for exchange. The only
condition to the Exchange Offer is
the declaration by the Commission
of the effectiveness of the
Registration Statement of which
this Prospectus constitutes a part.
See "The Exchange offer --
Conditions of the Exchange Offer."
Procedures for Tendering Old Notes ....... Each holder of Old Notes desiring
to accept the Exchange Offer must
complete, sign and date the Letter
of Transmittal according to the
instructions contained herein and
therein, and mail or otherwise
deliver the Letter of Transmittal,
together with the Old Notes and any
other required documents, to the
Exchange Agent (as defined herein)
at the address set forth herein
prior to 5:00 p.m., New York City
time, on the Expiration Date. Any
beneficial owner whose Old Notes
are registered in the name of a
broker, dealer, commercial bank,
trust company or other nominee and
who wishes to tender such Old Notes
in the Exchange Offer should
instruct such entity or person to
promptly tender on such beneficial
owner's behalf.
Guaranteed Delivery Procedures ........... Holders of Old Notes who wish to
tender their Old Notes and (i)
whose Old Notes are not immediately
available or (ii) who cannot
deliver their Old Notes, the Letter
of Transmittal or any other
documents required by the Letter of
Transmittal to the Exchange Agent
prior to the Expiration Date may
tender their Old Notes according to
the guaranteed delivery procedures
set forth in the Letter of
Transmittal. See "The Exchange
Offer -- Guaranteed Delivery
Procedures."
Acceptance of Old Notes and Delivery of
New Notes .............................. Upon effectiveness of the
Registration Statement of which
this Prospectus constitutes of part
and consummation of the Exchange
Offer, the Issuers will accept any
and all Old Notes that are properly
tendered in the Exchange Offer
prior to 5:00 p.m., New York City
time, on the Expiration Date. The
New Notes issued pursuant to the
Exchange Offer will be delivered
promptly after acceptance of Old
Notes. See "The Exchange Offer --
Acceptance of Old Notes for
4
Exchange; Delivery of New Notes."
The Exchange Agent ....................... First Union National Bank has
agreed to serve as the exchange
agent (in such capacity, the
"Exchange Agent") in connection
with the Exchange Offer. See "The
Exchange Offer -- The Exchange
Agent."
Certain Federal Income Tax Considerations For a discussion of certain federal
income tax considerations relating
to the Exchange Offer, see "Certain
Federal Income Tax Considerations."
Use of Proceeds .......................... There will be no proceeds to the
Company from the exchange pursuant
to the Exchange Offer. See "Use of
Proceeds."
Fees and Expenses ........................ All expenses incident to the
Issuers' consummation of the
Exchange Offer and compliance with
the Registration Rights Agreement
will be borne by the Issuers. See
"The Exchange Offer -- Fees and
Expenses."
Termination of Certain Rights ............ Pursuant to the Registration Rights
Agreement, holders of Old Notes (i)
have rights to receive Special
Interest and (ii) have certain
rights intended for the holders of
unregistered securities. "Special
Interest" means additional interest
of 0.50% per annum of the principal
amount of the Old Notes during the
first 90 days of a Registration
Default (as defined), increasing by
an additional 0.50% per annum for
each additional 90-day period (up
to a maximum of 2.0% per annum of
the principal amount) for any
period during which a Registration
Default is continuing pursuant to
the terms of the Registration
Rights Agreement. Holders of New
Notes will no longer be, and upon
consummation of the Exchange Offer,
holders of Old Notes will no longer
be, entitled to (i) the right to
receive Special Interest or (ii)
certain other rights under the
Registration Rights Agreement
intended for holders of
unregistered securities. See "The
Exchange Offer -- Termination of
Certain Rights" and "Procedures for
Tendering Old Notes."
Accrued Interest ......................... The New Notes will bear interest at
a rate equal to 11.50% per annum
from their date of issuance.
Holders whose Old Notes are
accepted for exchange will have the
right to receive interest accrued
thereon from the date of original
issuance or date of the last
interest payment, as applicable,
to, but not including, the date of
issuance of the New Notes, such
interest to be payable with the
first interest payment on the New
Notes. Interest on the Old Notes
accepted for exchange will cease to
accrue on the day prior to the
issuance of the New Notes. See
"Description of Notes -- Principal,
Maturity and Interest."
Resales of New Notes ..................... Based on its interpretation of the
position of the Staff of the
Commission as set forth in certain
interpretive letters issued to
third parties in other
transactions, the Company believes
that the New Notes issued pursuant
to the Exchange Offer to any holder
of Old Notes in exchange for Old
Notes may be offered for resale,
resold and otherwise transferred by
a holder (other than (i) a
broker-dealer who purchased the Old
Notes directly form the Company for
resale pursuant to Rule 144A under
the Securities Act or any other
available exemption under the
Securities Act or (ii) a person
that is an affiliate of the Issuers
or the Guarantors within the
meaning of Rule 405 under the
Securities Act), without further
compliance with the registration
and prospectus delivery provisions
of the Securities Act, provided
that such holder is not an
affiliate of the Issuers or the
Guarantors, is acquiring the New
Notes in the ordinary course of
business and is not participating,
and has no arrangement or
understanding with any person to
participate, in a distribution of
the New Notes. Each broker-dealer
that receives New Notes for its
own account in exchange for Old
Notes, where such Old Notes were
acquired by such broker as a
result of marketing-making or
other trading activities, must
acknowledge that it will
5
deliver a prospectus in connection
with any resale of such New Notes.
See "The Exchange Offer-- Resales
of the New Notes" and "Plan of
Distribution.
Effect of Not Tendering Old Notes for
Exchange ............................... Old Notes that are not tendered or
that are not properly tendered
will, following the expiration of
the Exchange Offer, continue to be
subject to the existing restriction
upon transfer thereof. The Company
will have no further obligations to
provide for the registration under
the Securities Act of such Old
Notes and such Old Notes will,
following the expiration of the
Exchange Offer, bear interest at
the same rate as the New Notes.
Description of New Notes
The form and terms of the New Notes will be identical in all material
respects to the form and terms of the Old Notes, except that the New Notes will
be registered under the Securities Act, and therefore will not be subject to
certain transfer restrictions, registration rights and related Special Interest
provisions applicable to the Old Notes. The Exchange Offer shall be deemed
consummated upon the occurrence of the delivery by the Company to the Exchange
Agent of New Notes in the same aggregate principal amount as the aggregate
principal amount of Old Notes that are validly tendered by holders thereof
pursuant to the Exchange Offer. See "The Exchange Offer -- Termination of
Certain Rights" and " -- Procedures for Tendering Old Notes" and "Description of
Notes."
Securities Offered ....................... $100 million principal amount of
11.50% Senior Subordinated Notes
Due 2008.
Maturity Date ............................ January 15, 2008.
Interest ................................. Interest on the Notes will be
payable semi-annually on each
January 15 and July 15, commencing
July 15, 1998.
Ranking .................................. The Notes are general unsecured
obligations of the Issuers and are
subordinated in right of payment to
all existing and future Senior Debt
of the Issuers. As of April 30,
1998, after giving effect to the
Transactions, the Issuers would
have had approximately $4.4 million
of consolidated Senior Debt
outstanding and had no
outstanding debt which was
subordinate to the Notes. In
addition, after consummation of the
Initial Offering, the Company had
$100 million of total commitments
under the Amended Credit Facility,
of which approximately $14.6
million would have been available
as of April 30, 1998, after
giving effect to the Transactions
and the terms of the Amended Credit
Facility.
Optional Redemption ...................... Except as set forth below, the
Notes are not redeemable at the
option of the Issuers, in whole or
in part, at any time prior to
January 15, 2003. Thereafter, the
Notes are redeemable at any time at
the option of the Issuers, in whole
or in part, at the redemption
prices set forth herein, plus
accrued and unpaid interest and
Liquidated Damages, if any, thereon
to the date fixed for redemption.
In addition, at any time prior to
January 15, 2001, the Issuers may
redeem up to 35% of the aggregate
principal amount of the Notes
originally issued at a redemption
price of 110% of the principal
amount thereof, plus accrued and
unpaid interest and Liquidated
Damages, if any, thereon to the
date fixed for redemption, with the
net cash proceeds of one or more
public offerings of Capital Stock
of the Company (other than
Disqualified Stock), provided that
at least 65% of the aggregate
principal amount of the Notes
originally issued remains
outstanding immediately after the
occurrence of each such redemption.
At any time prior to January 15,
2003, the Issuers may, at their
option, redeem the Notes, in whole
or in part, at a redemption price
equal to 100% of the principal
amount thereof, plus the applicable
Make-Whole Premium.
6
Change of Control ........................ In the event of a Change of
Control, the Issuers are required
to make an offer to each holder of
the Notes to repurchase all or any
part of such holder's Notes at a
repurchase price equal to 101% of
the principal amount thereof plus
accrued and unpaid interest and
Liquidated Damages, if any, thereon
to the date fixed for repurchase.
The Company may not have sufficient
funds to repurchase the New Notes.
See "Risk Factors."
Certain Covenants ........................ The indenture pursuant to which the
Notes have been issued (the
"Indenture") contains certain
covenants that, among other things,
will limit the ability of the
Issuers and the Company's
Restricted Subsidiaries to sell
assets; pay dividends; repurchase
Equity Interests (as defined) or
make other Restricted Payments (as
defined); incur additional
Indebtedness (as defined); create
Liens (as defined); enter into
transactions with Affiliates (as
defined); enter into certain
mergers and consolidations; and
enter into sale and leaseback
transactions. See "Description of
Notes--Certain Covenants."
Risk Factors
The Notes involve a high degree of risk including risks related to the
uncertainity in collection of accounts receivable, competition for projects and
clients, subordination of the notes, the substantial indebtedness in relation to
members' equity, the growth of the Company internally and through acquisitions
and the dependence of the Company's revenue and profit margins on Stage Command
System(R). Prospective purchasers of the Notes should carefully consider the
matters set forth under "Risk Factors" and as well as the other information,
historical financial statements and data and the pro forma financial data
included in this Prospectus prior to accepting the Exchange Offer.
7
SUMMARY COMBINED FINANCIAL DATA
The following table sets forth (i) summary historical combined
financial data of the Company for each of the three years in the period ended
December 31, 1997 and for the three months ended March 31, 1997 and 1998, (ii)
summary pro forma combined financial data of the Company for the year ended
December 31, 1997, which give effect to the Transactions as if they had
occurred on January 1, 1997. The summary historical combined financial data for
each of the three years in the period ended December 31, 1997 were derived from
the audited combined financial statements of the Company, which are included
elsewhere in this Prospectus together with the report thereon of Ernst & Young
LLP, independent auditors. The summary historical combined financial data for
the three months ended March 31, 1997 and as of and for the three months ended
March 31, 1998 were derived from unaudited combined financial statements of the
Company, which, in the opinion of management, contain all adjustments
(consisting of only normal recurring adjustments) necessary for the fair
presentation of the information set forth therein. The results of operations for
the three months ended March 31, 1998 are not necessarily indicative of the
results that may be expected for the full year. The pro forma financial data
are provided for informational purposes only, are unaudited and are not
necessarily indicative of future results or what the operating results or
financial condition of the Company would have been had the Transactions
actually been consummated on the dates assumed. The following table should be
read in conjunction with "Capitalization," "Selected Combined Financial Data,"
"Pro Forma Combined Financial Data," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the historical financial
statements and the notes thereto of the Company, Bash and Pro-Mix included
elsewhere in this Prospectus.
Pro Forma
------------------------------------- -------------
Year
Year Ended Three Months Ended Ended
December 31, March 31, December 31,
------------------------------------- ----------------------- -------------
1995 1996(2)
Restated(1) Restated(1) 1997(3) 1997(4) 1998(4) 1997
---------- ---------- ------- ------- ------- ----
(Dollars in thousands)
Statement of Operations Data:
Revenues ................................. $37,284 $49,434 $75,180 $17,010 $25,486 $108,132
Direct production costs .................. 22,564 29,565 46,131 11,195 14,577 60,634
Depreciation expense ..................... 3,342 3,920 6,181 1,323 2,358 9,410
------- ------- ------- ------- ------- --------
Gross profit ............................. 11,378 15,949 22,868 4,492 8,551 38,088
Selling general and administrative
expenses ............................. 5,794 8,676 16,185 2,557 6,678 25,101
Other depreciation and amortization ...... 445 715 2,182 326 1,045 3,063
Non-recurring compensation expense(5) .... -- -- 2,125 -- -- --
------- ------- ------- ------- ------- --------
Operating profit ......................... 5,139 6,558 2,376 1,609 828 9,924
Loss on impairment of assets(6) .......... -- 495 -- -- -- --
Interest expense ......................... 632 1,292 3,956 548 3,069 12,275
Interest (income) ........................ (268) (128) (117) (31) (211) (134)
------- ------- ------- ------- ------- --------
Income (loss) from continuing operations
before taxes and extraordinary
item ................................... 4,775 4,899 (1,463) 1,092 (2,030) (2,199)
Provision for taxes ...................... 122 206 392 120 23 415
------- ------- ------- ------- ------- --------
Income (loss) from continuing operations.. 4,653 4,693 (1,855) 972 (2,053) $ (2,614)
========
Income (loss) from operations of
discontinued Themed Attraction Permanent
Installation segment.................... 244 1,407 (5,302) 74 --
------- ------- ------- ------- -------
Income (loss) before extraordinary item 4,897 6,100 (7,157) 1,046 (2,053)
Extraordinary item(7) .................... -- -- (614) -- --
------- ------- ------- ------- -------
Net income (loss) ........................ $4,897 $6,100 $(7,771) $ 1,046 $(2,053)
======= ======= ======= ======= =======
Cash Flow Data:
Net cash provided by (used in) operating
activities.............................. $8,974 $ 6,184 $(2,971) $ 2,044 $ (448)
Net cash used in investing activities..... (9,862) (20,302) (40,538) (3,033) (12,587)
Net cash provided by (used in) financing
activities.............................. (651) 15,098 67,663 (144) (126)
Other Financial Data:
EBITDA(8) ................................ $8,926 $11,193 $10,739 $ 3,258 $ 4,231 $22,397
Ratio of earnings to fixed charges(9) .... 6.3x 3.9x -- 2.8x -- --
Pro forma ratio of EBITDA to interest
expense ................................ 1.8x
Pro forma ratio of total debt to
EBITDA ................................. 4.5x
As of March 31, 1998
--------------------
(Dollars in thousands)
Balance Sheet Data:
Working capital ............................. $ 23,650
Total assets ................................ 123,409
Total debt .................................. 104,471
Members' equity ............................. 1,969
(1) On March 2, 1998, the Company adopted a plan to discontinue its themed
attraction segment. The historical Statement of Operations Data for the years
ended December 31, 1995 and 1996 have been restated to reflect this segment as
a discontinued operation. Revenues of the themed attraction segment were
approximately $2.1 million, $13.1 million and $24.6 million for the years ended
December 31, 1995, 1996 and 1997, respectively.
(2) The historical statement of operations data, cash flow data and other
financial data for 1996 reflect the results of operations of Vanco and Cinema
since they were acquired by the Company on January 18, 1996 and February 8,
1996, respectively.
8
(3) The historical statement of operations data, cash flow data and other
financial data for the year ended December 31, 1997 reflect the results of
operations of Thoughtful Designs, Design Dynamics and Bash since they were
acquired by the Company on March 7, 1997, June 6, 1997 and August 14, 1997,
respectively.
(4) The historical statement of operations data, cash flow data and other
financial data for the three months ended March 31, 1997 reflect the results of
operations of Thoughtful Designs since it was acquired by the Company on March
7, 1997 and for the three months ended March 31, 1998 reflect the results of
operations of Pro-Mix since it was acquired by the Company on January 2, 1998.
(5) Non-recurring compensation expense for the year ended December 31, 1997
reflects bonuses of $2.125 million paid to the two shareholders of Bash and a
shareholder of Design Dynamics upon their execution of employment agreements
with the Company.
(6) Loss on impairment of assets for the year ended December 31, 1996 reflects a
writedown of $495,000 to the carrying value of the Company's former principal
fabrication facility in Cornwall-on-Hudson, NY.
(7) Extraordinary item for the year ended December 31, 1997 reflects the
write-off of unamortized deferred financing costs of $614,000 related to the
replacement of the Company's existing revolving credit facility with the Credit
Facility on July 31, 1997. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources."
(8) EBITDA is defined, in accordance with the definition of Consolidated EBITDA
in the Indenture, as the sum of income before interest expense, provision for
taxes, depreciation and amortization and certain non-cash charges. EBITDA is
presented because it is a widely accepted financial indicator of a company's
ability to service indebtedness. However, EBITDA should not be considered an
alternative to operating income or cash flows from operating activities (as
determined in accordance with generally accepted accounting principles) and
should not be construed as an indication of a company's operating performance
or as a measure of liquidity. In addition, EBITDA may not be comparable to
similarly titled measures reported by other companies. EBITDA is calculated as
follows (in thousands):
Pro Forma
Three Months Ended Year Ended
Year Ended December 31, March 31, December 31,
----------------------- ------------------ ------------
1995 1996 1997 1997 1998 1997
----- ----- ----- ----- ----- ----
Operating profit...................... $5,139 $ 6,558 $ 2,376 $ 1,609 $ 828 $ 9,924
Depreciation expense.................. 3,342 3,920 6,181 1,323 2,358 9,410
Other depreciation and amortization... 445 715 2,182 326 1,045 3,063
------ ------- ------- ------- ------- -------
$8,926 $11,193 $10,739 $ 3,258 $ 4,231 $22,397
====== ======= ======= ======= ======= =======
(9) For purposes of computing the ratio of earnings to fixed charges, earnings
consist of income from continuing operations before taxes plus fixed charges.
Fixed charges consist of interest expense plus the portion of operating lease
expense attributable to interest expense. The supplemental pro forma amount for
the year ended December 31, 1997 gives effect to the Transactions.
Earnings were insufficient to cover fixed charges by approximately $1.5 million
for the year ended December 31, 1997 and $2.2 million on a pro forma basis for
1997 and by $2.0 million for the three months ended March 31, 1998.
9
RISK FACTORS
Prospective purchasers of the Notes should carefully consider the following
risk factors, as well as the other information contained in this Prospectus,
including "Selected Combined Financial Data," "Pro Forma Combined Financial
Data" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations," in evaluating the Exchange Offer. This Prospectus
contains certain statements of a forward-looking nature relating to future
events or the future financial performance of the Company. Prospective investors
are cautioned that such statements are only predictions and that actual events
or results may differ materially. In evaluating such statements, prospective
investors should specifically consider the various factors identified in this
Prospectus, including the matters set forth below, which could cause actual
results to differ materially from those indicated by such forward looking
statements.
Substantial Indebtedness in Relation to Equity
The Company has combined indebtedness that is substantial in relation
to its members' equity. As of March 31, 1998, the Company has total combined
indebtedness of approximately $104.5 million and members' equity of $2.0
million. In addition, after consummation of the Initial Offering, the
Company had $100 million of total commitments under the Amended Credit Facility,
of which approximately $14.6 million was available as of April 30 after giving
effect to the Transactions and the terms of the Amended Credit Facility. For the
year ended December 31, 1997, after giving effect to the Transactions and the
terms of the Amended Credit Facility, earnings were insufficient to cover fixed
charges by approximately $2.2 million. For the three months ended March 31,
1998, earnings were insufficient to cover fixed charges by approximately $2.0
million. For 1998, the current annual debt service requirement for existing
indebtedness is approximately $11.9 million. The Company's leveraged financial
position poses substantial consequences to holders of the New Notes, including
the following: (i) a substantial portion of the Company's cash flow from
operations will be dedicated to the payment of interest on the New Notes,
borrowings under the Amended Credit Facility and other indebtedness, (ii) the
Company's leveraged position may impede its ability to obtain financing in the
future for working capital, capital expenditures and other general corporate
purposes, including acquisitions, and (iii) the Company's leveraged financial
position may make it more vulnerable to economic downturns and may limit its
ability to withstand competitive pressures. If the Company is unable to generate
sufficient cash flow from operations in the future to service its indebtedness
and to meet its other commitments, the Company will be required to adopt one or
more alternatives, such as refinancing or restructuring its indebtedness,
selling material assets or operations, or seeking to raise additional debt or
equity capital. There can be no assurance that any of these actions could be
effected on satisfactory terms, that they would enable the Company to continue
to satisfy its capital requirements or that they would be permitted by the terms
of existing or future debt agreements, including the Indenture and the Amended
Credit Facility. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources" and
"Description of Other Indebtedness--Amended Credit Facility."
Subordination of Notes
The payment of principal of, premium and interest on, and any other
amounts owing in respect of, the Notes is subordinated to the prior payment in
full of all existing and future Senior Debt of the Issuers, including
obligations under the Amended Credit Facility. As of April 30, 1998, after
giving effect to the Transactions, the Issuers would have had approximately $4.4
million of consolidated Senior Debt outstanding. In addition, after consummation
of the Initial Offering, the Company had $100 million of total commitments under
the Amended Credit Facility, of which approximately $14.6 million would have
been available as of April 30, 1998, after giving effect to the Transactions
and the terms of the Amended Credit Facility. Similarly, the payment of amounts
due under the Subsidiary Guarantees will be subordinated to the prior payment in
full of all existing and future Guarantor Senior Debt (as defined), including
all amounts owing pursuant to the Guarantors' guarantees of amounts outstanding
under the Credit Facility. The Indenture limits, but does not prohibit, the
ability of the Issuers and the Guarantors to incur additional indebtedness that
may constitute Senior Debt or Guarantor Senior Debt. In the event of the
bankruptcy, liquidation, dissolution, reorganization or other winding up of
either of the Issuers or any of the Guarantors, the assets of such Issuer or
such Guarantor will be available to pay obligations under the Notes or the
Subsidiary Guarantee of such Guarantor, as the case may be, only after all
Senior Debt or Guarantor Senior Debt, as applicable, has been paid in full, and
there can be no assurance that there will be sufficient assets to pay the
amounts due on any or all of the Notes or the Subsidiary Guarantees, as the case
may be, then outstanding. In addition, under certain circumstances, the Issuers
may be prohibited by the Indenture from paying amounts due in respect of the
Notes, or from purchasing, redeeming or otherwise acquiring Notes, if a payment
or non-payment default exists with respect to certain Senior Debt. See
"Description of Notes--Subordination" and "--Subsidiary Guarantees" and
"Description of Other Indebtedness--Amended Credit Facility."
10
Risks Related to Company's Growth and Acquisitions
The Company's growth, both internally and through acquisitions, and related
changes in the Company's operations place significant demands on the Company's
management, administrative, operational and financial resources. The Company is
in the process of installing an expanded financial reporting system, which the
Company believes will not be fully implemented throughout its operations by
the end of 1998. There can be no assurance that the Company's systems,
procedures, controls or financial resources will be adequate to support the
Company's operations or that management will be able to sustain such growth. In
addition, the Company's continued growth will depend in part upon its ability to
successfully identify and acquire complementary businesses and successfully
integrate them into the Company's operations. No assurance can be given that the
Company will be able to identify complementary businesses that meet its
investment criteria. Any such acquisition will also involve potential risks,
including an increase in the Company's indebtedness, the inability to integrate
the operations of the acquired business or to consolidate systems, facilities
and employees, excessive expenses incurred in connection with the acquisition,
diversion of management's attention from other business concerns and potential
loss of key employees from the acquired business. The Company's failure to
manage growth effectively or successfully integrate acquired businesses would
have a material adverse effect on the Company's business, results of operations
and financial condition.
Risks Associated with Stage Command System(R)
In the live theater market segment, the Company's Stage Command System(R)
generally is rented pursuant to run-of-show contracts. As shows close, the
Company seeks to replace lost rental revenues with new shows. Failure to replace
such revenues, whether resulting from a reduction in the use of motion and show
control systems in live theater or from the Company's loss of market share for
motion and show control systems, could have a material adverse effect on the
Company's business, results of operations and financial condition.
Risks Associated with Large Projects; Discontinued Operations
The Company's largest single source of revenues in each of 1996 and
1997 has been a large project for the themed entertainment market. For the year
ended December 31, 1996, Marnell Corrao Associates, the general contractor for
Masquerade in the Sky(TM) at the Rio Suite Hotel & Casino(R) in Las Vegas,
accounted for approximately 18.0% of the Company's revenues including the
revenue from discontinued operations. For the year ended December 31, 1997,
Paramount Pictures, the owner and producer of Star Trek, The Experience(SM),
represented approximately 11.4% of the Company's revenues including the revenue
from discontinued operations. The gross profit margins associated with themed
attraction projects have been significantly lower than those associated with
live entertainment and corporate events projects. In addition, historically,
some of these projects have been unprofitable. As a result of certain
unprofitable projects and the Company's failure to achieve desired margins in
the themed attraction segment of its business, on March 2, 1998 the Company
formalized a plan that will discontinue the operations of its themed attraction
segment as of December 31, 1997 and focus operations on business segments that
generally have been more profitable. The themed attraction business included the
design, engineering, fabrication and permanent installation of the attraction
for the customer. The attractions generally contained moving scenic elements
and show action equipment. The contracts with the customers were always at a
fixed price and always in excess of $3 million. The Company entered this
business in 1995. The Company's profit margin in this segment ranged from
unprofitable to marginally profitable.
Dependence on Key Personnel
The success of the Company depends in large part upon the abilities and
continued service of its executive officers and other key employees,
particularly, Jeremiah J. Harris, Chairman of the Board and Chief Executive
Officer. In addition, during 1997, the Company hired several senior executives
including a Chief Operating and Financial Officer, a senior vice president
responsible for business affairs and a senior vice president responsible for
sales and marketing. Because the Company's management team has been assembled
recently, there can be no assurance that the team will be able to work together
effectively to manage the Company's operations and to implement the Company's
business strategy. Each of the Company's senior executives has an employment
agreement with the Company. There can be no assurance that the Company will be
able to retain the services of such officers and employees. The failure of the
Company to retain the services of Mr. Harris and other key personnel could have
a material adverse effect on the Company's business, results of operations and
financial condition.
11
Controlling Equityholder
Jeremiah J. Harris, the Company's Chairman and Chief Executive Officer, is
the sole manager of the Company pursuant to its Operating Agreement (as defined)
and indirectly controls approximately 96.2% of the voting interests of the
Company. Accordingly, Mr. Harris has the ability to control the business and
affairs of the Company. In addition, the interest of Mr. Harris may be adverse
to the holders of the Notes. See "Principal Unitholders."
Risks of Technological Changes and Competing Products
The Company's past success has depended, in part, on its ability to develop
and enhance technology such as its Stage Command System and to introduce new
products to meet changing client requirements. There can be no assurance that
the Company will continue to develop such new technology or products. In
addition, there can be no assurance that products or technologies developed by
others will not render the Company's products or technologies uncompetitive or
obsolete. A loss of the Company's market share for motion and show control
systems through the introduction of competing products or other factors could
have a material adverse effect on the Company's business, results of operations
and financial condition.
Uncertainty in Collection of Accounts Receivable
Due to the project nature of certain parts of its business, as well as
the Company's business and industry practices, the Company has periodically had
past due accounts receivable and has periodically recorded allowances for
doubtful accounts receivable. As of March 31, 1998, the Company had $21.9
million of total accounts receivable (before deducting an allowance of
approximately $1.7 million), of which approximately $8.0 million was 90 days
past due. Subsequent to March 31, 1998, approximately $1.5 million of the past
due accounts receivable has been collected. Approximately $700,000 of the 90
days past due receivables is related to a project for one of the Company's
largest customers in the discontinued Themed Attraction segment. The Company is
continuing to negotiate with such customer concerning the remaining balance,
which represents work performed in connection with the original agreement.
At December 31, 1997, the Company has reserved for all disputed costs. In 1998,
the Company has begun to provide management services related to such project,
for which the Company has been paid on a timely basis to date. Additionally, in
March 1998, approximately $2.5 million related to another customer in the
discontinued Themed Attraction Segment became 90 days past due. Such customer is
in the process of obtaining additional financing for its project, at which time
the Company expects payment of the past due amount. The Company reviews its
allowances for doubtful accounts receivable on an ongoing basis and may increase
such allowances from time to time. There can be no assurance that the Company's
allowances for doubtful accounts receivables or its credit and collection
policies and practices will be adequate.
Reliance on Key Suppliers
The Company relies on certain suppliers for important components of its
products, in particular, components of the hardware of its Stage Command
System(R). The Company generally purchases these components pursuant to purchase
orders and has no guaranteed supply contracts. Major delivery delays or
termination of the Company's relationship with any supplier of such components
could have a material adverse effect on the Company's business, results of
operations and financial condition.
Product Liability or Personal Injury Claims
The Company faces an inherent business risk of exposure to product
liability or personal injury claims in the event that its products and services
are alleged to have resulted in injury or other adverse effects. The Company
currently maintains insurance coverage but there can be no assurance that the
Company will be able to obtain such insurance on acceptable terms in the future,
if at all, or that any such insurance will provide adequate coverage. Any
successful claims which, individually or in the aggregate, exceed the Company's
insurance coverage could have a material adverse effect on the Company's
business, results of operations and financial condition. In this regard,
Michael Crawford and Entco Three, Inc. have filed an action in the District
Court for Clark County, Nevada against ten defendants including two of the
Company's predecessor entities for personal injury allegedly suffered
by Mr. Crawford while performing in EFX!. While the complaint does not specify
the damages claimed, prior to filing the litigation Mr. Crawford's attorneys
indicated that they would seek damages in excess of the Company's insurance.
See "Business--Legal Proceedings."
Competition for Projects and Clients
The markets for the Company's services in each industry segment are highly
competitive and fragmented. The competitors for the Company's products and
services include primarily small local or regional firms and several large
national firms, some of which may have greater financial, management and
marketing resources than the Company. In the corporate events market, the
Company also competes with the in-house communications departments of existing
and potential clients. The primary competitive factors vary by market but
include technological capability, range of products and services, price,
reputation, reliability, responsiveness to client needs and geographic proximity
to the
12
client. The failure of the Company to compete effectively with respect to any of
these factors could have a material adverse effect on the Company's business,
results of operations and financial condition.
Uncertain Ability to Repurchase Notes Upon Change of Control
The Indenture provides that, in the event of a Change of Control, the
Issuers will be required to make an offer to each holder of Notes to repurchase
all or any part of such holder's Notes at a repurchase price equal to 101% of
the principal amount thereof, plus accrued and unpaid interest and Liquidated
Damages, if any, thereon to the date fixed for repurchase. If a Change of
Control were to occur, there can be no assurance that the Company would have the
financial resources necessary to repurchase all Notes tendered pursuant to such
an offer or would be permitted by the Amended Credit Facility or its other debt
agreements to repurchase the New Notes. In the event that a Change of Control
occurs at a time when the Issuers are prohibited from repurchasing Notes, the
Issuers' failure to make a Change of Control Offer (as defined) would constitute
a default under the Indenture. In such circumstances, the subordination
provisions of the Indenture would also likely restrict payments to the holders
of New Notes. See "Description of Notes--Subordination," "--Repurchase at the
Option of Holders--Change of Control" and "Description of Other Indebtedness--
Amended Credit Facility."
Absence of Public Market; Restrictions on Resale
The New Notes are a new issue of securities for which there is currently no
established market and may not be widely distributed. There can be no assurance
as to (i) the liquidity of any such market that may develop, (ii) the ability of
the holders of New Notes to sell their securities or (iii) the price at which
the holders of New Notes would be able to sell their securities. The Issuers do
not intend to apply for listing of the Notes on any national securities exchange
or on the NASDAQ System; an application has been made to have the Notes
designated for trading in the PORTAL market. The Initial Purchasers are not
obligated, however, to make a market in such securities, and any such
market-making may be discontinued at any time at the sole discretion of the
Initial Purchasers and without notice. In addition, such market making activity
may be limited during the Exchange Offer and the pendency of any Shelf
Registration. See "Description of Notes--Registration Rights; Liquidated
Damages." Therefore, there can be no assurance that an active market for New
Notes will develop or, if such a market develops, that it will continue. See
"Description of Notes--Registration Rights; Liquidated Damages."
Consequences of Failure to Exchange
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon as a
consequence of the issuance of the Old Notes pursuant to exemptions from, or in
transactions not subject to, the registration requirements of the Securities Act
and applicable state securities laws. In general, the Old Notes may not be
offered or sold, unless registered under the Securities Act, except pursuant to
an exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. The Company does not currently anticipate that
it will register the Old Notes under the Securities Act. To the extent that Old
Notes are tendered and accepted in the Exchange Offer, the trading market for
untendered and tendered but unaccepted Old Notes could be
13
adversely affected. Generally, the rights of holders of Old Notes under the
Registration Rights Agreement would also terminate with respect to Old
Notes which are not exchanged for New Notes in the Exchange Offer.
Fraudulent Conveyance
Under applicable provisions of the United States Bankruptcy Code or
comparable provisions of state and federal fraudulent transfer or conveyance
law, if the Issuers, at the time they issued the Notes, or any Guarantor, at the
time it entered into its Subsidiary Guarantee of the Notes, (a) incurred such
obligation with intent to hinder, delay or defraud creditors or (b) received
less than reasonably equivalent value or fair consideration in connection with
such incurrence and (i) was insolvent at the time of the incurrence, (ii) was
rendered insolvent by reason of such incurrence (and the application of the
proceeds thereof), (iii) was engaged or was about to engage in a business or
transaction for which the assets remaining with the Issuers or such Guarantor
constituted unreasonably small capital to carry on its business or (iv) intended
to incur, or believed that it would incur, debts beyond its ability to pay such
debts as they mature, then, in each such case, a court of competent jurisdiction
could avoid, in whole or in part, the Notes or such Subsidiary Guarantee, as the
case may be, or, in the alternative, subordinate the Notes or such guarantee to
existing and future indebtedness of the Issuers or such Guarantor, as the case
may be. The measure of insolvency for purposes of the foregoing will vary
depending upon the law applied in such case. Generally, however, the Issuers or
a Guarantor would be considered insolvent if the sum of its debts, including
contingent liabilities, was greater than all of its assets at fair valuation or
if the present fair saleable value of its assets was less than the amount that
would be required to pay the probable liability on its existing debts, including
contingent liabilities, as they become absolute and matured.
The Company believes that, for purposes of the United States Bankruptcy
Code and other federal and state fraudulent transfer or conveyance laws, (a) the
Notes and the Subsidiary Guarantees are being issued without the intent to
hinder, delay or defraud creditors and for proper purposes and in good faith,
(b) the Issuers and the Guarantors will receive reasonably equivalent value or
fair consideration and (c) the Issuers and the Guarantors, after the issuance of
the Notes and the application of the proceeds thereof, will be solvent, will
have sufficient capital for carrying on their business and will be able to pay
their debts as they mature. There can be no assurance, however, that a court
passing on such questions would agree with the Company's belief.
Forward Looking Statements
This Prospectus contains certain "forward-looking statements" (as such term
is defined in the Private Securities Litigation Reform Act of 1995), which can
be identified by the use of forward-looking terminology such as "believes,"
"expects," "may," "will," "should," or "anticipates" or the negative thereof or
other variations thereon or comparable terminology, or by discussions of
strategy that involve risks and uncertainties.
Because the Company is not yet subject to the reporting requirements
of the Exchange Act, the Company is not permitted to rely on the safe harbor
for forward-looking statements provided by Section 27A(b)(2)(D) of the
Securities Act and Section 21E(b)(2)(D) of the Exchange Act with respect to this
offering.
Such forward-looking statements involve known and unknown risks, uncertainties
and other factors that may cause the actual results, performance or achievements
of the Company or the markets that it serves to be materially different from any
future results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include the timing, costs and scope of
any acquisition, the revenue and profitability levels of any entity acquired by
the Company, the Company's ability to integrate the systems, facilities and
employees of any acquired company into the Company's operations, technological
advances in the industry and other matters contained in this Prospectus. Certain
of these factors are discussed in more detail elsewhere in this Prospectus
including, without limitation, under "Summary," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business." Given
these uncertainties, prospective investors are cautioned not to place undue
reliance on such forward-looking statements. These forward-looking statements
are based on current expectations, and the Company assumes no obligation to
update this information.
14
THE COMPANY
Background
The Company, a Delaware limited liability company formed in August 1995, is
the successor to the theatrical production management, scenery construction and
installation and motion control systems businesses founded by Jeremiah J.
Harris, the Company's Chairman and Chief Executive Officer, in 1984.
Until 1995, the Company focused on its two traditional lines of
business: scenery and automation equipment for Broadway shows and production
services for industrial shows. The scenery and automation jobs for Broadway
shows generally were performed over a period of less than three months and
generally had costs of less than one million dollars. The Company also provided
technical management services to the Broadway market. The production service
portion of the business focused primarily on automotive and pharmaceutical
companies. In 1995, the Company commenced operations in the themed attraction
business with its work on Terminator 2-3D for Universal Studios Florida. The
success of this project resulted in the Company taking on similar work in the
themed entertainment business including other large-scale, long-term,
multi-million dollar theme park and casino projects. The Company has recently
decided to discontinue its themed attraction business.
The Company's work in the themed entertainment business exposed it to a
range of customers beyond the Company's traditional Broadway and industrial show
customers and caused the Company to adopt a business plan under which it would
expand into other product lines and geographic markets in related businesses.
Pursuant to this plan, in early 1996, the Company entered the theatrical
lighting business by acquiring the assets of Cinema and Vanco which provide
lighting equipment and related products in Las Vegas and Orlando, respectively.
The Company continued the expansion of its theatrical lighting business with the
acquisition of Bash in 1997. Also in 1997, the Company entered the exhibit
business when it acquired the assets of Design Dynamics in Denver. In early
1998, the Company continued to expand the range of products and services it
makes available to its customers by entering the theatrical audio business with
its acquisition of the assets of Pro-Mix.
The Company has experienced significant growth in revenues and EBITDA in
recent years as it has applied its technical and creative expertise in the live
entertainment market to the other markets it serves. In addition, since January
1996, the Company has completed six acquisitions, which have expanded the
Company's product and service offering, diversified its client base and
substantially increased its revenues.
On March 2, 1998, the Company decided to discontinue its themed attraction
segment and focus its operations on more profitable business segments. This
included the adoption of a formal plan of discontinuance prepared by management
and reviewed and approved by the Board of Advisors (as defined).
The Company's principal executive offices are located at 539 Temple Hill
Road, New Windsor, New York 12553, and its phone number is (914) 567-5700.
Recent Acquisitions
On January 2, 1998, the Company acquired substantially all of the assets
and assumed certain liabilities of Pro-Mix, which provides sound equipment and
acoustical and sound design consulting services primarily to the live theater
market segment through its offices located in the New York metropolitan area and
Orlando. The assets to be acquired include three distribution and sales offices,
inventory, customer lists and tradenames. The purchase price was approximately
$7.8 million, plus a $1.5 million contingent payment based primarily upon
earnings. The purchase price also includes $939,000, representing the
approximate fair value of 79,179 of the Company's Preferred Units issued in
connection with the Pro-Mix acquisition. Two principal shareholders of Pro-Mix
entered into employment agreements with the Company. See "Pro Forma
Combined Financial Data."
In August 1997, the Company acquired substantially all of the assets and
assumed certain liabilities of five companies operating under the name of Bash.
Prior to its acquisition by the Company, Bash was one of the largest suppliers
of theatrical lighting systems and related products in the United States through
its offices located in the New York metropolitan area, Las Vegas, Orlando and
Baltimore. The assets acquired included four distribution centers and sales
offices, inventory, customer lists and tradenames. The purchase price for Bash
was $20.0 million, subject to adjustment. In addition, the two shareholders of
Bash were each paid a bonus of $1.0 million upon execution of an employment
agreement with the Company. See "Pro Forma Combined Financial Data" and the
audited financial statements of Bash and the notes thereto included elsewhere in
this Prospectus.
In June 1997, the Company acquired substantially all of the assets and
assumed certain liabilities of Design Dynamics, located in Denver, which
specializes in fabricating trade show exhibits. Design Dynamics enabled the
Company to further penetrate the trade show market and cross-sell its products
and services to Design Dynamics' existing clients. The assets acquired included
a fabrication and distribution center, inventory, customer lists and tradenames.
The purchase price was $4.0 million. See "Pro Forma Combined Financial
Data."
In March 1997, the Company acquired substantially all of the assets and
assumed certain liabilities of Thoughtful Designs, located in Las Vegas, which
provides technology design and show control systems. The purchase price was
$200,000.
In February 1996, the Company acquired substantially all of the
assets, excluding cash and accounts receivable, and assumed certain
liabilities of Cinema, located in Las Vegas, which established the
Company's theatrical lighting capabilities in the large gaming and
corporate events markets in Las Vegas. The assets acquired included a
distribution center, inventory, customer lists and tradenames. The
purchase price was $1.8 million, plus contingent payments not to exceed
$500,000.
In January 1996, the Company acquired substantially all of the assets and
assumed certain liabilities of Vanco, located in Orlando, which established the
Company's theatrical lighting capabilities in the large theme park and
convention markets in Orlando. The assets acquired included a distribution
center, inventory, customer lists and tradenames. The purchase price was $1.0
million, including a $700,000, ten-year adjustable promissory note bearing
15
interest at 9.5%, the principal amount of which was subsequently adjusted to
$468,000 as a result of certain closing adjustments.
16
THE EXCHANGE OFFER
The following is a summary of the material terms and conditions of the
Registration Rights Agreement and is subject to the detailed provisions of the
Registration Rights Agreement, which has been filed as an exhibit to the
Registration Statement and a copy of which is available upon request to the
Trustee.
Purpose and Effect
The Old Notes were sold by the Issuers to the Initial Purchasers on
December 24, 1997. The Initial Purchasers subsequently resold the Old Notes in
reliance on Rule 144A under the Securities Act. The Issuers, the Guarantors and
the Initial Purchasers entered into the Registration Rights Agreement, pursuant
to which the Issuers agreed, with respect to the Old Notes and subject to the
Issuers' determination that the Exchange Offer is permitted under applicable
law, to (i) cause to be filed, on or prior to February 22, 1998, a registration
statement with the Commission under the Securities Act concerning the Exchange
Offer, and, (ii) use its best efforts (a) to cause such registration statement
to be declared effective by the Commission on or prior to May 23, 1998, and (b)
to consummate the Exchange Offer on or prior to June 22, 1998. The Company will
keep the Exchange Offer open for a period of not less than 20 business days (or
longer if required by applicable law) after the date the notice of the Exchange
Offer is mailed to the holders of the Old Notes. This Exchange Offer is intended
to satisfy the Company's exchange offer obligations under the Registration
Rights Agreement.
Consequences of Failure to Exchange Old Notes
Following the expiration of the Exchange Offer, holders of Old Notes not
tendered, or not properly tendered will not have any further registration rights
and such Old Notes will continue to be subject to the existing restrictions on
transfer thereof. Accordingly, the liquidity of the market for a holder's Old
Notes could be adversely affected upon expiration of the Exchange Offer if such
holder elects not to participate in the Exchange Offer.
Terms of the Exchange Offer
The Issuers and the Guarantors hereby offer, upon the terms and subject to
the conditions set forth herein and in the accompanying Letter of Transmittal,
to exchange $100 million aggregate principal amount of New Notes for up to $100
million aggregate principal amount of the outstanding Old Notes. The Company
will accept for exchange any and all Old Notes that are validly tendered on or
prior to 5:00 p.m., New York City time, on the Expiration Date. Tenders of the
Old Notes may be withdrawn at any time prior to 5:00 p.m., New York City time,
on the Expiration Date. The Exchange Offer is not conditioned upon any minimum
principal amount of Old Notes being tendered for exchange. However, the Exchange
Offer is subject to the terms and provisions of the Registration Rights
Agreement. See "The Exchange Offer -- Conditions of the Exchange Offer."
As of the date of this Prospectus, $100 million in aggregate principal
amount of the Old Notes is outstanding, the maximum amount authorized by the
Indenture for all Notes. Only a holder of the Old Notes (or such holder's legal
representative or attorney-in-fact) may participate in the Exchange Offer. There
will be no fixed record date for determining holders the Old Notes entitled to
participate in the Exchange Offer. The Issuers believe that, as of the date of
this Prospectus, no such holder is an affiliate (as defined in Rule 405 under
the Securities Act) of the Issuers or the Guarantors.
The Issuers shall be deemed to have accepted validly tendered Old Notes
when, as and if the Issuers have given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering holders
of Old Notes and for the purposes of receiving the New Notes from the Issuers.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, certificates for any such unaccepted Old Notes will be returned,
without expense, to the tendering holder thereof as promptly as practicable
after the Expiration Date.
Expiration Date; Extensions; Amendments
17
The Expiration Date shall be July 2, 1998 at 5:00 p.m., New York City
time, unless the Company, in its sole discretion, extends the Exchange Offer, in
which case the Expiration Date shall be the latest date and time to which the
Exchange Offer is extended.
In order to extend the Exchange Offer, the Company will notify the Exchange
Agent of any extension by oral or written notice and will make a public
announcement thereof, each prior to 9:00 a.m., New York City time, on the next
business day after the previously scheduled Expiration Date.
If the Exchange Offer is amended in a manner determined by the Company to
constitute a material change, the Company will promptly disclose such amendments
by means of a prospectus supplement that will be distributed to the registered
holders of the Old Notes. Modifications of the Exchange Offer, including but not
limited to extension of the period during which the Exchange Offer is open, may
require that at least five business days remain in the Exchange Offer. In order
to extend the Exchange Offer, the Company will notify the Exchange Agent of any
extension by oral or written notice and will make a public announcement thereof,
each prior to 9:00 a.m., New York City time, on the next business day after the
previously scheduled Expiration Date.
Conditions of the Exchange Offer
The Exchange Offer is not conditioned upon any minimum principal amount of
the Old Notes being tendered for exchange. However, the Exchange Offer is
conditioned upon the declaration by the Commission of the effectiveness of the
Registration Statement of which this Prospectus constitutes a part.
Termination of Certain Rights
The Registration Rights Agreement provides that, subject to certain
exceptions, in the event of a Registration Default (as defined below), holders
of Old Notes are entitled to receive Liquidated Damages of 0.5% per annum of the
principal amount of the Old Notes during the first 90 days of a Registration
Default, increasing by an additional 0.5% per annum for each additional 90 day
period of a Registration Default (up to a maximum of 2.0% per annum). A
"Registration Default" with respect to the Exchange Offer shall occur if: (i)
any of the Registration Statements required by the Registration Rights Agreement
is not filed with the Commission on or prior to the date specified for such
filing in the Registration Rights Agreement, (ii) any of such Registration
Statements has not been declared effective by the Commission on or prior to the
date specified for such effectiveness in the Registration Rights Agreement (the
"Effectiveness Target Date"), (iii) the Exchange Offer has not been Consummated
within 30 business days after the Effectiveness Target Date with respect to the
Exchange Offer Registration Statement or (iv) any Registration Statement
required by the Registration Rights Agreement is filed and declared effective
but shall thereafter cease to be effective or fail to be usable for its intended
purpose without being succeeded immediately by a post-effective amendment to
such Registration Statement that cures such failure and that is itself
immediately declared effective. Holders of New Notes will not be and, upon
consummation of the Exchange Offer, holders of Old Notes will no longer be,
entitled to (i) the right to receive the Liquidated Damages or (ii) certain
other rights under the Registration Rights Agreement intended for holders of
Old Notes. The Exchange Offer shall be deemed consummated upon the occurrence
of the delivery by the Company to the Trustee under the Indenture of
New Notes in the same aggregate principal amount as the aggregate principal
amount of Old Notes that are tendered by holders thereof pursuant to the
Exchange Offer.
Accrued Interest
The New Notes will bear interest at a rate equal to 11.50% per annum from
and including their date of issuance. Holders whose Old Notes are accepted for
exchange will have the right to receive interest accrued thereon from the last
date on which interest was paid on the Old Notes, or if no interest had been
paid on such Old Notes, from the date of their original issue, to, but not
including, the date of issuance of the New Notes, such interest to be payable
with the first interest payment on the New Notes. Interest on the Old Notes
accepted for exchange, which interest accrued at the rate of 11.50% per annum,
will cease to accrue on the day prior to the issuance of the New Notes. See
"Description of Notes -- Exchange Offer; Registration Rights."
Procedures For Tendering Old Notes
The tender of a holder's Old Notes as set forth below and the acceptance
thereof by the Company will constitute a binding agreement between the tendering
holder and the Company upon the terms and subject to the
18
conditions set forth in this Prospectus and in the accompanying Letter of
Transmittal. Except as set forth below, a holder who wishes to tender Old Notes
for exchange pursuant to the Exchange Offer must transmit such Old Notes,
together with a properly completed and duly executed Letter of Transmittal,
including all other documents required by such Letter of Transmittal, to the
Exchange Agent at the address set forth on the back cover page of this
Prospectus prior to 5:00 p.m., New York City time, on the Expiration Date. THE
METHOD OF DELIVERY OF OLD NOTES, LETTERS OF TRANSMITTAL AND ALL OTHER REQUIRED
DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDER. IF SUCH DELIVERY IS BY
MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED, WITH RETURN
RECEIPT REQUESTED, BE USED. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT
THE HOLDER USE AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT
TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
Any financial institution that is a participant in DTC's Book-Entry
Transfer Facility system may make book-entry delivery of the Old Notes by
causing DTC to transfer such Old Notes into the Exchange Agent's account in
accordance with DTC's procedures for such transfer. In connection with a
book-entry transfer, a Letter of Transmittal need not be transmitted to the
Exchange Agent, provided that the book-entry transfer procedure is made in
accordance with DTC's ATOP (as defined) procedures for transfer and such
procedures are complied with prior to 5:00 p.m., New York City time, on the
Expiration Date.
DTC's Automated Tender Offer Program ("ATOP") is the only method of
processing exchange offers through DTC. To accept the Exchange Offer through
ATOP, participants in DTC must send electronic instructions to DTC through DTC's
communication system, prior to 5:00 p.m., New York City time, on the Expiration
Date, in place of sending a signed, hard copy Letter of Transmittal. DTC is
obligated to communicate those electronic instructions to the Exchange Agent by
an "Agent's Message." To tender Old Notes through ATOP, the electronic
instructions sent to DTC and transmitted by DTC to the Exchange Agent must
contain the participant's acknowledgement of its receipt of and agreement to be
bound by the Letter of Transmittal for such Old Notes.
Each signature on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed unless the Old Notes surrendered for exchange
pursuant hereto are tendered (i) by a registered holder of the Old Notes who has
not completed either the box entitled "Special Exchange Instructions" or the box
entitled "Special Delivery Instructions" in the Letter of Transmittal, or (ii)
by an Eligible Institution (as defined below). In the event that a signature on
a Letter of Transmittal or a notice of withdrawal, as the case may be, is
required to be guaranteed, such guarantee must be by a firm which is a member of
a registered national securities exchange or the National Association of
Securities Dealers, Inc., a commercial bank or trust company having an office or
correspondent in the United States or otherwise be an "eligible guarantor
institution" within the meaning of Rule 17Ad-15 under the Exchange Act
(collectively, "Eligible Institutions"). If the Letter of Transmittal is signed
by a person other than the registered holder of the Old Notes, the Old Notes
surrendered for exchange must either (i) be endorsed by the registered holder,
with the signature thereon guaranteed by an Eligible Institution or (ii) be
accompanied by a bond power, in satisfactory form as determined by the Company
in its sole discretion, duly executed by the registered holder, with the
signature thereon guaranteed by an Eligible Institution. The term "registered
holder" as used herein with respect to the Old Notes means any person in whose
name the Old Notes are registered on the books of the Registrar.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of Old Notes tendered for exchange will be
determined by the Issuers in their sole discretion, which determination shall be
final and binding. The Issuers reserve the absolute right to reject any and all
Old Notes not properly tendered and to reject any Old Notes the Issuers'
acceptance of which might, in the judgment of the Issuers or their counsel, be
unlawful. The Issuers also reserve the absolute right to waive any defects or
irregularities or conditions of the Exchange Offer as to particular Old Notes
either before or after the Expiration Date (including the right to waive the
ineligibility of any holder who seeks to tender Old Notes in the Exchange
Offer). The interpretation of the terms and conditions of the Exchange Offer
(including the Letter of Transmittal and the instructions thereto) by the
Issuers shall be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of Old Notes for exchange must be
cured within such period of time as the Issuers shall determine. The Issuers
will use reasonable efforts to give notification of defects or irregularities
with respect to tenders of Old Notes for exchange but shall not incur any
liability for failure to give such
19
notification. Tenders of the Old Notes will not be deemed to have been made
until such irregularities have been cured or waived.
If any Letter of Transmittal, endorsement, bond power, power of attorney or
any other document required by the Letter of Transmittal is signed by a trustee,
executor, corporation or other person acting in a fiduciary or representative
capacity, such person should so indicate when signing, and, unless waived by the
Issuers, proper evidence satisfactory to the Company, in its sole discretion, of
such person's authority to so act must be submitted.
Any beneficial owner of the Old Notes (a "Beneficial Owner") whose Old
Notes are registered in the name of a broker, dealer, commercial bank, trust
company or other nominee and who wishes to tender Old Notes in the Exchange
Offer should contact such registered holder promptly and instruct such
registered holder to tender on such Beneficial Owner's behalf. If such
Beneficial Owner wishes to tender directly, such Beneficial Owner must, prior to
completing and executing the Letter of Transmittal and tendering Old Notes, make
appropriate arrangements to register ownership of the Old Notes in such
Beneficial Owner's name. Beneficial Owners should be aware that the transfer of
registered ownership may take considerable time.
By tendering, each registered holder will represent to the Issuers that,
among other things, (i) the New Notes to be acquired in connection with the
Exchange Offer by the holder and each Beneficial Owner of the Old Notes are
being acquired by the holder and each Beneficial Owner in the ordinary course of
business of the holder and each Beneficial Owner, (ii) the holder and each
Beneficial Owner are not participating, do not intend to participate, and have
no arrangement or understanding with any person to participate, in the
distribution of the New Notes, (iii) the holder and each Beneficial Owner
acknowledge and agree that any person participating in the Exchange Offer for
the purpose of distributing the New Notes must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with a
secondary resale transaction of the New Notes acquired by such person and cannot
rely on the position of the staff of the Commission set forth in no-action
letters that are discussed herein under "Resales of New Notes," (iv) if the
holder is a broker-dealer that acquired Old Notes as a result of market making
or other trading activities, it will deliver a prospectus in connection with any
resale of New Notes acquired in the Exchange Offer, (v) the holder and each
Beneficial Owner understand that a secondary resale transaction described in
clause (iii) above should be covered by an effective registration statement
containing the selling security holder information required by Item 507 of
Regulation S-K of the Commission, and (vi) neither the holder nor any Beneficial
Owner is an "affiliate," as defined under Rule 405 of the Securities Act, of the
Issuers or Guarantors except as otherwise disclosed to the Company in writing.
In connection with a book-entry transfer, each participant will confirm that it
makes the representations and warranties contained in the Letter of Transmittal.
Guaranteed Delivery Procedures
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available or (ii) who cannot deliver their Old Notes or any other
documents required by the Letter of Transmittal to the Exchange Agent prior to
the Expiration Date (or complete the procedure for book-entry transfer on a
timely basis), may tender their Old Notes according to the guaranteed delivery
procedures set forth in the Letter of Transmittal. Pursuant to such procedures:
(i) such tender must be made by or through an Eligible Institution and a Notice
of Guaranteed Delivery (as defined in the Letter of Transmittal) must be signed
by such Holder, (ii) on or prior to the Expiration Date, the Exchange Agent must
have received from the Holder and the Eligible Institution a properly completed
and duly executed Notice of Guaranteed Delivery (by facsimile transmission, mail
or hand delivery) setting forth the name and address of the Holder, the
certificate number or numbers of the tendered Old Notes, and the principal
amount of tendered Old Notes, stating that the tender is being made thereby and
guaranteeing that, within five New York Stock Exchange trading days after the
date of delivery of the Notice of Guaranteed Delivery, the tendered Old Notes, a
duly executed Letter of Transmittal and any other required documents will be
deposited by the Eligible Institution with the Exchange Agent; and (iii) such
properly completed and executed documents required by the Letter of Transmittal
and the tendered Old Notes in proper form for transfer (or confirmation of a
book-entry transfer of such Old Notes into the Exchange Agent's account at DTC)
must be received by the Exchange Agent within five New York Stock Exchange
trading days after the Expiration Date. Any Holder who wishes to tender Old
Notes pursuant to the guaranteed delivery procedures described above must ensure
that the Exchange Agent receives the Notice of Guaranteed Delivery and Letter of
Transmittal relating to such Old Notes prior to 5:00 p.m., New York City time,
on the Expiration Date. DTC participants may also submit the Notice of
Guaranteed Delivery through ATOP.
20
Acceptance of Old Notes for Exchange; Delivery of New Notes
Upon satisfaction or waiver of all the conditions to the Exchange Offer,
the Issuers will accept any and all Old Notes that are properly tendered in the
Exchange Offer prior to 5:00 p.m., New York City time, on the Expiration Date.
The New Notes issued pursuant to the Exchange Offer will be delivered promptly
after acceptance of the Old Notes. For purposes of the Exchange Offer, the
Issuers shall be deemed to have accepted validly tendered Old Notes, when, as,
and if the Issuers have given oral or written notice thereof to the Exchange
Agent.
In all cases, issuances of New Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of such Old Notes, a properly completed and duly executed
Letter of Transmittal and all other required documents (or of confirmation of a
book-entry transfer of such Old Notes into the Exchange Agent's account at DTC);
provided, however, that the Issuers reserve the absolute right to waive any
defects or irregularities in the tender or conditions of the Exchange Offer. If
any tendered Old Notes are not accepted for any reason, such unaccepted Old
Notes will be returned without expense to the tendering Holder thereof as
promptly as practicable after the expiration or termination of the Exchange
Offer.
Withdrawal Rights
Tenders of the Old Notes may be withdrawn by delivery of a written notice
(or for DTC participants, transmission of a notice through ATOP) to the Exchange
Agent, at its address set forth on the back cover page of this Prospectus, at
any time prior to 5:00 p.m., New York City time, on the Expiration Date. Any
such notice of withdrawal must (i) specify the name of the person having
deposited the Old Notes to be withdrawn (the "Depositor"), (ii) identify the Old
Notes to be withdrawn (including the certificate number or numbers and principal
amount of such Old Notes, as applicable), (iii) be signed by the Holder in the
same manner as the original signature on the Letter of Transmittal by which such
Old Notes were tendered (including any required signature guarantees) or be
accompanied by a bond power in the name of the person withdrawing the tender, in
satisfactory form as determined by the Company in its sole discretion, duly
executed by the registered holder, with the signature thereon guaranteed by an
Eligible Institution together with the other documents required upon transfer by
the Indenture, and (iv) specify the name in which such Old Notes are to be
re-registered, if different from the Depositor, pursuant to such documents of
transfer. Any questions as to the validity, form and eligibility (including time
of receipt) of such notices will be determined by the Company, in its sole
discretion. The Old Notes so withdrawn will be deemed not to have been validly
tendered for exchange for purposes of the Exchange Offer. Any Old Notes which
have been tendered for exchange but which are withdrawn will be returned to the
Holder thereof without cost to such Holder as soon as practicable after
withdrawal. Properly withdrawn Old Notes may be retendered by following one of
the procedures described under "The Exchange Offer -- Procedures for Tendering
Old Notes" at any time on or prior to the Expiration Date.
The Exchange Agent; Assistance
First Union National Bank is the Exchange Agent. All tendered Old Notes,
executed Letters of Transmittal and other related documents should be directed
to the Exchange Agent. Questions and requests for assistance and requests for
additional copies of the Prospectus, the letter of Transmittal and other related
documents should be addressed to the Exchange Agent as follows:
By Hand, or Overnight Courier:
First Union National Bank
1525 West W.T. Harris Blvd.
Charlotte, NC 28288
Attn: Corporate Trust Operations
Facsimile Transmissions (Eligible Institutions Only):
(704) 590-7628
To confirm by telephone or for information call:
(704) 590-7408
21
Fees and Expenses
All expenses incident to the Company's consummation of the Exchange
Offer and compliance with the Registration Rights Agreement will be
borne by the Issuers and the Guarantors, including, without limitation:
(i) all registration and filing fees (including, without limitation,
fees and expenses of compliance with state securities or Blue Sky laws);
(ii) printing expenses (including, without limitation, expenses of
printing certificates for the New Notes in a form eligible for deposit
with DTC and of printing Prospectuses); (iii) messenger, telephone and
delivery expenses; (iv) fees and disbursements of counsel for the
Issuers and the Guarantors; (v) fees and disbursements of independent
accountants; and (vi) all application and filing fees in connection with
any listing of the Notes on a national securities exchange or automated
quotation system.
Neither the Issuers nor the Guarantors have retained any dealer-manager in
connection with the Exchange Offer and will not make any payments to brokers,
dealers or others soliciting acceptance of the Exchange Offer. The Issuers,
however, will pay the Exchange Agent reasonable and customary fees for its
services and will reimburse it for its reasonable out-of-pocket expenses in
connection therewith.
Accounting Treatment
The New Notes will be recorded at the same carrying value as the Old Notes,
as reflected in the Company's accounting records on the date of the exchange.
Accordingly, no gain or loss will be recognized by the Company for accounting
purposes. The expenses of the Exchange Offer will be amortized over the term of
the New Notes.
Resales of the New Notes
Based on the position of the staff of the Commission as set forth in
certain interpretive letters issued to third parties in other transactions, the
Issuers believe that the New Notes issued pursuant to the Exchange Offer to any
holder of Old Notes in exchange for Old Notes may be offered for resale, resold
and otherwise transferred by such holder (other than (i) a broker-dealer who
purchased Old Notes directly from the Issuers for resale pursuant to Rule 144A
under the Securities Act or any other available exemption under the Securities
Act, or (ii) a person that is an affiliate of the Issuers or the Guarantors
within the meaning of Rule 405 under the Securities Act) without further
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that such holder is not an affiliate of the Company,
is acquiring the New Notes in the ordinary course of business and is not
participating, and has no arrangement or understanding with any person to
participate, in the distribution of the New Notes. However, the Company has not
sought its own interpretive letter and there can be no assurance that the
Commission would make a similar determination with respect to the Exchange
Offer. The Company and holders of Old Notes are not entitled to rely on
interpretive advice provided by the staff to other persons, which advice was
based on the facts and conditions represented in such letters. However, the
Exchange Offer is being conducted in a manner intended to be consistent with the
facts and conditions represented in such letters. If any holder acquires New
Notes in the Exchange Offer for the purpose of distributing or participating in
a distribution of the New Notes, such holder cannot rely on the position of the
staff of the Commission enunciated in Morgan Stanley & Co. Incorporated
(available June 5, 1991) and Exxon Capital Holdings Corporation (available May
13, 1989), or interpreted in the Commission's letter to Shearman and Sterling
(available July 2, 1993), or similar no-action or interpretive letters and must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with a secondary resale transaction, unless an
exemption from registration is otherwise available. Each broker-dealer that
receives New Notes for its own account in exchange for Old Notes, where such Old
Notes were acquired by such broker-dealer as a result of market making or other
trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. See "Plan of Distribution."
22
It is expected that the New Notes will be freely transferable by the
holders thereof, subject to the limitations described in the immediately
preceding paragraph. Sales of New Notes acquired in the Exchange Offer by
holders who are "affiliates" of the Issuers and the Guarantors within the
meaning of the Securities Act will be subject to certain limitations on resale
under Rule 144 of the Securities Act. Such persons will only be entitled to sell
New Notes in compliance with the volume limitations set forth in Rule 144, and
sales of New Notes by affiliates will be subject to certain Rule 144
requirements as to the manner of sale, notice and the availability of current
public information regarding the Issuers and the Guarantors. The foregoing is a
summary only of Rule 144 as it may apply to affiliates of the Company. Any such
persons must consult their own legal counsel for advice as to any restrictions
that might apply to the resale of their Notes.
23
USE OF PROCEEDS
There will be no cash proceeds payable to the Company from the issuance of
the New Notes pursuant to the Exchange Offer. The Company is conducting the
Exchange Offer to satisfy certain of its obligations under the Registration
Rights Agreement executed in connection with the issuance of the Old Notes. The
net proceeds from the issuance of the Old Notes ($96.3 million) were used to (i)
repay indebtedness of $68.3 million under the credit agreement dated as of
July 31, 1997 (the "Credit Facility"), with the Bank of New York, as agent and
the leaders referred to therein and (ii) fund $8.3 million of the purchase price
for the acquisition of the net assets of Pro-Mix. The balance of approximately
$19.7 million is being used to fund working capital requirements and other
general corporate purposes, which may include, subject to satisfaction of
certain conditions, a distribution to the Company's members. See "Description of
Notes--Certain Covenants--Restricted Payments."
The Company regularly reviews the operations of potential acquisition
targets and is currently in various stages of evaluating numerous possible
acquisitions, primarily in the lighting, trade show exhibit and audio businesses
certain of which, if consummated, could be material. See "Risk Factors--Risks
Related to Company's Growth and Acquisitions" and "The Company--Recent and
Proposed Acquisitions."
In connection with the Initial Offering, the Company entered into an
amendment to the Credit Facility (as amended, the "Amended Credit Facility").
Prior to repayment with the proceeds from the Initial Offering, the amounts
outstanding under the Credit Facility bore interest at an average effective rate
of 7.6% and were to mature on June 30, 2003. The borrowings outstanding under
the Credit Facility were incurred to refinance then existing indebtedness,
finance acquisitions, purchase land for a new facility in Las Vegas and fund
working capital requirements. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources"
and "Description of Other Indebtedness--Amended Credit Facility."
24
CAPITALIZATION
The following table sets forth the actual cash and cash equivalents and
capitalization of the Company at March 31, 1998. This table should be read in
conjunction with "Use of Proceeds," "Selected Combined Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's Combined Financial Statements and the notes
thereto included elsewhere in this Prospectus.
March 31, 1998
--------------
(In thousands)
Cash and cash equivalents ........................... $ 14,003
========
Long-term debt, including current maturities:
Amended Credit Facility(1) ......................... --
11 1/2% Senior Subordinated Notes due 2008 ......... 100,000
Other long-term debt(2) ............................ 4,471
--------
Total long-term debt, including current maturities 104,471
Members' equity ..................................... 1,969
--------
Total capitalization ............................. $106,440
========
(1) Upon consummation of the Initial Offering, the Company had $100 million of
total commitments under the Amended Credit Facility, of which approximately
$14.6 million is available as of April 30, 1998. See "Description of the Other
Indebtedness--Amended Credit Facility."
(2) Other long-term debt includes $3.6 million of mortgage debt and a
$400,000 note payable incurred in connection with the acquisition of the net
assets of Vanco.
25
SELECTED COMBINED FINANCIAL DATA
The following table sets forth selected historical combined financial
data for the Company as of and for each of the five years in the period ended
December 31, 1997 and as of and for the three months ended March 31, 1997 and
1998. The selected historical combined financial data as of and for each of the
three years in the period ended December 31, 1997 were derived from the combined
financial statements of the Company, which have been audited by Ernst & Young
LLP, independent auditors, and are included elsewhere in this Prospectus. The
selected historical combined financial data as of and for the years ended
December 31, 1993 and 1994 were derived from audited combined financial
statements of the Company that are not included herein. The selected historical
combined financial data as of and for the three months ended March 31, 1997 and
1998 are unaudited, but have been prepared on the same basis as the audited
combined financial statements, which, in the opinion of management, contain all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of the information set forth therein. The results of
operations for the three months ended March 31, 1998 are not necessarily
indicative of the results for the full year. The following table should be read
in conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Company's Combined Financial Statements and
the notes thereto included elsewhere in this Prospectus.
Three Months Ended
Year Ended December 31, March 31,
--------------------------------------------------------- ------------------
1993 1994 1995 1996(2) 1997(3) 1997(4) 1998(4)
Restated(1) Restated(1)
-------- -------- -------- -------- -------- ------- -------
(Dollars in thousands)
Statement of Operations Data:
Revenues ....................................... $ 25,726 $ 31,040 $ 37,284 $ 49,434 $ 75,180 $ 17,010 $ 25,486
Direct production costs ........................ 19,131 22,250 22,564 29,565 46,131 11,195 14,577
Depreciation expense ........................... 1,410 770 3,342 3,920 6,181 1,323 2,358
-------- -------- -------- -------- -------- ------ ------
Gross profit ................................... 5,185 8,020 11,378 15,949 22,868 4,492 8,551
Selling, general and administrative expenses ... 3,018 4,813 5,794 8,676 16,185 2,557 6,678
Other depreciation and amortization ............ 420 461 445 715 2,182 326 1,045
Non-recurring compensation expense(5) .......... -- -- -- -- 2,125 -- --
-------- -------- -------- -------- -------- ----- -----
Operating profit ............................... 1,747 2,746 5,139 6,558 2,376 1,609 828
Loss on impairment of assets(6) ................ -- -- -- 495 -- -- --
Interest expense ............................... 103 279 632 1,292 3,956 548 3,069
Interest (income) .............................. (15) (74) (268) (128) (117) (31) (211)
-------- -------- -------- -------- -------- ----- -----
Income (loss) from continuing operations before
taxes and extraordinary item ................ 1,659 2,541 4,775 4,899 (1,463) 1,092 (2,030)
Provision for taxes ............................ 50 28 122 206 392 120 23
-------- -------- -------- -------- -------- ----- -----
Income (loss) from
continuing operations....................... 1,609 2,513 4,653 4,693 (1,855) 972 (2,053)
-------- -------- -------- -------- -------- ----- ------
Income (loss) from operations of discontinued
permanent installation themed attraction
business...................................... -- -- 244 1,407 (5,302) 74 --
-------- -------- -------- -------- -------- ----- ------
Income (loss) before extraordinary item......... 1,609 2,513 4,897 6,100 7,157 1,046 (2,053)
Extraordinary item(7) .......................... -- -- -- -- (614) -- --
-------- -------- -------- -------- -------- ----- ------
Net income (loss) .............................. $ 1,609 $ 2,513 $ 4,897 $ 6,100 $ (7,771) $1,046 $(2,053)
======== ======== ======== ======== ======== ====== =======
Cash Flow Data:
Net cash provided by (used in) operating
activities .................................. $ 603 $ 3,852 $ 8,974 $ 6,184 $ (2,971) $ 2,044 $ (448)
Net cash used in investing activities .......... (308) (5,641) (9,862) (20,302) (40,538) (3,033) (12,587)
Net cash provided by (used in) financing
activities .................................. 283 2,692 (651) 15,098 67,663 (144) (126)
Other Financial Data:
EBITDA(8) ...................................... $ 3,577 $ 3,977 $ 8,926 $ 11,193 $ 10,739 $ 3,258 $ 4,231
Capital expenditures ........................... 2,767 5,467 9,621 17,456 18,151 2,974 5,458
Ratio of earnings to fixed charges(9) .......... 17.1x 7.7x 6.3x 3.9x -- 2.8x --
Balance Sheet Data (at period end):
Working capital (deficiency) ................... $ (260) $ 418 $ (3,164) $ (867) $ 35,232 $23,650
Total assets ................................... 12,495 20,222 24,876 51,995 128,252 123,409
Total debt ..................................... 2,938 7,096 7,379 27,001 104,565 104,471
Members' equity ................................ 5,488 8,146 11,908 14,398 3,083 1,969
See accompanying notes to Selected Combined Financial Data
26
NOTES TO SELECTED COMBINED FINANCIAL DATA
(1) On March 2, 1998, the Company adopted a plan to discontinue its themed
attraction segment. The historical statement of operations data for the
years ended December 31, 1995 and 1996 have been restated to reflect this
segment as a discontinued operation. Revenues of the themed attraction
segment were approximately $2.1 million, $13.1 million and $24.6 million
for the years ended December 31, 1995, 1996 and 1997, respectively.
(2) The statement of operations data, cash flow data and other financial data
for the year ended December 31, 1996 reflect the results of operations of
Vanco and Cinema since they were acquired by the Company on January 18,
1996 and February 8, 1996, respectively.
(3) The statement of operations data, cash flow data and other financial data
for the year ended December 31, 1997 reflect the results of operations of
Thoughtful Designs, Design Dynamics and Bash since they were acquired by
the Company on March 7, 1997, June 6, 1997 and August 15, 1997,
respectively.
(4) The statement of operations data, cash flow data and other financial data
for the three months ended March 31, 1997 reflect the results of
operations of Thoughtful Designs since it was acquired by the Company on
March 7, 1997 and for the three months ended March 31, 1998 reflect the
results of operations of Pro-Mix since it was acquired by the Company on
January 2, 1998.
(5) Non-recurring compensation expense for the year ended December 31, 1997
reflects bonuses of $2.125 million paid to the two shareholders of Bash
and a shareholder of Design Dynamics upon their execution of employment
agreements with the Company.
(6) Loss on impairment of assets for the year ended December 31, 1996 reflects
a writedown of $495,000 of the carrying value of the Company's former
principal fabrication facility in Cornwall-on-Hudson, NY.
(7) Extraordinary item for the year ended December 31, 1997 reflects
the write-off of unamortized deferred financing costs of $614,000 related
to the replacement of the Company's existing credit facility with the
Credit Facility on July 31, 1997. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Liquidity and Capital
Resources."
(8) EBITDA is defined, in accordance with the definition of Consolidated
EBITDA in the Indenture, as the sum of income before interest expense,
provision for taxes, depreciation and amortization and certain non-cash
charges. EBITDA is presented because it is a widely accepted financial
indicator of a company's ability to service indebtedness. However, EBITDA
should not be considered an alternative to operating income or cash flows
from operating activities (as determined in accordance with generally
accepted accounting principles) and should not be construed as an
indication of a company's operating performance or as a measure of
liquidity. In addition, EBITDA may not be comparable to similarly titled
measures reported by other companies. EBITDA is calculated as follows (in
thousands):
Three Months Ended
Year Ended December 31, March 31,
----------------------- ---------
1993 1994 1995 1996 1997 1997 1998
-------- -------- -------- -------- -------- ------- -------
Operating profit................................ $1,747 $2,746 $5,139 $ 6,558 $ 2,376 $1,609 $ 828
Depreciation expense............................ 1,410 770 3,342 3,920 6,181 1,323 2,358
Other depreciation and amortization............. 420 461 445 715 2,182 326 1,045
======= ======= ======= ======= ======= ------ ------
$3,577 $3,977 $8,926 $11,193 $10,739 $3,258 $4,231
======= ======= ======= ======= ======= ====== ======
(9) For purposes of computing the ratio of earnings to fixed charges, earnings
consist of earnings from continuing operations before taxes plus
fixed charges. Fixed charges consist of interest and related expenses and
an estimated portion of rentals representing interest costs. Earnings
were insufficient to cover fixed charges by approximately $1.5 million
for the year ended December 31, 1997 and by approximately $2.0 million for
the three months ended March 31, 1998.
27
PRO FORMA COMBINED FINANCIAL DATA (UNAUDITED)
The following pro forma combined financial data have been derived by the
application of pro forma adjustments to the historical combined financial
statements of (i) the Company for the year ended December 31, 1997, (ii)
Design Dynamics for the period from January 1, 1997 through June 5, 1997 (date
acquired by the Company), (iii) Bash for the period from January 1, 1997 through
August 15, 1997 (date acquired by the Company) and (iv) Pro-Mix for the year
ended December 31, 1997. The pro forma combined financial data presented below
give effect to the Transactions, in the case of the Pro Forma Combined
Statement of Operations and Other Financial Data as if they had occurred at
January 1, 1997. The adjustments relating to the Transactions are described
in the accompanying notes.
The acquisition of the net assets of Design Dynamics has been reflected in
the Pro Forma Combined Statements of Operations Data using information derived
from its unaudited historical financial statements for the period prior to its
acquisition on June 6, 1997. The acquisition of the net assets of Bash has been
reflected in the Pro Forma Combined Statement of Operations Data using
information derived from its unaudited historical financial statements for the
period ended June 30, 1997 and included elsewhere in this Prospectus. The
acquisition of the net assets of Pro-Mix has been reflected in the Pro Forma
Combined Statement of Operations Data using information derived from its audited
financial statements. All of the acquisitions have been reflected in the Pro
Forma Combined Financial Data using the purchase method of accounting. In the
opinion of management, all adjustments necessary to fairly present this pro
forma information have been made.
The pro forma adjustments are based upon available information and certain
assumptions that the Company believes are reasonable. The pro forma combined
financial data presented below should not be considered indicative of actual
results that would have been achieved had the Transactions been consummated on
the date assumed and do not purport to indicate results of operations as of any
future date or for any future period. The pro forma combined financial data
presented below should be read in conjunction with "Use of Proceeds,"
"Capitalization," "Selected Combined Financial Data" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the historical financial statements and the notes thereto of the Company,
Bash and Pro-Mix included elsewhere in this Prospectus.
28
PRO FORMA COMBINED STATEMENT OF OPERATIONS
AND OTHER FINANCIAL DATA (UNAUDITED)
For the Year Ended December 31, 1997
Design
Dynamics Bash Adjustments
1/1/97- 1/1/97- for the Company
Direct Costs Company 6/5/97 8/14/97 Pro-Mix Transactions Pro Forma
- ------------ --------- --------- --------- --------- -------------- ---------
(Dollars in Thousands)
Statement of Operations Data:
Revenues .......................................... $ 75,180 $ 3,024 $ 19,997 $ 9,931 $ -- $ 108,132
Direct production costs ........................... 46,131 2,028 8,680 3,795 -- 60,634
Depreciation expense .............................. 6,181 -- 1,296 1,933 -- 9,410
--------- --------- --------- --------- ------------ ---------
Gross profit ...................................... 22,868 996 10,021 4,203 -- 38,088
Selling, general and administrative expenses ...... 16,185 826 5,796 3,181 (887)(a) 25,101
Other depreciation and amortization ............... 2,182 43 138 88 612 (b) 3,063
Non-recurring compensation expense................. 2,125 -- -- -- (2,125)(c) --
--------- --------- --------- --------- ------------ ---------
Operating profit .................................. 2,376 127 4,087 934 (2,400) 9,924
Interest expense .................................. 3,956 20 111 229 7,959 (d) 12,275
Interest (income) ................................. (117) -- (6) (11) -- (134)
--------- --------- --------- --------- ------------ ---------
Income (loss) from continuing operations
before taxes and extraordinary items ........... $ (1,463) $ 107 $ 3,982 $ 716 $ (5,559) $ (2,217)
Provision for taxes ............................... 392 -- 17 6 -- 415
--------- --------- --------- --------- ------------ ---------
Income (loss) from continuing operations........... (1,855) $ 107 $ 3,965 $ 710 $ (5,559) $ (2,632)
========= ========= ========= ========= ============ =========
Other Financial Data:
EBITDA(e) ...................................... $ 22,397
Supplemental pro forma ratio of earnings to
fixed charges(f) ............................... --
Ratio of EBITDA to interest expense ............... 1.8x
Ratio of total debt to EBITDA ..................... 4.5x
See accompanying notes to Pro Forma Combined Statement of
Operations and Other Financial Data
29
NOTES TO PRO FORMA COMBINED STATEMENT OF OPERATIONS
AND OTHER FINANCIAL DATA
(a) Reflects the reduction in certain executive compensation of $12,000,
$495,000 and $380,000 from historical levels to amounts payable under
employment contracts entered into in connection with the acquisition of
the net assets of Design Dynamics, Bash and Pro-Mix, respectively.
(b) Reflects increased goodwill amortization expense of $603,000 related to
to the acquisitions of the net assets of Design Dynamics, Bash and
Pro-Mix, which goodwill is amortized over periods ranging from 15 to 25
years.
(c) Reflects elimination of non-recurring compensation expense paid to the two
shareholders of Bash and a shareholder of Design Dynamics upon their
execution of employment agreements with the Company.
(d) Reflects adjustment to interest expense as follows:
(Dollars
in thousands)
-------------
Interest on the Notes ....................................... $11,500
Elimination of interest expense on credit facility
indebtedness ............................................. (3,551)
Elimination of interest expense related to acquisitions...... (360)
Amortization of deferred financing costs related to the
Initial Offering .................................... 370
-------
Total adjustments ........................................... $ 7,959
=======
(e) EBITDA is defined, in accordance with the definition of Consolidated
EBITDA in the Indenture, as the sum of income before interest expense,
provision for taxes, depreciation and amortization and certain non-cash
charges. EBITDA is presented because it is a widely accepted financial
indicator of a company's ability to service indebtedness. However, EBITDA
should not be considered an alternative to operating income or cash flows
from operating activities (as determined in accordance with generally
accepted accounting principles) and should not be construed as an
indication of a company's operating performance or as a measure of
liquidity. In addition, EBITDA may not be comparable to similarly titled
measures reported by other companies. EBITDA is calculated as follows
(in thousands):
Year Ended
December 31,
1997
-----------
Operating profit.................... $ 9,924
Depreciation expense................ 9,410
Other depreciation expense.......... 3,063
-------
$22,397
=======
(f) The supplemental pro forma amount give effect to the Transactions.
Earnings were insufficient to cover fixed charges by approximately $2.2
million for the year ended December 31, 1997.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in connection with "Selected
Combined Financial and Operating Data" and the Company's Combined
Financial Statements and the notes thereto included elsewhere in this
Registration Statement.
General
The Company is a leading integrator, fabricator and supplier of a broad
range of products and services for the live entertainment (live theater,
concert touring and special events), and corporate events (trade and
industrial shows) markets and themed entertainment (gaming, theme parks and
themed retail) markets.
Discontinued Operations
On March 2, 1998, the Company adopted a plan to discontinue its
themed attraction business segment. The themed attraction segment operated
primarily through a single division, which provided a turn-key approach of
supplying project management, fabrication of scenic elements and show action
equipment and the installation of the attraction at the customers' place of
business. This segment served customers who were primarily owners and
operators of amusement parks and casinos. The Plan included ceasing the
operations of the division responsible for such projects, development of a
list of people who were to be terminated (some were terminated immediately or
transferred to the Company's other segments) and retracting several bids for
Themed Attraction projects that were outstanding.
This business was entered into in 1995 with the fabrication and
installation of the Terminator 2-3D attraction and continued with the Masquerade
in the Sky during 1996-97. In late 1996 and early 1997, the Company began to
broaden that market with attractions such as Cat in the Hat, Twister, Star Trek
and Copperfield's Magic Underground.
34
The Company has previously acknowledged the risk associated with such
large projects, noting that the gross profit margins associated with such themed
attraction projects are generally significantly lower than those associated with
its other segments. During the first quarter in 1998, it became apparent that
the Company was not going to realize the margins required to sustain the
increased overhead structure necessary for this type of business. In addition,
managing such large projects was encompassing much of the time and effort of the
Company's senior management. As a result, the Company decided to discontinue the
operations of its themed attraction business and focus on the Company's core
segments which have higher gross margins. The Company believes that it has
provided for any additional estimated losses related to uncompleted themed
attraction projects.
Revenue Recognition
Revenues consist of sales and rentals of the Company's products and
services. Sales of products (primarily scenery for live entertainment and
fabricated exhibits for events) and services to clients (primarily production
management services) for events and live entertainment markets are recognized
upon delivery or when services are performed. All rental revenues (principally
on lighting products and show and motion control systems) are recognized ratably
over the lives of the applicable rental agreements. Revenues related to the
projects within the discontinued themed attraction segment were recognized
based on the percentage of total costs incurred to date to total estimated
costs.
Direct Production Costs
Direct production costs include costs related to the integration and
fabrication of certain of the Company's products, primarily raw materials and
labor. It also includes costs associated with the preparation and maintenance
of rental equipment, primarily lighting and motion and show control systems,
and the depreciation expense related to such equipment.
Gross Profit Margin
The Company's gross profit margins have been and will continue to be
affected primarily by acquisitions and the product and service mix in the
applicable period. Gross profit margins associated with rental revenue
are typically higher than those associated with sales.
Comparability of Periods
Financial results for the three months ended March 31, 1998 and the years
ended December 31, 1997 and 1996 are not fully comparable to prior periods due
to the acquisitions of the net assets of Pro-Mix in January 1998, Thoughtful
Designs, Design Dynamics and Bash during 1997 and of Vanco and Cinema in the
first quarter of 1996. The Company's historical combined financial statements
for the three months ended March 31, 1998 and the years ended December 31, 1997
and 1996 include results of operations from such acquired operations from the
dates of their respective acquisitions. The combined statements of operations
and members' equity for the years ended December 31, 1996 and 1995 have been
restated to reflect the themed attraction segment as a discontinued operation.
35
Result of Operations
The Company's operating data are set forth below as percentages of
revenues:
Three Months
Ended
Year Ended December 31, March 31,
----------------------------------- -------------
1995 1996 1997 1997 1998
---- ---- ---- ---- ----
Revenues .......................................................... 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
Direct production costs............................................ 60.5% 59.8% 61.4% 65.8 57.2
Depreciation expense .............................................. 9.0 7.9 8.2 7.8 9.3
----- ----- ----- ---- ----
Gross profit ...................................................... 30.5 32.3 30.4 26.4 33.5
Selling, general and administrative expenses ...................... 15.5 17.6 21.5 15.0 26.2
Other depreciation and amortization ............................... 1.2 1.4 2.9 1.9 4.1
Non-recurring compensation expense ................................ -- -- 2.8 - -
----- ----- ----- ---- ----
Operating profit .................................................. 13.8 13.3 3.2 9.5 3.2
Loss on impairment of assets ...................................... -- 1.0 -- - -
Interest expense .................................................. 1.7 2.6 5.3 3.2 12.0
Interest (income) ................................................. (0.7) (0.3) (0.2) (.2) (.8)
----- ----- ----- ---- ----
Income (loss) from continuing operations before taxes and
extraordinary item .............................................. 12.8 10.0 (1.9) 6.5 (8.0)
Provision for taxes ............................................... 0.3 0.4 0.5 0.7 0.1
----- ----- ----- ---- ----
Income (loss) from continuing operations .......................... 12.5 9.6 (2.4) 5.8 (8.1)
Income (loss) from discontinued operations......................... 0.7 2.8 (7.1) .4 -
----- ----- ----- ---- ----
Income (loss) before extraordinary item ........................... 13.2 12.4 (9.5) 6.2 (8.1)
Extraordinary item ................................................ -- -- (0.8) - -
----- ----- ----- ---- ----
Net income (loss) ................................................. 13.2% 12.4% (10.3)% 6.2% (8.1)%
===== ===== ===== ==== ====
36
Three Months Ended March 31, 1998 Compared to Three Months Ended March 31, 1997
Revenues. The Company's revenues increased to $25.5 million for the three
months ended March 31, 1998, an increase of $8.5 million or 50%, from $17.0
million for the three months ended March 31, 1997. The increase was primarily
attributable to increases in revenue related to lighting systems and products
and audio products due to the impact of the acquisition of the net assets of
Bash in August 1997 and Pro-Mix in January 1998.
Gross Profit. The Company's gross profit increased to $8.6 million for the
three months ended March 31, 1998, an increase of $4.1 million, or 91.1%, from
$4.5 million for the three months ended March 31, 1997. The increase in gross
profit was primarily due to the increase in revenues. Gross profit margin
improved to 33.5% for the three months ended March 31, 1998 from 26.4% for the
three months ended March 31, 1997. The improvement was primarily attributable
to higher margins associated with increased rental revenue as a percentage of
total revenue. The change in the revenue mix is primarily the result of the
aforementioned acquisitions of Bash and Pro-Mix.
Selling, general and administrative. Selling, general and administrative
expenses increased to $6.7 million for the three months ended March 31, 1998, an
increase of $4.1 million, or 157.7%, from 2.6 million for the three months ended
March 31, 1997. The increase was primarily attributable to incremental selling,
general and administrative expenses associated with the acquisitions of the net
assets of Design Dynamics, Bash and Pro-Mix. In addition, the Company has
experienced increased overhead related to the hiring of additional senior
executives in connection with the overall growth of the Company subsequent to
March 31, 1997.
Operating Profit. Operating profit declined to $0.8 million for the three
months ended March 31, 1998, a decrease of $0.8 million, or 50%, from $1.6
million for the three months ended March 31, 1997. Operating profit, as a
percentage of revenues, declined to 3.2% for the three months ended March 31,
1998 from 9.5% for the three months ended March 31, 1997. This change is
primarily attributable to higher selling, general and administrative expenses as
a percentage of revenues for the period.
Interest Expense. Interest expenses increased to $3.1 million for the
three months ended March 31, 1998 from $0.5 million for the three months ended
March 31, 1997. The increase was primarily attributable to the increase in
interest expense associated with the Notes which were issued in December 1997.
Discontinued Operations. The Company had income from discontinued
operations of $74,000 for the three months ended March 31, 1997. The Company
believes that it has provided for any additional estimated losses related to
open themed attraction projects. Therefore, it does not anticipate any loss
upon the ultimate abandonment of the business.
Net income (loss). The Company had a net loss of $2.1 million for the three
months ended March 31, 1998 compared to net income of $1.0 million for the three
months ended March 31, 1997. The net loss was primarily due to the increased
interest expense, selling, general and administrative costs and an increase in
amortization expense related to the goodwill that was recorded in connection
with the acquisitions of Design Dynamics, Bash and Pro-Mix.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Revenues. The Company's revenues increased to $75.2 million in
1997, an increase of $25.8 million, or 52.2%, from $49.4 million in 1996. The
increase was primarily attributable to the $16.4 million revenue increase
attributed to the lighting systems and products segment and the $10.2 million
increase in revenues from the event services segment, partially offset by a
$0.8 million decline in revenues from the scenery automation and fabrication
segment. The increase in lighting systems and products revenues is primarily
attributable to the acquisition of Bash in August 1997 ($12.1 million); and
$2.0 million in incremental revenues related to the commencement of lighting
operations in Atlanta in March of 1997. The lighting systems and products
segment also benefited from the full year impact of the acquisition of the net
assets of Vanco in January 1996 and Cinema in February 1996 (combined $2.3
million of incremental revenue). Revenues in the event services segment
increased primarily as a result of the June 1997 acquisition of the net assets
of Design Dynamics ($8.9 million) and an increase in the number of industrial
shows produced.
Gross Profit. The Company's gross profit increased to $22.9
million in 1997, an increase of $7 million, or 44.0%, from $15.9 million in
1996. The increase in gross profit was primarily due to the increase in
revenues. Gross profit margin declined slightly to 30.4% in 1997 from 32.3% in
1996. The decrease was primarily attributable to lower margins resulting from
the increase in revenues related to the event services segment which lack
rental revenue and therefore have lower margins than the lighting systems and
products segment and the scenery automation and fabrication segment. The Company
does not expect direct production costs to increase as a percentage of sales.
As rental revenue related to lighting systems and products and show and motion
control systems increase as a percentage of combined revenues, gross profit
margin is expected to improve.
Selling, general and administrative. Selling, general and
administrative expenses increased to $16.2 million for 1997, an increase of
$7.5 million, or 86%, from $8.7 million in 1996. The increase was primarily
attributable to incremental selling, general and administrative expenses
associated with the acquisitions of Design Dynamics and Bash and the
commencement of lighting operations in Atlanta, as well as increased overhead
related to the hiring of additional senior executives in connection with the
overall growth of the Company. The Company does not expect selling, general and
administrative expenses to increase significantly, as a percentage of sales,
over the next twelve months even if acquisitions are consummated.
Non-recurring compensation expense. Non-recurring compensation
expense, which represents employment incentives paid to the two shareholders
of Bash and a shareholder of Design Dynamics in connection with the signing of
employment contracts with the Company, totaled $2.1 million, or 2.8% of
revenues for the year ended December 31, 1997.
Operating Profit. Operating profit declined to $2.4 million in
1997, a decrease of $4.2 million, or 63.6%, from $6.6 million in 1996.
Operating profit, as a percentage of revenues, declined to 3.2% in 1997 from
13.3% in 1996, primarily attributable to the lower gross profit margin, the
non-recurring compensation expense and higher selling, general and
administrative expenses as a percentage of revenues for the year.
Interest Expense. Interest expense increased to $4.0 million
in 1997 from $1.3 million in 1996. The increase was primarily attributable to
interest expense on additional indebtedness incurred to finance the
acquisitions of the net assets of Design Dynamics and Bash and capital
expenditures.
Discontinued Operations. The Company's loss from discontinued
operations was $5.3 million for 1997 compared to income from discontinued
operations of $1.4 million in 1996. The Company believes that it has provided
for any additional estimated losses related to uncompleted themed attraction
projects.
37
Extraordinary item. The Company recorded an extraordinary loss of $0.6
million in 1997 resulting from the write-off of unamortized deferred financing
costs related to the replacement of the Company's then existing revolving
credit facility with the Credit Facility on July 31, 1997.
Net income (loss). The Company had a net loss of $7.8 million for 1997
compared to net income of $6.1 million in 1996. The net loss was primarily due
to the losses related to the discontinued operations and the other factors
discussed above.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Revenues. The Company's revenues increased to $49.4 million in 1996,
an increase of $12.1 million, or 32.4%, from $37.3 million in 1995. The increase
was primarily attributable to the $14.7 million of revenue contributed by the
acquisitions of the net assets of Vanco in January 1996 and Cinema in February
1996. In addition, revenue in the event services segment increased by
approximately $6.1 million primarily the result of increased revenue related
to industrial shows. The above increases were offset by a decline in scenery
automation and fabrication revenues of approximately $8.5 million in 1996.
Gross Profit. The Company's gross profit increased to $15.9 million in
1996, an increase of $4.5 million, or 39.5%, from $11.4 million in 1995. The
increase was primarily due to the increase in revenues. Gross profit margin
increased to 32.3.% in 1996 from 30.5% in 1995. The increase was primarily
attributable to increased margins related to the rental of lighting products
as a result of the acquisition of the net assets of Vanco and Cinema.
Selling, general and administrative. Selling, general and
administrative expenses increased to $8.7 million in 1996, an increase of $2.9
million, or 50%, from $5.8 million in 1995. The increase was due primarily to
incremental selling, general and administrative expense associated with the
commencement of the Company's lighting systems and products segment as well as
increased overhead related to the hiring of additional employees in connection
with the overall growth of the Company. Selling, general and administrative
expense, as a percentage of revenues, increased to 17.5% in 1996 from 15.5% in
1995
Operating Profit. Operating profit increased to $6.6 million in 1996,
an increase of $1.5 million, or 29.4%, from $5.1 million in 1995. Operating
profit, as a percentage of revenues, declined to 13.3% in 1996 from 13.6% in
1995, primarily due to the increased selling, general and administrative
expenses in 1996.
Loss on impairment of assets. The Company recorded a $0.5 million
loss on impairment of assets, which reflects a writedown in the carrying value
of the Company's former principal fabrication facility in Cornwall-on-Hudson,
NY in connection with commencement of the Company's operation at the New
Windsor, NY facility.
Interest Expense. Interest expense increased to $1.3 million in 1996
from $0.6 million in 1995, primarily due to interest expense on additional
indebtedness incurred to finance the acquisitions of the net assets of Vanco
and Cinema and capital expenditures.
Discontinued Operations. Income from discontinued operations increased
to $1.4 million in 1996 from $0.2 million in 1995.
Net income. Net income was $6.1 million in fiscal 1996, an increase of
$1.2 million, or 24.5%, from $4.9 million in 1995. Net income, as a percentage
revenues, declined to 12.4% in 1996 from 13.2% in 1995, due to the factors
explained above.
38
Liquidity and Capital Resources
The Company's primary cash needs historically have been for working
capital, capital expenditures including the purchase of rental equipment and
acquisitions. The Company's traditional sources of cash have been cash flows
from operations and borrowings under bank credit facilities. The Company
completed a significant refinancing in July 1997 in connection with the
acquisition of the assets of Design Dynamics and the then anticipated Bash
acquisition (closed on August 15, 1997). As amended, the Credit Facility
provides the Company with a $100 million, five-year, senior secured, reducing
revolving credit facility. Borrowings under the Credit Facility have been used
to refinance existing indebtedness, fund the Design Dynamics and Bash
acquisitions, purchase land for a new facility in Las Vegas, provide working
capital and pay expenses incurred with the establishment of the Credit Facility.
In December 1997, the Company issued $100 million in aggregate principal amount
of 11 1/2% Senior Subordinated Notes due 2008. The net proceeds to the
Company were used to repay existing indebtedness under the Credit Facility,
fund the purchase price for the acquisition of the net assets of Pro-Mix and
for working capital requirements. As a result of the Initial Offering, the
Company did not have any oustanding borrowings under the Amended Credit
Facility as of March 31, 1998. The Company believes that its sources of
financing and amounts available under the Amended Credit Facility, are adequate
to fund its current level of operations and its expected growth, including
acquisitions, for the next twelve months.
The Company had cash flows provided by (used in) operations totaling
$6.2 million and $(3.0) million for the years ended December 31, 1996 and 1997,
respectively. The decline from 1996 to 1997 was primarily attributable the
losses sustained in the aforementioned discontinued themed attraction segment.
The Company had cash flows provided by (used in) operations totaling $2.0
million and $(0.4) million for the three months ended March 31, 1997 and 1998,
respectively. The decrease from 1997 to 1998 was primarily attibutable to the
increased selling, general and administrative expenses.
The Company's cash flows used in investing activities totaled, $20.3
million and $40.5 million for the years ended December 31, 1996 and 1997,
respectively. The increase was primarily attributable to the acquisitions of
Bash and Design Dynamics. During 1996, the Company had $17.5 million in capital
expenditures. During 1997, investing activities primarily consisted of $18.2
million in capital expenditures and $24.0 million used in the acquisitions of
Bash and Design Dynamics. The Company's cash flows used in investing activities
for the three months ended March 31, 1997 and 1998 totaled $3.0 million and
$12.6 million, respectively. The increase was primarily attributable to the
acquisition of the net assets of Pro-Mix and increased capital expenditures to
support the lighting operations. For the year ended December 31, 1998, the
Company has budgeted approximately $12 million in capital expenditures,
exclusive of acquisitions, primarily for the purchase of additional equipment to
support the Company's operations. The amount actually spent on capital
expenditures may vary significantly depending on a number of factors, the effect
of which the Company cannot accurately predict. Such factors include, but are
not limited to, the amount and timing of acquisitions of businesses or assets,
expansion of facilities, expansion of existing products and services into new
geographic markets and expansion into new product and services markets.
39
The Company's cash flows provided by financing activities totaled,
$15.1 million and $67.8 million for the years ended December 31, 1996 and 1997,
respectively. In 1996, $35.4 million in proceeds from long-term debt, offset
$16.2 million of debt repayments and $3.6 million in member distributions. In
1997, $178.4 million in proceeds from long-term debt, offset the $101.3 million
in debt repayments and $3.5 million of member distributions. The Company's cash
flow used in financing activities totaled $0.1 million for the three months
ended March 31, 1997 and 1998.
Effect of Inflation
The impact of inflation on the Company's operations has not been
significant in recent years. There can be no assurance, however, that a high
rate of inflation in the future will not have an adverse effect on the
Company's results of operations and financial condition.
40
BUSINESS
General
The Company is a leading integrator, fabricator and supplier of a broad
range of products and services for the live entertainment (live theater, concert
touring and special events), corporate events (trade and industrial shows) and
themed entertainment (gaming, theme parks and themed retail) markets. For a
discussion of the Company's competitive strengths and business strategy, see
"Summary--Company". For financial and accounting purposes, the Company operated
in 1997 through four segments: lighting systems and product; scenery automation
and fabrication; event services and recently discontinued themed attractions.
These segments provide the Company's products and services (other than than
theatrical audio and related products) to the markets that it serves. See
"Selected Combined Financial Data," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Company's Combined
Financial Statements and the Notes thereto included elsewhere in this
prospectus. On a pro forma basis, after giving effect to the Transactions, the
Company generated revenues and EBITDA of $108.1 million and $22.4 million,
respectively, for the year ended December 31, 1997.
41
Markets Overview
The Company provides its products and services to clients in the live
entertainment, corporate events and themed entertainment markets. The Company
has supplied products and services for many of the visually "spectacular"
Broadway theatrical productions of recent years and an increasing number of
other live productions, corporate events and themed entertainment attractions
and establishments. The following table represents a partial list of the
Company's significant projects by market:
Live Entertainment Corporate Events Themed Entertainment
Beauty & the Beast(TM) Buick(R)dealer meetings Basketball Hall of Fame(R)
Pocahontas(TM)premiere in Central Chrysler(R)dealer meetings Caesars Magical Empire(TM)
Park Glaxo Welcome(TM)product introduction shop David Copperfield's Magic Underground
EFX! Hewlett Packard(R)Fall Internet World Exhibit Foxwoods Casino
Gloria Estefan concert tour IBM(R)Fall COMDEX exhibit NikeTown(R)flagship store (NYC)
Les Miserables Iomega(R)worldwide tradeshows NikeTown(R)(Las Vegas)
Metallica Concert tour Lexus(R)dealer meetings Masquerade in the Sky(TM)
Miss America(R)Pageant Marlboro(R)Adventure Team Tour Star Trek, The Experience(SM)
Miss Saigon(TM) Mercedes Benz(R)dealer meetings Terminator 2-3D(TM)at Universal Studios
The Phantom of the Opera(TM) Nike(R)Supershow (Atlanta Florida(R)
Ragtime(TM) Volvo(R)Truck dealer meetings Warner Bros.(R)Stores
Titanic(TM)
Wheel of Fortune(R)traveling show
1996 Presidential Debates
42
Live Entertainment
The live entertainment market includes the live theater, concert touring
and special events market segments. Although precise information is not readily
available, based on management's extensive experience in the entertainment
industry, the Company believes that live theater box office receipts have grown
over the past ten years. A significant portion of the growth is attributable
to the increase in touring shows. In addition, new entrants such as large
entertainment corporations have begun to use live theater to cross-promote
their movies, television shows and tie-in products. Recent examples of new
entrants include The Walt Disney Company (Beauty & the Beast(TM)), Viacom Inc.
(A Christmas Carol(TM)) and Sony Corporation (That's Christmas(TM)).
The Company believes that ticket sales for North American concert tours
have grown over the past ten years. The special events market segment
encompasses a diverse array of events, including sports, such as the Olympics
and boxing matches; politics, such as the Democratic and Republican conventions
and Presidential debates; televised award ceremonies, such as the Tony(R) and
Grammy(R) shows; and religious and other large-scale events, such as the visit
of Pope John Paul II to New York City in 1995. The producers of concert tours,
particularly rock concerts in large football stadium type venues, and special
events are
43
beginning to utilize more sophisticated technology similar to that featured in
live theater. As such, the Company believes that these market segments present
significant growth opportunities.
Corporate Events
The Company believes that the corporate events market for sales of its
products and services is approximately $11 billion based upon its review of
information prepared by the Center for Exhibition Industry Research, and the
Convention Liaison Council. Industrial shows are single corporation events such
as large sales meetings and new product launches. Trade shows are events where
many corporations in a particular industry or market present their products and
services to customers. The Company believes that the corporate events market has
grown significantly in recent years in response to several favorable trends. In
order to deploy their marketing budgets more effectively and counter the
diminished impact of traditional broad-based, mass advertising media,
corporations have been shifting their marketing efforts to more focused, direct
marketing that targets specific audiences, such as trade shows. In addition, in
order to concentrate on their core business competencies, corporations have been
outsourcing their industrial and trade show management activities with an
emphasis on utilizing single-source providers that offer a broad range of
products and services. Domestic corporations have also increased the use of
trade shows for marketing their products internationally. Most significantly for
the Company, corporations are increasingly employing theatrical techniques to
promote their corporate or brand identities, differentiate their product
offerings and attract new customers. The Company believes that these trends, as
well as the overall size of the market, present significant growth
opportunities.
Themed Entertainment
The themed entertainment market consists of gaming, theme parks and themed
retail establishments, including themed restaurants, and is an emerging market
for theatrical technical and creative expertise. The Company believes that the
themed entertainment market will continue to offer short and long-term growth
opportunities.
According to the Las Vegas Convention and Visitors Authority, approximately
30 million people visited Las Vegas in 1996, approximating a 41% increase since
1990, with many people bringing their entire family. Las Vegas hotels and
casinos are seeking to differentiate themselves and attract these new consumers
by offering a visually "spectacular" total environment including themed
attractions. There is approximately $6 billion of casino construction and
remodeling planned in Las Vegas through 1999, according to the Las Vegas
Convention and Visitors Authority.
Theme parks, many of which are owned by large entertainment companies such
as Universal Studios(R) and The Walt Disney Company, have been expanding their
existing theme parks and building new parks. Such growth has created significant
demand for new large themed attractions to attract visitors and cross-promote
movies, television shows and tie-in products. Although precise information is
not available, based on management's extensive experience in the entertainment
industry, the Company believes that attendance at the top 50 North American
theme parks has grown in recent years.
Retailers have begun to use themed attractions to draw new consumers. As
consumers have become less responsive to the standard shopping experience, many
retailers, including restaurants, are seeking unique, dynamic and entertaining
in-store shopping and dining environments. The theme of "retail as
entertainment" is a growing trend as more entertainment companies have entered
the retail marketplace, such as The Walt Disney Company and Warner Bros.(R) and
many well-known manufacturers have developed product tie-ins to the
entertainment and sports industries, such as Nike(R). While the Company will
continue to provide lighting and audio products and scenic elements in the
themed entertainment market, it has discontinued providing permanent
installation of themed attractions.
Products and Services
The Company's principal products and services are (i) scenery and exhibit
fabrication, (ii) computerized motion and show control systems, including its
proprietary Stage Command System(R), (iii) automated lighting systems and
related products, (iv) project management services and (v) upon the
acquisition of Pro-Mix in January 1998, theatrical audio equipment and related
products. The Company's work has been featured in numerous productions and
attractions that have received awards, including the 1997 Tony(R) for scenic
design
44
awarded to Titanic(TM), for which the Company fabricated the scenery and
provided all the motion and show control systems, including its Stage Command
System(R), and the 1997 TEA ("Themed Entertainment Association") awards for,
among others, the Nike(R) flagship superstore in New York City, Terminator
2-3D(TM) at Universal Studios Florida(R) and Caesars Magical Empire(TM) at
Caesars Palace(R) in Las Vegas. TEA was formed in 1990 by companies that supply
services and custom products to the themed entertainment, leisure, recreation,
retail, resort and restaurant markets. For a discussion of the Company's
revenues by reportable segment, see the Company's Combined Financial
Statements and the Notes thereto included elsewhere in this prospectus.
Scenery and Exhibit Fabrication
The Company provides scenery and exhibits for the live entertainment,
corporate events and themed entertainment markets. The Company has created
sophisticated scenery for many well-known Broadway shows and other live
entertainment productions, including the Broadway and touring scenery for
Disney(R)'s Beauty & the Beast(TM), in which the stage is transformed into a
mythical palace, and EFX!(TM), which is one of the largest and most complex
stage productions in the United States. The Company also provides scenery and
exhibits for corporate events, including IBM(R)'s theater structure at its Fall
COMDEX exhibit and Nike(R)'s multimedia theater at the annual Athletic Footwear
Supershow. In addition, the Company through its recently disconintued themed
attraction segment has fabricated and installed themed entertainment attractions
such as Masquerade in the Sky(TM) at the Rio Suite Hotel & Casino(R) in Las
Vegas, Star Trek, The Experience(SM) at the Hilton(R) in Las Vegas and
Terminator 2-3D(TM) at Universal Studios Florida(R). Masquerade in the Sky(TM)
includes three separate parades, 17 different performing areas and 1,250 feet of
elevated track on which five, 22,000 pound floats continuously "sail" above the
casino floor. Terminator 2-3D(TM) at Universal Studios Florida(R) provides for
seamless interaction between live theater and three-dimensional film.
The Company constructs its scenery and exhibits in its three production
facilities located in New York, Las Vegas and Denver. Once a client creates an
initial concept, the Company typically design engineers and fabricates the
scenery or exhibit. The Company has the ability to complete all aspects of a
project in-house through a staff of permanent employees comprised of (i)
technical engineers trained in multiple disciplines, (ii) designers adept in
computer-aided and other sophisticated design techniques, (iii) craftsmen
skilled in scenic artistry, carpentry, steel fabrication, electronics and
lighting and (iv) project managers experienced in supervising projects from
initial concept design to installation and operation. The Company also maintains
relationships with subcontractors experienced in plastics and glass custom
fabrication, machining, steel cutting, fireproof resin coating, upholstery,
fiber optics, pyrotechnics and laser effects.
The period from inception to completion for scenery and exhibit fabrication
generally ranges from one to three months for the live entertainment and
corporate events markets and ranged from six to eighteen months for attractions
in the themed entertainment market. The Company generally sells scenery and
exhibits to its clients. The Company has also begun to rent certain trade show
exhibits to its clients for multiple use. Prices for the Company's scenery and
exhibits vary significantly. Prices for scenery for the live entertainment
market depend upon the size and nature of the production. The prices for large
musicals approximate $1 million. Prices for scenery and exhibits for industrial
and trade shows generally range from $50,000 to more than $1 million for large
complex events. The prices for attractions within the themed entertainment
markets have tended to be substantially higher, frequently between $5 and $15
million, because the attractions were permanent, larger and more complex
installations.
Computerized Motion and Show Control Systems
The Company has developed or acquired proprietary systems that have set the
standard for computerized motion control in the live entertainment market and
can be modified for use in the corporate events and themed entertainment
markets. Stage Command System(R) is a state-of-the-art motion control system for
moving scenery, platforms, lifts, screens and other props. Since 1988, with the
production of The Phantom of the Opera(TM), this technology has been used in
over 55 theatrical productions and themed attractions. Stage Command System(R)
was awarded 1996 Product of the Year at Lighting Dimensions International, a
theater industry trade show. Stage Command System(R) permits the user to achieve
visually "spectacular" effects such as the rotating and pivoting of the
barricades in Les Miserables(TM), the realistic landing and lift-off of the
helicopter in Miss Saigon(TM) and the chandelier swinging over the audience and
crashing on stage in The Phantom of the Opera(TM). For Masquerade in the
Sky(TM), two technicians, using graphical displays of real-time information,
control five floats, 1,250 feet of track and over 50 other automated effects,
including animatronics, hydraulic elevators and giant inflatables. Other
modified uses of Stage Command System(R) include controlling a projection screen
to facilitate the film to live action
45
transitions in Terminator 2-3D(TM) at Universal Studios Florida(R) as well as
Caesars Magical Empire(TM) in Las Vegas, Star Trek, The Experience(SM) and the
total environment of Nike(R)'s flagship superstore in New York City. In
addition, the Company's acquisition of the net assets of Thoughtful Designs in
March 1997 has provided it with expertise in show control systems, which
synchronize the various physical elements of production, including scenery,
sound, lighting and special effects.
Stage Command System(R) utilizes hardware and proprietary software to offer
a high degree of precision, reliability and flexibility for motion-controlled
applications. The design of the system allows one operator to control
substantially all of the effects in a typical production. Permanent
installations of the Company's Stage Command System(R), such as in Terminator
2-3D(TM) at Universal Studios, Florida(R) and Nike(R)'s flagship superstore,
generally do not require the supervision of an operator since the elements
controlled by the system do not have to respond to unanticipated events or
actors. Stage Command System(R) features include user-friendly interface and
software, closed-loop computerized motion control, time-based or velocity-based
cueing and proven safety and automatic backups. The Company also provides
in-house programming, worldwide service and on-line support. The Company has
recently updated the interface controls (patent pending) of its Stage Command
Systems(R) to include a graphical, real-time display and analysis of the
position of each device, enhancing safety and operation. The system is modular
and can be reprogrammed and reconfigured for new uses at the end of a
production.
The Company purchases hardware and equipment components from third-party
manufacturers, including control systems, terminals, keyboard, motors, winch
components, cables and other rigging components. The Company's principal
supplier of such hardware during 1996 was Allen-Bradley Company, Inc., a
subsidiary of Rockwell International. The Company integrates hardware and
equipment, installs proprietary user-interface software and programs the
software to produce the desired effects.
The Company generally rents its Stage Command System(R) and show control
systems pursuant to run-of-show contracts, payable weekly, monthly or quarterly.
The rental payment depends on the complexity and number of effects controlled by
the system. The Company sells a modified version of its Stage Command System(R)
to the themed entertainment market.
Automated Lighting Systems and Related Products
The Company is one of the largest suppliers of theatrical lighting systems
and related products in the United States, with facilities in the New York
metropolitan area, Las Vegas, Orlando, Atlanta and Baltimore.
The Company supplies a wide variety of lighting products, including
automated theatrical and concert lighting systems, television and film lighting
systems, scenic backdrop projection equipment, grip equipment, special lighting,
sound and smoke systems, lighting dimmers and controllers, computer controlled
moving lights, silent-hush power generators, trusses, rigging and cable, and
perishables such as bulbs and gels. The Company's specialized lighting products
allow a lighting designer to choose the components necessary to design a
Broadway or touring show, an industrial or trade show or a less complex project
such as a school play or church social. The Company also provides lighting
design consultation, programming and installation. The Company's three
fully-equipped, mobile grip trucks in Las Vegas service the remote needs of its
Las Vegas clients 24 hours a day. The Company also provides installation
services using qualified third-party contractors on an as-needed basis.
The Company generally rents theatrical lighting systems to the live
entertainment and corporate events markets pursuant to run-of-show contracts,
which can range from one day to the full run of a Broadway show or concert tour.
The Company sells lighting systems for permanent installations in the themed
entertainment markets.
The Company is also a distributor for certain theatrical lighting
manufacturers, including Altman Stage Lighting Company, Inc., Electronic Theater
Controls, Group One Ltd., High-End Systems, Inc., Martin Professional, Inc.,
Moel-Richardson Co., Rosco Laboratories, Inc., and Strand Lighting Inc. These
manufacturers are also among the Company's principal suppliers of automated
lighting systems.
46
Project Management
The Company provides a complete, turn-key service whereby it is responsible
for every phase of a production or event, including design engineering,
budgeting, logistical coordination and installation. The Company has served as
project manager and provided products for many productions, events and
attractions including Beauty & the Beast(TM), EFX!(TM), IBM(R)'s Fall COMDEX
exhibit, Masquerade in the Sky(TM), Star Trek, The Experience(SM) and the annual
dealer meetings and new product launches for many multi-national corporations,
including Chrysler(R), Glaxo Wellcome(TM), Mercedes Benz(R) and Toyota(R)/
Lexus(R).
The Company seeks to leverage its role as project manager in order to
cross-sell its other products and services and provide clients with efficient
"one-stop shopping." For example, the Company typically fabricates the scenery
and provides the lighting systems and other equipment for industrial shows where
it serves as project manager. In addition, the Company fabricated all the
scenery and provided the motion control systems for the Beauty & the Beast(TM)
and EFX!(TM) productions. Most recently, the Company's work for IBM(R) at Fall
COMDEX demonstrated its ability to leverage its role as project manager to
cross-sell its products and services.
Prices for the Company's project management services vary by market. The
Company receives periodic payments, usually weekly, for its services as
project manager for the live entertainment and themed entertainment market. The
price for corporate events is typically based upon cost plus.
Clients
The Company provides its products and services to a diverse client base
that includes many large multi-national corporations. The Company also supplies
theatrical lighting systems and related products to schools, hotels, stores,
museums and other small users. The Company has developed strong, long-standing
relationships with many of its clients. For example, in the live entertainment
market, the Company has fabricated scenery and supplied Stage Command System(R)
for such long-running shows as The Phantom of the Opera(TM) and Les
Miserables(TM). In the corporate events market, the Company has managed annual
dealer meetings for Chrysler and Toyota in each of the past ten years. In the
themed entertainment market, the Company's work on Universal Studios
Florida(R)'s Terminator 2-3D(TM) and Nike(R)'s flagship superstore has led to
additional projects for each of these clients.
For the years ended December 31, 1996 and 1997 and the three months ended
March 31, 1998, no customer accounted for over 10% of the Company's combined
revenues.
Sales and Marketing
Historically, the Company has relied primarily on referrals and its
reputation earned on high profile projects to generate new sales. The Company
also employs salespeople to market certain of its products and services in local
markets. To enhance the overall growth of its business and expansion into new
markets, the Company is developing a nationally focused marketing effort under
the direction of its recently appointed Senior Vice President, Marketing and
Sales. In connection with this effort, the Company plans to target large,
multi-national corporations with significant, recurring events that require
fully-integrated solutions. The Company expects to hire several national
salespeople who will focus on specific market segments and clients. In response
to the trend toward corporate outsourcing and to client demands, the Company
also plans to increase placement of its employees at clients, which will improve
the Company's ability to understand and serve clients needs. The Company is also
creating a management information system that will track the use of its products
and services by client in order to enhance its cross-selling efforts.
Competition
The markets in each of the industry segments for the Company's services
are highly competitive and fragmented. The Company's competitors include
primarily small local or regional firms and, several large national firms, some
of which may have greater financial, management and marketing resources than the
Company. In the corporate events market, the
47
Company also competes with the in-house communications departments of existing
and potential clients. The primary competitive factors vary by market but
include technological capability, range of products and services, price,
reputation, reliability, responsiveness to client needs and geographic proximity
to the client.
48
Properties
The following table sets forth information about the Company's principal
facilities at April 30, 1998:
Number of Square Lease/
Location Facilities Function Feet Own
- -------- ---------- -------- ------ ------
New Windsor, NY 4 Principal executive offices, fabrication, testing and warehouse 190,000 Own
Orlando, FL 4* Administration, fabrication and lighting rental and sales 150,000 Lease
Las Vegas, NV 4 Administration, fabrication and lighting rental and sales 100,000 Lease
North Bergen, NJ 1 Administration, warehouse and lighting rental and sales 127,000 Lease
Denver, CO 2 Administration, fabrication and warehouse 77,000 Lease
Cornwall-on-Hudson, NY 1 Painting and Storage 62,000 Own
Atlanta, GA 1 Administration, warehouse and lighting rental sales 28,000 Lease
Baltimore, MD 1 Administration, warehouse and lighting rental and sales 18,000 Lease
New York, NY 3 Administration 14,000 Lease
Mount Vernon, NY 1 Administration, warehouse, rental and sales 24,000 Lease
* Includes a new 80,000 square foot leased facility in Orlando that the Company
moved into in January 1998. The Company plans to vacate or sublease its other
Orlando facilities.
On December 24, 1997, the Company's New Windsor, NY and Cornwall-on-
Hudson, NY facilities and its land in Las Vegas, NV were transferred to a member
of the Company as payment for redemption of such member's equity interests in
the Company, and subsequently leased back to the Company. See "Certain
Transactions." In addition, the Company is planning the consolidation of its Las
Vegas operations into one 115,000 square foot facility, which is expected to be
completed in 1998. The Company is also considering the expansion of its existing
facility in Denver and has leased an approximately 127,000 square feet facility
in North Bergen, New Jersey to replace its existing North Bergen facility.
Following completion of these plans, the Company believes that its facilities
will be adequate for its operations for the foreseeable
future.
Employees
At April 30, 1998, the Company had approximately 643 full-time
employees. The Company routinely hires a significant number of temporary
employees on a project basis. Approximately 70 of the Company's full-time
employees are members of the International Alliance of Theatrical Stage
Employees. The current union contracts for the Company's New York and Las Vegas
employees expire in August 2001 and December 2001, respectively. The Company has
not experienced any significant labor disputes with its employees. The Company
believes that its relationship with its employees is good.
Legal Proceedings
The Company from time to time is involved in litigation arising in the
ordinary course of business. Although there can be no assurance, the Company
does not believe that any such litigation will, individually or in the
aggregate, have a material adverse effect on its business, results of operations
or financial condition. Michael Crawford, the former star of EFX!(TM) and Entco
Three, Inc. filed an action in the District Court for Clark County, Nevada on
January 30, 1998 against the Company and the other companies involved in
EFX!(TM), alleging negligence and careless conduct in failing to adequately
operate, manage, maintain, control, construct and or supervise the production of
EFX!(TM) and the special effects contained therein resulting in personal injury
to Mr. Crawford while performing therein. While the complaint does not specify
the damages claimed, prior to filing the litigation Mr. Crawford's attorneys
indicated that they would seek damages in exess of the Company's insurance. The
Company has denied liability and continues to vigorously defend such action. The
Company believes it has meritorious defenses to such actions. Although there can
be no assurance as to the outcome of any
49
litigation, the Company does not believe it would have a material adverse effect
on the Company's business, results of operations or financial condition.
In addition, the Company has recently filed an action in Federal district
court for the Southern District of New York seeking compensatory and punitive
damages against Stonebridge Partners Equity Fund, L.P. of White Plains New York,
Four Star Associates, L.P., and certain affiliated individuals related to breach
of contract and duty of good faith bargaining and securities fraud in connection
with the Company's proposed acquisition of Four Star Holdings, Inc. The action
seeks specific performance and compensatory and punitive damages.
Year 2000 Compliance
The Company is aware of the issues associated with the two-digit-year
programming code in existing computer systems as the year 2000 approaches. The
issue is whether computer systems will correctly recognize date sensitive
information in two-digit-year form when the year changes to 2000. The Company
has created an information management team to explore and analyze year 2000
issues throughout the Company (as well as the possible impact on the Company of
Year 2000 issues affecting the Company's suppliers, and customers). As a result
of preliminary reports from this ongoing study, although there can be no
assurance, the Company currently does not anticipate that the year 2000
compliance will result in significant additional operating expenses or require
investments that would be expected to have a material impact on the Company's
business results of operations or financial condition. The Company is in the
process of deploying its first integrated information system that is designed to
be in compliance with year 2000 requirements. Any year 2000 compliance problem
of either the Company or its suppliers or customers could materially adversely
affect the Company's business, results of operations, financial condition and
prospects.
50
MANAGEMENT
The following table sets forth certain information with respect to persons
who are members of the Company's Board of Advisors (each an "Advisor"),
executive officers of the Company and other significant employees.
Board Members and Executive Officers
Name Age Positions(s)
----------------------------- --- -------------------------------------------------------------------
Jeremiah J. Harris 43 Chairman and Chief Executive Officer
Bradley G. Miller 34 Chief Operating and Financial Officer and Executive Vice President
Robert A. Manners 41 Senior Vice President, Business Affairs, and General Counsel
James M. Mahoney 31 Corporate Controller
Joseph W. Bartlett 64 Advisor
Joseph P. Harris 70 Advisor
Thomas D. Lips 53 Advisor
Significant Employees
Name Age Positions(s)
-------------------------------- --- -------------------------------------------------------------------
Kenneth L. Shearer 42 Senior Vice President, Marketing and Sales
Kevin J. Baxley 47 Executive Vice President, Scenery Operations
Fred J. Gallo 45 Executive Vice President, Scenery Automation
Joseph A. Schenk II 49 Executive Vice President, Nevada Operations
Donald Stern 58 Executive Vice President, Lighting
John Wolf 52 Executive Vice President, Project Management
William Ennis 49 Senior Vice President, Lighting
Roy Sears Jr. 43 Senior Vice President, Manufacturing
There are no family relationships between any persons identified above,
except that Joseph P. Harris is the father of Jeremiah J. Harris.
Jeremiah J. Harris. Mr. Harris founded the predecessor of Production
Resource Group, L.L.C. in 1984 and has served as the Company's Chairman and
Chief Executive Officer since its formation in 1995. Mr. Harris comes from a
family with four generations of theatrical experience. Since 1970, he has been
involved with production in the live theater market. Mr. Harris developed the
original Stage Command System(R) and other related technological advances. Mr.
Harris is a member of the Board of Directors of Stage Technologies (UK) and F&D
Scene Changes Ltd. (Calgary, Canada). Mr. Harris is also a director of Beachport
Entertainment Corporation, a television production company.
Bradley G. Miller. Mr. Miller joined the Company in July 1997 as Chief
Operating and Financial Officer and Executive Vice President. From July 1988
until June 1997, Mr. Miller was employed at the investment banking firm of
Schroders PLC, most recently as a director in the investment banking department.
Mr. Miller received a BA in economics from Franklin and Marshall College in 1985
and an MBA from Columbia University Business School in 1988. He is a director of
Palomar Technologies, Inc., a privately-held manufacturer of various
technology-based industrial products.
Robert A. Manners. Mr. Manners joined the Company in August 1997 as Senior
Vice President, Business Affairs and General Counsel. From June 1995 to August
1997, Mr. Manners was a partner at Pepe & Hazard LLP in Hartford, Connecticut
where he was instrumental in the formation of the Company and worked primarily
on its matters. Prior to joining Pepe and Hazard LLP, Mr. Manners was Of Counsel
to Gibson, Dunn & Crutcher in New York City for seven years. Mr. Manners
received a BA from the University of Pennsylvania, a JD from Columbia University
Law School and an LLM (in Taxation) from New York University School of Law.
51
James M. Mahoney. Mr. Mahoney joined the Company in March 1997 as the
Corporate Controller. From November 1992 until March 1997 Mr. Mahoney was
employed at Ernst & Young LLP, most recently as an Audit Manager. Prior to that,
Mr. Mahoney was a Senior Accountant with Pannell Kerr Forster CPA's from
1990-1992. Mr. Mahoney received a BBA in accounting from Siena College in 1988
and is a Certified Public Accountant.
Joseph W. Bartlett. Mr. Bartlett has been a partner in the law firm of
Morrison & Foerster LLP since March 1996. From July 1991 until March 1996 he was
a partner in the law firm of Mayer, Brown & Platt. Mr. Bartlett has also been an
Undersecretary of the U.S. Department of Commerce and a law clerk to Chief
Justice Earl Warren. Mr. Bartlett is a member of the Council on Foreign
Relations and is currently a director of Cyrk, Inc., which designs, manufactures
and distributes products for promotional programs and Semele Group, Inc., which
invests in real property and other assets. Mr. Bartlett received a BA from
Harvard University and an LLB from Stanford Law School.
Joseph P. Harris. Joseph P. Harris is a producer of Broadway shows. For
more than forty years, Joseph P. Harris has been associated with more than 200
Broadway productions. He has been general manager for many dramatic and musical
productions. He has co-produced many shows including Chicago, On the Twentieth
Century and The 1940s Radio Hour, and received Tony(R) Awards as co-producer of
Bob Fosse's revival production of Sweet Charity, Dancing at Lughnasa and An
Inspector Calls. He also co-produced the 1993 Tony(R) Award nominee for Best
Play, Someone Who'll Watch Over Me. Joseph P. Harris most recently co-produced
Translations.
Thomas D. Lips. Mr. Lips has been a Senior Vice President--Investments of
PaineWebber, Inc. (and Kidder, Peabody & Co., prior to its acquisition by
PaineWebber, Inc.) in Hartford, Connecticut since 1990. Mr. Lips received a BA
from Dartmouth College in Liberal Arts and a JD from Harvard Law School.
Kenneth L. Shearer. Mr. Shearer joined the Company in June 1997 as Senior
Vice President, Marketing and Sales. Mr. Shearer is responsible for the
development of the Company's nationally focused marketing effort. Prior to
joining the Company, Mr. Shearer was employed in various positions at Design
Dynamics, Inc., an exhibit fabrication company from 1992 to June 1997, most
recently as President. Mr. Shearer received a BS in general engineering and
political science from the United States Naval Academy and an MBA from the
University of Denver.
Kevin J. Baxley. Mr. Baxley joined the Company in May 1988 as Vice
President of Finance and was appointed Executive Vice President, Scenery
Operations in October 1997 where he is responsible for strategic planning and
product development. Prior to joining the Company, he served as a manager at
Ernst & Young LLP and as the Director of Finance at Spectramed, a medical device
manufacturer. Mr. Baxley received an MBA from the New York University Graduate
School of Business in 1976 and is a Certified Public Accountant.
Fred J. Gallo. Mr. Gallo joined the Company upon its founding in 1984 and
was appointed Executive Vice President, Scenery Production in October 1997. He
is responsible for the engineering and mechanical design of all projects. Mr.
Gallo is also a relationship manager for the live theater market. Prior to
joining the Company, he was self-employed as a technical coordinator on
Broadway. Mr. Gallo received a BS degree in architectural engineering from New
York Institute of Technology in 1974 and was instrumental in the design and
development of the Stage Command System(R). Mr. Gallo has been responsible for
the technical production of many successful theatrical productions, including
The Phantom of the Opera(TM), Les Miserables(TM) and Beauty & the Beast(TM).
Joseph A. Schenk II. Mr. Schenk joined the Company in August 1995 as Vice
President of the Las Vegas operations and was appointed Executive Vice
President, Nevada Operations in August 1997. Mr. Schenk has overall
responsibility for the Company's scenery fabrication operations in Las Vegas.
Prior to joining the Company, he was a real estate developer from 1994 to July
1995 and project manager for Showtech U.S.A., a theatrical production at a Las
Vegas hotel from 1992 to 1994. Mr. Schenk received a B.A. from the University of
Nevada, Las Vegas in 1974.
Donald Stern. Mr. Stern joined the Company in August 1997, was appointed
Executive Vice President, Lighting, in October 1997 and is responsible for the
overall management of the Company's lighting operations. Mr. Stern co-founded
Bash in 1976 and was responsible for its operations until it was acquired by the
Company in August 1997.
John Wolf. Mr. Wolf joined the Company upon its founding in 1984 and was
appointed Executive Vice President, Project Management in October, 1997. He is
responsible for the technical supervision of all corporate events. Prior to
joining the Company, he worked at McLean Industries as an ocean freight
consultant. Mr. Wolf
52
received a BS in Mechanical Engineering from Kings Point Academy in 1968. Mr.
Wolf has been responsible for many innovative industrial shows including the
touring attraction for the Marlboro Adventure Team Tour.
William Ennis. Mr. Ennis joined the Company in January 1996 as Senior Vice
President, Lighting and is responsible for the strategic planning and financial
reporting of the Company's lighting operations. From July 1995 to December 1995,
Mr. Ennis served as a consultant to the Company, advising the Company with
respect to acquisitions. Prior to joining the Company, Mr. Ennis served as the
Managing Partner at Ennis, Cavuoto & Company, a consulting and accounting firm,
for twenty years. Mr. Ennis received a BBA from the University of Oklahoma in
1973 and is a Certified Public Accountant.
Roy Sears Jr. Mr. Sears joined the Company upon its founding in 1984 and
was appointed Senior Vice President, Manufacturing in October, 1997. He is
responsible for scenery fabrication and the installation and execution of all
projects. Prior to joining the Company, Mr. Sears worked at Theater Techniques
Associates where he was a production manager. Mr. Sears has been responsible for
the installation of productions including Terminator 2-3D(TM) at Universal
Studios Florida(R) in Orlando and Masquerade Show in the Sky(TM).
Compensation of Advisors
The Company does not currently provide cash compensation to Advisors for
services provided in such capacity. However, the Company has granted Capital
Appreciation Units to each of its Advisors. See "Principal Unitholders."
Compensation of Executive Officers
The following summary compensation table includes individual compensation
information for the Company's Chief Executive Officer and to the Company's four
most highly compensated officers other than the Chief Executive Officer whose
total annual salaries and bonuses exceeded $100,000 for services rendered in
all capacities to the Company for the periods indicated.
Annual Compensation
----------------------------------
Name and Principal Position Year Salary($) Bonus($)
- --------------------------- ---- --------- --------
Jeremiah J. Harris 1997 $ 350,000 --
Chairman and Chief Executive Officer 1996 $ 350,000 $150,000
1995 $ 250,000 $300,000
Bradley G. Miller
Chief Financial and Operating Officer 1997 $ 84,918 $150,000
Employment Agreements
The following summary of the material terms of certain employment
agreements with executive officers of the Company, does not purport to be
complete and reference is made the provisions of such employment agreements,
which have been filed as an exhibit to the Registration Statement.
Mr. Harris has an employment agreement with the Company, dated January 1,
1996, providing for a base salary of $350,000, which may be increased by
discretionary bonus payments and incentive compensation. The agreement provides
that the Company may terminate employment for cause (as defined) or upon 45 days
prior written notice. If such agreement is terminated without cause, the Company
is obligated to pay Mr. Harris his base salary and benefits for the period equal
to the longer of (i) the remainder of the term or (ii) the sum of (x) six months
from the termination date and (y) one additional month for each year of service
with the Company or a predecessor entity up to a maximum of six additional
months. The agreement has a three-year term and is automatically extendable for
one-year periods unless either party notifies the other, within 30 days of the
anniversary of such period, that the agreement will not be extended. Mr. Harris
has also agreed not to compete with the Company for a period of one year
following termination of his agreement.
Mr. Miller has an employment agreement with the Company, dated as of July
7, 1997, providing for a base salary of $175,000, which may be increased by
discretionary bonus payments. In addition, the agreement provided for a signing
bonus of $150,000. The Company may terminate employment for cause (as defined).
If such agreement is terminated without cause, or Mr. Miller terminates the
agreement for good reason (as defined), the
53
Company is obligated to pay him base salary and benefits for the remainder of
the term. The agreement has a five-year term and is automatically extendable for
one-year periods unless either party notifies the other, within six months of
the anniversary of such period, that the agreement will not be extended. Mr.
Miller has agreed not to compete with the Company for a period of two years
following termination of the agreement; provided, however, that if his
employment is terminated by the Company, the covenant not to compete will be
limited to the time in which Mr. Miller receives payment of his base salary. The
employment agreement also provides that Mr. Miller will receive 452,000 Capital
Appreciation Units in the Company, consisting of four tranches of 113,000
Capital Appreciation Units with Threshold Values (as defined) of $55 million,
$70 million, $85 million and $95 million. Each Threshold Value will be reduced
by the amount of the Company's cash distribution to its members with a portion
of the net proceeds from the Initial Offering and the net fair market value of
the real estate transferred to SPLLC. See "Certain Transactions." One-sixth of
such units vested at the time of grant and an additional one-sixth of such units
will vest on each of the first through fifth anniversaries thereof. See
"Principal Unitholders."
Mr. Manners has an employment agreement with the Company, dated as of
August 6, 1997, providing for compensation consisting of a base salary of
$175,000, which may be increased by discretionary bonus payments. In addition,
the agreement provides for reimbursement of certain temporary living and moving
expenses associated with Mr. Manners' relocation to New Windsor, NY and a
four-year loan in an amount not to exceed $120,000 in connection with acquiring
a new residence. The Company may terminate employment for cause (as defined). If
such agreement is terminated without cause, or Mr. Manners terminates the
agreement for good reason (as defined), the Company is obligated to pay him base
salary and benefits for the remainder of the term. The agreement has a four-year
term and is automatically extendable for one-year periods unless either party
notifies the other, within six months of the anniversary of such period, that
the agreement will not be extended. Mr. Manners has agreed not to compete with
the Company for a period of two years following termination of the agreement;
provided, however, if his employment is terminated by the Company, the covenant
not to compete will be limited to the time in which Mr. Manners receives payment
of his base salary. The employment agreement also provides that Mr. Manners will
receive 113,000 Capital Appreciation Units in the Company with a Threshold Value
of $55 million, 20% of which were vested at the time of grant and the balance of
which vest 20% on the first, second and third anniversaries of Mr. Manners'
employment with the Company. The Threshold Value will be reduced by the amount
of the Company's cash distribution to its members with a portion of the net
proceeds from the Initial Offering and the net fair market value of the real
estate transferred to SPLLC. See "Certain Transactions." The final 20% of Mr.
Manners' units will vest on the fourth anniversary of Mr. Manners' employment
provided that (i) Mr. Manners has not been terminated for Cause and has not
voluntarily departed without good reason and (ii) the Company has completed an
initial public offering and has had a market capitalization of its outstanding
securities of at least $250.0 million dollars for a ten consecutive trading day
period. See "Principal Unitholders."
The other senior executives of the Company also have employment agreements
with the Company on terms similar to those of Mr. Harris, other than
compensation, including agreements not to compete with the Company following
termination of employment.
Unit Plans
The Company maintains the Production Resource Group L.L.C. Restricted
Limited Liability Company Unit Incentive Compensation Plan (the "Restricted
Plan") and the Phantom Limited Liability Company Unit Incentive Compensation
Plan (the "Phantom Plan" and, together with the Restricted Plan, the "Plans").
The Plans were established on January 1, 1996 to optimize profitability and
growth of the Company, to provide rewards for employees and to attract and
retain new employees of the Company. Participation in the Plans is limited to
officers and other key employees who are selected to participate in the Plan. Up
to 750,000 units subject to anti-dilution adjustments may be awarded under each
of the Restricted Plan ("Restricted Units") and the Phantom Plan ("Phantom
Units" and together, with the Restricted Units, the "Units"). The Units, in
addition to any restrictions imposed in the Owners' Agreement are subject to
significant restrictions on transferability, the securities laws and the
Operating Agreement of the Company. Restricted Units entitle the holder to
participate in the appreciation and profits of the Company, but do not allow a
right to participate in management. Phantom Units entitle the holder to receive
a bonus equal to ten dollars per Phantom Unit upon a sale of the Company, or at
such
54
other time as such employee is entitled to receive payments with respect to
such units. In no event shall a participant be entitled to receive duplicate
payments under the Phantom Plan and the Restricted Plan. Restrictions on the
Units lapse ratably over a specified period as set forth in the grant letter
awarding such Units (the "Restriction Period"); provided, however, that the
Purchase Units are subject to a Restriction Period not to exceed ten years. The
holders of Units still subject to the Restriction Period do not have any rights
under the Operating Agreement other than the right to receive distributions with
respect to such Units. Upon a Change in Control or any termination other than
for Cause (each as defined in the Plans) all restrictions on the Units lapse and
the value thereof becomes immediately payable. Phantom Units will be canceled
without any payments being required thereon upon the occurrence of an initial
public offering of the Company or a successor in interest to the Company.
Messrs. Baxley and Ennis have been issued 129,980 and 51,992 Units,
respectively, for which restrictions lapse in five annual installments
commencing January 1, 1997.
55
CERTAIN TRANSACTIONS
The Company incurred fees for theatrical management services provided by J.
Harris, Inc., which is owned 50% by Mr. Joseph P. Harris, the father of Jeremiah
J. Harris. In 1996 and 1995, the Company incurred fees and other charges
of approximately $189,000 and $182,000, respectively. In addition, the Company
had revenues from J. Harris, Inc. of approximately $64,000 in 1996. The Company
also subleases approximately 3000 square feet from J. Harris, Inc. at 1500
Broadway, New York, NY, for approximately $109,000 per year, which is equal to
the amount payable by J. Harris, Inc. for its lease on such space. J. Harris,
Inc. ceased all operations at the end of 1997.
In 1997, 1996 and 1995, the Company had revenues of approximately $3.8
million, $1.9 million and $2.0 million, respectively, from an affiliated
advertising and production management company for industrial shows. A majority
of the stock of this company is owned by members of the Company (Messrs. Harris,
Baxley, Gallo, Sears and Wolf own 19%, 2.5%, 9.5%, 9.5%, and 9.5%,
respectively). In addition, the Company receives management fees for
administrative services from this affiliated company for which it was paid
$272,000, $70,500 and $90,000 in 1997, 1996 and 1995, respectively.
The Company retained the legal services of Pepe & Hazard LLP during 1996
and 1997. Mr. Manners was a partner at Pepe & Hazard LLP during such period
until joining the Company in August 1997. In connection with Mr. Manners'
employment agreement, the Company extended a four year limited recourse loan,
bearing interest at 6.1%, with approximately $97,000 outstanding as of the date
hereof.
In 1996 and 1995, the Company paid accounting fees of approximately
$274,000 and $243,000, respectively, to Ennis, Cavuoto & Company, a consulting
and accounting firm of which Mr. Ennis, who joined the Company in January 1996,
was a Partner.
On December 24, 1997, the Company redeemed 500,000 SPLLC Units held by
Scenic Properties, L.L.C. ("SPLLC") in exchange for its interests in real
property located in New Windsor, NY and Cornwall-on-Hudson, NY, and the
Company's land in Las Vegas, NV subject to mortgage debt aggregating
approximately $3.7 million. The Company believes the fair value of such
property approximates its book value of $9.5 million. All of the equity
interests of SPLLC are currently owned by officers and beneficial owners of the
Company (Messrs. Harris, Baxley, Gallo, Sears and Wolf own 38%, 5%, 19%, 19% and
19%, respectively). The properties transferred to SPLLC have been leased back to
the Company on arm's-length terms.
56
PRINCIPAL UNITHOLDERS
The following table sets forth certain information as of the date hereof
with respect to the beneficial ownership of the Company's membership interests
by (i) all persons known by the Company to be the beneficial owner of more than
five percent of the Company's membership interests, (ii) all Advisors, (iii) all
executive officers named in the table under "Compensation of Executive Officers"
and (iv) all executive officers and advisors as a group. Unless otherwise
indicated in the footnotes, all holders have sole dispositive power with respect
to the membership interests shown as beneficially owned by such holder.
Capital Convertible Percentage
Regular Appreciation Preferred Preferred of Total
Name of Beneficial Owner Units(1) Units(2) Units(3) Units(4) Units(5) Voting Power
------------------------ -------- ------------ ----------- -------- ---------- ------------
Harris Production Services, Inc.(6)...... 5,000,200 84.5% 96.2%
Jeremiah J. Harris(7).................... 5,000,200 84.5% 96.2%
Bradley G. Miller(8)..................... 452,000 7.6 0.0
Joseph W. Bartlett(9).................... 10,000 * 0.0
Thomas D. Lips(10)....................... 3,000 * 0.0
Joseph P. Harris(10)..................... 3,000 * 0.0
All Executive Officers and Advisors
as a group.............................. 5,000,200 581,000 95.7 96.2
- ------------------------------------------------------------------------------------------------------------------------------------
* Less than 1%.
(1) Regular Units are the only Units entitling the holder to vote in the
Company's business and affairs. Each holder of Regular Units has sole voting
power with respect to such units.
(2) Capital Appreciation Units entitle their holder to an annual return of $0.05
per Unit and upon a sale of the Company, an initial public offering or a similar
event, share in the appreciation of the Company above a specified equity value
(the "Threshold Value").
(3) Convertible Preferred Units have an 8% per annum cumulative distribution
priority. These Units are senior in liquidation preference to the Regular Units
and are convertible into the securities that may be offered to the public by the
Company at the time of any initial public offering at a price equal to 62.5% of
the per share price of any such security. Upon conversion, all accrued
distributions will be eliminated. In addition, holders of Convertible Preferred
Units are entitled to redemption thereof, at the option of holder after the
third anniversary of issuance or notice of an initial public offering, whichever
occurs earlier.
(4) Preferred Units entitle the holder to share in distributions and
appreciation with the Regular Units and have a liquidation preference equal to
the amount paid for such Units ($2,250,000 in the aggregate).
(5) Percentage of Total Units represents the fraction of units held by such
beneficial owner divided by the sum of Regular Units, Capital Appreciation
Units, Convertible Preferred Units and Preferred Units outstanding.
(6) Mr. Jeremiah J. Harris, chief executive officer of the Company, owns 100%
of the voting stock of Harris Production Services, Inc. ("HPS") which owns 96.2%
of the voting interests in the Company. The address of Harris Production
Services, Inc. and Jeremiah J. Harris is 539 Temple Hill Road, New Windsor, New
York 12553. Mr. Harris owns 38% of the economic interests in HPS and the balance
of the economic interests are owned 19% by each of Messrs. Gallo, Sears and Wolf
and 5% by Mr. Baxley.
(7) Includes 5,000,200 Regular Units owned by Harris Production Services, Inc.
Mr. Jeremiah J. Harris owns 100% of the voting stock of Harris Production
Services, Inc. See note (6) above.
(8) Mr. Miller has been issued four tranches of Units, each consisting of
113,000 units with Threshold Values, subject to adjustment, of $55 million, $70
million and $85 million and $95 million, respectively. One-sixth of each tranche
was vested at the time of grant with an additional one-sixth of each tranche
vesting on the first through fifth anniversaries of Mr. Miller's employment with
the Company. See "Management--Employment Agreements."
57
(9) Mr. Bartlett has been issued Capital Appreciation Units with a $55 million
Threshold Value. Three-quarters of such units were vested at the time of grant
and the final one-quarter will vest on the first anniversary of the date of
grant.
(10) Mr. Lips and Mr. Joseph P. Harris have been issued Capital Appreciation
Units with a $55 million Threshold Value, one-half of such units were vested at
the time of grant and one-quarter will vest on each of the first and second
anniversaries of the date of grant.
58
DESCRIPTION OF OPERATING AGREEMENT
The rights and obligations of the equityholders of the Company (the
"Members") are governed by the Limited Liability Company Agreement of Production
Resource Group, L.L.C., dated as of August 7, 1995 and amended and restated by
the Amended and Restated Limited Liability Company Agreement, dated as of
January 1, 1996, further amended by the First Amendment to the Amended and
Restated Operating Agreement, dated as of July 12, 1996, and further amended and
restated by the Second Amended and Restated Limited Liability Company Agreement,
dated as of December 1, 1997 (the "Operating Agreement"). The following is a
summary of the material terms and conditions of the Operating Agreement and is
subject to the detailed provisions of the Operating Agreement, which has
been filed as an exhibit to the Registration Statement.
Members and History
The original members (the "Initial Members") of the Company were Harris
Production Services, Inc., ("HPS"), ECTS, A Scenic Technology Company, Inc.
("STNY"), ECTS Contracting of Las Vegas, Inc. ("SCLV"), Showpay, Inc.
("Showpay"), Scenic Properties, L.L.C. ("SPLLC") and Theatre Techniques
Associates, Inc. ("TTA"). In December 1997, SCLV, STNY and TTA were merged into
HPS and the Units issued to Showpay were transferred to HPS. Each of the Initial
Members contributed all of their assets, subject to their liabilities to the
Company in July 1996. Ownership interests in the Company are represented by
"Units." In connection with the transfer of real estate to SPLLC on December
24, 1997, SPLLC no longer holds membership interests in the Company. See
"Certain Transactions."
Limited Liability
As with a corporation, the Members of the Company are not liable for the
debts, liabilities, contracts or other obligations of the Company in excess of
their capital contributions.
Management
The Company is managed by a board of managers (the "Managers"), currently
consisting of a single manager, Jeremiah J. Harris, which has control over the
business and affairs of the Company. The Members can increase the number of
Managers up to a maximum of nine. The Company's officers are appointed by the
Managers. Except for situations in which the approval of the Members or of the
Board of Advisors (as defined) is expressly required by the Operating Agreement
or by non-waivable provisions of applicable law, the Managers have full and
complete authority, power and discretion to manage and control the business,
affairs and properties of the Company. Managers may be appointed by, or removed
by a majority vote of the Members. Currently, Mr. Harris has the ability to
control such election or removal, as he indirectly owns approximately the 96.2%
of the voting interests in the Company. See "Principal Unitholders."
Description of Units
The Company's Units consist of the following classes: Regular Units;
Preferred Units; Capital Appreciation Units; Preferred Capital Appreciation
Units; and Convertible Preferred Units. Regular Units entitle the holder thereof
to share in the profits and losses of the Company, subject to certain
adjustments, and are the only class of voting equity of the Company. Preferred
Units entitle the holder thereof to the same rights and privileges as holders of
Regular Units, except that the holders of Preferred Units have the right to
receive liquidation distributions prior to the holders of Regular Units and the
Preferred Units do not have voting rights. Capital Appreciation Units entitle
the holder thereof to (i) an annual return of $0.05 per Unit and (ii) share in
the appreciation in the value of the Company upon the occurrence of an Initial
Public Offering (as defined in the Operating Agreement), the sale of
substantially all of the assets of the Company or a sale of fifty percent or
more of the interests in the Company held by the Initial Members; provided that
such holder shall only be entitled to share in the appreciation in value above
the designated value provided in the Operating Agreement. Capital Appreciation
Units rank pari passu with Regular Units in right of payment in the event of a
liquidation of the Company. Preferred Capital Appreciation Units entitle the
holder thereof to the same rights and privileges as holders of Capital
Appreciation Units, except that the holders of Preferred Capital Appreciation
Units have the right to receive liquidation distributions prior to the holders
of
59
Regular Units. Convertible Preferred Units entitle the holder thereof to
receive an eight percent per annum cumulative distribution priority. The
Operating Agreement provides that such distribution shall accumulate currently
but not be paid. These Units are senior in liquidation preference to the Regular
Units and are convertible into securities offered by the Company in an Initial
Public Offering at a price equal to 62.5% of the per share price of such
securities. For purposes of such conversion, the Operating Agreement provides
that all accrued distributions will be eliminated. In addition, upon the earlier
of the third anniversary of the issuance of the Convertible Preferred Units or
an Initial Public Offering, the holder of such Units has the option to require
the Company to redeem its Units. The Operating Agreement provides the Managers
with discretion to create other classes or series of Units or other equity
interests in the Company, which Units or other equity interests in the Company
may have voting rights, rights to distributions and allocations, or other rights
that are different from, and superior or inferior to those of, the then-existing
Units. The creation of a new class or classes of Units does not constitute or
require an amendment to the Agreement.
Long-Term Incentive Plan
The Operating Agreement permits the Company to adopt a long-term incentive
plan ("LTIP") under which the Managers are authorized to issue up to 750,000
Units to Managers, officers and employees. Units may also be issued under
employment agreements with the Company's senior managers and to members of the
Company's Board of Advisors. The Managers may authorize the grant of additional
units under the LTIP or otherwise.
Advisory Board
The Company has an advisory board (the "Board of Advisors") to advise it
with respect to the formulation and implementation of the Company's strategic
plan and such other advice as may be requested by the Managers. The current
Board of Advisors consists of Joseph W. Bartlett, Thomas P. Lips and Joseph P.
Harris. With the two exceptions noted below, the Operating Agreement
contemplates that members of the Board of Advisors serve purely an advisory
role. The Company is required to obtain the approval of a majority of the
members of the Board of Advisors for any related party transaction. In addition,
the Managers may, by notice to the Board of Advisors and their written consent,
elect to entrust the Board of Advisors with the rights and responsibilities of a
corporate board established pursuant to the Delaware General Corporation Law.
The members of the Board of Advisors are entitled to compensation for their
services as the Managers deem appropriate, including equity incentives.
Liability, Exculpation and Indemnification
The Operating Agreement provides that no officer, director or other
"Covered Persons" (as defined therein) shall be liable for any act or omission
performed or omitted by such person in good faith on behalf of the Company and
in a manner reasonably believed to be within the scope of such person's
authority, except for acts and omissions involving gross negligence or willful
misconduct. In addition, the Operating Agreement provides that the Company will
indemnify "Covered Persons" for any loss, damage or claim incurred by them by
reason of any act or omission performed or omitted by such person in good faith
on behalf of the Company and in a manner reasonably believed to be within the
scope of authority conferred on such person, unless such loss, damage or claim
was incurred by reason of gross negligence or willful misconduct on behalf of
such "Covered Person."
Assignment
The Operating Agreement, with limited exceptions, prohibits Members from
transferring, assigning or pledging as security for indebtedness its Units, in
whole or in part, except to the Company's senior institutional lender.
Dissolution
The Company shall be dissolved and its affairs shall be wound up upon (i)
the written consent of all Members, (ii) the death, retirement, resignation,
expulsion, bankruptcy or dissolution of a Member who is a Manager or the
occurrence of any other event under the Delaware Limited Liability Company Act
that terminates the continued membership of a Member who is a Manager in the
Company unless, within 90 days after the
60
occurrence of such an event, a majority in interest of the remaining Members
agree in writing to continue the business of the Company and to the appointment,
if necessary or desired, effective as of the date of such event, of one or more
additional Members or (iii) the entry of a decree of judicial dissolution under
Section 18-802 of the Delaware Limited Liability Company Act.
Amendments
The Operating Agreement provides for amendment by a majority of the
Members. However, unanimous consent of the affected Members is required to
subject the Members to additional liability. Furthermore, the amendment of any
provision that materially adversely affects the economic interests of a Member
requires the consent of (i) two-thirds in interest of all Members in the case of
an amendment applying in a substantially similar manner to all classes of Units
or (ii) two-thirds in interest of each affected class of Units in the case of
any other amendment.
61
DESCRIPTION OF OTHER INDEBTEDNESS
Amended Credit Facility
The Company is party to the Amended Credit Facility. The following is a
summary of the material terms and conditions of the Amended Credit Facility and
is subject to the detailed provisions of the Amended Credit Facility and various
related documents which have been attached as exhibits to the Registration
Statement. The Company is currently negotiating an amendment to the Amended
Credit Facility to adjust certain financial covenants for certain fiscal
periods and to waive certain other provisions of the Amended Credit Facility.
There can be no assurance that this amendment will be consummated.
General
The Amended Credit Facility, a five-year senior reducing revolving credit
facility, provides for borrowings in a principal amount of up to $100 million,
subject to certain covenants and conditions. Borrowings may be used by the
Company for working capital, acquisitions and for general corporate purposes. Up
to $30 million of the amount available under the Amended Credit Facility may be
used for acquisitions without approval of the Required Lenders (as defined in
the Amended Credit Facility). Additional acquisitions are permitted without
approval of the Required Lenders provided the Company's total leverage ratio is
less than 3.5 to 1.0 and certain other conditions are met. The Amended Credit
Facility permits the Company to issue up to $150 million of subordinated debt
which indebtedness would include the Initial Offering of the Notes.
Interest Rates; Fees
Amounts outstanding under the Amended Credit Facility bear interest, at the
Company's option, at certain spreads over LIBOR or the greater of the Federal
Funds rate plus 0.50% or BNY's prime rate. The interest rate spreads are
adjusted based on the Company's total leverage ratio. The Company pays a
commitment fee on unused availability of 0.375% to the extent that the Company's
total leverage ratio is greater than or equal to 1.5 to 1.0, and 0.250% if such
ratio is less than 1.5 to 1.0.
Mandatory Prepayments and Commitment Reductions
Amounts outstanding under the Amended Credit Facility are subject to, among
others, the following mandatory prepayments, which will also permanently reduce
commitments under the Amended Credit Facility: (i) up to $25 million from
proceeds of any permitted indebtedness issuance in excess of $100 million by the
Company, (ii) beginning January 1, 1999, if the Company's total leverage ratio
is greater than 3.5 to 1.0, 50% of annual Excess Cash Flow for the prior fiscal
year (including any net proceeds of an equity issuance, as defined in the
Amended Credit Facility) and (iii) 100% of net cash proceeds from asset or
property dispositions (as defined in the Amended Credit Facility).
Collateral and Guarantees
In order to secure their obligations under the Amended Credit Facility, the
Company and each subsidiary party to the security agreement have granted to the
Lenders a continuing security interest in all of their tangible and intangible
assets. In addition, Members of the Company have pledged to the Lenders
substantially all of the membership interests and capital stock of the Company
and its subsidiaries. All existing and future domestic subsidiaries of the
Company guarantee the indebtedness under the Amended Credit Facility. In
addition, HPS and certain other holders of interests in the Company have
guaranteed the obligations of the Company under the Amended Credit Facility.
Covenants
The obligations of the Lenders to lend under the Amended Credit Facility
are subject to the satisfaction of certain conditions precedent, including the
absence of a material adverse change in the affairs of the Company. The Amended
Credit Facility contains various covenants that, subject to specified
exceptions, restrict the ability of the Company and its subsidiaries with
respect to: (i) the incurrence of additional indebtedness and other obligations
and the granting of additional liens; (ii) mergers, acquisitions, investments
and dispositions of assets; (iii) the declaration or payment of Restricted
Payments (as defined in the Amended Credit Facility); (iv) the declaration or
payment of
62
dividends; (v) prepayments or repurchases of other indebtedness and amendments
to certain agreements, including the organizational documents and operating
agreement of the Company, the Indenture and the Notes; (vi) engaging in
transactions with affiliates and formation of subsidiaries; (vii) the making of
Investments (as defined in the Amended Credit Facility); and (viii) changes of
lines of business. There are also covenants relating to compliance with ERISA,
environmental and other laws, payment of taxes, maintenance of corporate
existence and rights, maintenance of insurance and financial reporting. Certain
of these covenants are more restrictive than those set forth in the Indenture.
In addition, the Amended Credit Facility requires the Company to maintain
compliance with certain specified financial covenants, including covenants
relating to minimum interest coverage, minimum fixed charge coverage and maximum
leverage. The Amended Credit Facility also prohibits prepayment or defeasance of
the Notes.
Events of Default
The Amended Credit Facility contains customary events of default,
including, without limitation, payment defaults, the occurrence of a Change of
Control (as defined in the Amended Credit Facility) of the Company or its
subsidiaries, the invalidity of guarantees or security documents under the
Amended Credit Facility, any Material Adverse Change (as defined in the Amended
Credit Facility), breach of any representation or warranty under any Loan
Document in the Amended Credit Facility and any cross-default to other
indebtedness of the Company and its subsidiaries. The occurrence of any such
event of default could result in acceleration of the Company's obligations under
the Amended Credit Facility and foreclosure on the collateral securing such
obligations, which could have a material adverse effect on holders of the Notes.
Mortgage Debt
The Company has three mortgages in the principal amount of approximately
$3.9 million, which are collateralized by its properties. The mortgages require
monthly payments of both principal and interest at varying rates ranging from
7.4% to 8.7%. Maturity dates on these mortgages expire on various dates from
June 30, 1997 through June 1, 2025.
Treasury Rate Lock
On October 27, 1997 the Company entered into a Treasury Rate Lock agreement
("T-Lock") with Bankers Trust Company (the "Counterparty"), an affiliate of BT
Alex. Brown Incorporated, to hedge against the impact of rising interest rates
on the 10-year Treasury Note (the "Reference Security"). The T-Lock has a
notional amount of $100.0 million. On December 15, 1997, ("Settle Date"), the
rate on the 10-year Reference Security (the "Reference Rate") is compared to the
predetermined Lock Rate (5.863%). If the Reference Rate is above the Lock Rate,
the Counterparty will make a payment to the Company equal to the present value
of the difference between the Reference Rate and the Lock Rate to the maturity
of the reference security. If the Reference Rate is below the Lock Rate, the
Company will make a payment to the Counterparty equal to the present value
difference. On December 5, 1997, the Company elected to terminate the T-Lock and
received payment of $425,000 from the Counterparty.
Interest Rate Swap Agreement
On September 25, 1996, in connection with the Credit Agreement (as defined
in the notes to the Consolidated Financial Statements included elsewhere in this
Prospectus), the Company entered into an interest rate swap agreement ("IRSA")
with The Bank of New York to hedge the impact of fluctuations in interest rates
on its floating rate credit facilities. At December 31, 1996, the IRSA had a
notional amount of $8.75 million, which was subsequently increased to $22.5
million. The estimated fair value of the IRSA at December 31, 1996 was
approximately $58,000, which was based on dealer quoted market prices, and
generally reflected the estimated amount that the Company would have to pay to
terminate the contract. Gains and losses pertaining to the IRSA are recorded
over its life as an adjustment to interest expense. The Company terminated the
IRSA on January 8, 1998, recording a loss of $33,360.
63
DESCRIPTION OF NOTES
General
The following is a summary of the material terms and conditions of the New
Notes. The New Notes will be issued under the Indenture among the Issuers, the
Guarantors and the Trustee. This summary does not purport to be complete and
reference is made to the provisions of the Indenture, which has been filed as an
exhibit to the Registration Statement and a copy of the Indenture may be
obtained by contacting the Office of the Secretary and General Counsel at the
principal executive offices of the Company, 539 Temple Hill Road, New Windsor,
NY 12553, telephone (914) 567-5700.
The terms of the New Notes include those stated in the Indenture and those
made part of the Indenture by reference to the Trust Indenture Act of 1939, as
amended (the "Trust Indenture Act"), as in effect on the date of the Indenture.
The New Notes are subject to all such terms, and holders of the New Notes (the
"Holders") are referred to the Indenture and the Trust Indenture Act for a
statement of those terms. The statements under this caption relating to the
Notes and the Indenture are summaries and do not purport to be complete. Such
summaries may make use of certain terms defined in the Indenture and are
qualified in their entirety by express reference to the Indenture.
Except as otherwise indicated below, the following summary applied to both
the Old Notes and the New Notes. As used herein, the term "Notes" means the Old
Notes and the New Notes, unless otherwise indicated.
The form and term of the New Notes will be identical in all material
respects to the form and terms of the Old Notes, except that the New Notes will
be registered under the Securities Act, and therefore such New Notes will not be
subject to certain transfer restrictions, registration rights and related
Liquidated Damages provisions applicable to the Old Notes. See "The Exchange
Offer."
The Notes were issued pursuant to the Indenture among the Issuers, the
Guarantors and First Union National Bank, as trustee (the "Trustee"), in a
private transaction that was not subject to the registration requirements of the
Securities Act. Copies of the proposed form of Indenture and Registration Rights
Agreement will be made available to prospective investors as set forth under the
caption "--Additional Information." The definitions of certain terms used in the
following summary are set forth below under the caption "--Certain Definitions."
For purposes of this "Description of Notes," the term "Company" refers only to
Production Resource Group, L.L.C. and not to any of its Subsidiaries.
The Notes are general unsecured obligations of the Issuers and are
subordinated in right of payment to all existing and future Senior Debt of the
Issuers. As of April 30, 1998, after giving effect to the Transactions, the
Issuers would have had approximately $4.4 million of consolidated Senior Debt
outstanding. In addition, after consummation of the Initial Offering, the
Company had $100 million of total commitments under the Amended Credit Facility,
of which $14.6 million would have been available as of April 30, 1998, after
giving effect to the Transactions and the terms of the Amended Credit Facility.
The Company and its Subsidiaries would have had additional liabilities
(including trade payables) aggregating approximately $20.6 million. The
Indenture permits the incurrence of additional indebtedness, including
additional Senior Debt, subject to certain restrictions. See "--Certain
Covenants--Incurrence of Indebtedness and Issuance of Disqualified Stock."
Finance Corp. will have no outstanding indebtedness other than the Notes.
PRG Finance Corporation ("Finance Corp."), a wholly-owned subsidiary of the
Company incorporated in Delaware, was formed for the purpose of serving as a
co-issuer of the Notes in order to facilitate the Initial Offering. The Company
believes that certain prospective purchasers of the Notes may be restricted in
their ability to purchase debt securities of limited liability companies, such
as the Company, unless such debt securities are jointly issued by a corporation.
Finance Corp. will not have any substantial operations or assets and will not
have any revenues. As a
64
result, prospective purchasers of the Notes should not expect Finance Corp. to
participate in servicing the interest and principal obligations on the Notes.
As of the date of the Indenture, all of the Company's Subsidiaries
(including Finance Corp.) were Restricted Subsidiaries. However, under certain
circumstances, the Company is allowed to designate current or future
Subsidiaries (other than Finance Corp.) as Unrestricted Subsidiaries.
Unrestricted Subsidiaries will not be subject to many of the restrictive
covenants set forth in the Indenture. The Issuers' payment obligations under the
Notes are jointly and severally guaranteed, on a senior subordinated basis, by
all of the Company's Restricted Subsidiaries (other than Finance Corp.). See
"--Subsidiary Guarantees."
Principal, Maturity and Interest
The Notes are limited in aggregate principal amount to $100 million and
mature on January 15, 2008. Interest on the Notes accrues at the rate of 11 1/2%
per annum and is payable semi-annually in arrears on January 15 and July 15 of
each year, commencing on July 15, 1998, to Holders of record on the immediately
preceding January 1 and July 1. Interest on the Notes accrues from the most
recent date to which interest has been paid or, if no interest has been paid,
from the date of original issuance. Interest is computed on the basis of a
360-day year comprised of twelve 30-day months.
Principal of and premium, interest and Liquidated Damages, if any, on the
Notes is payable at the office or agency of the Issuers maintained for such
purpose within the City and State of New York or, at the option of the Issuers,
payment of interest and Liquidated Damages, if any, may be made by check mailed
to the Holders of the Notes at their respective addresses set forth in the
register of Holders of Notes; provided that all payments of principal, premium,
interest and Liquidated Damages, if any, with respect to Notes the Holders of
which have given wire transfer instructions to the Company will be required to
be made by wire transfer of immediately available funds to the accounts
specified by the Holders thereof. Until otherwise designated by the Issuers, the
Issuers' office or agency in New York will be the office of the Trustee
maintained for such purpose. The Notes have been issued in denominations of
$1,000 and integral multiples thereof.
Subordination
The payment of principal of and premium, interest and Liquidated Damages,
if any, on the Notes is subordinated in right of payment, as set forth in the
Indenture, to the prior payment in full of all Senior Debt of the Issuers,
whether outstanding on the date of the Indenture or thereafter incurred.
Upon any distribution to creditors of either Issuer in a liquidation or
dissolution of such Issuer or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to such Issuer or its property, an
assignment for the benefit of creditors or any marshalling of either Issuer's
assets and liabilities, the holders of Senior Debt of such Issuer will be
entitled to receive payment in full of all Obligations due in respect of such
Senior Debt (including interest after the commencement of any such proceeding at
the rate specified in the applicable Senior Debt) before the Holders of Notes
will be entitled to receive any payment with respect to the Notes, and until all
Obligations with respect to Senior Debt are paid in full, any distribution to
which the Holders of Notes would be entitled shall be made to the holders of
Senior Debt (except that Holders of Notes may receive Permitted Junior
Securities and payments made from the trust described under the caption "--Legal
Defeasance and Covenant Defeasance").
The Issuers also may not make any payment upon or in respect of the Notes
(except in Permitted Junior Securities or from the trust described under the
caption "--Legal Defeasance and Covenant Defeasance") if (i) a default in the
payment of the principal of or premium, or interest on any Designated Senior
Debt occurs and is continuing beyond any applicable period of grace or (ii) any
other default occurs and is continuing with respect to any Designated Senior
Debt that permits holders of the Designated Senior Debt as to which such default
relates to accelerate its maturity and the Trustee receives a notice of such
default (a "Payment Blockage Notice") from the holders of such Designated Senior
Debt. Payments on the Notes may and shall be resumed (a) in the case of a
payment default, upon the date on which such default is cured or waived and (b)
in case of a nonpayment default, the earlier of the date on which such
nonpayment default is cured or waived or 179 days after the date on which the
applicable Payment Blockage Notice is received, unless the maturity of any
Designated Senior Debt has been
65
accelerated. No new period of payment blockage may be commenced unless and until
360 days have elapsed since the effectiveness of the immediately prior Payment
Blockage Notice. No nonpayment default that existed or was continuing on the
date of delivery of any Payment Blockage Notice to the Trustee shall be, or be
made, the basis for a subsequent Payment Blockage Notice unless such nonpayment
default shall have been cured or waived for a period of not less than 90
consecutive days.
The Indenture requires that the Trustee or the Holders of the Notes
promptly notify holders of Senior Debt if payment of the Notes is accelerated
because of an Event of Default.
As a result of the subordination provisions described above, in the event
of a liquidation or insolvency, Holders of Notes may recover less ratably than
creditors of the Issuers who are holders of Senior Debt. As of April 30, 1998,
after giving effect to the Transactions, the Issuers would have had
approximately $4.4 million of consolidated Senior Debt outstanding. The Issuers
are able to incur additional Senior Debt in the future, subject to certain
limitations. See "--Certain Covenants--Incurrence of Indebtedness and Issuance
of Disqualified Stock."
"Designated Senior Debt" means (i) any Indebtedness outstanding under the
Amended Credit Facility and (ii) any other Senior Debt or Guarantor Senior Debt
permitted under the Indenture the principal amount of which is $25.0 million or
more and that has been designated by the Company as "Designated Senior Debt."
"Guarantor Senior Debt" means with respect to any Guarantor (i) all
Indebtedness of such Guarantor outstanding under Credit Agreements and all
Hedging Obligations with respect thereto, (ii) any other Indebtedness of such
Guarantor permitted to be incurred under the terms of the Indenture, unless the
instrument under which such Indebtedness is incurred expressly provides that it
is subordinated in right of payment to the Subsidiary Guarantee of such
Guarantor and (iii) all Obligations of such Guarantor with respect to the
foregoing.
Notwithstanding anything to the contrary in the foregoing, Guarantor Senior Debt
will not include (a) any liability for federal, state, local or other taxes owed
or owing by such Guarantor, (b) any Indebtedness of such Guarantor to any of its
Subsidiaries or other Affiliates, (c) any trade payables or (d) any Indebtedness
that is incurred in violation of the Indenture.
"Permitted Junior Securities" means Equity Interests in the Company or debt
securities of the Company or the relevant Guarantor that are subordinated to all
Senior Debt (and any debt securities issued in exchange for Senior Debt) or
Guarantor Senior Debt (and any debt securities issued in exchange for Guarantor
Senior Debt), as applicable, to substantially the same extent as, or to a
greater extent than, the Notes are subordinated to Senior Debt or the Subsidiary
Guarantees are subordinated to Guarantor Senior Debt, as applicable, pursuant to
the Indenture.
"Senior Debt" of an Issuer means (i) all Indebtedness of such Issuer
outstanding under Credit Agreements and all Hedging Obligations with respect
thereto, (ii) any other Indebtedness of such Issuer permitted to be incurred
under the terms of the Indenture, unless the instrument under which such
Indebtedness is incurred expressly provides that it is subordinated in right of
payment to the Notes and (iii) all Obligations of such Issuer with respect to
the foregoing. Notwithstanding anything to the contrary in the foregoing, Senior
Debt of an Issuer does not include (a) any liability for federal, state, local
or other taxes owed or owing by such Issuer, (b) any Indebtedness of such Issuer
to any of its Subsidiaries or other Affiliates, (c) any trade payables or (d)
any Indebtedness that is incurred in violation of the Indenture.
Subsidiary Guarantees
The Issuers' payment obligations under the Notes are jointly and severally
guaranteed (the "Subsidiary Guarantees") by each of the Company's current and
future domestic Restricted Subsidiaries other than Finance Corp. (the
"Guarantors"). The Subsidiary Guarantee of each Guarantor is subordinated in
right of payment to all existing and future Guarantor Senior Debt of such
Guarantor to the same extent as the Notes are subordinated to Senior Debt of the
Issuers. See "--Subordination." As of April 30, 1998, after giving effect to
the Initial Offering and the application of net proceeds therefrom, the
Guarantors would have had no Guarantor Senior Debt outstanding. The Indenture
permits the Guarantors to incur additional indebtedness, including additional
Guarantor Senior Debt, subject to certain restrictions. See "--Certain
Covenants--Incurrence of Indebtedness and Issuance of
66
Disqualified Stock." The obligations of each Guarantor under its Subsidiary
Guarantee is limited so as not to constitute a fraudulent conveyance under
applicable law. See "Risk Factors--Fraudulent Conveyance Matters."
The Indenture provides that no Guarantor may consolidate with or merge with
or into (whether or not such Guarantor is the surviving Person), another
corporation, Person or entity whether or not affiliated with such Guarantor
unless (i) subject to the provisions of the following paragraph, the Person
formed by or surviving any such consolidation or merger (if other than such
Guarantor) assumes all the obligations of such Guarantor pursuant to a
supplemental indenture in form and substance reasonably satisfactory to the
Trustee, under the Notes, the Indenture and the Registration Rights Agreement;
(ii) immediately after giving effect to such transaction, no Default or Event of
Default exists; and (iii) the Company would be permitted by virtue of the
Company's pro forma Fixed Charge Coverage Ratio, immediately after giving effect
to such transaction, to incur at least $1.00 of additional Indebtedness pursuant
to the Fixed Charge Coverage Ratio test set forth in the covenant described
below under the caption "--Certain Covenants--Incurrence of Indebtedness and
Issuance of Disqualified Stock;" provided that the merger of any Guarantor with
or into the Company or another Guarantor under circumstances where the Company
or such Guarantor, as applicable, is the surviving Person shall not be subject
to the foregoing provisions.
The Indenture provides that in the event of a sale or other disposition of
all of the assets of any Guarantor, by way of merger, consolidation or
otherwise, or a sale or other disposition of all of the capital stock of any
Guarantor, then such Guarantor (in the event of a sale or other disposition, by
way of such a merger, consolidation or otherwise, of all of the capital stock of
such Guarantor) or the corporation acquiring the property (in the event of a
sale or other disposition of all of the assets of such Guarantor) will be
released and relieved of any obligations under its Subsidiary Guarantee;
provided that the Net Proceeds of such sale or other disposition are applied in
accordance with the applicable provisions of the Indenture. See "--Repurchase at
the Option of Holders--Asset Sales."
Optional Redemption
The Notes are not redeemable at the Issuers' option prior to January 15,
2003. Thereafter, the Notes are subject to redemption at any time at the option
of the Issuers, in whole or in part, upon not less than 30 nor more than 60
days' notice, at the redemption prices (expressed as percentages of principal
amount) set forth below, plus accrued and unpaid interest and Liquidated
Damages, if any, thereon to the date fixed for redemption, if redeemed during
the twelve-month period beginning on January 15 of the years indicated below:
Year Percentage
---- -----------
2003........................................................ 105.750%
2004........................................................ 103.834%
2005........................................................ 101.917%
2006 and thereafter......................................... 100.000%
Notwithstanding the foregoing, prior to January 15, 2001, the Issuers may
redeem up to 35% of the aggregate principal amount of the Notes originally
issued at a redemption price of 110% of the principal amount thereof, plus
accrued and unpaid interest and Liquidated Damages, if any, thereon to the date
fixed for redemption, with the net cash proceeds of one or more public offerings
of Capital Stock of the Company (other than Disqualified Stock), provided that
(i) at least 65% of the aggregate principal amount of the Notes originally
issued remains outstanding immediately after the occurrence of such redemption
and (ii) each such redemption shall occur within 90 days after the date of the
closing of any such offering of Capital Stock of the Company.
In addition, at any time prior to January 15, 2003, the Issuers may, at
their option, redeem the Notes, in whole or in part, at a redemption price equal
to 100% of the principal amount thereof plus the applicable Make-Whole Premium.
Selection and Notice
If less than all of the Notes are to be redeemed at any time, selection of
Notes for redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which the
Notes are listed, or, if the Notes are not so listed, on a pro rata basis, by
lot or by such method as the Trustee
67
shall deem fair and appropriate; provided that no Notes of $1,000 or less shall
be redeemed in part. Notices of redemption shall be mailed by first class mail
at least 30 but not more than 60 days before the date fixed for redemption to
each Holder of Notes to be redeemed at its registered address. Notices of
redemption may not be conditional. If any Note is to be redeemed in part only,
the notice of redemption that relates to such Note shall state the portion of
the principal amount thereof to be redeemed. A new Note in principal amount
equal to the unredeemed portion thereof will be issued in the name of the Holder
thereof upon cancellation of the original Note. Notes called for redemption
become due on the date fixed for redemption. On and after the date fixed for
redemption, interest ceases to accrue on Notes or portions of them called for
redemption.
Mandatory Redemption
Except as set forth below under the caption "--Repurchase at the Option of
Holders," the Issuers are not required to make mandatory redemption or sinking
fund payments with respect to the Notes.
Repurchase at the Option of Holders
Change of Control
Upon the occurrence of a Change of Control, the Issuers are obligated to
make an offer (a "Change of Control Offer") to each Holder of Notes to
repurchase all or any part (equal to $1,000 or an integral multiple thereof) of
such Holder's Notes at an offer price in cash equal to 101% of the principal
amount thereof, plus accrued and unpaid interest and Liquidated Damages, if any,
thereon to the date fixed for repurchase (the "Change of Control Payment").
Within ten business days following a Change of Control, the Issuers will mail a
notice to each Holder describing the transaction or transactions that constitute
the Change of Control and offering to repurchase Notes on the date specified in
such notice, which date shall be no earlier than 30 days and no later than 60
days from the date such notice is mailed (the "Change of Control Payment Date"),
pursuant to the procedures required by the Indenture and described in such
notice. The Issuers must comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of the Notes as a result of a Change of Control.
On the Change of Control Payment Date, the Issuers will, to the extent
lawful, (i) accept for payment all Notes or portions thereof properly tendered
pursuant to the Change of Control Offer, (ii) deposit with the Paying Agent an
amount equal to the Change of Control Payment in respect of all Notes or
portions thereof so tendered and (iii) deliver or cause to be delivered to the
Trustee the Notes so accepted together with an Officers' Certificate stating the
aggregate principal amount of Notes or portions thereof being purchased by the
Issuers. The Paying Agent will promptly mail to each Holder of Notes so tendered
the Change of Control Payment for such Notes, and the Trustee will promptly
authenticate and mail (or cause to be transferred by book entry) to each Holder
a new Note equal in principal amount to any unpurchased portion of the Notes
surrendered, if any; provided that each such new Note will be in a principal
amount of $1,000 or an integral multiple thereof. The Indenture provides that,
prior to complying with the provisions of this covenant, but in any event within
90 days following a Change of Control, the Issuers will either repay all
outstanding Senior Debt or obtain the requisite consents, if any, under all
agreements governing outstanding Senior Debt to permit the repurchase of Notes
required by this covenant. The Issuers will publicly announce the results of the
Change of Control Offer on or as soon as practicable after the Change of Control
Payment Date.
The Change of Control provisions described above are applicable whether or
not any other provisions of the Indenture are applicable. Except as described
above with respect to a Change of Control, the Indenture does not contain
provisions that permit the Holders of the Notes to require the Issuers to
repurchase or redeem the Notes in the event of a takeover, recapitalization or
similar transaction.
The Amended Credit Facility prohibits, and future Credit Agreements or
other agreements relating to Senior Debt to which the Issuers become a party may
prohibit, the Issuers from purchasing any Notes following a Change of Control
and provide that certain change of control events with respect to the Company
would constitute a default thereunder. In the event a Change of Control occurs
at a time when the Issuers are prohibited from purchasing Notes, the Issuers
could seek the consent of its lenders to the purchase of Notes or could attempt
to refinance the indebtedness that contain such prohibition. If the Issuers do
not obtain such a consent or repay such
68
indebtedness, the Issuers will remain prohibited from purchasing Notes. The
Issuers' failure to purchase tendered Notes following a Change of Control would
constitute an Event of Default under the Indenture which would, in turn,
constitute as default under the Amended Credit Facility. In such circumstances,
the subordination provisions in the Indenture would likely restrict payments to
the Holders of Notes. See "--Subordination."
The Issuers are not required to make a Change of Control Offer following a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the Indenture applicable to a Change of Control Offer made by the Issuers and
purchases all Notes validly tendered and not withdrawn under such Change of
Control Offer.
Asset Sales
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, consummate an Asset Sale unless (i) the
Company or such Restricted Subsidiary, as the case may be, receives
consideration at the time of such Asset Sale at least equal to the fair market
value (evidenced by a resolution of the Board of Directors set forth in an
Officers' Certificate delivered to the Trustee) of the assets or Equity
Interests issued or sold or otherwise disposed of and (ii) at least 75% of the
consideration therefor received by the Company or such Restricted Subsidiary is
in the form of cash; provided that the amount of (a) any liabilities (as shown
on the Company's or such Restricted Subsidiary's most recent balance sheet) of
the Company or such Restricted Subsidiary (other than contingent liabilities and
liabilities that are by their terms subordinated to the Notes or any guarantee
thereof) that are assumed by the transferee of any such assets pursuant to a
customary novation agreement that releases the Company or such Restricted
Subsidiary from further liability and (b) any securities, notes or other
obligations received by the Company or such Restricted Subsidiary from such
transferee that are substantially concurrently converted by the Company or such
Restricted Subsidiary into cash (to the extent of the cash received) shall be
deemed to be cash for purposes of this provision.
Within 270 days of the receipt of any Net Proceeds from an Asset Sale, the
Company may apply such Net Proceeds, at its option, (i) to repay Senior Debt
(and to correspondingly reduce commitments with respect thereto in the case of
revolving borrowings) or (ii) to the acquisition of a controlling interest in a
Permitted Business, the making of a capital expenditure or the acquisition of
other long-term assets, in each case, used or useful in a Permitted Business.
Pending the final application of any such Net Proceeds, the Company may
temporarily reduce Senior Debt or otherwise invest such Net Proceeds in any
manner that is not prohibited by the Indenture. Any Net Proceeds from Asset
Sales that are not applied or invested as provided in the first sentence of this
paragraph will be deemed to constitute "Excess Proceeds." When the aggregate
amount of Excess Proceeds exceeds $5.0 million, the Issuers will be required to
make an offer to all Holders of Notes (an "Asset Sale Offer") to purchase the
maximum principal amount of Notes that may be purchased out of the Excess
Proceeds at an offer price in cash in an amount equal to 100% of the principal
amount thereof, plus accrued and unpaid interest and Liquidated Damages, if any,
thereon to the date fixed for purchase, in accordance with the procedures set
forth in the Indenture. To the extent that the aggregate amount of Notes
tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds, the
Company may use any remaining Excess Proceeds for any purpose not otherwise
prohibited by the Indenture. If the aggregate principal amount of Notes
surrendered by Holders thereof exceeds the amount of Excess Proceeds, the
Trustee shall select the Notes to be purchased as provided above under the
caption "Selection and Notice." Upon completion of an Asset Sale Offer, the
amount of Excess Proceeds shall be reset at zero.
Certain Covenants
Restricted Payments
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly: (i) declare or pay
any dividend or make any other payment or distribution on account of the
Company's or any of its Restricted Subsidiary's Equity Interests (including,
without limitation, any payment in connection with any merger or consolidation
involving the Company or any Restricted Subsidiary) or to any direct or indirect
holders of the Company's Equity Interests in their capacity as such (other than
dividends or distributions (a) payable in Equity Interests (other than
Disqualified Stock) of the Company or (b) to the Company or any Wholly Owned
Restricted Subsidiary of the Company); (ii) purchase, redeem or otherwise
acquire or retire for value (including, without limitation, in connection with
any merger or consolidation involving the Company) any Equity
69
Interests of the Company or any direct or indirect parent of the Company (other
than any such Equity Interests owned by the Company or any Wholly Owned
Restricted Subsidiary of the Company); (iii) make any payment on or with respect
to, or purchase, redeem, defease or otherwise acquire or retire for value any
Indebtedness of the Company or any Restricted Subsidiary that is subordinated to
the Notes, except a payment of interest or principal at Stated Maturity; or (iv)
make any Restricted Investment (all such payments and other actions set forth in
clauses (i) through (iv) above being collectively referred to as "Restricted
Payments"), unless, at the time of and after giving effect to such Restricted
Payment:
(a) no Default or Event of Default shall have occurred and be continuing or
would occur as a consequence thereof; and
(b) the Company would, at the time of such Restricted Payment and after
giving pro forma effect thereto as if such Restricted Payment had been made at
the beginning of the applicable four-quarter period, have been permitted to
incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge
Coverage Ratio test set forth in the first paragraph of the covenant described
below under the caption "--Incurrence of Indebtedness and Issuance of
Disqualified Stock;" and
(c) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by the Company and its Restricted Subsidiaries
after the date of the Indenture (excluding Restricted Payments permitted by
clause (ii) through (v) of the next succeeding paragraph), is less than the sum
of (i) 50% of the Consolidated Net Income of the Company for the period (taken
as one accounting period) from the beginning of the first fiscal quarter
commencing after the date of the Indenture to the end of the Company's most
recently ended fiscal quarter for which internal financial statements are
available at the time of such Restricted Payment (or, if such Consolidated Net
Income for such period is a deficit, less 100% of such deficit), plus (ii) 100%
of the aggregate net cash proceeds received by the Company as a contribution to
its common equity capital or from the issue or sale since the date of the
Indenture of Equity Interests of the Company (other than Disqualified Stock) or
of Disqualified Stock or debt securities of the Company that have been converted
into such Equity Interests (other than Equity Interests (or Disqualified Stock
or convertible debt securities) sold to a Subsidiary of the Company and other
than Disqualified Stock or convertible debt securities that have been converted
into Disqualified Stock), plus (iii) 50% of any dividends received by the
Company or a Wholly Owned Restricted Subsidiary after the date of the Indenture
from an Unrestricted Subsidiary of the Company, to the extent that such
dividends were not otherwise included in Consolidated Net Income of the Company
for such period, plus (iv) to the extent that any Restricted Investment that was
made after the date of the Indenture is sold for cash or otherwise liquidated or
repaid for cash, the lesser of (A) the cash return of capital with respect to
such Restricted Investment (less the cost of disposition, if any) and (B) the
initial amount of such Restricted Investment, plus (v) $5.0 million.
The foregoing provisions do not prohibit (i) the payment of any dividend
within 60 days after the date of declaration thereof, if at the date of
declaration such payment would have complied with the provisions of the
Indenture; (ii) the redemption, repurchase, retirement, defeasance or other
acquisition of any Equity Interests of the Company or subordinated Indebtedness
of the Company or any Guarantor in exchange for, or out of the net cash proceeds
of the substantially concurrent sale (other than to a Subsidiary of the Company)
of, other Equity Interests of the Company (other than any Disqualified Stock);
provided that the amount of any such net cash proceeds that are utilized for any
such redemption, repurchase, retirement, defeasance or other acquisition shall
be excluded from clause (c)(ii) of the preceding paragraph; (iii) the
defeasance, redemption, repurchase or other acquisition of subordinated
Indebtedness with the net cash proceeds from an incurrence of Permitted
Refinancing Indebtedness; (iv) the payment of any dividend by a Restricted
Subsidiary of the Company to the holders of its Equity Interests on a pro rata
basis; (v) the repurchase, redemption or other acquisition or retirement for
value of any Equity Interests of the Company or any Restricted Subsidiary of the
Company held by any member of the Company's (or any of its Restricted
Subsidiaries") management or board of directors pursuant to any management
equity subscription agreement, stock option agreement or other similar agreement
or any successor arrangement entered into in connection with the reorganization
of the Company as a corporation (provided that such successor arrangement is on
terms substantially similar to the arrangement so replaced); provided that the
aggregate price paid for all such repurchased, redeemed, acquired or retired
Equity Interests shall not exceed $500,000 in any twelve-month period and no
Default or Event of Default shall have occurred and be continuing immediately
after such transaction; (vi) Investments in non-Wholly Owned Restricted
Subsidiaries of the Company in an aggregate amount at any time outstanding not
to exceed $5.0 million; (vii) cash distributions to members of the Company as
described under "Use
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of Proceeds" and the distribution of real estate to SPLLC; (viii) so long as
the Company is treated as a partnership for United States federal income tax
purposes, payments by the Company to members of the Company to satisfy tax
obligations to the extent such obligations are then due and owing, and in
accordance with the Tax Sharing Agreement as in effect on the date of the
Indenture; provided that such amounts do not exceed the amounts that would
otherwise be due and owing if the Company and its Subsidiaries were an
independent taxpayer; and (ix) at any time the Company has $15.0 million of
availability under the Amended Credit Facility, a one-time cash distribution
by the Company to its members not to exceed $10.0 million; provided that the
Company shall have delivered to the Trustee, at the time of such distribution,
an Officers' Certificate stating that, in management's reasonable judgment,
based on the Company's operations and cash flow projections the Company will
continue to have $15.0 million of availability under the Credit Facility for at
least the succeeding four quarters.
The amount of all Restricted Payments (other than cash) shall be the fair
market value on the date of the Restricted Payment of the asset(s) or securities
proposed to be transferred or issued by the Company or such Restricted
Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair
market value of any non-cash Restricted Payment shall be determined in good
faith by the Board of Directors whose resolution with respect thereto shall be
delivered to the Trustee (which shall certify that such valuation has been
approved by a majority of the Independent Directors). Not later than the date of
making any Restricted Payment, the Company shall deliver to the Trustee an
Officers' Certificate stating that such Restricted Payment is permitted and
setting forth the basis upon which the calculations required by the covenant
"Restricted Payments" were computed.
The Board of Directors may designate any Restricted Subsidiary (other than
Finance Corp.) to be an Unrestricted Subsidiary if such designation would not
cause a Default. For purposes of making such determination, all outstanding
Investments by the Company and its Restricted Subsidiaries (except to the extent
repaid in cash) in the Subsidiary so designated will be deemed to be Restricted
Payments at the time of such designation and will reduce the amount available
for Restricted Payments under the first paragraph of this covenant. All such
outstanding Investments will be deemed to constitute Investments in an amount
equal to the greatest of (i) the net book value of such Investments at the time
of such designation, (ii) the fair market value of such Investments at the time
of such designation and (iii) the original fair market value of such Investments
at the time they were made. Such designation will only be permitted if such
Restricted Payment would be permitted at such time and if such Restricted
Subsidiary otherwise meets the definition of an Unrestricted Subsidiary.
Any such designation by the Board of Directors shall be evidenced to the
Trustee by filing with the Trustee a certified copy of the Board Resolution
giving effect to such designation and an Officers' Certificate certifying that
such designation complied with the foregoing conditions. If, at any time, any
Unrestricted Subsidiary would fail to meet the definition of an Unrestricted
Subsidiary, it shall thereafter cease to be an Unrestricted Subsidiary for
purposes of the Indenture and any Indebtedness of such Subsidiary shall be
deemed to be incurred by a Restricted Subsidiary of the Company as of such date
(and, if such Indebtedness is not permitted to be incurred as of such date under
the covenant described under the caption "--Incurrence of Indebtedness and
Issuance of Disqualified Stock," the Issuers shall be in default of such
covenant). The Board of Directors of the Company may at any time designate any
Unrestricted Subsidiary to be a Restricted Subsidiary; provided that such
designation shall be deemed to be an incurrence of Indebtedness by a Restricted
Subsidiary of the Company of any outstanding Indebtedness of such Unrestricted
Subsidiary and such designation shall only be permitted if (i) such Indebtedness
is permitted under the covenant described under the caption "--Incurrence of
Indebtedness and Issuance of Disqualified Stock," calculated on a pro forma
basis as if such designation had occurred at the beginning of the four-quarter
reference period, and (ii) no Default or Event of Default would be in existence
immediately following such designation.
Incurrence of Indebtedness and Issuance of Disqualified Stock
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, directly or indirectly, create, incur, issue, assume,
guarantee or otherwise become directly or indirectly liable, contingently or
otherwise, with respect to (collectively, "incur") any Indebtedness (including
Acquired Debt) or issue any shares of Disqualified Stock; provided, however,
that, so long as no Default or Event of Default has occurred and is continuing,
the Company and any Guarantor may incur Indebtedness (including Acquired Debt)
or issue shares of Disqualified Stock if the Fixed Charge Coverage Ratio for the
Company's most recently ended four full fiscal quarters for which internal
financial statements are available immediately preceding the date on which such
additional Indebtedness is incurred or such Disqualified Stock is issued would
have been at least 2.0 to 1,
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determined on a pro forma basis (including a pro forma application of the net
proceeds therefrom), as if the additional Indebtedness had been incurred or the
Disqualified Stock had been issued at the beginning of such four-quarter period.
The provisions of the first paragraph of this covenant will not apply to
the incurrence of any of the following (collectively, "Permitted Debt"):
(i) the incurrence by the Company and the Guarantors of Indebtedness under
Credit Agreements in an aggregate amount not to exceed $75 million at any time
outstanding (with letters of credit being deemed to have a principal amount
equal to the maximum potential liability of the Company and the Guarantors
thereunder), less the aggregate amount of all Net Proceeds of Asset Sales
applied to repay any such Indebtedness pursuant to clause (i) of the second
paragraph of the covenant described above under the caption "--Repurchase at the
Option of Holders--Asset Sales;"
(ii) the incurrence by the Company and the Guarantors of Indebtedness
represented by the Notes and the Subsidiary Guarantees;
(iii) the incurrence by the Company and its Restricted Subsidiaries of the
Existing Indebtedness;
(iv) the incurrence of Indebtedness between or among the Company and any of
its Wholly Owned Restricted Subsidiaries; provided, however, that (a) if the
Company is the obligor on such Indebtedness, such Indebtedness is expressly
subordinated to the prior payment in full of all Obligations with respect to the
Notes and (b) any subsequent issuance or transfer of Equity Interests that
results in any such Indebtedness being held by a Person other than the Company
or a Wholly Owned Restricted Subsidiary, and any sale or other transfer of any
such Indebtedness to a Person that is not either the Company or a Wholly Owned
Restricted Subsidiary, shall be deemed, in each case, to constitute an
incurrence of such Indebtedness by the Company or such Restricted Subsidiary, as
the case may be;
(v) the incurrence by the Company or any of its Restricted Subsidiaries of
Hedging Obligations that are incurred for the purpose of fixing or hedging
interest rate risk with respect to any floating rate Indebtedness that is
permitted by the terms of this Indenture to be outstanding;
(vi) the guarantee by the Company or any of the Guarantors of Indebtedness
that was permitted to be incurred by another provision of this covenant;
(vii) the incurrence by the Company or any of its Restricted Subsidiaries
of additional Indebtedness in an aggregate principal amount (or accreted value,
as applicable) at any time outstanding under this clause (vii), including all
Permitted Refinancing Indebtedness incurred pursuant to clause (ix) below to
refund, refinance or replace any Indebtedness incurred pursuant to this clause
(vii), not to exceed $15 million;
(viii) the incurrence by the Company's Unrestricted Subsidiaries of
Non-Recourse Debt, provided, however, that if any such Indebtedness ceases to be
Non-Recourse Debt of an Unrestricted Subsidiary, such event shall be deemed to
constitute an incurrence of Indebtedness by a Restricted Subsidiary of the
Company that was not permitted by this clause (viii); and
(ix) the incurrence by the Company or any of its Restricted Subsidiaries of
Permitted Refinancing Indebtedness in exchange for, or the net proceeds of which
are used to refund, refinance or replace Indebtedness (other than intercompany
Indebtedness) that was permitted by the Indenture to be incurred by the first
paragraph of this covenant, or by clauses (ii), (iii), (v), (vi) and (vii) of
this covenant.
For purposes of determining compliance with this covenant, in the event
that an item of Indebtedness meets the criteria of more than one of the
categories of Permitted Debt described in clauses (i) through (ix) above or is
entitled to be incurred pursuant to the first paragraph of this covenant, the
Company shall, in its sole discretion, classify such item of Indebtedness in any
manner that complies with this covenant and such item of Indebtedness will be
treated as having been incurred pursuant to only one of such clauses or pursuant
to the first paragraph hereof.
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Accrual of interest, the accretion of accreted value and the payment of interest
in the form of additional Indebtedness will not be deemed to be an incurrence of
Indebtedness for purposes of this covenant.
Limitation on Other Senior Subordinated Debt
The Indenture provides that (i) the Company will not directly or indirectly
incur any Indebtedness that is subordinate or junior in right of payment to any
Senior Debt and senior in any respect in right of payment to the Notes and (ii)
no Guarantor will incur any Indebtedness that is subordinate or junior in right
of payment to its Guarantor Senior Debt and senior in any respect in right of
payment to such Guarantor's Subsidiary Guarantee.
Liens
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, create, incur, assume
or suffer to exist any Lien securing Indebtedness or trade payables on any asset
now owned or hereafter acquired, or any income or profits therefrom or assign or
convey any right to receive income therefrom, except Permitted Liens.
Sale and Leaseback Transactions
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, enter into any sale and leaseback
transaction; provided that the Company and the Guarantors may enter into a sale
and leaseback transaction if (i) the Company or such Guarantor could have (a)
incurred Indebtedness in an amount equal to the Attributable Debt relating to
such sale and leaseback transaction pursuant to the Fixed Charge Coverage Ratio
test set forth in the first paragraph of the covenant described above under the
caption "--Incurrence of Indebtedness and Issuance of Disqualified Stock" and
(b) incurred a Lien to secure such Indebtedness pursuant to the covenant
described above under the caption "--Liens," (ii) the gross cash proceeds of
such sale and leaseback transaction are at least equal to the fair market value
(as determined in good faith by the Board of Directors and set forth in an
Officers' Certificate delivered to the Trustee, which shall certify that such
valuation has been approved by a majority of the Independent Directors) of the
property that is the subject of such sale and leaseback transaction and (iii)
the transfer of assets in such sale and leaseback transaction is permitted by,
and the proceeds of such transaction are applied in compliance with, the
covenant described above under the caption "--Repurchase at the Option of
Holders--Asset Sales." The foregoing provisions did not prohibit the sale and
leaseback of real estate in connection with the transfer of real estate to
SPLLC.
Dividend and Other Payment Restrictions Affecting Subsidiaries
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, create or otherwise
cause or suffer to exist or become effective any encumbrance or restriction on
the ability of any Restricted Subsidiary to (i)(a) pay dividends or make any
other distributions to the Company or any of its Restricted Subsidiaries (1) on
its Capital Stock or (2) with respect to any other interest or participation in,
or measured by, its profits, or (b) pay any indebtedness owed to the Company or
any of its Restricted Subsidiaries, (ii) make loans or advances to the Company
or any of its Restricted Subsidiaries or (iii) transfer any of its properties or
assets to the Company or any of its Restricted Subsidiaries, except for such
encumbrances or restrictions existing under or by reason of (a) Existing
Indebtedness as in effect on the date of the Indenture, (b) the Amended Credit
Facility as in effect as of the date of the Indenture, and any amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacements or refinancings thereof, provided that such amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacement or refinancings are no more restrictive with respect to such
dividend and other payment restrictions than those contained in the Amended
Credit Facility as in effect on the date of the Indenture, (c) the Indenture,
the Notes and the Subsidiary Guarantees, (d) applicable law, (e) any instrument
governing Indebtedness or Capital Stock of a Person acquired by the Company or
any of its Restricted Subsidiaries as in effect at the time of such acquisition
(except to the extent such Indebtedness was incurred in connection with or in
contemplation of such acquisition), which encumbrance or restriction is not
applicable to any Person, or the properties or assets of any Person, other than
the Person, or the property or assets of the Person, so acquired, provided that,
in the case of Indebtedness, such Indebtedness was permitted by the terms of the
Indenture to be incurred, (f) by reason of customary non-assignment provisions
in leases entered into in the ordinary course of business and consistent with
past practices, (g) purchase money obligations for property acquired
73
in the ordinary course of business that impose restrictions of the nature
described in clause (iii) above on the property so acquired, or (h) Permitted
Refinancing Indebtedness, provided that the restrictions contained in the
agreements governing such Permitted Refinancing Indebtedness are no more
restrictive than those contained in the agreements governing the Indebtedness
being refinanced.
Merger, Consolidation or Sale of Assets
The Indenture provides that neither the Company nor Finance Corp. may
consolidate or merge with or into (whether or not the Company or Finance Corp.,
as the case may be, is the surviving corporation), or sell, assign, transfer,
lease, convey or otherwise dispose of all or substantially all of its properties
or assets in one or more related transactions, to another corporation, Person or
entity unless (i) the Company or Finance Corp., as the case may be, is the
surviving corporation or the entity or the Person formed by or surviving any
such consolidation or merger (if other than the Company or Finance Corp.) or to
which such sale, assignment, transfer, lease, conveyance or other disposition
shall have been made is a corporation organized or existing under the laws of
the United States, any state thereof or the District of Columbia; (ii) the
entity or Person formed by or surviving any such consolidation or merger (if
other than the Company or Finance Corp.) or the entity or Person to which such
sale, assignment, transfer, lease, conveyance or other disposition shall have
been made assumes all the obligations of the Company or Finance Corp., as the
case may be, under the Notes and the Indenture pursuant to a supplemental
indenture in a form reasonably satisfactory to the Trustee; (iii) immediately
after such transaction no Default or Event of Default exists; and (iv) except in
the case of a merger of the Company with or into a Wholly Owned Restricted
Subsidiary of the Company (including the merger of Finance Corp. with or into
the Company at any time when the Company is a corporation), the Company or the
entity or Person formed by or surviving any such consolidation or merger (if
other than the Company), or to which such sale, assignment, transfer, lease,
conveyance or other disposition shall have been made (a) will have Consolidated
Net Worth immediately after the transaction equal to or greater than the
Consolidated Net Worth of the Company immediately preceding the transaction and
(b) will, at the time of such transaction and after giving pro forma effect
thereto as if such transaction had occurred at the beginning of the applicable
four-quarter period, be permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the
first paragraph of the covenant described above under the caption "--Incurrence
of Indebtedness and Issuance of Disqualified Stock."
Notwithstanding the foregoing, the Indenture permits the Company to
reorganize as a corporation in accordance with the procedures established in the
Indenture provided that such reorganization is not materially adverse to holders
of Notes (it being recognized that such reorganization shall not be considered
materially adverse to holders of Notes solely because (i) of the accrual of
deferred tax liabilities resulting from such reorganization or (ii) the
successor or surviving corporation (a) is subject to income taxation as an
entity or (b) is considered to be an "includible corporation" of an affiliated
group of corporations within the meaning of Section 1504(a)(1) of the Code or
any similar state or local law) and certain other conditions are satisfied.
Transactions with Affiliates
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, make any payment to, or sell, lease, transfer
or otherwise dispose of any of its properties or assets to, or purchase any
property or assets from, or enter into or make or amend any transaction,
contract, agreement, understanding, loan, advance or guarantee with, or for the
benefit of, any Affiliate (each of the foregoing, an "Affiliate Transaction"),
unless (i) such Affiliate Transaction is on terms that are no less favorable to
the Company or such Restricted Subsidiary than those that would have been
obtained in a comparable transaction by the Company or such Restricted
Subsidiary with an unrelated Person and (ii) the Company delivers to the Trustee
(a) with respect to any Affiliate Transaction or series of related Affiliate
Transactions involving aggregate consideration in excess of $1.0 million, a
resolution of the Board of Directors set forth in an Officers' Certificate
certifying that such Affiliate Transaction complies with clause (i) above and
that such Affiliate Transaction has been approved by a majority of the
disinterested members of the Board of Directors and a majority of the
Independent Directors and (b) with respect to any Affiliate Transaction or
series of related Affiliate Transactions involving aggregate consideration in
excess of $7.5 million, an opinion as to the fairness to Company of such
Affiliate Transaction from a financial point of view issued by an accounting,
appraisal or investment banking firm of national standing. The foregoing
provisions will not prohibit (i) any employment agreement entered into by the
Company or any of its Restricted Subsidiaries in the ordinary course of business
and consistent with the past practice of the Company or such Restricted
Subsidiary, (ii)
74
transactions between or among the Company and/or its Restricted Subsidiaries
and/or Finance Corp.; and (iii) any Restricted Payment that is permitted by the
provisions of the Indenture described above under the caption "--Restricted
Payments."
Independent Directors
From and after the earlier of 30 days after the consummation of the
Exchange Offer or 180 days after the Closing Date, so long as any of the Notes
are outstanding, the Company shall have at least two-thirds of its Board of
Directors who are neither an officer nor an employee of the Company or any of
its Affiliates (the "Independent Directors"). Any transaction requiring the
approval of the majority of the Independent Directors shall be prohibited at any
time that at least two-thirds of the Company's Board of Directors are not
Independent Directors.
Additional Subsidiary Guarantees
The Indenture provides that if the Company or any of its Restricted
Subsidiaries shall acquire or create another Restricted Subsidiary after the
date of the Indenture, or any Unrestricted Subsidiary shall cease to be an
Unrestricted Subsidiary, then such Subsidiary shall execute a Subsidiary
Guarantee of the Notes and deliver an opinion of counsel, in accordance with the
terms of the Indenture.
Payments for Consent
The Indenture provides that neither the Company, Finance Corp. nor any of
the Company's Restricted Subsidiaries will, directly or indirectly, pay or cause
to be paid any consideration, whether by way of interest, fee or otherwise, to
any Holder of any Notes for or as an inducement to any consent, waiver or
amendment of any of the terms or provisions of the Indenture or the Notes unless
such consideration is offered to be paid or is paid to all Holders of the Notes
that consent, waive or agree to amend in the time frame set forth in the
solicitation documents relating to such consent, waiver or agreement.
Business Activities
The Company will not, and will not permit any Restricted Subsidiary to,
engage in any business other than Permitted Businesses.
Reports
The Indenture provides that upon the consummation of the Exchange Offer or
the effectiveness of the Shelf Registration Statement, as the case may be,
whether or not required by the rules and regulations of the Commission, so long
as any Notes are outstanding, the Company will furnish to the Holders of Notes
(i) all quarterly and annual financial information that would be required to be
contained in a filing with the Commission on Forms 10-Q and 10-K if the Company
were required to file such Forms, including a "Management's Discussion and
Analysis of Financial Condition and Results of Operations" that describes the
financial condition and results of operations of the Company and its
consolidated Subsidiaries (showing in reasonable detail, either on the face of
the financial statements or in the footnotes thereto and in Management's
Discussion and Analysis of Financial Condition and Results of Operations, the
financial condition and results of operations of the Company and its Restricted
Subsidiaries separate from the financial information and results of operations
of the Unrestricted Subsidiaries of the Company) and, with respect to the annual
information only, a report thereon by the Company's certified independent
accountants and (ii) all current reports that would be required to be filed with
the Commission on Form 8-K if the Company were required to file such reports. In
addition, whether or not required by the rules and regulations of the
Commission, the Company will file a copy of all such information and reports
with the Commission for public availability (unless the Commission will not
accept such a filing) and make such information available to securities analysts
and prospective investors upon request. In addition, the Issuers will agree
that, for so long as any Notes remain outstanding, they will furnish to the
Holders and to securities analysts and prospective investors, upon their
request, the information required to be delivered pursuant to Rule 144A(d)(4)
under the Act.
Activities of Finance Corp.
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The Indenture provides that Finance Corp. may not hold any material assets,
become liable for any material obligations or engage in any significant business
activities; provided, however, that Finance Corp. may be a co-obligor or
guarantor with respect to Indebtedness of which the Company is an obligor.
Notwithstanding the foregoing, Finance Corp. shall at all times prior to the
reorganization of the Company as a corporation remain a Wholly Owned Restricted
Subsidiary of the Company.
Events of Default and Remedies
The Indenture provides that each of the following constitutes an Event of
Default: (i) default for 30 days in the payment when due of interest on, or
Liquidated Damages, if any, with respect to, the Notes (whether or not
prohibited by the subordination provisions of the Indenture), (ii) default in
payment when due of the principal of or premium, if any, on the Notes (whether
or not prohibited by the subordination provisions of the Indenture); (iii)
failure by the Company or any Restricted Subsidiary to comply with the
provisions described under the captions "--Repurchase at the Option of
Holders--Change of Control," "--Repurchase at the Option of Holders--Asset
Sales," "--Certain Covenants--Restricted Payments," "--Certain
Covenants--Incurrence of Indebtedness and Issuance of Disqualified Stock" or
"--Certain Covenants--Merger, Consolidation or Sale of Assets;" (iv) failure by
the Company or any Restricted Subsidiary for 30 days after written notice by the
Trustee or the Holders of at least 25% in principal amount of the then
outstanding Notes to comply with any of its other agreements in the Indenture or
the Notes; (v) default under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Company or any of its Restricted
Subsidiaries (or the payment of which is guaranteed by the Company or any of its
Restricted Subsidiaries), whether such Indebtedness or guarantee now exists or
is created after the date of the Indenture, which default (a) is caused by a
failure to pay principal of or premium, if any, or interest on such Indebtedness
prior to the expiration of the grace period provided in such Indebtedness on the
date of such default (a "Payment Default") or (b) results in the acceleration of
such Indebtedness prior to its express maturity and, in each case, the principal
amount of any such Indebtedness, together with the principal amount of any other
such Indebtedness under which there has been a Payment Default or the maturity
of which has been so accelerated, aggregates $5.0 million or more; (vi) failure
by the Company or any of its Restricted Subsidiaries to pay final judgments
aggregating in excess of $5.0 million, which judgments are not paid, discharged
or stayed for a period of 60 days; (vii) except as permitted by the Indenture,
any Subsidiary Guarantee shall be held in any judicial proceeding to be
unenforceable or invalid or shall cease for any reason to be in full force and
effect or any Guarantor, or any Person acing on behalf of any Guarantor, shall
deny or disaffirm its obligations under its Subsidiary Guarantee; and (viii)
certain events of bankruptcy or insolvency with respect to the Issuers or any of
the Company's Restricted Subsidiaries that constitutes a Significant Subsidiary
or any group of Restricted Subsidiaries of the Company that, taken together,
would constitute a Significant Subsidiary.
If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the then outstanding Notes may
declare all the Notes to be due and payable immediately. Notwithstanding the
foregoing, in the case of an Event of Default arising from certain events of
bankruptcy or insolvency, with respect to the Issuers, any Restricted Subsidiary
of the Company that constitutes a Significant Subsidiary or any group of
Restricted Subsidiaries of the Company that, taken together, would constitute a
Significant Subsidiary, all outstanding Notes will become due and payable
without further action or notice. Holders of the Notes may not enforce the
Indenture or the Notes except as provided in the Indenture. Subject to certain
limitations, Holders of a majority in principal amount of the then outstanding
Notes may direct the Trustee in its exercise of any trust or power. The Trustee
may withhold from Holders of the Notes notice of any continuing Default or Event
of Default (except a Default or Event of Default relating to the payment of
principal or interest) if it determines that withholding notice is in their
interest.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Issuers with
the intention of avoiding payment of the premium that the Issuers would have had
to pay if the Issuers then had elected to redeem the Notes pursuant to the
optional redemption provisions of the Indenture, an equivalent premium shall
also become and be immediately due and payable to the extent permitted by law
upon the acceleration of the Notes. If an Event of Default occurs prior to
January 15, 2003 by reason of any willful action (or inaction) taken (or not
taken) by or on behalf of the Issuers with the intention of avoiding the
prohibition on redemption of the Notes prior to such date, then the premium
specified in the Indenture shall also become immediately due and payable to the
extent permitted by law upon the acceleration of the Notes.
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The Holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may on behalf of the Holders of all of the
Notes waive any existing Default or Event of Default and its consequences under
the Indenture except a continuing Default or Event of Default in the payment of
interest on, or the principal of, the Notes.
The Issuers are required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Issuers are required upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
No Personal Liability of Directors, Advisors, Managers, Officers, Employees,
Incorporators, Members and Stockholders
No director, advisor, manager, officer, employee, incorporator, member or
stockholder of either Issuer or any Guarantor, as such, shall have any liability
for any obligations of the Issuers or any Guarantor under the Notes, the
Subsidiary Guarantees, the Indenture or for any claim based on, in respect of,
or by reason of, such obligations or their creation. Each Holder of Notes by
accepting a Note waives and releases all such liability. The waiver and release
are part of the consideration for issuance of the Notes. Such waiver may not be
effective to waive liabilities under the federal securities laws and it is the
view of the Commission that such a waiver is against public policy.
Legal Defeasance and Covenant Defeasance
The Issuers may, at their option and at any time, elect to have all of
their obligations discharged with respect to the outstanding Notes and to have
each Guarantor's obligation discharged with respect to its Subsidiary Guarantee
("Legal Defeasance") except for (i) the rights of Holders of outstanding Notes
to receive payments in respect of the principal of and premium, interest and
Liquidated Damages, if any, on the Notes when such payments are due from the
trust referred to below, (ii) the Issuers' obligations with respect to the Notes
concerning issuing temporary Notes, registration of Notes, mutilated, destroyed,
lost or stolen Notes and the maintenance of an office or agency for payment and
money for security payments held in trust, (iii) the rights, powers, trusts,
duties and immunities of the Trustee, and the Issuers' obligations in connection
therewith and (iv) the Legal Defeasance provisions of the Indenture. In
addition, the Issuers may, at their option and at any time, elect to have the
obligations of the Issuers and each Guarantor released with respect to certain
covenants that are described in the Indenture ("Covenant Defeasance") and
thereafter any omission to comply with such obligations shall not constitute a
Default or Event of Default with respect to the Notes. In the event Covenant
Defeasance occurs, certain events (not including non-payment, bankruptcy,
receivership, rehabilitation and insolvency events) described under the caption
"Events of Default" will no longer constitute an Event of Default with respect
to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
the Issuers must irrevocably deposit with the Trustee, in trust, for the benefit
of the Holders of the Notes, cash in U.S. dollars, non-callable Government
Securities, or a combination thereof, in such amounts as will be sufficient, in
the opinion of a nationally recognized firm of independent public accountants,
to pay the principal of and premium, interest and Liquidated Damages, if any, on
the outstanding Notes on the stated maturity or on the applicable date fixed for
redemption, as the case may be, and the Issuers must specify whether the Notes
are being defeased to maturity or to a particular date fixed for redemption;
(ii) in the case of Legal Defeasance, the Issuers shall have delivered to the
Trustee an opinion of counsel in the United States reasonably acceptable to the
Trustee confirming that (a) the Issuers have received from, or there has been
published by, the Internal Revenue Service a ruling or (b) since the date of the
Indenture, there has been a change in the applicable federal income tax law, in
either case to the effect that, and based thereon, such opinion of counsel shall
confirm that, the Holders of the outstanding Notes will not recognize income,
gain or loss for federal income tax purposes as a result of such Legal
Defeasance and will be subject to federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such Legal
Defeasance had not occurred; (iii) in the case of Covenant Defeasance, the
Issuers shall have delivered to the Trustee an opinion of counsel in the United
States reasonably acceptable to the Trustee confirming that the Holders of the
outstanding Notes will not recognize income, gain or loss for federal income tax
purposes as a result of such Covenant Defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such Covenant Defeasance had not occurred; (iv) no
Default or Event of Default shall have occurred and be continuing on the date of
such deposit (other than a Default or Event of Default resulting from the
borrowing of funds to be applied to such deposit) or insofar as Events of
Default from
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bankruptcy or insolvency events are concerned, at any time in the period ending
on the 91st day after the date of deposit; (v) such Legal Defeasance or Covenant
Defeasance will not result in a breach or violation of, or constitute a default
under any material agreement or instrument (other than the Indenture) to which
the Company or any of its Subsidiaries is a party or by which the Company or any
of its Subsidiaries is bound; (vi) the Issuers shall have delivered to the
Trustee an opinion of counsel to the effect that after the 91st day following
the deposit, the trust funds will not be subject to the effect of any applicable
bankruptcy, insolvency, reorganization or similar laws affecting creditors'
rights generally; (vii) the Issuers shall have delivered to the Trustee an
Officers' Certificate stating that the deposit was not made by the Issuers with
the intent of preferring the Holders of Notes over the other creditors of the
Issuers with the intent of defeating, hindering, delaying or defrauding
creditors of the Issuers or others; and (viii) the Issuers shall have delivered
to the Trustee an Officers' Certificate and an opinion of counsel, each stating
that all conditions precedent provided for relating to the Legal Defeasance or
the Covenant Defeasance have been complied with.
Transfer and Exchange
A Holder may transfer or exchange Notes in accordance with the Indenture.
The Registrar and the Trustee may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and the Issuers may
require a Holder to pay any taxes and fees required by law or permitted by the
Indenture. The Issuers are not required to transfer or exchange any Note
selected for redemption. Also, the Issuers are not required to transfer or
exchange any Note for a period of 15 days before a selection of Notes to be
redeemed. The registered Holder of a Note will be treated as the owner of it for
all purposes.
Amendment, Supplement and Waiver
Except as provided in the next two succeeding paragraphs, the Indenture,
the Notes and the Subsidiary Guarantees may be amended or supplemented with the
consent of the Holders of at least a majority in principal amount of the Notes
then outstanding (including, without limitation, consents obtained in connection
with a purchase of, or tender offer or exchange offer for, Notes), and any
existing default or compliance with any provision of the Indenture, the Notes or
the Subsidiary Guarantees may be waived with the consent of the Holders of a
majority in principal amount of the then outstanding Notes (including consents
obtained in connection with a tender offer or exchange offer for Notes).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Notes held by a non-consenting Holder): (i) reduce the
principal amount of Notes whose Holders must consent to an amendment, supplement
or waiver, (ii) reduce the principal of or change the fixed maturity of any Note
or alter the provisions with respect to the redemption of the Notes (other than
provisions relating to the covenants described above under the caption
"--Repurchase at the Option of Holders"), (iii) reduce the rate of or change the
time for payment of interest on any Note, (iv) waive a Default or Event of
Default in the payment of principal of or premium, interest or Liquidated
Damages, if any, on the Notes (except a rescission of acceleration of the Notes
by the Holders of at least a majority in aggregate principal amount of the Notes
and a waiver of the payment default that resulted from such acceleration), (v)
make any Note payable in money other than that stated in the Notes, (vi) make
any change in the provisions of the Indenture relating to waivers of past
Defaults or the rights of Holders of Notes to receive payments of principal of
or premium, interest or Liquidated Damages, if any, on the Notes, (vii) waive a
redemption payment with respect to any Note (other than a payment required by
one of the covenants described above under the caption "--Repurchase at the
Option of Holders"), (viii) release any Guarantor from its Subsidiary Guarantee
or (ix) make any change in the foregoing amendment and waiver provisions. In
addition, any amendment to the provisions of Article 10 of the Indenture (which
relate to subordination) will require the consent of the Holders of at least 75%
in aggregate principal amount of the Notes then outstanding if such amendment
would adversely affect the rights of Holders of Notes, and the written consent
of holders of Designated Senior Debt.
Notwithstanding the foregoing, without the consent of any Holder of Notes,
the Issuers, a Guarantor (with respect to a Subsidiary Guarantee or the
Indenture to which it is a party) and the Trustee may amend or supplement the
Indenture, the Notes or any Subsidiary Guarantee to cure any ambiguity, defect
or inconsistency, to provide for uncertificated Notes in addition to or in place
of certificated Notes, to provide for the assumption of the Company's, Finance
Corp.'s or any Guarantor's obligations to Holders of Notes in the case of a
merger or consolidation, to make any change that would provide any additional
rights or benefits to the Holders of Notes or that does not adversely
78
affect the legal rights under the Indenture of any such Holder or to comply with
requirements of the Commission in order to effect or maintain the qualification
of the Indenture under the Trust Indenture Act.
Concerning the Trustee
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Issuers, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest it must eliminate
such conflict within 90 days, apply to the Commission for permission to continue
or resign.
The Holders of a majority in principal amount of the then outstanding Notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
shall occur (which shall not be cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent person in the
conduct of his or her own affairs. Subject to such provisions, the Trustee will
be under no obligation to exercise any of its rights or powers under the
Indenture at the request of any Holder of Notes, unless such Holder shall have
offered to the Trustee security and indemnity satisfactory to it against any
loss, liability or expense.
Additional Information
Anyone who receives this Prospectus may obtain a copy of the Indenture and
Registration Rights Agreement without charge by writing to Production Resource
Group, L.L.C., 539 Temple Hill Road, New Windsor, New York 12553, Attention:
Chief Financial Officer.
Book-Entry, Delivery and Form
The Notes are being offered and sold (a) to "qualified institutional
buyers" (as defined in Rule 144A under the Securities Act) in reliance on the
exemption from the registration requirements of the Securities Act provided by
Rule 144A ("Rule 144A Notes") and (b) outside the United States in reliance on
Regulation S under the Securities Act ("Regulation S Notes"). Except as set
forth below, Notes will be issued in registered, global form without interest
coupons in minimum denominations of $1,000 and integral multiples of $1,000 in
excess thereof. The Old Notes were issued at the closing of the Initial Offering
only against payment in immediately available funds.
Rule 144A Notes initially will be represented by one or more Notes in
registered, global form without interest coupons (collectively, the "Rule 144A
Global Notes"). The Rule 144A Global Notes will be deposited upon issuance with
the Trustee as custodian for The Depository Trust Company ("DTC"), in New York,
New York, and registered in the name of DTC or its nominee, in each case for
credit to an account of a direct or indirect participant in DTC as described
below.
Regulation S Notes initially will be represented by one or more temporary
Notes in registered, global form without interest coupons (collectively, the
Regulation S Temporary Global Notes"). The Regulation S Temporary Global Notes
will be deposited on behalf of the subscribers thereof with a custodian for DTC.
The Regulation S Temporary Global Notes will be registered in the name of a
nominee of DTC for credit to the subscribers' respective accounts at the
Euroclear System ("Euroclear") and Cedel Bank, S.A. ("Cedel Bank"). Beneficial
interests in the Regulation S Temporary Global Notes may be held only through
Euroclear or Cedel Bank.
After the occurrence of (i) the expiration of a 40-day restricted period,
as defined under Regulation S (the "Restricted Period"), or (ii) the exchange of
a beneficial interest in the Regulation S Global Notes for a beneficial interest
in a global note representing Exchange Notes upon consummation of the Exchange
Offer and upon delivery of certification that the beneficial owners thereof are
not U.S. persons (as defined in Rule 902(o) under the Securities Act) or that
such beneficial owners purchased such Notes in a transaction that did not
require registration under the Securities Act and are in the process of
obtaining a beneficial interest in the Rule 144A Global Note in exchange for
their beneficial interest in the Regulation S Temporary Global Note, a
beneficial interest in the Regulation S Temporary Global Note may be exchanged
for an interest in one or more permanent Notes in
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registered, global form without interest coupons (collectively, the "Regulation
S Permanent Global Notes" and, together with the Regulation S Temporary Global
Notes, the "Regulation S Global Note") (the Regulation S Global Note and the
144A Global Note collectively, the "Global Notes") which is expected to be
deposited with the Trustee as custodian for, and registered in the name of, a
nominee of DTC. Investors may hold beneficial interests in the Regulation S
Permanent Global Note through organizations other than Euroclear and Cedel Bank
that are Participants in DTC's system. Euroclear and Cedel Bank will hold
interests in the Regulation S Global Note on behalf of their Participants
through customers' securities accounts in their respective names on the books of
their respective depositaries, which are Morgan Guaranty Trust Company of New
York, Brussels office, as operator of Euroclear, and Citibank, N.A., as operator
of Cedel Bank. In turn, each of Euroclear and Cedel Bank will hold such
interests in the Regulation S Global Note in customers' securities accounts in
its name on the books of DTC.
The Notes that are issued as described below under the caption
"--Certificated Securities" will be issued in the form of registered definitive
certificates (the "Certificated Securities"). Such Certificated Securities may,
unless the Global Notes have previously been exchanged for Certificated
Securities, be exchanged for an interest in a Global Note representing the
principal amount of Notes being transferred.
DTC is a limited-purpose trust company that was created to hold securities
for its participating organizations (collectively, the "Participants" or the
"Depositary's Participants") and to facilitate the clearance and settlement of
transactions in such securities between Participants through electronic
book-entry changes in accounts of its Participants. The Depositary's
Participants include securities brokers and dealers (including the Initial
Purchasers), banks and trust companies, clearing corporations and certain other
organizations. Access to the DTC's system is also available to other entities
such as banks, brokers, dealers and trust companies (collectively, the "Indirect
Participants" or the "Depositary's Indirect Participants") that clear through or
maintain a custodial relationship with a Participant, either directly or
indirectly. Persons who are not Participants may beneficially own securities
held by or on behalf of DTC only thorough the Depositary's Participants or the
Depositary's Indirect Participants.
The Issuers expect that, pursuant to procedures established by DTC, (i)
upon deposit of the Global Notes, DTC will credit the accounts of Participants
designated by the Initial Purchasers with portions of the principal amount of
the Global Notes and (ii) ownership of the Notes evidenced by the Global Notes
will be shown on, and the transfer of ownership thereof will be effected only
through, records maintained by DTC (with respect to the interests of the
Depositary's Participants), the Depositary's Participants and the Depositary's
Indirect Participants. Prospective purchasers are advised that the laws of some
states require that certain persons take physical delivery in definitive form of
securities that they own. Consequently, the ability to transfer Notes evidenced
by the Global Notes will be limited to such extent.
Beneficial interests in one Global Note may be transferred to a person who
takes delivery in the form of a beneficial interest in another Global Note only
upon receipt by the Trustee of a written certification (in the form provided in
the Indenture) to the effect that such transfer is being made in accordance with
the Indenture and with the Securities Act and any applicable securities laws of
any state of the United States or any other jurisdiction. Any beneficial
interest in one of the Global Notes that is transferred to a person who takes
delivery in the form of a beneficial interest in another Global Note will, upon
transfer, cease to be a beneficial interest in such Global Note and become a
beneficial interest in the other Global Note and accordingly, will thereafter be
subject to all transfer restrictions, if any, and other procedures applicable to
beneficial interests in such other Global Note for as long as it remains such a
beneficial interest.
So long as the Global Note Holder is the registered owner of any Notes, the
Global Note Holder will be considered the sole Holder under the Indenture of any
Notes evidenced by the Global Notes. Beneficial owners of Notes evidenced by the
Global Notes will not be considered the owners or Holders thereof under the
Indenture for any purpose, including with respect to the giving of any
directions, instructions or approvals to the Trustee thereunder. Neither the
Issuers nor the Trustee will have any responsibility or liability for any aspect
of the records of DTC or for maintaining, supervising or reviewing any records
of DTC relating to the Notes.
Payments in respect of the principal of and premium, interest and
Liquidated Damages, if any, on any Notes registered in the name of the Global
Note Holder on the applicable record date will be payable by the Trustee to or
at the direction of the Global Note Holder in its capacity as the registered
Holder under the Indenture. Under
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the terms of the Indenture, the Issuers and the Trustee may treat the persons in
whose names Notes, including the Global Notes, are registered as the owners
thereof for the purpose of receiving such payments. Consequently, neither the
Issuers nor the Trustee has or will have any responsibility or liability for the
payment of such amounts to beneficial owners of Notes. The Issuers believe,
however, that it is currently the policy of DTC to immediately credit the
accounts of the relevant Participants with such payments, in amounts
proportionate to their respective holdings of beneficial interests in the
relevant security as shown on the records of DTC. Payments by the Depositary's
Participants and the Depositary's Indirect Participants to the beneficial owners
of Notes will be governed by standing instructions and customary practice and
will be the responsibility of the Depositary's Participants or the Depositary's
Indirect Participants.
Additional Information Concerning Euroclear and Cedel Bank
Euroclear and Cedel Bank hold securities for participating organizations
and facilitate the clearance and settlement of securities transactions between
their respective participants through electronic book-entry changes in accounts
of such participants. Euroclear and Cedel Bank provide to their participants,
among other things, services for safekeeping, administration, clearance and
settlement of internationally traded securities and securities lending and
borrowing. Euroclear and Cedel Bank interface with domestic securities markets.
Euroclear and Cedel Bank participants are financial institutions such as
underwriters, securities brokers and dealers, banks, trust companies and certain
other organizations. Indirect access to Euroclear and Cedel Bank is also
available to others such as banks, brokers, dealers and trust companies that
clear through or maintain a custodian relationship with a Euroclear or Cedel
Bank participant, either directly or indirectly.
When beneficial interests are to be transferred from the account of a
Participant (other than Morgan Guaranty Trust Company of New York and Citibank,
N.A., as depositaries for Euroclear and Cedel Bank, respectively) to the account
of a Euroclear participant or a Cedel Bank participant, the purchaser must send
instructions to Euroclear or Cedel Bank through a participant at least one
business day prior to settlement. Euroclear or Cedel Bank, as the case may be,
will instruct Morgan Guaranty Trust Company of New York or Citibank, N.A. to
receive the beneficial interests against payment. Payment will include interest
attributable to the beneficial interest from and including the last payment date
to and excluding the settlement date, on the basis of a calendar year consisting
of twelve 30-day calendar months. For transactions settling on the 31st day of
the month, payment will include interest accrued to and excluding the first day
of the following month. Payment will then be made by Morgan Guaranty Trust
Company of New York or Citibank, N.A., as the case may be, to the Participant's
account against delivery of the beneficial interests. After settlement has been
completed, the beneficial interests will be credited to the respective clearing
systems and by the clearing system, in accordance with its usual procedures, to
the Euroclear participants' or Cedel Bank participants' account. Credit for the
beneficial interests will appear on the next business day (European time) and
the cash debit will be back-valued to, and interest attributable to the
beneficial interests will accrue from, the value date (which would be the
preceding business day when settlement occurs in New York). If settlement is not
completed on the intended value date (i.e., the trade fails), the Euroclear or
Cedel Bank cash debit will instead be valued as of the actual settlement date.
Euroclear participants and Cedel Bank participants will need to make
available to the respective clearing systems the funds necessary to process
same-day funds settlement. The most direct means of doing so is to pre-position
funds for settlement, either from cash on hand or existing lines of credit, as
they would for any settlement occurring within Euroclear or Cedel Bank. Under
this approach, such participants may take on credit exposure to Euroclear or
Cedel Bank until the beneficial interests are credited to their accounts one day
later. Finally, day traders that use Euroclear or Cedel Bank and that purchase
beneficial interests from Participants for credit to Euroclear participants or
Cedel Bank participants should note that these trades would automatically fall
on the sale side unless affirmative action were taken to avoid these potential
problems.
Due to time zone differences in their favor, Euroclear participants and
Cedel Bank participants may employ their customary procedures for transactions
in which beneficial interests are to be transferred by the respective clearing
system, through Morgan Guaranty Trust Company of New York or Citibank, N.A., to
another Participant. The seller must send instructions to Euroclear or Cedel
Bank through a participant at least one business day prior to settlement. In
these cases, Euroclear or Cedel Bank will instruct Morgan Guaranty Trust Company
of New York or Citibank, N.A., as the case may be, to credit the beneficial
interests to the Participant's account against payment. Payment will include
interest attributable to the beneficial interest from and including the last
payment date to and
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excluding the settlement date on the basis of a calendar year consisting of
twelve 30-day calendar months. For transactions settling on the 31st day of the
month, payment will include interest accrued to and excluding the first day of
the following month. The payment will then be reflected in the account of the
Euroclear participant or Cedel Bank participant the following business day, and
receipt of the cash proceeds in the Euroclear or Cedel Bank participant's
account will be back-valued to the value date (which would be the preceding
business day, when settlement occurs in New York). If the Euroclear participant
or Cedel Bank participant has a line of credit with its representative clearing
system and elects to draw on such line of credit in anticipation of receipt of
the sale proceeds in its account, the back-valuation may substantially reduce or
offset any overdraft charges incurred over that one-day period. If settlement is
not completed on the intended value date (i.e., if trade fails), receipt of the
cash proceeds in the Euroclear or Cedel Bank participant's account would instead
be valued as of the actual settlement date.
Certificated Securities
Subject to certain conditions, any person having a beneficial interest in a
Global Note may, upon request to the Trustee, exchange such beneficial interest
for Notes in the form of Certificated Securities. Upon any such issuance, the
Trustee is required to register such Certificated Securities in the name of, and
cause the same to be delivered to, such person or persons (or the nominee of any
thereof). All such certificated Notes are subject to the legend requirements
described in the Offering Memorandum under the caption "Notice to Investors." In
addition, if (i) the Issuers notify the Trustee in writing that DTC is no longer
willing or able to act as a depositary and the Issuers are unable to locate a
qualified successor within 90 days or (ii) the Issuers, at their option, notify
the Trustee in writing that they elect to cause the issuance of Notes in the
form of Certificated Securities under the Indenture, then, upon surrender by the
Global Note Holder of the Global Notes, Notes in such form will be issued to
each person that the Global Note Holder and DTC identify as being the beneficial
owner of the related Notes.
Neither the Issuers nor the Trustee will be liable for any delay by the
Global Note Holder or DTC in identifying the beneficial owners of Notes and the
Issuers and the Trustee may conclusively rely on, and will be protected in
relying on, instructions from the Global Note Holder or DTC for all purposes.
Same-Day Settlement and Payment
The Indenture requires that payments in respect of the Notes represented by
the Global Notes (including principal, premium, interest and Liquidated Damages,
if any) be made by wire transfer of immediately available funds to the accounts
specified by the Global Note Holder. With respect to Certificated Securities,
the Issuers will make all payments of principal, premium, interest and
Liquidated Damages, if any, by wire transfer of immediately available funds to
the accounts specified by the Holders thereof or, if no such account is
specified, by mailing a check to each such Holder's registered address.
The Notes represented by the Global Notes are expected to be eligible to
trade in the PORTAL market and to trade in DTC's Same-Day Funds Settlement
System, and any permitted secondary market trading activity in such Notes will,
therefore, be required by DTC to be settled in immediately available funds. The
Issuers expect that secondary trading in the Certificated Securities will also
be settled in immediately available funds.
Registration Rights; Liquidated Damages
The Issuers, the Guarantors and the Initial Purchasers entered into the
Registration Rights Agreement on December 24, 1997. Pursuant to the Registration
Rights Agreement, the Issuers and the Guarantors agreed to file with the
Commission the Exchange Offer Registration Statement on the appropriate form
under the Securities Act with respect to the Exchange Notes. Upon the
effectiveness of the Exchange Offer Registration Statement, the Issuers will
offer to the Holders of Transfer Restricted Securities pursuant to the Exchange
Offer who are able to make certain representations the opportunity to exchange
their Transfer Restricted Securities for Exchange Notes. If (i) the Issuers and
the Guarantors are not required to file the Exchange Offer Registration
Statement or permitted to consummate the Exchange Offer because the Exchange
Offer is not permitted by applicable law or Commission policy or (ii) any Holder
of Transfer Restricted Securities notifies the Company prior to the 20th day
following consummation of the Exchange Offer that (a) it is prohibited by law or
Commission policy from participating in the Exchange Offer or (b) that it may
not resell the Exchange Notes acquired by it in the Exchange Offer to the public
without delivering a prospectus and the prospectus contained in the Exchange
Offer Registration Statement is not
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appropriate or available for such resales or (c) that it is a broker-dealer and
owns Notes acquired directly from the Issuers or an affiliate of the Issuers,
the Issuers and the Guarantors will file with the Commission a Shelf
Registration Statement to cover resales of the Notes by the Holders thereof who
satisfy certain conditions relating to the provision of information in
connection with the Shelf Registration Statement. The registration statement to
be declared effective as promptly as possible by the Commission. For purposes of
the foregoing, "Transfer Restricted Securities" means each Note until (i) the
date on which such Note has been exchanged by a person other than a
broker-dealer for an Exchange Note in the Exchange Offer, (ii) following the
exchange by a broker-dealer in the Exchange Offer of Old Note for a New Note,
the date on which such New Note is sold to a purchaser who receives from such
broker-dealer on or prior to the date of such sale a copy of the prospectus
contained in the Exchange Offer Registration Statement, (iii) the date on which
such Old Note has been effectively registered under the Securities Act and
disposed of in accordance with the Shelf Registration Statement or (iv) the date
on which such Old Note is distributed to the public pursuant to Rule 144 under
the Act.
The Registration Rights Agreement provides that (i) the Issuers and the
Guarantors will file an Exchange Offer Registration Statement with the
Commission on or prior to 60 days after the date of the original issuance of the
Old Note, (ii) the Issuers and the Guarantors will use their best efforts to
have the Exchange Offer Registration Statement declared effective by the
Commission on or prior to 150 days after the date of the original issuance of
the Old Note, (iii) unless the Exchange Offer would not be permitted by
applicable law or Commission policy, the Issuers will commence the Exchange
Offer and use its best efforts to issue, on or prior to 30 business days after
the date on which the Exchange Offer Registration Statement was declared
effective by the Commission, New Notes in exchange for all Old Notes tendered
prior thereto in the Exchange Offer and (iv) if obligated to file the Shelf
Registration Statement, the Issuers and the Guarantors will use their best
efforts to file the Shelf Registration Statement with the Commission on or prior
to 60 days after such filing obligation arises and to cause the Shelf
Registration to be declared effective by the Commission on or prior to 150 days
after such obligation arises. If (a) the Issuers and the Guarantors fail to file
any of the Registration Statements required by the Registration Rights Agreement
on or before the date specified for such filing, (b) any of such Registration
Statements is not declared effective by the Commission on or prior to the date
specified for such effectiveness (the "Effectiveness Target Date"), (c) the
Issuers fail to consummate the Exchange Offer within 30 business days of the
Effectiveness Target Date with respect to the Exchange Offer Registration
Statement or (d) the Shelf Registration Statement or the Exchange Offer
Registration Statement is declared effective but thereafter ceases to be
effective or usable in connection with resales of Transfer Restricted Securities
during the periods specified in the Registration Rights Agreement (each such
event referred to in clauses (a) through (d) above a "Registration Default"),
then the Issuers and the Guarantors will pay Liquidated Damages to each Holder
of Notes, with respect to the first 90-day period immediately following the
occurrence of the first Registration Default, in an amount equal to one-half of
one percentage point (0.5%) per annum of the principal amount of Notes held by
such Holder. The amount of the Liquidated Damages will increase by an additional
one-half of one percent (0.5%) per annum for each subsequent 90-day period until
all Registration Defaults have been cured, up to a maximum amount of Liquidated
Damages of two percent (2.0%) per annum. All accrued Liquidated Damages will be
paid by the Issuers on each Damages Payment Date to the Global Note Holder by
wire transfer of immediately available funds or by federal funds check and to
Holders of Certificated Securities by wire transfer to the accounts specified by
them or by mailing checks to their registered addresses if no such accounts have
been specified. Following the cure of all Registration Defaults, the accrual of
Liquidated Damages will cease.
Holders of Old Notes will be required to make certain representations to
the Issuers (as described in the Registration Rights Agreement) in order to
participate in the Exchange Offer and will be required to deliver information to
be used in connection with the Shelf Registration Statement and to provide
comments on the Shelf Registration Statement within the time periods set forth
in the Registration Rights Agreement in order to have their Old Notes included
in the Shelf Registration Statement and benefit from the provisions regarding
Liquidated Damages set forth above.
Certain Definitions
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
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"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person, including,
without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided that
beneficial ownership of 10% or more of the Voting Equity Interests of a Person
shall be deemed to be control.
"Amended Credit Facility" means that certain Credit Facility, dated as of
July 31, 1997, by and among the Company, the lenders party thereto and Bank of
New York, as Agent, as amended by Amendment No. 1, dated as of December 18,
1997, as amended, restated, modified, renewed, refunded, replaced or refinanced
in whole or in part from time to time.
"Asset Sale" means (i) the sale, lease, conveyance or other disposition of
any assets or rights (including, without limitation, by way of a sale and
leaseback), excluding sales of services and products in the ordinary course of
business consistent with past practices (provided that the sale, lease,
conveyance or other disposition of all or substantially all of the assets of the
Company and its Restricted Subsidiaries taken as a whole will be governed by the
provisions of the Indenture described above under the caption "--Repurchase at
the Option of Holders--Change of Control" and/or the provisions described above
under the caption "--Certain Covenants-- Merger, Consolidation or Sale of
Assets" and not by the provisions of the Asset Sale covenant), and (ii) the
issue or sale by the Company or any of its Subsidiaries of Equity Interests of
any of the Company's Subsidiaries, in the case of either clause (i) or (ii),
whether in a single transaction or a series of related transactions (a) that
have a fair market value in excess of $1.0 million or (b) for net proceeds in
excess of $1.0 million. Notwithstanding the foregoing: (i) a transfer of assets
by the Company to a Wholly Owned Restricted Subsidiary or by a Wholly Owned
Restricted Subsidiary to the Company or to another Wholly Owned Restricted
Subsidiary, (ii) an issuance of Equity Interests by a Wholly Owned Restricted
Subsidiary to the Company or to another Wholly Owned Restricted Subsidiary,
(iii) the transfer of obsolete equipment in the ordinary course of business,
(iv) the sale and leaseback of any assets within 90 days of the acquisition of
such assets and (v) a Restricted Payment that is permitted by the covenant
described above under the caption "--Certain Covenants--Restricted Payments"
will not be deemed to be Asset Sales. Notwithstanding the foregoing, the Real
Estate Transaction will not be deemed to be an Asset Sale.
"Attributable Debt" in respect of a sale and leaseback transaction means,
at the time of determination, the present value (discounted at the rate of
interest implicit in such transaction, determined in accordance with GAAP) of
the obligation of the lessee for net rental payments during the remaining term
of the lease included in such sale and leaseback transaction (including any
period for which such lease has been extended or may, at the option of the
lessor, be extended).
"Board of Directors" means (i) in respect of a limited liability company,
the board of advisors of the Company, (ii) in respect of a corporation, the
board of directors of the Company, or any authorized committee thereof, and
(iii) in respect of any other Person, the board or committee of the Company
serving a similar function.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on a balance sheet in accordance with
GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership or limited liability
company, partnership or membership interests (whether general or limited) and
(iv) any other interest or participation that confers on a Person the right to
receive a share of the profits and losses of, or distributions of assets of, the
issuing Person.
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"Cash Equivalents" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof having maturities of not more than six
months from the date of acquisition, (iii) certificates of deposit and
eurodollar time deposits with maturities of six months or less from the date of
acquisition, bankers' acceptances with maturities not exceeding six months and
overnight bank deposits, in each case with any domestic commercial bank having
capital and surplus in excess of $500.0 million and a Thompson Bank Watch Rating
of "B" or better, (iv) repurchase obligations with a term of not more than seven
days for underlying securities of the types described in clauses (ii) and (iii)
above entered into with any financial institution meeting the qualifications
specified in clause (iii) above and (v) commercial paper having the highest
rating obtainable from Moody's Investors Service, Inc. or Standard & Poor's
Corporation and in each case maturing within six months after the date of
acquisition.
"Change of Control" means the occurrence of any of the following: (i) the
sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all or
substantially all of the assets of the Company and its Subsidiaries taken as a
whole to any "person" (as such term is used in Section 13(d)(3) of the Exchange
Act) other than one or more Principals or Related Parties, (ii) the adoption of
a plan relating to the liquidation or dissolution of the Company, (iii) the
consummation of any transaction (including, without limitation, any merger or
consolidation) the result of which is that any "person" (as defined above),
other than the Principals and their Related Parties, becomes the "beneficial
owner" (as such term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange
Act, except that a person shall be deemed to have "beneficial ownership" of all
securities that such person has the right to acquire, whether such right is
currently exercisable or is exercisable only upon the occurrence of a subsequent
condition), directly or indirectly, of more than 35% of the Voting Equity
Interests of the Company (measured by voting power rather than number of shares)
or (iv) the first day on which a majority of the members of the Board of
Directors of the Company are not Continuing Directors. Notwithstanding the
foregoing, the reorganization of the Company as a corporation shall not be
deemed to constitute a Change of Control, so long as such reorganization does
not result in any of the occurrences described above under clauses (i) through
(iv).
"Consolidated EBITDA" means, with respect to any Person for any period, the
Consolidated Net Income of such Person for such period plus, to the extent
deducted in computing such Consolidated Net Income, (i) an amount equal to any
extraordinary loss plus any net loss realized in connection with an Asset Sale,
(ii) provision for taxes based on income or profits, (iii) consolidated interest
expense whether paid or accrued and whether or not capitalized (including,
without limitation, amortization of debt issuance costs and original issue
discount, non-cash interest payments, the interest component of any deferred
payment obligations, the interest component of all payments associated with
Capital Lease Obligations, commissions, discounts and other fees and charges
incurred in respect of letter of credit or bankers' acceptance financings, and
net payments (if any) pursuant to Hedging Obligations); (iv) depreciation,
amortization (including amortization of goodwill and other intangibles but
excluding amortization of prepaid cash expenses that were paid in a prior
period) and other non-cash charges (including non-cash equity based compensation
charges but excluding any such non-cash charge to the extent that it represents
an accrual of or reserve for cash charges in any future period or amortization
of a prepaid cash expense that was paid in a prior period); (v) an amount equal
to all premiums paid on prepayments of Indebtedness; and (vi) in the case of
calculations with respect to the Company, the amount of any tax payments to its
members pursuant to clause (viii) of the second paragraph of the covenant
described above under the caption "--Certain Covenants--Restricted Payments" or,
following the reorganization of the Company as a corporation, any tax sharing
payment made pursuant to a tax sharing agreement executed in connection
therewith, in each case, on a consolidated basis and determined in accordance
with GAAP. Notwithstanding the foregoing, the provision for taxes based on the
income or profits of, and the depreciation and amortization of, a Restricted
Subsidiary of a Person shall be added to Consolidated Net Income to compute
Consolidated EBITDA only to the extent (and in the same proportion) that the Net
Income of such Restricted Subsidiary was included in calculating the
Consolidated Net Income of such Person and only if a corresponding amount would
be permitted at the date of determination to be dividended to the Company by
such Restricted Subsidiary without prior approval (that has not been obtained)
pursuant to the terms of its charter and all agreements, instruments, judgments,
decrees, orders, statutes, rules and governmental regulations applicable to such
Restricted Subsidiary or its stockholders.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP;
provided that (i) the Net Income (but not loss) of any Person that is not a
Restricted
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Subsidiary or that is accounted for by the equity method of accounting shall be
included only to the extent of the amount of dividends or distributions paid in
cash to the referent Person or a Wholly Owned Restricted Subsidiary thereof,
(ii) the Net Income of any Restricted Subsidiary shall be excluded to the extent
that the declaration or payment of dividends or similar distributions by that
Restricted Subsidiary of that Net Income is not at the date of determination
permitted without any prior governmental approval (that has not been obtained)
or, directly or indirectly, by operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to that Restricted Subsidiary or its stockholders, (iii)
the Net Income of any Person acquired in a pooling of interests transaction for
any period prior to the date of such acquisition shall be excluded, (iv) the
cumulative effect of a change in accounting principles shall be excluded, (v)
the Net Income (but not loss) of any Unrestricted Subsidiary shall be excluded,
whether or not distributed to the Company or one of its Restricted Subsidiaries
and (vi) in the case of calculations with respect to the Company, the amount of
any tax payments to its members pursuant to clause (viii) of the second
paragraph of the covenant described above under the caption "--Certain
Covenants--Restricted Payments" shall be excluded.
"Consolidated Net Worth" means, with respect to any Person as of any date,
the sum of (a) the consolidated equity of the common stockholders or members, as
applicable, of such Person and its consolidated Subsidiaries as of such date,
plus (b) the respective amounts reported on such Person's balance sheet as of
such date with respect to any series of preferred stock (other than Disqualified
Stock) that by its terms is not entitled to the payment of dividends unless such
dividends may be declared and paid only out of net earnings in respect of the
year of such declaration and payment, but only to the extent of any cash
received by such Person upon issuance of such preferred stock, less (i) all
write-ups (other than write-ups resulting from foreign currency translations and
write-ups of tangible assets of a going concern business made within 12 months
after the acquisition of such business) subsequent to the date of the Indenture
in the book value of any asset owned by such Person or a consolidated Subsidiary
of such Person, (ii) all investments as of such date in unconsolidated
Subsidiaries and in Persons that are not Subsidiaries and (iii) all unamortized
debt discount and expense and unamortized deferred charges as of such date, in
each case, determined in accordance with GAAP.
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors of the Company who (i) was a member of such Board of
Directors on the date of the Indenture or (ii) was nominated for election or
elected to such Board of Directors with the approval of a majority of the
Continuing Directors who were members of such Board at the time of such
nomination or election.
"Credit Agreements" means one or more debt facilities (including, without
limitation, the Amended Credit Facility) or commercial paper facilities with
banks or other institutional lenders providing for revolving credit loans, term
loans, receivables financing (including through the sale of receivables to such
lenders or to special purpose entities formed to borrow from such lenders
against such receivables) or letters of credit, in each case, as amended,
restated, modified, renewed, refunded, replaced or refinanced in whole or in
part from time to time. Indebtedness under Credit Agreements outstanding on the
date on which Notes are first issued and authenticated under the Indenture shall
be deemed to have been incurred on such date in reliance on the exception
provided by clause (i) of the definition of Permitted Debt.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable
at the option of the Holder thereof, in whole or in part, on or prior to the
date that is 91 days after the date on which the Notes mature.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Existing Indebtedness" means Indebtedness in existence on the date of the
Indenture (other than Indebtedness under the Amended Credit Facility), until
such Indebtedness is repaid.
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"Fixed Charges" means, with respect to any Person for any period, the sum,
without duplication, of (i) the consolidated interest expense of such Person and
its Restricted Subsidiaries for such period, whether paid or accrued (including,
without limitation, amortization of debt issuance costs and original issue
discount, non-cash interest payments, the interest component of any deferred
payment obligations, the interest component of all payments associated with
Capital Lease Obligations, commissions, discounts and other fees and charges
incurred in respect of letter of credit or bankers' acceptance financings, and
net payments (if any) pursuant to Hedging Obligations), (ii) the consolidated
interest expense of such Person and its Restricted Subsidiaries that was
capitalized during such period, (iii) any interest expense on Indebtedness of
another Person that is guaranteed by such Person or one of its Restricted
Subsidiaries or secured by a Lien on assets of such Person or one of its
Restricted Subsidiaries (whether or not such guarantee or Lien is called upon)
and (iv) the product of (a) all dividend payments, whether or not in cash, on
any series of preferred stock of such Person or any of its Restricted
Subsidiaries, other than dividend payments on Equity Interests payable solely in
Equity Interests of the Company, times (b) a fraction, the numerator of which is
one and the denominator of which is one minus the then current combined federal,
state and local statutory tax rate of such Person, expressed as a decimal, in
each case, on a consolidated basis and in accordance with GAAP.
"Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated EBITDA of such Person for such period to
the Fixed Charges of such Person and its Restricted Subsidiaries for such
period. In the event that the Company or any of its Restricted Subsidiaries
incurs, assumes, guarantees or redeems any Indebtedness (other than revolving
credit borrowings) or issues preferred stock subsequent to the commencement of
the period for which the Fixed Charge Coverage Ratio is being calculated but
prior to the date on which the event for which the calculation of the Fixed
Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge
Coverage Ratio shall be calculated giving pro forma effect to such incurrence,
assumption, guarantee or redemption of Indebtedness, or such issuance or
redemption of preferred stock, as if the same had occurred at the beginning of
the applicable four-quarter reference period. In addition, for purposes of
making the computation referred to above, (i) acquisitions that have been made
by the Company or any of its Restricted Subsidiaries, including through mergers
or consolidations and including any related financing transactions, during the
four-quarter reference period or subsequent to such reference period and on or
prior to the Calculation Date shall be deemed to have occurred on the first day
of the four-quarter reference period and Consolidated EBITDA for such reference
period shall be calculated without giving effect to clause (iii) of the proviso
set forth in the definition of Consolidated Net Income, (ii) the Consolidated
EBITDA attributable to discontinued operations, as determined in accordance with
GAAP, and operations or businesses disposed of prior to the Calculation Date,
shall be excluded and (iii) the Fixed Charges attributable to discontinued
operations, as determined in accordance with GAAP, and operations or businesses
disposed of prior to the Calculation Date, shall be excluded, but only to the
extent that the obligations giving rise to such Fixed Charges will not be
obligations of the referent Person or any of its Restricted Subsidiaries
following the Calculation Date.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the date of the Indenture.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements and (ii) other agreements or
arrangements designed to protect such Person against fluctuations in interest
rates.
"Indebtedness" means, with respect to any Person, (i) any indebtedness of
such Person, whether or not contingent, in respect of borrowed money or
evidenced by bonds, notes, debentures or similar instruments or letters of
credit (or reimbursement agreements in respect thereof) or banker's acceptances
or representing Capital Lease Obligations or the balance deferred and unpaid of
the purchase price of any property or representing any Hedging Obligations,
except any such balance that constitutes an accrued expense or trade payable, if
and to the extent any of
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the foregoing indebtedness (other than letters of credit and Hedging
Obligations) would appear as a liability upon a balance sheet of such Person
prepared in accordance with GAAP, (ii) all indebtedness of others secured by a
Lien on any asset of such Person (whether or not such indebtedness is assumed by
such Person) and (iii) to the extent not otherwise included, the guarantee by
such Person of any indebtedness of any other Person.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, together with all items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP
(excluding equity in undistributed earnings). If the Company or any Subsidiary
of the Company sells or otherwise disposes of any Equity Interests of any direct
or indirect Subsidiary of the Company such that, after giving effect to any such
sale or disposition, such Person is no longer a Subsidiary of the Company, the
Company shall be deemed to have made an Investment on the date of any such sale
or disposition equal to the fair market value of the Equity Interests of such
Subsidiary not sold or disposed of in an amount determined as provided in the
third paragraph of the covenant described above under the caption "--Certain
Covenants--Restricted Payments."
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction).
"Make-Whole Premium" means, with respect to a Note, an amount equal to the
greater of (i) 5.75% of the outstanding principal amount of such Note and (ii)
the excess of (a) the present value of the remaining interest, premium and
principal payments due on such Note as if such Note was redeemed on January 15,
2003, computed using a discount rate equal to the Treasury Rate plus 50 basis
points, over (b) the outstanding principal amount of such Note.
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain (but not
loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (a) any Asset Sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions) or (b) the
disposition of any securities by such Person or any of its Restricted
Subsidiaries or the extinguishment of any Indebtedness of such Person or any of
its Restricted Subsidiaries and (ii) any extraordinary or nonrecurring gain (but
not loss), together with any related provision for taxes on such extraordinary
or nonrecurring gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of any
non-cash consideration received in any Asset Sale), net of the direct costs
relating to such Asset Sale (including, without limitation, legal, accounting
and investment banking fees, and sales commissions) and any relocation expenses
incurred as a result thereof, taxes paid or payable as a result thereof (after
taking into account any available tax credits or deductions and any tax sharing
arrangements), amounts required to be applied to the repayment of Indebtedness
secured by a Lien on the asset or assets that were the subject of such Asset
Sale and any reserve for adjustment in respect of the sale price of such asset
or assets established in accordance with GAAP.
"Non-Recourse Debt" means Indebtedness: (i) as to which neither the Company
nor any of its Restricted Subsidiaries (a) provides credit support of any kind
(including any undertaking, agreement or instrument that would constitute
Indebtedness), (b) is directly or indirectly liable (as a guarantor or
otherwise) or (c) constitutes the lender; (ii) no default with respect to which
(including any rights that the holders thereof may have to take enforcement
action against an Unrestricted Subsidiary) would permit (upon notice, lapse of
time or both) any holder of any other Indebtedness (other than the Notes being
offered hereby) of the Company or any of its Restricted Subsidiaries to declare
a default on such other Indebtedness or cause the payment thereof to be
accelerated or payable prior to its
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stated maturity; and (iii) as to which the lenders have been notified in writing
that they will not have any recourse to the stock or assets of the Company or
any of its Restricted Subsidiaries.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Permitted Business" shall mean and include products and services furnished
in the live entertainment (live theater, concert touring and special events),
corporate events (trade and industrial shows) and themed entertainment (gaming,
theme parks and themed retail) markets, including but not limited to (i) scenery
and exhibit fabrication, (ii) computerized motion and show control systems,
including the Company's proprietary Stage Command System(R), (iii) theatrical
lighting systems and related products, and (iv) project management, which
encompasses design engineering, budgeting, logistical coordination and
installation. Without limiting the foregoing, "Permitted Business" shall include
lines of businesses which are related or complementary to any of the above,
including the acquisition and ownership of firms which are principally but not
exclusively engaged in one or more of the above lines, and any businesses which
are, in the reasonable judgment of the Board of Directors, logical extensions of
any of the above.
"Permitted Investments" means (i) any Investment in the Company or in a
Wholly Owned Restricted Subsidiary of the Company; (ii) any Investment in Cash
Equivalents; (iii) any Investment by the Company or any Restricted Subsidiary of
the Company in a Person, if as a result of such Investment (a) such Person
becomes a Wholly Owned Restricted Subsidiary of the Company or (b) such Person
is merged, consolidated or amalgamated with or into, or transfers or conveys
substantially all of its assets to, or is liquidated into, the Company or a
Wholly Owned Restricted Subsidiary of the Company; (iv) any Restricted
Investment made as a result of the receipt of non-cash consideration from an
Asset Sale that was made pursuant to and in compliance with the covenant
described above under the caption "--Repurchase at the Option of Holders--Asset
Sales;" (v) any acquisition of assets solely in exchange for the issuance of
Equity Interests (other than Disqualified Stock) of the Company; (vi) advances
and loans to employees of the Company and its Restricted Subsidiaries in the
ordinary course of business; (vii) Investments acquired by the Company or any of
its Restricted Subsidiaries in exchange for any other Investments or accounts
receivable held by the Company or such Restricted Subsidiary in connection with
or as result of a bankruptcy, workout, reorganization or recapitalization of the
issuer of such Investment or accounts receivable; (viii) any Hedging Obligation;
and (ix) other Investments in any Person, when taken together with all other
Investments made pursuant to this clause (ix) that are at the time outstanding,
not to exceed $5.0 million.
"Permitted Liens" means (i) Liens securing Senior Debt or Guarantor Senior
Debt of the Company and its Restricted Subsidiaries that was permitted by the
terms of the Indenture to be incurred; (ii) Liens in favor of the Company or any
of its Restricted Subsidiaries; (iii) Liens on property of a Person existing at
the time such Person is merged into or consolidated with the Company or any
Restricted Subsidiary of the Company; provided that such Liens were in existence
prior to the contemplation of such merger or consolidation and do not extend to
any assets other than those of the Person merged into or consolidated with the
Company; (iv) Liens on property existing at the time of acquisition thereof by
the Company or any Restricted Subsidiary of the Company, provided that such
Liens were in existence prior to the contemplation of such acquisition; (v)
Liens to secure the performance of statutory obligations, surety or appeal
bonds, performance bonds or other obligations of a like nature incurred in the
ordinary course of business; (vi) Liens to secure Indebtedness (including
Capital Lease Obligations) incurred in connection with the acquisition of assets
by the Company or its Restricted Subsidiaries permitted by the covenant
described under the caption "--Certain Covenants--Incurrence of Indebtedness and
Issuance of Disqualified Stock;" provided that (a) such Indebtedness was
incurred by the prior owner of such assets prior to such acquisition and was not
incurred in connection with, or in contemplation of, such acquisition and (b)
such Lien covers only the assets acquired with such Indebtedness; (vii) Liens
existing on the date of the Indenture; (viii) Liens for taxes, assessments or
governmental charges or claims that are not yet delinquent or that are being
contested in good faith by appropriate proceedings promptly instituted and
diligently concluded, provided that any reserve or other appropriate provision
as shall be required in conformity with GAAP shall have been made therefore;
(ix) Liens of landlords or of mortgagees of landlords arising by operation of
law, provided that the rental payments secured thereby are not yet due and
payable; (x) Liens incurred or deposits made in the ordinary course of business
in connection with workers' compensation, unemployment insurance and other types
of social security; (xi) easements, rights-of-way, restrictions, minor defects
or irregularities in title and other similar charges or encumbrances not
interfering in any material respect with the business of the Company or any of
its Restricted Subsidiaries; (xii) judgment or attachment
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Liens not giving rise to an Event of Default; (xiii) Liens arising out of the
purchase, consignment, shipment or storage of inventory or other goods in the
ordinary course of business; (xiv) any interest or title of a lessor in property
subject to any Capital Lease Obligation or other lease; (xv) Liens arising from
filing Uniform Commercial Code financing statements regarding leases; (xvi)
leases or subleases permitted by the Indenture that are granted to others and do
not interfere in any material respect with the business of the Company or any
Restricted Subsidiary, (xvii) any interest or title of a lessor in the property
subject to any lease, whether characterized as capitalized or operating other
than any such interest or title resulting from or arising out of a default by
the company or any Restricted Subsidiaries of its obligations under such lease;
and (xviii) Liens incurred in the ordinary course of business of the Company or
any Restricted Subsidiary of the Company with respect to obligations that do not
exceed $2.0 million at any one time outstanding and that (a) are not incurred in
connection with the borrowing of money or the obtaining of advances or credit
(other than trade credit in the ordinary course of business) and (b) do not in
the aggregate materially detract from the value of the property or materially
impair the use thereof in the operation of business by the Company or such
Restricted Subsidiary.
"Permitted Refinancing Indebtedness" means any Indebtedness of the Company
or any of its Restricted Subsidiaries issued in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness of the Company or any of its Restricted Subsidiaries;
provided that: (i) the principal amount (or accreted value, if applicable) of
such Permitted Refinancing Indebtedness does not exceed the principal amount of
(or accreted value, if applicable), plus accrued interest on, the Indebtedness
so extended, refinanced, renewed, replaced, defeased or refunded (plus the
amount of reasonable expenses incurred in connection therewith); (ii) such
Permitted Refinancing Indebtedness has a final maturity date later than the
final maturity date of, and has a Weighted Average Life to Maturity equal to or
greater than the Weighted Average Life to Maturity of, the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded; (iii) if the
Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded
is subordinated in right of payment to the Notes, such Permitted Refinancing
Indebtedness is subordinated in right of payment to the Notes on terms at least
as favorable to the Holders of Notes as those contained in the documentation
governing the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded; and (iv) such Indebtedness is incurred either by the
Company or by the Restricted Subsidiary that is the obligor on the Indebtedness
being extended, refinanced, renewed, replaced, defeased or refunded.
"Principals" means Jeremiah J. Harris, his spouse, his issue and any of
their respective spouses, including any trust with respect to which any such
individual is a beneficiary, and the descendants and heirs of Jeremiah J.
Harris.
"Related Party" with respect to any Principal means (i) any controlling
stockholder or member, 80% (or more) owned Subsidiary, or spouse or immediate
family member (in the case of an individual) of such Principal or (ii) any
trust, corporation, partnership or other entity, the beneficiaries,
stockholders, partners, owners or Persons beneficially holding an 80% or more
controlling interest of which consist of such Principal and/or such other
Persons referred to in the immediately preceding clause (i).
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Act, as such Regulation is in effect on the date
hereof.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations to
repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence
90
of any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person (or a combination
thereof) and (ii) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or (b)
the only general partners of which are such Person or of one or more
Subsidiaries of such Person (or any combination thereof).
"Treasury Rate" means the yield to maturity at the time of computation of
United States Treasury securities with a constant maturity (as compiled and
published in the most recent Federal Reserve Statistical Release H.15(519))
which has become publicly available at least two business days prior to the date
fixed for redemption (or, if such Statistical Release is no longer published,
any publicly available source of similar market data)) most nearly equal to the
then remaining average life to the first date on which the Notes as subject to
optional redemption by the Issuers; provided, however, that, if such period is
not equal to the constant maturity of a United States Treasury security for
which a weekly average yield is given, the Treasury Rate shall be obtained by
linear interpolation (calculated to the nearest one-twelfth of a year) from the
weekly average yields of United States Treasury securities for which such yields
are given, except that if the average life of such Notes is less than one year,
the weekly average yield on actually traded United States Treasury securities
adjusted to a constant maturity of one year shall be used.
"Unrestricted Subsidiary" means (i) any Subsidiary (other than Finance
Corp.) that is designated by the Board of Directors as an Unrestricted
Subsidiary pursuant to a Board Resolution, but only to the extent that such
Subsidiary: (a) has no Indebtedness other than Non-Recourse Debt; (b) is not
party to any agreement, contract, arrangement or understanding with the Company
or any Restricted Subsidiary unless the terms of any such agreement, contract,
arrangement or understanding are no less favorable to the Company or such
Restricted Subsidiary than those that might be obtained at the time from Persons
who are not Affiliates of the Company; (c) is a Person with respect to which
neither the Company nor any of its Restricted Subsidiaries has any direct or
indirect obligation (1) to subscribe for additional Equity Interests or (2) to
maintain or preserve such Person's financial condition or to cause such Person
to achieve any specified levels of operating results; (d) has not guaranteed or
otherwise directly or indirectly provided credit support for any Indebtedness of
the Company or any of its Restricted Subsidiaries; and (e) has at least one
director on its board of directors that is not a director or executive officer
of the Company or any of its Restricted Subsidiaries and has at least one
executive officer that is not a director or executive officer of the Company or
any of its Restricted Subsidiaries.
"Voting Equity Interests" of any Person as of any date means the Equity
Interests of such Person that is at the time, or would be if such Person were a
Delaware corporation, entitled to vote in the election of the board of
directors, executive committee or other governing body of such Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person, 99% or more of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall at
the time be owned by such Person or by one or more Wholly Owned Restricted
Subsidiaries of such Person and one or more Wholly Owned Restricted Subsidiaries
of such Person.
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is a summary of the material U.S. federal income
tax considerations relevant to the purchase, ownership and disposition of the
Notes, but does not purpose to be a complete analysis of all potential tax
effects. The discussion is based upon the Internal Revenue Code of 1986, as
amended (the "Code"), U.S. Treasury Regulations, Internal Revenue Service
("IRS") rulings and pronouncements and judicial decisions all in effect as of
the date hereof, all of which are subject to change at any time, and any such
change may be applied retroactively in a manner that could adversely affect a
holder of the Notes. The discussion does not address all of the
91
U.S. federal income tax consequences that may be relevant to a holder in light
of such holder's particular circumstances or to holders subject to special
rules, such as certain financial institutions, insurance companies, dealers in
securities, tax-exempt organizations and persons holding the Notes as part of a
"straddle," "hedge" or "conversion transaction." In addition, this discussion is
limited to persons purchasing the Notes for cash at original issue. Moreover,
the effect of any applicable state, local or foreign tax laws is not discussed.
The discussion deals only with Notes held as "capital assets" within the meaning
of Section 1221 of the Code.
As used herein, "U.S. holder" means a beneficial owner of the Notes who or
that (i) is a citizen or resident of the United States, (ii) is a corporation,
partnership or other entity taxable as a corporation created or organized in or
under the laws of the United States or political subdivision thereof, (iii) is
an estate the income of which is subject to U.S. federal income taxation
regardless of its source, (iv) is a trust if (A) a U.S. court is able to
exercise primary supervision over the administration of the trust and (B) one or
more U.S. persons have authority to control all substantial decisions of the
trust, or (v) is otherwise subject to U.S. federal income tax on a net income
basis in respect of the Notes. As used herein, a "non-U.S. holder" means a
holder who or that is not a U.S. holder.
The Company has not sought and will not seek any rulings from the IRS with
respect to the matters discussed below. There can be no assurance that the IRS
will not take a different position concerning the tax consequences of the
purchase, ownership or disposition of the Notes or that any such position would
not be sustained.
PROSPECTIVE INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH REGARD TO
THE APPLICATION OF THE TAX CONSIDERATIONS DISCUSSED BELOW TO THEIR PARTICULAR
SITUATIONS AS WELL AS THE APPLICATION OF ANY STATE, LOCAL, FOREIGN OR OTHER TAX
LAWS, INCLUDING GIFT AND ESTATE TAX LAWS.
U.S. Holders
Exchange Offer. The exchange of Old Notes for New Notes pursuant to the
Exchange Offer will not constitute a taxable exchange. As a result, (i) a U.S.
holder will not recognize taxable gain or loss as a result of exchanging Old
Notes for New Notes pursuant to the Exchange Offer; (ii) the holding period of
the New Notes will include the holding period of the Old Notes exchanged
therefore; and (iii) the adjusted tax basis of the New Notes will be the same as
the adjusted tax basis of the Old Notes exchanged therefore immediately before
such exchange. The Exchange Offer will not have any U.S. Federal income tax
consequences to a non-exchanging Holder.
Interest. The stated interest on the Notes generally will be taxable to a
U.S. holder as ordinary income at the time that it is paid or accrued, in
accordance with the U.S. holder's method of accounting for U.S. federal income
tax purposes.
Sale, Retirement or Redemption of a Note. A U.S. holder of a New Note will
recognize gain or loss upon the sale, retirement, redemption or other taxable
disposition of such Note in an amount equal to the difference between (a) the
amount of cash and the fair market value of other property received in exchange
therefor (other than amounts attributable to accrued but unpaid stated interest)
and (b) the U.S. holder's adjusted tax basis in such Note. The recently enacted
Taxpayer Relief Act of 1997 made certain changes to the Code with respect to
taxation of capital gains of noncorporate taxpayers. In general, the maximum tax
rate for noncorporate taxpayers on long-term capital gain has been lowered to
20% from the previous 28% rate with respect to capital assets (including the
Notes), but only if they have been held for more than 18 months at the time of
disposition. Capital gain on assets sold on or after July 29, 1997, having a
holding period of more than one year but not more than 18 months will be taxed
as "mid-term gain" at a maximum 28% rate.
U.S. holders should be aware that the resale of the Notes may be affected
by the "market discount" rules of the Code under which a purchaser of a New Note
acquiring the New Note at a market discount generally would be required to
include as ordinary income a portion of the gain realized upon the disposition
or retirement of such Note, to the extent of the market discount that has
accrued but not been included in income while the debt instrument was held by
such purchaser.
92
Liquidated Damages. The Company intends to take the position that the
Liquidated Damages described above under "Description of Notes; Registration
Rights; Liquidated Damages" will be taxable to a U.S. holder as ordinary income
in accordance with such holder's method of accounting for tax purposes. The IRS,
however, may take a different position, which could affect the timing of both a
U.S. holder's income and the timing of the Company's deduction with respect to
such Liquidated Damages.
Non-U.S. Holders
U.S. Withholding Tax
Interest paid to non-U.S. holders of the New Notes will not be subject to
U.S. income or withholding tax, provided that (i) the non-U.S. holder does not
actually or constructively own 10% or more of the capital or profit of the
Company, (ii) the non-U.S. holder is not (a) a controlled foreign corporation as
to the United States that is related to the Company through stock ownership or
(b) a bank that received the New Note on an extension of credit made pursuant to
a loan agreement entered into in the ordinary course of its trade or business,
and (iii) the beneficial owner of the New Note provides a statement signed under
penalties of perjury that includes its name and address and certifies that it is
not a U.S. person in compliance with applicable requirements or an exemption is
otherwise established. If these requirements cannot be met, a non-U.S. holder
will be subject to U.S. withholding tax at a rate of 30% (or lower treaty rate,
if applicable) on interest payments on the Notes.
In general, any gain realized by any non-U.S. holder upon the sale,
exchange or redemption of a Note will not be subject to U.S. income or
withholding tax. However, such gain will be subject to U.S. withholding tax if
(i) a non-U.S. holder is an individual who is present in the United States for a
total of 183 days or more during the taxable year in which the gain is realized
and certain other conditions are satisfied or (ii) the non-U.S. holder is
subject to tax pursuant to the provisions of U.S. tax law applicable to certain
U.S. expatriates.
If interest on the New Notes is exempt from withholding of U.S. federal
income tax under the rules described above, the New Notes will not be included
in the estate of a deceased non-U.S. holder for U.S. federal estate tax
purposes.
Information Reporting and Backup Withholding
Certain noncorporate U.S. persons may be subject to backup withholding at a
rate of 31% on payments of principal and interest on the New Notes, and the
proceeds from a disposition of the New Notes. Backup withholding will only be
imposed where the holder (i) fails to furnish its taxpayer identification number
("TIN"), which, for an individual, would ordinarily be his or her social
security number, (ii) furnishes an incorrect TIN, (iii) is notified by the IRS
that he or she has failed to properly report payments of interest or dividends,
or (iv) under certain circumstances, fails to certify, under penalties of
perjury, that he or she has furnished a correct TIN and has not been notified by
the IRS that he or she is subject to backup withholding. Notwithstanding the
foregoing, the Company will institute backup withholding with respect to
payments made on a Note to a holder if instructed to do so by the IRS. Holders
of the Notes should consult their own tax advisors regarding their qualification
for exemption from backup withholding and the procedure for obtaining such an
exemption, if applicable. However, interest paid with respect to a Note and
received by a non-U.S. holder will not be subject to information reporting or
backup withholding if the payor has received appropriate certification
statements and provided that the payor does not have actual knowledge that the
holder is a U.S. person.
The payment of the proceeds from the disposition of New Notes to or through
the U.S. office of any U.S. or foreign broker will be subject to information
reporting and possible backup withholding unless the owner certifies as to its
non-U.S. status under penalties of perjury or otherwise establishes an
exemption, provided that the broker does not have actual knowledge that the
holder is a U.S. person or that the conditions of any other exemption are not,
in fact, satisfied. The payment of the proceeds from the disposition of a New
Note to or through a non-U.S. broker that is not a U.S. related person will not
be subject to information reporting or backup withholding. For this purpose, a
"U.S. related person" is (i) a "controlled foreign corporation" for U.S. federal
income tax purposes or (ii) a foreign person 50% or more of whose gross income
from all sources for the three-year period ending with the close of its taxable
year preceding the payment (or for such part of the period that the broker has
been in existence) is derived from activities that are effectively connected
with the conduct of a U.S. trade or business.
93
In the case of the payment of proceeds from the disposition of Notes to or
through a non-U.S. office of a broker that is a U.S. related person, U.S.
Treasury Regulations require information reporting on the payment unless the
broker has documentary evidence in its files that the owner is a non-U.S. holder
and the broker has no knowledge to the contrary. Backup withholding will not
apply to payments made through foreign offices of a broker that is a U.S. person
or a U.S. related person (absent actual knowledge that the payee is a U.S.
person).
Any amounts withheld under the backup withholding rates from a payment to a
non-U.S. holder will be allowed as a refund or a credit against such non-U.S.
holders' U.S. federal income tax liability, provided that the requisite
procedures are followed.
Prospective Final Regulations
On October 6, 1997, new U.S. Treasury Regulations ("New Regulations") were
issued that modify the requirements imposed on a non-U.S. holder and certain
intermediaries for establishing the recipient's status as a non-U.S. holder
eligible for exemption from or reduction in U.S. withholding tax and backup
withholding described above. In general, the New Regulations do not
significantly alter the substantive withholding and information reporting
requirements but rather unify current certification procedures and forms and
clarify reliance standards. The New Regulations are generally effective for
payments made after December 31, 1998, subject to certain transition rules. In
addition, the New Regulations impose more stringent conditions on the ability of
financial intermediaries acting for a non-U.S. holder to provide certifications
on behalf of the non-U.S. holder, which may include entering into an agreement
with the IRS to audit certain documentation with respect to such certifications.
Non-U.S. holders should consult their tax advisors to determine the effects of
the application on the New Regulations to their particular circumstances.
94
PLAN OF DISTRIBUTION
Each broker-dealer that received New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes received in exchange for Old Notes where
such Old Notes were acquired as a result of market-making activities or other
trading activities. The Issuers have agreed that, starting of the Expiration
Date and ending of one year after the Expiration Date, it will make this
Prospectus, as amended or supplemented, available to any broker-dealer for use
in connection with any such resale. In addition, until such date, all dealers
effecting transactions in the New Notes may be required to deliver a prospectus.
The Issuers will not receive any proceeds from any sales of New Notes by
broker-dealers or others. New Notes received by broker-dealers for their own
account pursuant to the Exchange Offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the New Notes or a combination of such methods
of resale, at market prices prevailing at the time of resale, at prices related
to such prevailing market prices or negotiated prices. Any such resale may be
made directly to purchasers or to or through brokers or dealer who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such New Notes. Any broker-dealer
that resells New Notes that were received by it for its own account pursuant to
the Exchange Offer and any broker or dealer that participates in a distribution
of such New Notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit from any such resale of New Notes and any
commissions received by any such persons may be deemed to be underwriting
compensation under the Securities Act. The Letter of Transmittal states that by
acknowledging that it will deliver and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
For a period one year after the Expiration Date, the Issuers will promptly
send additional copies of this Prospectus and any amendment or supplement to
this Prospectus to any broker-dealer that requests such documents in the Letter
of Transmittal. The Issuers have agreed to pay all expenses incident to the
Exchange Offer (including the expenses of one counsel for the holders of the
Notes) other that commissions or concessions of any brokers or dealers and will
indemnify the holders of the Notes (including any broker-dealers) against
certain liabilities, including liabilities under the Securities Act.
95
LEGAL MATTERS
The validity of the New Notes will be passed upon for the Company by
Morrison & Foerster LLP, New York, New York. Certain other legal matters will be
passed upon for the Company by Pepe & Hazard LLP. Joseph W. Bartlett, an advisor
of the Company, is a partner of Morrison & Foerster LLP and owns Units of the
Company.
EXPERTS
The combined financial statements and schedule of Production Resource
Group, L.L.C. at December 31, 1995, 1996 and 1997 and for each of the three
years in the period ended December 31, 1997, and the combined financial
statements of Bash Theatrical Lighting, Inc. and Affiliates at December 31, 1996
and for the year then ended, appearing in this Registration Statement, have been
audited by Ernst & Young LLP, independent auditors, as set forth in their
reports thereon appearing elsewhere herein, and are included in reliance upon
such reports given upon the authority of such firm as experts in accounting and
auditing.
The financial statements of Pro-Mix, Inc. at December 31, 1997 and 1996
and for the years then ended, appearing in this Registration Statement, have
been audited by Band, Rosenbaum Martin, P.C., independent accountants, as set
forth in their report thereon appearing elsewhere herein, and are included in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
96
Index to Combined Financial Statements
Production Resource Group, L.L.C.:
Report of Independent Auditors........................................... F-2
Combined Balance Sheets as of December 31, 1996 and 1997 and
March 31, 1998. (Unaudited)........................................... F-3
Combined Statements of Operations and Members' Equity for the
Years Ended December 31, 1995, 1996 and 1997 and the Three Months
Ended March 31, 1997 and 1998 (Unaudited)............................. F-4
Combined Statements of Cash Flows for the Years Ended
December 31, 1995, 1996 and 1997 and the Three Months Ended March 31,
1997 and 1998 (Unaudited) ............................................ F-5
Notes to Combined Financial Statements................................... F-6
Bash Theatrical Lighting, Inc. and Affiliates:
Report of Independent Auditors........................................... F-30
Combined Balance Sheets as of December 31, 1996 and
June 30, 1997 (Unaudited)........................................... F-31
Combined Statements of Income and Retained Earnings for the
Year Ended December 31, 1996 and the Six Months Ended
June 30, 1996 and 1997 (Unaudited).................................. F-32
Combined Statements of Cash Flows for the Year Ended
December 31, 1996 and the Six Months Ended June 30, 1996
and 1997 (Unaudited)................................................ F-33
Notes to Combined Financial Statements................................... F-34
Pro-Mix, Inc.:
Report of Independent Accountants........................................ F-39
Balance Sheets as of December 31, 1996 and 1997.......................... F-40
Statements of Income for the Years Ended December 31, 1996 and 1997...... F-42
Statements of Retained Earnings for the Years Ended December 31,
1996 and 1997......................................................... F-43
Statements of Cash Flows for the Years Ended December 31, 1996 and 1997.. F-44
Notes to Financial Statements............................................. F-45
Report of Independent Auditors
Members
Production Resource Group, L.L.C.
We have audited the accompanying combined balance sheets of Production
Resource Group, L.L.C. (the "Company") as of December 31, 1996 and 1997, and the
related combined statements of operations and members' equity and cash flows
for each of the three years in the period ended December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of
Production Resource Group, L.L.C. as of December 31, 1996 and 1997, and the
combined results of its operations and its cash flows for each of the three
years in the period ended December 31, 1997 in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
New York, New York
March 16, 1998
F-2
Production Resource Group, L.L.C.
Combined Balance Sheets
(in thousands)
December 31 March 31
1996 1997 1998
-------- -------- --------
(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 3,010 $ 27,164 $ 14,003
Accounts receivable, net of allowance of $323,
$2,572 and $1,710 in 1996, 1997 and 1998,
respectively 10,787 23,783 20,169
Inventories 3,346 4,425 5,615
Other current assets 817 1,286 1,642
-------- -------- --------
Total current assets 17,960 56,658 41,429
Property and equipment--net 31,189 49,236 57,342
Goodwill--net of accumulated amortization of
$55, $540 and $811 in 1996, 1997 and 1998,
respectively 845 15,341 15,864
Other assets 2,001 7,017 8,774
-------- -------- --------
$ 51,995 $128,252 $123,409
======== ======== ========
Liabilities and members' equity
Current liabilities:
Current portion of long-term debt $ 8,231 $ 822 $ 810
Accounts payable 5,337 15,809 8,074
Payroll and sales taxes payable 1,172 918 1,354
Deferred revenue 3,879 2,119 2,736
Other current liabilities (including
accrued bond interest of $225 in 1997
and $3,100 in 1998) 208 1,758 4,805
-------- -------- --------
Total current liabilities 18,827 21,426 17,779
Long-term debt:
Senior Subordinated Notes -- 100,000 100,000
Credit facilities 15,000 -- --
Other long-term debt 3,770 3,743 3,661
Commitments
Members' equity 14,398 3,083 1,969
-------- -------- --------
$ 51,995 $128,252 $123,409
======== ======== ========
See accompanying notes.
F-3
Production Resource Group, L.L.C.
Combined Statements of Operations and Members' Equity
(In thousands)
Three months ended
March 31
Year ended December 31 --------------------
1995 1996 1997 1997 1998
-------- -------- -------- -------- --------
(Restated) (unaudited)
Revenues $ 37,284 $ 49,434 $ 75,180 $ 17,010 $ 25,486
Direct costs:
Direct production costs 22,564 29,565 46,131 11,195 14,577
Depreciation expense 3,342 3,920 6,181 1,323 2,358
-------- -------- -------- -------- --------
25,906 33,485 52,312 12,518 16,935
-------- -------- -------- -------- --------
Gross profit 11,378 15,949 22,868 4,492 8,551
Selling, general and administrative expenses 5,794 8,676 16,185 2,557 6,678
Other depreciation and amortization 445 715 2,182 326 1,045
Nonrecurring compensation expense -- -- 2,125 -- --
-------- -------- -------- -------- --------
Operating profit 5,139 6,558 2,376 1,609 828
Loss on impairment of assets -- 495 -- -- --
Interest expense 632 1,292 3,956 548 3,069
Interest (income) (268) (128) (117) (31) (211)
-------- -------- -------- -------- --------
Income (loss) from continuing operations before
taxes and extraordinary item 4,775 4,899 (1,463) 1,092 (2,030)
Provision for taxes 122 206 392 120 23
-------- -------- -------- -------- --------
Income (loss) from continuing operations 4,653 4,693 (1,855) 972 (2,053)
Discontinued operations (Note 8):
Income (loss) from operations of discontinued
Themed Attraction Permanent Installation
business 244 1,407 (5,302) 74 --
-------- -------- -------- -------- --------
Income (loss) before extraordinary item 4,897 6,100 (7,157) 1,046 (2,053)
Extraordinary item -- -- (614) -- --
-------- -------- -------- -------- --------
Net income (loss) 4,897 6,100 (7,771) 1,046 (2,053)
Members' equity--beginning of period 8,146 11,908 14,398 14,398 3,083
Preferred Units issued in connection
with the acquisition of Pro-Mix -- -- -- -- 939
Less distributions (1,135) (3,610) (3,544) (68) --
-------- -------- -------- -------- --------
Members' equity--end of period $ 11,908 $ 14,398 $ 3,083 $ 15,376 $ 1,969
======== ======== ======== ======== ========
See accompanying notes.
F-4
Production Resource Group, L.L.C.
Combined Statements of Cash Flows
(In thousands)
Three Months Ended
Year ended December 31 March 31
1995 1996 1997 1997 1998
--------- --------- --------- --------- ---------
(unaudited)
Operating activities
Net income (loss) $ 4,897 $ 6,100 $ (7,771) $ 1,046 $ (2,053)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Extraordinary item -- -- 614 -- --
Depreciation 3,787 4,459 7,419 1,601 2,881
Amortization of goodwill and other -- 114 787 21 347
Amortization of debt-related costs -- 62 157 27 175
Provision for doubtful accounts -- 311 2,512 300 272
Gain on sale of property and equipment -- (239) (1,645) (71) (479)
Loss on impairment of assets -- 495 -- -- --
Changes in operating assets and liabilities:
Accounts receivable (903) (6,644) (11,979) 48 4,287
Inventories 577 (1,864) 22 1,472 (1,093)
Other current assets 8 (548) (460) 36 (212)
Accounts payable 597 670 7,837 1,333 (8,595)
Payroll and sales taxes payable (114) 854 (254) (574) 408
Deferred revenue (16) 2,465 (1,760) (3,085) 617
Other current liabilities 141 (51) 1,550 (110) 2,997
--------- --------- --------- --------- ---------
Net cash provided by (used in) operating activities 8,974 6,184 (2,971) 2,044 (448)
--------- --------- --------- --------- ---------
Investing activities
Acquisition of net assets of Vanco Lighting Services, net of
cash acquired -- (274) -- -- --
Acquisition of net assets of Cinema Services of Las Vegas, Inc. -- (1,800) -- -- --
Acquisition of net assets of Design Dynamics, Inc., net of cash
acquired -- -- (3,980) -- --
Acquisition of net assets of Bash Theatrical Lighting, Inc. -- -- (20,000) -- --
Acquisition of net assets of Pro-Mix, Inc., net of cash acquired -- -- -- -- (6,328)
Purchases of property and equipment (9,621) (17,456) (18,151) (2,974) (5,458)
Proceeds from sale of rental equipment -- 419 2,453 139 1,133
Additions to software development costs -- (586) -- -- (32)
Organizational costs incurred -- (536) -- -- --
Other assets (241) (69) (860) (198) (1,902)
--------- --------- --------- --------- ---------
Net cash used in investing activities (9,862) (20,302) (40,538) (3,033) (12,587)
--------- --------- --------- --------- ---------
Financing activities
Proceeds from long-term debt 4,799 35,400 178,400 -- --
Additions to deferred financing costs -- (446) (2,110) -- --
Additions to bond offering costs -- -- (3,752) -- (32)
Repayments of long-term debt (4,315) (16,246) (101,331) (76) (94)
Distributions to members (1,135) (3,610) (3,544) (68) --
--------- --------- --------- --------- ---------
Net cash (used in) provided by financing activities (651) 15,098 67,663 (144) (126)
--------- --------- --------- --------- ---------
Net (decrease) increase in cash and cash equivalents (1,539) 980 24,154 (1,133) (13,161)
Cash and cash equivalents--beginning of period 3,569 2,030 3,010 3,010 27,164
--------- --------- --------- --------- ---------
Cash and cash equivalents--end of period $ 2,030 $ 3,010 $ 27,164 $ 1,877 $ 14,003
========= ========= ========= ========= =========
See accompanying notes.
F-5
Production Resource Group, L.L.C.
Notes to Combined Financial Statements
(Information as of March 31, 1998 and for the Three Months ended
March 31, 1997 and 1998 is Unaudited)
1. Organization and Basis of Combination
Production Resource Group, L.L.C. (the "Company") was formed as a Delaware
limited liability company in August 1995 and began operations on July 25, 1996,
when the accounts of the following entities under common control were
transferred to the Company in exchange for membership units in the Company:
Harris Production Services, Inc. ("HPS"), ECTS, A Scenic Technology Company,
Inc. ("ECTS"), Showpay, Inc. ("Showpay"), Theatre Techniques Associates, Inc.
("TTA"), ECTS Contracting of Las Vegas, Inc. ("STLV") and Scenic Properties, LLC
("SPLLC"). The exchange was accounted for in a manner similar to a pooling of
interests and has been retroactively reflected in the accompanying financial
statements. In December 1997, STLV, ECTS and TTA were merged into HPS and the
units issued to Showpay were transferred to HPS.
The accompanying combined financial statements include the accounts of the
Company and its subsidiaries, three of which are wholly-owned and the other in
which the Company owns 99% of the outstanding membership interests. These
subsidiaries have no material assets, liabilities or operations. Intercompany
transactions and balances among all of the related entities have been eliminated
in combination.
The Company is an integrator, fabricator and supplier of a broad range of
products and services for the live entertainment (theatre, concert touring and
special events), corporate events (trade and industrial shows) and themed
entertainment (gaming, theme parks and themed retail) markets. The Company
operated in 1997 through four segments: lighting systems and products, scenery
automation and fabrication, event services and themed attraction permanent
installation ("Themed Attraction"). The Company's Themed Attraction segment has
been discontinued during 1998 and, accordingly, the combined statements of
operations and members' equity for the years ended December 31, 1995 and 1996
have been restated to reflect the Themed Attraction segment as a discontinued
operation (see Note 8).
The lighting systems and products segment provides automated lighting systems
and related products for sale and rental. The scenery automation and fabrication
segment fabricates scenery for sale and provides computerized motion and show
control equipment for rental. The Company's event services segment provides a
variety of services for corporate clients, including unique exhibit fabrication
and production management for trade shows and events.
Members of the Company are not personally liable for any indebtedness, liability
or obligation of the Company.
F-6
Production Resource Group, L.L.C.
Notes to Combined Financial Statements (continued)
(Information as of March 31, 1998 and for the Three Months ended
March 31, 1997 and 1998 is Unaudited)
1. Organization and Basis of Combination (continued)
In accordance with the Company's operating agreement, the Company will terminate
in 2094.
2. Acquisitions
On January 18, 1996, the Company acquired substantially all of the assets and
assumed certain liabilities of Vanco Lighting Services, Inc. ("Vanco"), a
provider of theatrical lighting systems and related products for the rental and
retail marketplace. The purchase price of the acquisition was $1,000,000, which
was satisfied through the payment of $300,000 in cash and the issuance of an
adjustable $700,000 ten year promissory note. Such note was subsequently
adjusted to approximately $468,000 to reflect certain adjustments arising from
the finalization of the purchase price for Vanco (see Note 7).
On February 8, 1996, the Company acquired substantially all of the assets,
excluding cash and accounts receivable, and assumed certain liabilities of
Cinema Services of Las Vegas, Inc. ("Cinema"), a provider of theatrical lighting
systems and related products for the rental and retail marketplace. The purchase
price of the acquisition was $1,800,000 in cash plus contingent payments not to
exceed $500,000. The Company is required to make annual payments equal to 20% of
the net profits of Cinema, as defined, for each calendar year through 2000,
payable within 30 days of the determination of such profit up to a cumulative
maximum payment of $500,000. As of December 31, 1997, no contingent payments
have been made. The Company will record any future payments as an addition to
goodwill and will amortize such additional amounts over the remaining life of
the goodwill originally recorded. The Company recorded goodwill of approximately
$900,000 related to the Cinema acquisition, which is being amortized over 15
years.
On June 6, 1997, the Company acquired substantially all of the assets and
assumed certain liabilities of Design Dynamics, Inc. ("Design Dynamics") for
$3,985,000 in cash. Design Dynamics specializes in fabricating trade show
exhibits. The Company recorded goodwill of approximately $3,134,000 related to
the Design Dynamics acquisition which is being amortized over 15 years. A
former shareholder of Design Dynamics has entered into an employment agreement
with the Company (see Note 13).
F-7
Production Resource Group, L.L.C.
Notes to Combined Financial Statements (continued)
(Information as of March 31, 1998 and for the Three Months ended
March 31, 1997 and 1998 is Unaudited)
2. Acquisitions (continued)
On August 15, 1997, the Company acquired substantially all of the assets and
assumed certain liabilities of Bash Theatrical Lighting, Inc. and four
affiliated companies (collectively "Bash"), a supplier of theatrical lighting
systems and related products for the rental and retail marketplace. The purchase
price of the acquisition was $20,000,000 which may be modified for certain
purchase price adjustments that could be claimed by the Company. Currently,
management does not anticipate any such adjustments to the purchase price. The
Company recorded goodwill of approximately $11,214,000 related to the Bash
acquisition, which is being amortized over 25 years. The two shareholders of
Bash have an option to acquire an aggregate amount of up to $3,000,000 of 8%
Convertible Preferred Units of the Company for a payment of $3,000,000. This
option was determined to have no value. The former shareholders of Bash have
entered into employment agreements with the Company (see Note 13).
The above acquisitions were accounted for under the purchase method.
Accordingly, results relating to the acquired operations are included in the
Company's results of operations from their respective dates of acquisition.
The pro forma unaudited combined results of operations for the years ended
December 31, 1997 and 1996, assuming consummation of the above-mentioned
acquisitions as of the beginning of the respective year, is as follows (in
thousands):
1996 1997
--------------------------------
Total revenues $ 83,318 $ 98,201
Income from continuing operations 8,157 4,298
Net income (loss) 9,564 (1,618)
F-8
Production Resource Group, L.L.C.
Notes to Combined Financial Statements (continued)
(Information as of March 31, 1998 and for the Three Months ended
March 31, 1997 and 1998 is Unaudited)
2. Acquisitions (continued)
On January 2, 1998, the Company acquired substantially all of the assets and
assumed certain liabilities of Pro-Mix, Inc. ("Pro-Mix"), a provider of sound
equipment and acoustical and sound design consulting services primarily to the
live theatre market. The purchase price was approximately $7,800,000 plus a
$1,500,000 contingent payment (based upon a multiple of earnings, as defined).
The purchase price also includes $939,000, representing the approximate fair
value of 79,179 of the Company's Preferred Units (with a liquidation preference
of $1,500,000) issued in connection with the Pro-Mix acquisition. The Company
recorded goodwill of approximately $638,000 related to the Pro-Mix acquisition,
which will be amortized over 20 years, and any contingent payments will be
recorded as an addition thereto.
3. Summary of Significant Accounting Policies
Cash and Cash Equivalents
All highly liquid investments with a maturity of three months or less when
purchased are considered to be cash equivalents. At December 31, 1996 and 1997,
substantially all of the Company's cash and cash equivalents were held in one
financial institution.
Supplementary Cash Flow Information
Interest paid amounted to approximately $652,000, $1,095,000 and $3,859,000 for
the years ended December 31, 1995, 1996 and 1997, respectively. Taxes
paid amounted to approximately $14,000, $330,000 and $391,000 for the years
ended December 31, 1995, 1996 and 1997, respectively.
Inventories
Raw materials and work-in-process inventories are stated at the lower of cost or
market. Raw materials consist of steel, aluminum, wood and electronic automation
parts. Work-in-process includes direct materials, direct labor and a ratable
share of manufacturing overhead on partially completed items. Cost is determined
by the specific identification method. Also included in inventories are certain
lighting products. Cost for such inventory is determined using the average cost
method which approximates the first-in, first-out method. Inventories consist of
the following (in thousands):
F-9
Production Resource Group, L.L.C.
Notes to Combined Financial Statements (continued)
(Information as of March 31, 1998 and for the Three Months ended
March 31, 1997 and 1998 is Unaudited)
3. Summary of Significant Accounting Policies (continued)
December 31 March 31
1996 1997 1998
------------------------------ ----------------
Raw materials $ 1,277 $ 1,603 $ 1,860
Work-in-process 1,611 412 1,109
Lighting products 458 2,410 2,646
------------------------------ ----------------
$ 3,346 $ 4,425 $ 5,615
============================== ================
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets, which range
from five to 39 years. Rental equipment, including show and motion control and
lighting systems, are included in property and equipment and are being
depreciated by the straight-line method over periods ranging from five to seven
years.
Goodwill
Goodwill represents the excess of the cost of assets acquired over the fair
market value of assets received and is being amortized using the straight-line
method over periods ranging from 15 to 25 years.
Intangible Assets
Intangible assets, which include organization, deferred financing and bond
offering costs, are stated at cost and are being amortized using the
straight-line method over (i) five years for organization costs and (ii) over
the term of the related debt for deferred financing and bond offering costs (see
Note 6).
F-10
Production Resource Group, L.L.C.
Notes to Combined Financial Statements (continued)
(Information as of March 31, 1998 and for the Three Months ended
March 31, 1997 and 1998 is Unaudited)
3. Summary of Significant Accounting Policies (continued)
Software Development Costs
In accordance with Statement of Financial Accounting Standards ("SFAS") No. 86,
"Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise
Marketed," all software development costs are charged to expense as incurred
until technological feasibility has been established for the product. Software
development costs incurred after technological feasibility has been established
have been capitalized and included in other assets (see Note 6). Such costs are
amortized, commencing with product use, using the straight-line method over
three years.
Income Taxes
Effective July 25, 1996, the Company began operations as a limited liability
company and, therefore, is not subject to federal, state and local income taxes
except for certain unincorporated business income taxes. Income taxes payable
by the individual members of the Company for the year ended December 31, 1997
and for the period from July 25, 1996 through December 31, 1996, based on their
respective shares of the Company's income, have not been reflected in the
accompanying combined financial statements.
Effective January 1, 1989, HPS and ECTS elected by consent of their shareholders
to be taxed under the provisions of Subchapter S of the Internal Revenue Code
for federal income tax purposes. Under these provisions, these members did not
pay federal corporate income taxes on their taxable income. Instead, such
members' shareholders were liable for individual federal income taxes on their
share of the respective members' taxable income.
The provision for taxes reflected in the accompanying combined financial
statements includes amounts due to various states in which income was subject to
reduced corporate income taxes because of Subchapter S status for the period
from January 1, 1996 through July 24, 1996 and for the year ended December 31,
1995 and other state and local taxes.
F-11
Production Resource Group, L.L.C.
Notes to Combined Financial Statements (continued)
(Information as of March 31, 1998 and for the Three Months ended
March 31, 1997 and 1998 is Unaudited)
3. Summary of Significant Accounting Policies (continued)
Revenue Recognition and Deferred Revenue
Revenues consist of sales and rentals of the Company's products and services.
Sales of products (primarily scenery for live entertainment and fabricated
exhibits for events) and services to clients (primarily production management
services) for the events and live entertainment markets are recognized upon
delivery or when services are performed. All rental revenues (principally on
lighting products and show and motion control systems) are recognized ratably
over the lives of the applicable rental agreements.
Revenues related to the projects within the discontinued Themed Attraction
segment were recognized based on the percentage of total costs incurred to date
to total estimated costs. Management reviewed estimated total project costs on
individual projects and made adjustments accordingly. Losses expected to be
incurred on projects in progress were charged to income as soon as such losses
were known. Amounts received in advance on sales which exceeded revenue
recognized to date were recorded as deferred revenue and recognized when earned.
Amounts reflected as revenue which exceeded billings to date were included in
accounts receivable and amounted to approximately $722,000 and $390,000 at
December 31, 1996 and 1997, respectively (see Note 8).
Unit-Based Compensation
SFAS No. 123, "Accounting for Stock-Based Compensation," prescribes accounting
and reporting standards for all stock-based compensation. SFAS No. 123 requires
compensation expense to be recorded (i) using the fair value method or (ii)
using accounting rules prescribed by Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25"), with pro forma disclosure
of what net income would have been had the Company adopted the fair value
method. The Company accounts for its unit-based compensation in accordance with
the provisions of APB 25.
F-12
Production Resource Group, L.L.C.
Notes to Combined Financial Statements (continued)
(Information as of March 31, 1998 and for the Three Months ended
March 31, 1997 and 1998 is Unaudited)
3. Summary of Significant Accounting Policies (continued)
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amount of revenue and expenses during the reporting period. The
principal area of estimation relates to determining total project costs. Actual
results could differ from those estimates.
Impairment of Long-Lived Assets
Long-lived assets to be held and used are reviewed for impairment whenever
events or changes of circumstances indicate that the related carrying amounts
may not be recoverable, such as a change in expected future undiscounted cash
flows. When required, impairment losses on assets to be held and used are
recognized based on the excess of the asset's carrying amount over its fair
value as determined by selling prices for similar assets or application of other
appropriate valuation techniques. Long-lived assets to be disposed of are
reported at the lower of their carrying amount or fair value less disposal
costs.
Unaudited Information
The unaudited combined financial statements at March 31, 1998 and for the three
months ended March 31, 1997 and 1998 reflect adjustments, all of which are of a
normal recurring nature, which are, in the opinion of management, necessary to a
fair presentation. The results of the interim periods are not necessarily
indicative of full year results.
Fair Value of Financial Instruments
The fair value of financial instruments is determined by reference to market
data and other valuation techniques as appropriate. The Company's financial
instruments consist of cash and cash equivalents, long-term debt, and an
interest rate swap agreement. Unless otherwise disclosed, the fair values of
financial instruments approximate their recorded values.
Comprehensive Income
SFAS No. 130, "Reporting Comprehensive Income," is effective for the
Company's financial statements for the year ended December 31, 1998. SFAS No.
130 establishes standards for the reporting and display of comprehensive income
and its components in a full set of general purpose financial statements. This
statement requires that all items that are required to be recognized as
components of comprehensive income be reported in a financial statement with the
same prominence as other financial statements. The Company does not have any
elements of comprehensive income.
F-13
Production Resource Group, L.L.C.
Notes to Combined Financial Statements (continued)
(Information as of March 31, 1998 and for the Three Months ended
March 31, 1997 and 1998 is Unaudited)
3. Summary of Significant Accounting Policies (continued)
Internal-Use Computer Software
In March 1998, the AICPA issued SOP 98-1, "Accounting For the Costs of Computer
Software Developed For or Obtained For Internal-Use." The SOP is effective for
the Company beginning on January 1, 1999. The SOP requires the
capitalization of certain costs incurred after the date of adoption in
connection with developing or obtaining software for internal-use. The Company
has adopted SOP 98-1 in 1998 and has capitalized approximately $32,000 of such
costs during the three months ended March 31, 1998.
4. Reportable Segments
In 1997, the Company elected to adopt SFAS No. 131 "Disclosures about Segments
of an Enterprise and Related Information." The statement requires certain
descriptive information to be provided about an enterprise's reportable
segments. This information includes the factors that management uses to identify
the reportable segments of the Company, the types of products and services from
which each reportable segment derives its revenues, and how management measures
segment profit or loss and assets.
The Company's continuing operations include three reportable segments: scenery
automation and fabrication, lighting systems and products and event services.
The Company's scenery automation and fabrication division consists of two
operating units that fabricate scenery and rent computerized automation
equipment that controls the motion of such scenery. Sales of this division are
primarily to live theatrical concerns. The Company's lighting systems and
products division has three primary operating units that provide lighting
equipment and systems to a highly diversified client base. The Company's event
services division provides a variety of services primarily for corporate
clients, including unique exhibit fabrication and production management for
trade shows and events. During 1998, with the acquisition of Pro-Mix, the
Company established an audio segment. Also during 1998, the Company discontinued
its Themed Attraction business. This segment had one primary operating unit
which designed, built and installed on a turn-key basis themed attractions
primarily for amusement parks and casinos (see Note 8).
F-14
Production Resource Group, L.L.C.
Notes to Combined Financial Statements (continued)
(Information as of March 31, 1998 and for the Three Months ended
March 31, 1997 and 1998 is Unaudited)
4. Reportable Segments (continued)
The Company evaluates performance and allocates resources based on the
reportable segments' profit or loss from operations before interest, provision
for taxes, depreciation and amortization. The accounting policies of the
reportable segments are the same as those described in the summary of
significant accounting policies (see Note 3). Intersegment sales and transfers
are recorded at the Company's cost; there is no intercompany profit or loss on
intersegment sales or transfers.
The Company's reportable segments are distinct business units that offer
different products and services. The reportable segments are each managed
separately because they manufacture and distribute distinct products with
different production processes. The customers of the Company's reportable
segments are located principally in the United States.
Year ended or as of December 31, 1995
-----------------------------------------------
Scenery
Automation Lighting
Event and Systems and
Services Fabrication Products Total
-------- ----------- ----------- --------
(in thousands)
Revenues from external customers $ 7,540 $ 29,744 $ -- $ 37,284
Intersegment revenues -- -- -- --
Segment profit 240 12,522 -- 12,762
Segment assets 7,861 13,451 -- 21,312
Expenditures for long-lived assets -- 9,621 -- 9,621
Year ended or as of December 31, 1996
-----------------------------------------------
Scenery
Automation Lighting
Event and Systems and
Services Fabrication Products Total
-------- ----------- ----------- --------
(in thousands)
Revenues from external customers $ 13,586 $ 21,242 $ 14,606 $ 49,434
Intersegment revenues -- 544 1,283 1,837
Segment profit 839 11,744 2,434 15,017
Segment assets 9,369 21,250 11,639 42,258
Expenditures for long-lived assets -- 4,534 6,702 11,236
F-15
Production Resource Group, L.L.C.
Notes to Combined Financial Statements (continued)
(Information as of March 31, 1998 and for the Three Months ended
March 31, 1997 and 1998 is Unaudited)
4. Reportable Segments (continued)
Year ended or as of December 31, 1997
-----------------------------------------------
Scenery
Automation Lighting
Event and Systems and
Services Fabrication Products Total
-------- ----------- ----------- --------
(in thousands)
Revenues from external customers $ 23,759 $ 20,382 $ 31,039 $ 75,180
Intersegment revenues -- 7,675 2,319 9,994
Segment profit 2,762 10,063 6,828 19,653
Segment assets 7,988 19,929 33,515 61,432
Expenditures for long-lived assets 1,726 3,570 7,390 12,686
Three month period ended or as of March 31, 1997
----------------------------------------------------------
Scenery
Automation Lighting
Event and Systems and
Services Fabrication Products Audio Total
-------- ----------- ----------- ------- --------
(in thousands)
Revenues from external customers $ 5,010 $ 8,382 $ 3,618 $ -- $ 17,010
Intersegment revenues 235 801 849 -- 1,885
Segment profit 336 3,306 597 -- 4,239
Three month period ended or as of March 31, 1998
----------------------------------------------------------
Scenery
Automation Lighting
Event and Systems and
Services Fabrication Products Audio(1) Total
-------- ----------- ----------- -------- --------
(in thousands)
Revenues from external customers $ 4,439 $ 4,933 $12,979 $ 2,702 $ 25,053
Intersegment revenues 70 465 487 -- 1,022
Segment profit 591 2,321 2,349 961 6,222
(1) On January 2, 1998, the Company acquired substantially all the assets of
Pro-Mix and established the audio segment. At March 31, 1998, assets of the
audio segment approximated $9.3 million.
Three month period
Year ended December 31 ended March 31
1995 1996 1997 1997 1998
--------- --------- --------- --------- ---------
(in thousands)
Revenues
Total external revenues from reportable segments $ 37,284 $ 49,434 $ 75,180 $ 17,010 $ 25,053
Intersegment revenues for reportable segments -- 1,837 9,994 1,885 1,022
Elimination of intersegment revenues -- (1,837) (9,994) (1,885) (1,022)
Other revenues -- -- -- -- 433
--------- --------- --------- --------- ---------
Total Revenues $ 37,284 $ 49,434 $ 75,180 $ 17,010 $ 25,486
========= ========= ========= ========= =========
Three month period
Year ended December 31 ended March 31
1995 1996 1997 1997 1998
--------- --------- --------- --------- ---------
(in thousands)
Profit (loss)
Total profit for reportable segments $ 12,762 $ 15,017 $ 19,653 $ 4,239 $ 6,222
Unallocated amounts:
Corporate selling, general and administrative expenses (3,836) (3,824) (6,789) (981) (2,181)
Depreciation and amortization (3,787) (4,635) (8,363)) (1,649) (3,403)
Nonrecurring compensation -- -- (2,125) -- --
Interest expense, net (364) (1,164) (3,839)) (517) (2,858)
Loss on impairment of assets -- (495) -- -- --
Other profit -- -- -- -- 190
--------- --------- --------- --------- ---------
Total income (loss) from continuing operations before
taxes and extraordinary item $ 4,775 $ 4,899 $ (1,463) $ (1,092) $ (2,030)
========= ========= ========= ========= =========
F-16
Production Resource Group, L.L.C.
Notes to Combined Financial Statements (continued)
(Information as of March 31, 1998 and for the Three Months ended
March 31, 1997 and 1998 is Unaudited)
4. Reportable Segments (continued)
Year ended December 31
1995 1996 1997
--------- --------- ---------
(in thousands)
Assets
Total assets for reportable segments $ 21,312 $ 42,258 $ 61,432
Unallocated amounts:
Goodwill -- 879 15,341
Corporate property and equipment 2,942 5,820 14,215
Corporate other assets -- -- 32,207
Elimination of intercompany receivables -- -- (407)
--------- --------- ---------
Total combined assets related to continuing operations $ 24,254 $ 48,957 $ 123,288
========= ========= =========
5. Property and Equipment
The following is a summary of property and equipment at December 31, 1996 and
1997 (in thousands):
1996 1997
-------------- ---------------
Land and buildings $ 7,981 $ 10,173
Building improvements 319 1,470
Rental equipment 28,887 46,692
Machinery and equipment 828 1,297
Furniture and fixtures and office equipment 1,492 5,208
Transportation equipment 208 552
Construction in progress - 483
-------------- ---------------
39,715 65,875
Less accumulated depreciation 8,526 16,639
-------------- ---------------
Property and equipment--net $ 31,189 $ 49,236
============== ===============
During 1996, the Company transferred certain of its operations to a new facility
and placed the old facility up for sale. This circumstance called into question
the recoverability of the carrying amounts of the former building and related
improvements. Pursuant to SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of," an impairment
loss of $495,000 was recognized related to these assets. In calculating the
impairment loss, fair value was determined by reviewing quoted market prices for
current sales of similar building facilities. During 1997, as a result of the
Company's growth, the old facility was returned to service at its reduced
carrying value of $301,000 and included in land and buildings.
F-17
Production Resource Group, L.L.C.
Notes to Combined Financial Statements (continued)
(Information as of March 31, 1998 and for the Three Months ended
March 31, 1997 and 1998 is Unaudited)
6. Other Assets
The following is a summary of other assets (in thousands):
December 31 March 31
1996 1997 1998
------------------------------ ------
Organization costs, net of accumulated amortization of $59,
$150 and $231 in 1996, 1997 and 1998, respectively $ 483 $ 371 $ 344
Deferred financing costs, net of accumulated amortization
of $62, $166 and $193 in 1996, 1997 and 1998, respectively 384 1,735 1,654
Bond offering costs, net of accumulated amortization
of $7 in 1997 and $62 in 1998 - 3,745 3,683
Software development costs, net of accumulated amortization
of $195 in 1997 and $245 in 1998 586 391 373
Other 548 775 2,720
-------------- --------------- -------------
$ 2,001 $ 7,017 $ 8,774
============== =============== ==============
7. Long-Term Debt
Long-term debt consisted of the following (in thousands):
December 31 March 31
1996 1997 1998
------------------------------ ---------------
Senior Subordinated Notes $ - $ 100,000 $ 100,000
Credit facilities 22,500 - -
Mortgages payable 4,066 3,820 3,759
Other 435 745 712
------------------------------ ---------------
27,001 104,565 104,471
Less current portion 8,231 822 810
------------------------------ ---------------
Long-term debt $ 18,770 $ 103,743 $ 103,661
============================== ===============
Senior Subordinated Notes
On December 24, 1997, the Company and PRG Finance Corporation, a Delaware
Corporation ("Finance Corp." and together with the Company, the "Issuers")
issued $100,000,000 of 11-1/2% Senior Subordinated Notes (the "Notes") due
January 15, 2008. Finance Corp., a wholly-owned, non-guarantor subsidiary of
the Company, incorporated in Delaware, was formed for the purpose of serving
as a co-issuer of the Notes in order to facilitate the Offering. Finance Corp.
F-18
Production Resource Group, L.L.C.
Notes to Combined Financial Statements (continued)
(Information as of March 31, 1998 and for the Three Months ended
March 31, 1997 and 1998 is Unaudited)
7. Long-Term Debt (continued)
will not have any substantial operations, assets or revenues. Interest on the
Notes is payable semiannually in arrears on January 15 and July 15 of each year,
commencing on July 15, 1998, to holders of record on the immediately preceding
January 1 and July 1, respectively.
The Notes are not redeemable, except in certain circumstances, prior to January
15, 2003. Thereafter, the Notes are subject to redemption at prices decreasing
from 105.75% to 100.00% of the face amount through 2006.
The Notes are fully and unconditionally guaranteed by the Company's domestic
subsidiaries other than Finance Corp. (the "Guarantors") on a joint and several
basis. The Notes place certain restrictions on the Guarantors, including
restrictions on their ability to merge or consolidate operations with another
entity. Three of the Guarantors are wholly-owned subsidiaries of the Company and
the remaining Guarantor is 99% owned by the Company (with the remaining 1%
interest owned by a member of the Company).
Summarized combined financial information for the guarantor Subsidiaries
follows (in thousands):
As of and
for the year As of and
ended December for the three months
31, 1997 ended March 31, 1998
-------------- --------------------
Current assets $ 140 $321
Current liabilities (348) (84)
Revenues 439 432
Income from continuing
operations before
income taxes 28 78
The non-guarantor subsidiary, Finance Corp., has yet to be capitalized and will
not have any substantial assets, revenues or operations.
The Company received proceeds from the offering of $97,000,000. Such proceeds
were used to repay the borrowings under the existing credit facility of
$68,300,000. Costs incurred related to the issuance of the Notes approximated
$3,752,000 and are being amortized over the life of the Notes.
Credit Facilities
At December 31, 1995, the Company had credit facilities which consisted of
several loans under a term loan agreement with maturity dates ranging from July
1996 to October 1997, bearing interest at various rates ranging from 8.49% to
9%. These amounts were refinanced during 1996.
F-19
Production Resource Group, L.L.C.
Notes to Combined Financial Statements (continued)
(Information as of March 31, 1998 and for the Three Months ended
March 31, 1997 and 1998 is Unaudited)
7. Long-Term Debt (continued)
On June 30, 1996, the Company entered into a credit agreement (the "Credit
Agreement") with a bank to borrow funds in the amount of $17,500,000. Such funds
were used to refinance existing bank debt. The Credit Agreement consisted of a
revolving credit facility (the "Revolving Loan") and a term loan facility (the
"Term Loan") in the amount of $7,500,000 and $10,000,000, respectively, maturing
on December 31, 2000. The Term Loan was payable in equal quarterly payments of
$625,000, which commenced on March 31, 1997. All such borrowings were
collateralized by a first lien on substantially all of the Company's assets and
were guaranteed by the Company's members.
Borrowings under the Credit Agreement bore interest, payable quarterly, at .5%
plus (i) the higher of the bank's prime rate and the federal funds rate plus .5%
or (ii) LIBOR plus 1.75%.
On December 13, 1996, the Company received additional funds, under similar terms
as the Credit Agreement, from the bank in the amount of $5,000,000 ("Bridge
Note"). The Bridge Note matured on June 30, 1997.
In connection with the Credit Agreement, the Company entered into an interest
rate swap agreement ("IRSA") with The Bank of New York to hedge the impact of
fluctuations in interest rates on its floating rate credit facilities. The IRSA
had an original notional amount of $8,750,000, which was subsequently increased
to $22,500,000. Gains and losses pertaining to the IRSA were recorded over its
life as an adjustment to interest expense. In January 1998, the Company
terminated the IRSA and recorded a loss of approximately $33,000.
On July 31, 1997, the Company entered into a credit agreement (the "Credit
Facility") with a syndicate of financial institutions that provided for a
reducing revolver for borrowings in a principal amount up to $100,000,000
through December 31, 2002 (as amended). The borrowings were used to refinance
the Credit Agreement and Bridge Note and finance working capital requirements,
including acquisitions.
F-20
Production Resource Group, L.L.C.
Notes to Combined Financial Statements (continued)
(Information as of March 31, 1998 and for the Three Months ended
March 31, 1997 and 1998 is Unaudited)
7. Long-Term Debt (continued)
The refinancing of the Credit Agreement was treated as an early extinguishment
of debt and, accordingly, unamortized financing costs of approximately $614,000
were written off and included as an extraordinary item in the combined
statement of operations and members' equity for the year ended December 31,
1997.
Amounts outstanding under the Credit Facility bear interest, at the Company's
option, at (i) certain spreads over the Eurodollar rate, or (ii) certain spreads
over the higher of (a) the Federal Funds rate plus .50%, or (b) the agent's
prime rate. The interest rate spreads are adjusted based on the Company's total
leverage ratio. In addition, during the commitment period, the Company is
obligated to pay a fee on the unused availability ranging from .25% to .375%
based on its total leverage ratio.
The Credit Facility contains certain restrictive financial covenants, including
the maintenance of a minimum pro forma interest coverage ratio and fixed charge
coverage ratio, a maximum leverage ratio and limitations on the issuance of
additional indebtedness. Borrowings under the Credit Facility are secured by a
security interest in all of the Company's tangible and intangible personal
property and fixtures and are guaranteed by certain members and subsidiaries of
the Company. All such guarantees are collateralized by a security interest in
the tangible and intangible personal property and fixtures of the respective
guarantor. In addition, the members of the Company have pledged their equity
interests in the Company and in each of the subsidiaries as additional
collateral. As of December 31, 1997, the Company was in compliance with the
covenants of the Credit Facility. As of December 31, 1997 and March 31, 1998,
there were no borrowings outstanding under the Credit Facility.
In connection with the Credit Facility, the Company incurred approximately
$1,885,000 of loan organization and syndication costs, which are being amortized
over the life of such agreement.
F-21
Production Resource Group, L.L.C.
Notes to Combined Financial Statements (continued)
(Information as of March 31, 1998 and for the Three Months ended
March 31, 1997 and 1998 is Unaudited)
7. Long-Term Debt (continued)
Mortgages Payable
The Company has three mortgages, which are collateralized by its properties.
The mortgages require monthly payments of both principal and interest at varying
rates ranging from 7.4% to 8.7%. Maturity dates on these mortgages expire on
various dates through June 1, 2025.
Other
In January 1996, the Company issued an adjustable promissory note payable for
$700,000 as partial payment for the purchase of the net assets of Vanco. The
principal balance of such note was adjusted to approximately $468,000 to reflect
certain adjustments arising from the finalization of the purchase price for
Vanco. The note is payable quarterly, bears interest at a rate of 9.5% per annum
and matures on December 31, 2006. The balance of the note payable as of December
31, 1996 and 1997 was approximately $435,000 and $386,000, respectively.
The following are future maturities of long-term debt outstanding at December
31, 1997 (in thousands):
1998 $ 822
1999 381
2000 385
2001 388
2002 312
Thereafter 102,277
------------------
$ 104,565
==================
The following are future maturities of long-term debt outstanding at March 31,
1998 (in thousands):
1999 $ 810
2000 385
2001 388
2002 312
2003 305
Thereafter 101,852
------------------
$ 104,471
==================
Interest expense excludes capitalized interest in 1995 and 1996 of $134,000 and
$255,000, respectively.
F-22
Production Resource Group, L.L.C.
Notes to Combined Financial Statements (continued)
(Information as of March 31, 1998 and for the Three Months ended
March 31, 1997 and 1998 is Unaudited)
8. Discontinued Operations
On March 2, 1998, the Company adopted a plan to discontinue its Themed
Attraction business. The Themed Attraction business operated primarily through a
single division, which utilized a turn-key approach of supplying project
management, fabrication of scenic elements and show action equipment and
installation of such projects at a customer's place of business. This division
served customers who were primarily owners and operators of amusement parks and
casinos. The Company has restated the combined statements of operations and
members' equity for the years ended December 31, 1995 and 1996 to reflect the
results of the Themed Attraction business as a discontinued operation.
The Company anticipates that the remaining Themed Attraction projects will be
completed during 1998 at which time the Company will abandon this business.
There are no significant elements of the Company's property and equipment which
are used exclusively by this division. At December 31, 1997, the principal
components of the net assets of the Company's Themed Attraction business are
accounts receivable ($4,964,000) and deferred revenues ($534,000). The Company
has provided for any estimated additional losses related to uncompleted existing
Themed Attraction contracts. The revenues of the Themed Attraction business
since its inception in 1995 were approximately $2,100,000 in 1995, $13,100,000
in 1996 and $23,400,000 in 1997.
9. Membership Units
Description of Units
The Company's membership units consist of the following classes: Regular Units,
Preferred Units, Capital Appreciation Units, Preferred Capital Appreciation
Units, Convertible Preferred Units and SPLLC Units. Regular Units entitle the
holder thereof to share in the profits and losses of the Company, subject to
certain adjustments, and are the only class of voting equity of the Company.
Preferred Units entitle the holder thereof to the same rights and privileges as
holders of Regular Units, except that the holders of Preferred Units have the
right to receive liquidation distributions prior to the holders of Regular Units
and the Preferred Units do not have voting rights. Capital Appreciation Units
entitle the holder thereof to (i) an annual return of $0.05 per unit and (ii)
share in the appreciation in the value of the Company upon the occurrence of an
Initial Public Offering (as defined in the Operating Agreement), the sale of
substantially all of the assets of the Company or a sale of fifty percent or
more of the interests
F-23
Production Resource Group, L.L.C.
Notes to Combined Financial Statements (continued)
(Information as of March 31, 1998 and for the Three Months ended
March 31, 1997 and 1998 is Unaudited)
9. Membership Units (continued)
in the Company held by the Initial Members, as defined; provided that such
holder shall only be entitled to share in the appreciation in value above the
designated value (approximately $55 million) provided in the Operating
Agreement. Capital Appreciation Units rank pari passu with Regular Units in
right of payment in the event of a liquidation of the Company. Preferred Capital
Appreciation Units entitle the holder thereof to the same rights and privileges
as holders of Capital Appreciation Units, except that the holders of Preferred
Capital Appreciation Units have the right to receive liquidation distributions
prior to the holders of Regular Units. Convertible Preferred Units entitle the
holder thereof to receive an 8% per annum cumulative distribution priority. The
Operating Agreement provides that such distribution shall accumulate currently
but not be paid. These units are senior in liquidation preference to the Regular
Units and are convertible into securities offered by the Company in an Initial
Public Offering at a price equal to 62.5% of the per share price of such
securities. For purposes of such conversion, the Operating Agreement provides
that all accrued distributions will be eliminated. In addition, upon the earlier
of the third anniversary of the issuance of the Convertible Preferred Units or
an Initial Public Offering, the holders of such units have the option to require
the Company to redeem their units upon the occurrence of certain events.
At December 31, 1997, the Company had outstanding the following membership
units: (i) 5,199,413 Regular Units, including those units issued under the Units
Plan, (ii) 581,000 Capital Appreciation Units, including approximately 483,000
units which will vest at various times over the next five years and (iii) 54,539
Preferred Units. As discussed in Note 2, the Company has granted the two
shareholders of Bash an option to acquire up to $3 million of Convertible
Preferred Units. There are no Preferred Capital Appreciation Units outstanding.
Subsequent to December 31, 1997 and as discussed in Note 2, an additional 79,179
Preferred Units were issued in connection with the Pro-Mix acquisition.
On December 24, 1997, the Company redeemed the SPLLC Units held by SPLLC in
exchange for its interests in real property located in New Windsor, N.Y.,
Cornwall-on Hudson, N.Y., and the Company's land in Las Vegas, N.V., subject to
related mortgage debt. All of the equity interests of SPLLC are owned by
officers and beneficial owners of the Company, and SPLLC's assets and
liabilities which consist primarily of the aforementioned real estate and
related mortgages, are therefore combined into the Company.
F-24
Production Resource Group, L.L.C.
Notes to Combined Financial Statements (continued)
(Information as of March 31, 1998 and for the Three Months ended
March 31, 1997 and 1998 is Unaudited)
9. Membership Units (continued)
Units Plan
On January 1, 1996, the Company established the Production Resource Group,
L.L.C. Restricted Limited Liability Company Unit Incentive Compensation Plan
(the "Restricted Plan") and the Phantom Limited Liability Company Unit Incentive
Compensation Plan (the "Phantom Plan" and, together with the Restricted Plan,
the "Plans"). Participation in the Plans is limited to officers and other key
employees who are selected to participate in the Plans. Up to 750,000 Units
subject to anti-dilution adjustments may be awarded under each of the Restricted
Plan ("Restricted Units") and the Phantom Plan ("Phantom Units") and, together
with the Restricted Units, the "Units"). Units granted under the Plans are
subject to significant restrictions on transferability, the securities laws and
the Operating Agreement of the Company. Restricted Units entitle the holder to
receive distributions from the Company but do not allow a right to participate
in management. Phantom Units entitle the holder to receive a bonus equal to ten
dollars per Phantom Unit upon a sale of the Company or at certain other defined
times. In no event shall a participant be entitled to receive duplicate payments
under the Phantom Plan and the Restricted Plan. Restrictions on the Units lapse
ratably over specified periods. Upon a Change in Control or any termination
other than for Cause (each as defined in the Plans), all restrictions on the
Units lapse and the value thereof becomes immediately payable. Phantom Units
will be canceled without any payments being required thereon upon the occurrence
of an initial public offering by the Company or a successor in interest to the
Company.
At December 31, 1996 and 1997, 181,972 and 145,578 Restricted units,
respectively, were outstanding with restrictions that lapse in equal annual
installments each January 1st through 2001. The Company has included in
Members' Equity approximately $258,000, representing the fair value of these
units. Compensation to employees of a similar amount has been recorded as a
reduction of Members' Equity and will be charged to income as the restrictions
on these units lapse. In 1997, compensation expense of approximately $52,000
was recorded with respect to these units.
F-25
Production Resource Group, L.L.C.
Notes to Combined Financial Statements (continued)
(Information as of March 31, 1998 and for the Three Months ended
March 31, 1997 and 1998 is Unaudited)
9. Membership Units (continued)
Other Unit Transactions
During 1997, the Company entered into employment agreements with two of its
officers. In connection with these agreements, the Company issued 565,000 of its
Capital Appreciation Units (the "CAU's"). These units vest over periods ranging
from three to five years. The CAU's entitle the unitholder to share in
appreciation of the Company above designated threshold amounts upon the
occurence of a triggering event (See "Description of Units"). Accordingly, the
CAU's have been treated as if they were unissued due to their contingent nature
regarding the holders' ability to realize value from the CAU's. The pro forma
compensation costs for the CAU's determined in accordance with SFAS No. 123 is
not significant.
During 1997, the Company also issued 16,000 of its CAU's to non-employee members
of its Board of Advisors. These units vest within two years.
10. Commitments and Other
Collective Bargaining Agreement
The Company is a party to various collective bargaining agreements of limited
duration concerning its labor union employees. The terms of those agreements
require contributions by the Company to a number of union employee defined
contribution, defined benefit and health and welfare plans. Contributions to all
plans totaled approximately $412,000, $621,000 and $783,000 for the years ended
December 31, 1995, 1996 and 1997, respectively.
F-26
Production Resource Group, L.L.C.
Notes to Combined Financial Statements (continued)
(Information as of March 31, 1998 and for the Three Months ended
March 31, 1997 and 1998 is Unaudited)
10. Commitments and Other (continued)
Benefit Plans
The Company has a defined contribution plan which qualifies under section 401(k)
of the Internal Revenue Code. The plan covers all employees who are not subject
to a collective bargaining agreement and have met the plan's age and service
requirements. The Company's 401(k) plan provides that eligible employees may
make contributions subject to Internal Revenue Code limitations. The Company
matches each employee's contributions up to a maximum of 3% of their salary.
Such contributions aggregated approximately $85,000, $150,000 and $260,000 for
the years ended December 31, 1995, 1996 and 1997, respectively. The Company also
has a profit sharing plan that covers certain employees of the Company.
Contributions to the plan, which are determined by the members, are based on the
amount of an eligible employee's wages. Total contributions may not exceed 15%
of the annual compensation of all of the plan's participants. The Company's last
contribution to the plan was in 1995 and amounted to approximately $75,000.
Operating Leases
The Company leases certain property and equipment under leases that expire at
various dates through 2008. As of December 31, 1997, future minimum lease
payments under noncancelable leases are as follows (in thousands):
December 31:
1998 $ 1,603
1999 1,279
2000 1,204
2001 1,132
2002 1,112
Thereafter 5,170
---------------
$ 11,500
===============
Rent expense was approximately $311,000, $671,000 and $1,286,000 for the years
ended December 31, 1995, 1996 and 1997, respectively.
F-27
Production Resource Group, L.L.C.
Notes to Combined Financial Statements (continued)
(Information as of March 31, 1998 and for the Three Months ended
March 31, 1997 and 1998 is Unaudited)
11. Related Party Transactions
The Company contracts work from an entity that is partially owned by related
parties. In connection therewith, the Company earned revenues of approximately
$1,959,000, $1,929,000 and $3,833,000 for the years ended December 31, 1995,
1996 and 1997, respectively. The Company incurred fees and other charges
amounting to $50,000 from this entity during the year ended December 31, 1996.
The Company had a receivable from this entity amounting to approximately
$366,000 and $272,000 at December 31, 1996 and 1997, respectively. Additionally,
the entity paid management fees for administrative services of approximately
$70,000, $90,000 and $60,000 to the Company during 1995, 1996 and 1997,
respectively.
The Company also conducted business with a related entity that provided
theatrical management services. In connection therewith, the Company incurred
fees and other charges amounting to approximately $182,000 and $199,000 for the
years ended December 31, 1995 and 1996, respectively. Additionally, the Company
earned revenues of approximately $64,000 from this entity in the year ended
December 31, 1996. There was no activity with this entity for the year ended
December 31, 1997.
12. Major Customers
Two of the Company's customers accounted for approximately 33% and 15% of the
Company's 1995 revenues. Such revenues were included in the Company's scenery
automation and fabrication segment. One customer accounted for 33% of the
Company's 1996 accounts receivable. Revenues from such customer were part of the
discontinued Themed Attraction segment (see Note 8).
13. Nonrecurring Compensation Expense
The nonrecurring compensation expense of $2,125,000 represents employment
incentives paid to the two shareholders of Bash and a shareholder of Design
Dynamics, in connection with their signing of employment agreements with the
Company.
F-28
Production Resource Group, L.L.C.
Notes to Combined Financial Statements (continued)
(Information as of March 31, 1998 and for the Three Months ended
March 31, 1997 and 1998 is Unaudited)
14. Treasury Rate Lock
On October 27, 1997, in anticipation of the Company's offering of the Notes (see
Note 7), the Company entered into a Treasury Rate Lock agreement ("T-Lock") with
Bankers Trust Company (the "Counterparty") to hedge against the impact of rising
interest rates on the 10 year Treasury Note ("Reference Security"). The interest
rate on the Notes was to be based on the rate on the Reference Security plus a
market-determined spread thereon. The T-Lock had a notional amount of
$100,000,000. Upon the earlier of the Company's election to terminate the T-Lock
or December 15, 1997 ("Settle Date"), the rate on the 10 year Treasury Note
would be compared to the predetermined Lock Rate (5.863%). If the reference rate
was above the Lock Rate, the Counterparty would make a payment to the Company
equal to the present value of the difference between the reference rate and the
Lock Rate to the maturity of the Reference Security. If the reference rate was
below the Lock Rate, the Company would make a payment to the Counterparty equal
to the present value of the difference. On December 5, 1997, the Company elected
to terminate the T-Lock and received payment from the Counterparty of
approximately $425,000 which is being reflected as an adjustment to interest
expense over the life of the Notes.
15. Legal Proceedings
The Company from time to time is involved in litigation arising in the ordinary
course of business. The Company does not believe that any such litigation will,
individually or in the aggregate, have a material adverse effect on its
business, results of operations or financial condition. The Company, together
with other companies involved in the live entertainment production EFX! ((TM)),
was sued by Michael Crawford, the former star of EFX! ((TM)), with an action
related to personal injury claims. The Company has denied liability and
continues to vigorously defend such action. The Company believes it has
meritorious defenses to such actions. Although there can be no assurance as to
the outcome of any litigation, the Company does not believe it would have a
material adverse effect on the Company's results of operations or financial
condition.
F-29
Report of Independent Auditors
To The Board of Directors
Bash Theatrical Lighting, Inc.
We have audited the accompanying combined balance sheet of Bash Theatrical
Lighting, Inc. and affiliated companies (the "Company") as of December 31, 1996,
and the related combined statements of income and retained earnings and cash
flows for the year then ended. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of the Company
as of December 31, 1996, and the combined results of its operations and its cash
flows for the year then ended in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
New York, New York
September 19, 1997
F-30
BASH THEATRICAL LIGHTING, INC. AND AFFILIATES
COMBINED BALANCE SHEETS
(In thousands)
December 31, June 30,
1996 1997
-------- --------
(unaudited)
Assets
Current assets:
Cash and cash equivalents ........................................... $ 719 $ 718
Accounts receivable, net of allowances of $55 in 1996 and $73 in 1997 2,160 2,865
Inventories ......................................................... 863 1,015
Prepaid expenses and other current assets ........................... 116 111
-------- --------
Total current assets .................................................. 3,858 4,709
Property and equipment--net ........................................... 7,784 8,350
Goodwill--net of accumulated amortization of $3 in 1996 and $4 in 1997 22 23
Due from shareholder .................................................. 271 --
Other assets .......................................................... 34 17
-------- --------
Total assets .......................................................... $ 11,969 $ 13,099
======== ========
Liabilities and shareholders' equity
Current liabilities:
Accounts payable .................................................... $ 1,275 $ 2,354
Accrued expenses .................................................... 83 299
Line of credit--bank ................................................ 285 --
Current portion of long-term debt ................................... 995 866
Deferred revenue .................................................... 682 --
-------- --------
Total current liabilities ............................................. 3,320 3,519
Long-term debt ........................................................ 1,113 787
Commitments
Shareholders' equity:
Capital stock ....................................................... 94 94
Retained earnings ................................................... 7,485 8,742
Treasury stock, at cost ............................................. (43) (43)
-------- --------
Total shareholders' equity ............................................ 7,536 8,793
-------- --------
Total liabilities and shareholders' equity ............................ $ 11,969 $ 13,099
======== ========
See accompanying notes.
F-31
BASH THEATRICAL LIGHTING, INC. AND AFFILIATES
COMBINED STATEMENTS OF INCOME AND RETAINED EARNINGS
(In thousands)
Year Ended Six Months Ended
December 31, June 30,
------------ --------------------
1996 1996 1997
-------- -------- --------
(unaudited)
Revenues .......................................................... $ 25,408 $ 10,575 $ 17,632
Cost of sales (including depreciation expense of $2,670 in 1996
and $795 and $1,252 in the six months ended June 30, 1996 and
1997, respectively) ............................................. 12,935 4,797 9,411
-------- -------- --------
Gross profit ...................................................... 12,473 5,778 8,221
Selling, general and administrative expenses ...................... 10,932 4,186 5,172
Other depreciation and amortization ............................... 147 75 115
-------- -------- --------
Operating profit .................................................. 1,394 1,517 2,934
Interest expense .................................................. 304 171 111
Interest (income) ................................................. (9) (7) (6)
-------- -------- --------
Income before income taxes ........................................ 1,099 1,353 2,829
Provision for income taxes ........................................ 99 154 --
-------- -------- --------
Net income ........................................................ 1,000 1,199 2,829
Retained earnings--beginning of period ............................ 6,750 6,750 7,485
Less distributions to shareholders ................................ (265) (265) (1,572)
-------- -------- --------
Retained earnings--end of period .................................. $ 7,485 $ 7,684 $ 8,742
======== ======== ========
See accompanying notes.
F-32
BASH THEATRICAL LIGHTING, INC. AND AFFILIATES
COMBINED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended Six Months Ended
December 31, June 30,
------------ ------------------
1996 1996 1997
------- ------- -------
(unaudited)
Operating activities
Net income ......................................... $ 1,000 $ 1,199 $ 2,829
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for bad debts .......................... 150 60 115
Depreciation and amortization .................... 2,817 870 1,367
Changes in operating assets and liabilities:
Accounts receivable ........................... (19) (138) (821)
Inventories ................................... (178) (11) (152)
Prepaid expenses and other current assets ..... 12 (98) 5
Other assets .................................. 114 9 17
Accounts payable .............................. (43) 18 1,079
Accrued expenses .............................. (88) 19 216
Deferred revenue .............................. 682 -- (682)
------- ------- -------
Net cash provided by operating activities .......... 4,447 1,928 3,973
------- ------- -------
Investing activities
Purchases of property and equipment, net ........... (2,406) (1,020) (1,933)
Due from shareholder ............................... (238) 33 271
------- ------- -------
Net cash used in investing activities .............. (2,644) (987) (1,662)
------- ------- -------
Financing activities
Repayments of long-term debt ....................... (1,344) (607) (455)
Net borrowings under line of credit ................ 185 (26) (285)
Distributions paid to shareholders ................. (515) (315) (1,572)
------- ------- -------
Net cash used in financing activities .............. (1,674) (948) (2,312)
------- ------- -------
Net increase (decrease) in cash and cash equivalents 129 (7) (1)
Cash and cash equivalents--beginning of period ..... 590 590 719
------- ------- -------
Cash and cash equivalents--end of period ........... $ 719 $ 583 $ 718
======= ======= =======
See accompanying notes.
F-33
BASH THEATRICAL LIGHTING, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
(Information as of June 30, 1997 and for the Six Months ended
June 30, 1996 and 1997 is Unaudited)
1. Summary of Significant Accounting Policies
Organization and Basis of Combination
The combined financial statements include the accounts of Bash Theatrical
Lighting, Inc. and its affiliated companies; Bash Theatrical Lighting,
Inc.--West Coast, Bash Exposition Services, Inc., Bash Lighting Services, Inc.
and Bash Lighting Services--Mid-Atlantic, Inc., collectively the "Company." All
significant intercompany balances and transactions have been eliminated in
combination.
On August 15, 1997, the Company sold substantially all of its net assets to
Production Resource Group, L.L.C. The accompanying financial statements do not
give effect to the sale.
The Company is in the business of renting, selling and installing lighting
systems and related products to the live entertainment, corporate events and
themed entertainment markets. Its operations are located in; (i) North Bergen,
New Jersey, (ii) Las Vegas, Nevada, (iii) Orlando, Florida, and (iv) Baltimore,
Maryland.
Cash and Cash Equivalents
All highly liquid investments with a maturity of three months or less when
purchased are considered to be cash equivalents. At December 31, 1996,
substantially all of the Company's cash and cash equivalents were held in four
financial institutions.
Supplementary Cash Flow Information
Interest paid amounted to approximately $305,000 and income taxes paid
amounted to approximately $266,000 during the year ended December 31, 1996.
Inventories
Inventories consist of lighting products and supplies held for sale and are
stated at the lower of cost or market. Cost for such inventory is determined
using the first-in, first-out method.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets, which
range from three to 39 years. Lighting systems and other rental equipment is
included in property and equipment and is being depreciated by the straight-line
method over five years.
Goodwill
Goodwill represents the excess of cost of assets acquired over the fair
market value of such assets and is being amortized using the straight-line
method over 15 years.
Income Taxes
The Company, with the consent of its shareholders, has elected to be taxed
as an S Corporation pursuant to the Internal Revenue Code and certain state tax
laws. As such, the Company has not been subject to federal and certain state
income taxes because the shareholders have consented to include the Company's
taxable income or loss in their individual income tax returns. Income taxes
represents certain state and local corporate income taxes.
F-34
The Company provides for income taxes pursuant to SFAS No. 109, "Accounting
for Income Taxes." There are no significant temporary differences as of December
31, 1996.
F-35
BASH THEATRICAL LIGHTING, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
(Information as of June 30, 1997 and for the Six Months ended
June 30, 1996 and 1997 is Unaudited)
1. Summary of Significant Accounting Policies--(Continued)
Revenue Recognition and Deferred Revenue
Revenue from the rental of lighting systems and related products is
recognized ratably over the lives of the rental contracts. Revenue from the
sales of lighting equipment and supplies is recognized when the buyer takes
possession of the items.
Installation sales revenue is recognized generally based on contractual
milestones achieved. Amounts received in advance which exceed revenue
recognized to date are recorded as deferred revenue and recognized upon
achievement of contractual milestones.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the combined financial
statements and accompanying notes. Actual results could differ from those
estimates.
Impairment of Long-Lived Assets
Long-lived assets to be held and used are reviewed for impairment whenever
events or changes of circumstances indicate that the related carrying amount may
not be recoverable. When required, impairment losses on assets to be held and
used are recognized based on the excess of the asset's carrying amount over its
fair value. Long-lived assets to be disposed of are reported at the lower of
their carrying amount or fair value less disposal costs.
Unaudited Information
The unaudited financial statements at June 30, 1997 and for the six months
ended June 30, 1996 and 1997 reflect adjustments, all of which are of a normal
recurring nature, which are, in the opinion of management, necessary to a fair
presentation. The results of the interim periods are not necessarily indicative
of full year results.
2. Property and Equipment
The following is a summary of property and equipment at December 31, 1996
(in thousands):
Land, building and building improvements ........................ $ 1,212
Rental equipment, principally lighting equipment ................ 16,309
Furniture, fixtures and office equipment ........................ 126
Leasehold improvements .......................................... 79
Transportation equipment ........................................ 239
-------
17,965
Less accumulated depreciation and amortization .................. 10,181
-------
Property and equipment--net ..................................... $ 7,784
=======
F-36
BASH THEATRICAL LIGHTING, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
(Information as of June 30, 1997 and for the Six Months ended
June 30, 1996 and 1997 is Unaudited)
3. Line of Credit--Bank
The Company entered into a credit agreement ("Credit Agreement") which
provides for borrowings of up to $1,000,000. Borrowings under the Credit
Agreement bear interest at 8.25%. The Credit Agreement expired on May 31, 1997.
4. Long-Term Debt
Long-term debt consisted of the following at December 31, 1996 (in
thousands):
Notes payable ............................................. $1,775
Mortgage payable .......................................... 243
Other ..................................................... 90
------
2,108
Less current portion ...................................... 995
------
Long-term debt ............................................ $1,113
======
Notes Payable
The Company entered into various promissory notes with a bank with
aggregate borrowings of $4,500,000 expiring between March 1998 and August 2000.
Each note is for a period of 60 months with principal paid in equal monthly
installments. Interest is paid monthly on the outstanding balance and is based
on various rates including fixed rates ranging from 7.75% to 9.70% per annum and
variable rates at the prime rate plus 0.25% per annum.
Mortgage
The Company has a mortgage payable, which is collateralized by certain of
its properties. The mortgage requires monthly payments of both principal and
interest at 6.44%. The mortgage matures in December 2003.
Current maturities of long-term debt as of December 31, 1996 are
approximately as follows (in thousands):
1997 ................................................... $ 995
1998 ................................................... 586
1999 ................................................... 274
2000 ................................................... 151
2001 ................................................... 35
Thereafter ............................................. 67
------
$2,108
======
5. Stock Options
The Company has granted several key employees stock options exercisable on
the earlier of August 1999 or the occurrence of a major transaction defined as
the public offering of the Company's shares, a sale of substantially all the
assets of the Company, or a merger or consolidation of the Company.
The shares held in treasury were purchased by the Company from a former
shareholder and have been set aside for exercise of the aforementioned options.
In conjunction with the sale of the Company's assets in 1997 (see Note 1), such
options were terminated in exchange for a cash settlement of approximately
$862,000 plus an additional amount not to exceed $78,000, as defined in the
termination agreement.
F-37
BASH THEATRICAL LIGHTING, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
(Information as of June 30, 1997 and for the Six Months ended
June 30, 1996 and 1997 is Unaudited)
6. Capital Stock
The common stock of each of the individual affiliated companies comprising
the Company as of December 31, 1996 are as follows (dollars in thousands):
Common Treasury
Stock Stock
----- -----
Bash Theatrical Lighting, Inc.
100,000 shares of no par value common stock authorized and issued; 80,000 shares
outstanding; 20,000 shares held in treasury ....................................................... $ 15 $ (5)
Bash Lighting Services, Inc.
200 shares of no par value common stock authorized and issued; 100 shares
outstanding; 100 shares held in treasury ......................................................... 75 (38)
Bash Exposition Services, Inc.
200 shares of no par value common stock authorized; 100 shares issued and outstanding ................ 2 --
Bash Theatrical Lighting, Inc.--West Coast
200 shares of no par value common stock authorized, issued and outstanding ........................... 2 --
Bash Lighting Services--Mid-Atlantic, Inc.
200 shares of no par value common stock authorized; 100 shares issued and outstanding ................ -- --
---- ----
$ 94 $(43)
==== ====
7. Benefit Plans
The Company is a party to a collective bargaining agreement expiring on
December 31, 1998. The terms of this agreement require contributions by the
Company to a union pension fund. Contributions to the pension fund totaled
approximately $92,000 for the year ended December 31, 1996.
The Company has a defined contribution plan covering all eligible
employees, which qualifies under section 401(k) of the Internal Revenue Code.
The Company's 401(k) plan provides that eligible employees may make
contributions subject to Internal Revenue Service limitations. The Company
contributes an amount equal to 50% of each employee's contributions up to 4% of
an eligible employee's compensation. Such contributions aggregated approximately
$64,000 for the year ended December 31, 1996.
8. Commitments
Operating Leases
The Company leases certain property and equipment under leases that expire
at various dates through 2001. As of December 31, 1996, future minimum lease
payments under noncancelable leases are as follows (in thousands):
1997 ................................................... $366
1998 ................................................... 279
1999 ................................................... 119
2000 ................................................... 107
2001 ................................................... 26
----
$897
====
Rent expense was approximately $399,000 for the year ended December 31,
1996.
F-38
Report of Independent Accountants
Pro-Mix, Inc.
40 Hartford Avenue
Mt. Vernon, New York 10550
We have audited the accompanying balance sheets of Pro-Mix,
Inc. (an S corporation) as of December 31, 1997 and 1996, and the related
statements of income, retained earnings, and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position of Pro-Mix,
Inc. as of December 31, 1997 and 1996, and the results of its operations and its
cash flows for the years then ended, in conformity with generally accepted
accounting principles.
BAND, ROSENBAUM & MARTIN, P.C.
May 1, 1998
F-39
PRO-MIX, INC.
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
--------------------------
1997 1996
---- ----
ASSETS
CURRENT ASSETS:
Cash - notes 2 and 7 ............................. $ 519,830 $ 226,170
Accounts receivable - notes 2 and 7 .............. 942,935 548,101
Inventory - note 2 ............................... 97,521 118,311
Prepaid corporate income taxes ................... 1,940 12,490
Prepaid expenses ................................. 71,273 133,285
Due to affiliated companies ...................... 70,501 30,450
Exchanges receivable ............................. 439 --
Bid deposits ..................................... -- 5,626
------------ ------------
TOTAL CURRENT ASSETS ......................... 1,704,439 1,074,433
------------ ------------
PROPERTY AND EQUIPMENT - AT COST - NOTES 2, 3, 4 AND 5:
Transportation equipment ......................... 27,927 27,927
Rental equipment ................................. 14,843,161 12,325,276
Office equipment ................................. 470,617 438,347
Office improvements .............................. 44,936 --
------------ ------------
15,386,641 12,791,550
Less: Accumulated depreciation ................ (9,065,291) (7,271,441)
------------ ------------
NET PROPERTY AND EQUIPMENT ................... 6,321,350 5,520,109
------------ ------------
OTHER ASSETS:
Deposits ......................................... 41,566 35,823
------------ ------------
TOTAL ASSETS ................................. $ 8,067,355 $ 6,630,365
============ ============
F-40
1997 1996
---- ----
LIABILITIES AND
STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of notes payable - note 4 ............. $ 674,968 $1,054,288
Current portion of capital leases
payable - note 5 .................................... 361,653 42,886
Accounts payable and accrued expenses ................. 860,146 747,479
Corporation income tax payable - note 2 ............... 800 1,050
Sales tax payable ..................................... 27,154 19,357
Miscellaneous current liabilities ..................... 50,592 34,028
---------- ----------
TOTAL CURRENT LIABILITIES ......................... 1,975,313 1,899,088
---------- ----------
LONG-TERM DEBT:
Notes payable - net of current portion - note 4 ....... 437,566 1,112,534
Obligation under capital lease - net of
current portion - note 5 ........................... 1,515,850 143,891
---------- ----------
TOTAL LONG-TERM DEBT .............................. 1,953,416 1,256,425
---------- ----------
TOTAL LIABILITIES ................................. 3,928,729 3,155,513
---------- ----------
STOCKHOLDERS' EQUITY:
Capital stock - 200 shares authorized; 100
shares issued and outstanding ...................... 2,000 2,000
Additional paid-in capital ............................ 50,000 50,000
Retained earnings ..................................... 4,086,626 3,422,852
---------- ----------
TOTAL STOCKHOLDERS' EQUITY ........................ 4,138,626 3,474,852
---------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY ............................ $8,067,355 $6,630,365
========== ==========
See accompanying notes.
F-41
PRO-MIX, INC.
STATEMENTS OF INCOME
FOR THE YEARS ENDED
DECEMBER 31, 1997 AND 1996
--------------------------
1997 1996
---- ----
REVENUE - NOTE 2 ............................ $ 9,930,720 $ 10,307,776
COSTS OF SALES AND RENTALS .................. 5,727,489 6,359,485
------------ ------------
GROSS PROFIT ....................... 4,203,231 3,948,291
------------ ------------
OPERATING EXPENSES:
Office and engineering salaries ........ 961,811 801,708
General and administrative ............. 1,668,109 1,641,422
------------ ------------
TOTAL OPERATING EXPENSES ........... 2,629,920 2,443,130
------------ ------------
INCOME FROM OPERATIONS ............. 1,573,311 1,505,161
------------ ------------
OTHER DEDUCTIONS (INCOME):
Officers' salary ....................... 642,000 718,000
Interest expense ....................... 228,770 155,647
Depreciation - note 3 .................. 88,094 66,123
Interest and dividend income ........... (11,239) (17,104)
Miscellaneous rent income .............. (6,215) (6,780)
Gain on sale of property and equipment . (137,479) (42,408)
Bad debt expense - note 2 .............. 53,092 16,446
State and city income taxes - note 2 ... 6,028 6,503
Miscellaneous income ................... -- (11,113)
Miscellaneous taxes .................... -- 326
------------ ------------
TOTAL OTHER DEDUCTIONS
(INCOME) ......................... 863,051 885,640
------------ ------------
NET INCOME ......................... $ 710,260 $ 619,521
============ ============
See accompanying notes.
F-42
PRO-MIX, INC.
STATEMENTS OF RETAINED EARNINGS
FOR THE YEARS ENDED
DECEMBER 31, 1997 AND 1996
--------------------------
1997 1996
---- ----
Retained earnings -
Balance - December 31, 1996 and 1995 ..... $3,422,852 $2,974,132
Net income ............................... 710,260 619,521
---------- ----------
4,133,112 3,593,653
Less: Distributions to shareholders . 46,486 170,801
---------- ----------
BALANCE - ENDING -
DECEMBER 31, 1997 AND 1996 ...... $4,086,626 $3,422,852
========== ==========
See accompanying notes.
F-43
PRO-MIX, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED
DECEMBER 31, 1997 AND 1996
--------------------------
1997 1996
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME ................................................ $ 710,260 $ 619,521
----------- -----------
ADJUSTMENTS TO RECONCILE NET INCOME
TO NET CASH PROVIDED BY OPERATING
ACTIVITIES:
Depreciation ......................................... 2,021,421 1,720,980
Gain on sale of property and equipment ............... (137,479) (42,408)
Bad debt expense ..................................... 53,092 16,446
Changes in assets and liabilities:
(Increase) Decrease in trade
accounts receivable ............................. (447,926) 157,071
(Increase) Decrease in prepaid expenses .......... 62,010 (75,977)
(Increase) Decrease in inventory ................. 20,791 (63,220)
(Increase) Decrease in prepaid
corporate income taxes .......................... 10,550 (12,490)
Increase in miscellaneous receivables ............ (42,171) (8,439)
Increase in accrued expenses and
accounts payable ................................. 7,735 185,533
Increase in sales tax and state income
taxes payable .................................... 7,547 1,151
Increase (Decrease) in rental deposits payable ... 105,810 (68,198)
----------- -----------
TOTAL ADJUSTMENTS TO
NET INCOME ..................................... 1,661,380 1,810,449
----------- -----------
NET CASH PROVIDED BY
OPERATING ACTIVITIES ........................... 2,371,640 2,429,970
----------- -----------
CASH FLOWS USED IN INVESTING
ACTIVITIES:
Acquisition of property and equipment ................ (2,887,057) (3,050,072)
Proceeds received from disposition of
property and equipment ............................. 219,124 91,320
----------- -----------
NET CASH USED BY INVESTING
ACTIVITIES ..................................... (2,667,933) (2,958,752)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease loan to shareholders ........................ -- (23,644)
Proceeds received from bank as long-term debt ........ -- 1,750,000
Payments of principal on notes payable ............... (1,054,288) (1,325,606)
Payments on capital lease ............................ (169,114) (32,011)
Proceeds received from long-term leases .............. 1,859,841 178,808
Distributions to shareholders ........................ (46,486) (170,801)
----------- -----------
NET CASH PROVIDED BY
FINANCING ACTIVITIES ........................... 589,953 376,746
----------- -----------
NET INCREASE (DECREASE) IN CASH .................. 293,660 (152,036)
CASH - DECEMBER 31, 1996 AND 1995 .................... 226,170 378,206
----------- -----------
CASH - DECEMBER 31, 1997 and 1996 ................ $ 519,830 $ 226,170
=========== ===========
See accompanying notes.
F-44
PRO-MIX, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
--------------------------
Note 1 GENERAL:
Pro-Mix, Inc. (the Company) is a corporation organized under the laws
of the State of New York on April 27, 1984. Its principal place of
business is 40 Hartford Avenue, Mt. Vernon, New York 10550. The Company
is engaged principally in the leasing of audio equipment and the
provision of consulting services on acoustical and sound design.
On January 2, 1998, the Company sold substantially all of its net
assets to Production Resources Group, LLC. The accompanying financial
statements do not give effect to the sale.
Note 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Use of Estimates -
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amount of revenue and
expenses during the reporting period. Actual results could differ from
those estimates.
Revenue Recognition -
Revenue consists principally of sales and rentals of the Company's
products. All rental revenues are recognized ratably over the lives of
the rental agreements. Sales of the Company's products are recognized
upon delivery.
Accounts Receivable -
The Company uses the direct write-off method for bad debts. Charges
against income are made as receivables are deemed uncollectible by
management.
Inventory -
Inventory, consisting of equipment, is stated at cost determined by the
first-in first-out method.
Property and Equipment -
Property and equipment are carried at cost. Depreciation and
amortization is charged to expense over the estimated useful lives of
the assets using the straight-line method. When assets are retired or
disposed of, the cost and related accumulated depreciation or
amortization are removed from the accounts, and any gain or loss is
recognized for the period.
F-45
PRO-MIX, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
--------------------------
Note 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D):
Income Taxes -
The Company, with the consent of its shareholders, has elected under
the applicable Internal Revenue and New York State Tax Codes to be an S
corporation. In lieu of corporation income taxes, the shareholders of
an S corporation are taxed on their proportionate share of the
Company's taxable income. Therefore, no provision or liability for
federal income taxes has been included in these financial statements.
The Company has provided for New York State and New York City
Corporation income taxes.
Statement of Cash Flows -
For purposes of the Statement of Cash Flows, the Company considers all
short term debt securities purchased with a maturity of three months or
less to be cash equivalents.
Supplemental disclosures of cash flow information:
Cash paid during the year
ended December 31: ... 1997 1996
---- ----
Interest ....... $228,770 $155,647
======== ========
Income Taxes ... $ 6,028 $ 6,503
======== ========
Note 3 PROPERTY AND EQUIPMENT:
The following is a summary of the estimated useful lives associated
with property and equipment:
Estimated
Useful Life
-----------
Transportation equipment................................. 3 years
Rental equipment......................................... 5 years
Office and shop equipment................................ 5 years
Equipment under capital lease............................ 5 years
Depreciation of equipment under capital leases charged to operations
for the years ended December 31, 1997 and 1996 were $2,021,421 and
$1,720,980, respectively. This amount was included in the financial
statements under the following captions:
1997 1996
---- ----
Cost of Sales ........... $1,933,327 $1,654,857
Other Deductions (Income) 88,094 66,123
---------- ----------
Total ............... $2,021,421 $1,720,980
========== ==========
F-46
PRO-MIX, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
--------------------------
Note 4 LONG-TERM DEBT:
The following is a summary of long-term debt as of December 31, 1997:
1997 1996
---- ----
Note payable, Chase Bank, the proceeds of which were used to
purchase rental equipment, with thirty-five monthly
installments of $15,278 and one final installment of $15,270
plus interest at 10.25% maturing December 12, 1997, secured by
all assets of the Company and guaranteed by its
shareholders ................................................ $ -- $ 183,328
Note payable, Chase Bank, the proceeds of which were used to
purchase rental equipment, with thirty-five monthly
installments of $15,278 and one final installment of $15,270,
plus interest at 10.25% maturing June 22, 1998, secured by all
assets of the Company and guaranteed by its shareholders .... 91,660 274,996
Note payable, Chemical Bank, the proceeds of which were used to
purchase rental equipment, with thirty-five monthly
installments of $6,670 and one final installment of $6,550,
plus interest at 8 1/2% maturing April 1997, secured by all
assets of the Company and guaranteedby its shareholders ..... -- 26,560
F-47
PRO-MIX, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
--------------------------
1997 1996
---- ----
Note 4 LONG-TERM DEBT (Continued):
Note payable, Chase Bank, the proceeds of which were used to
purchase rental equipment, with thirty-five monthly
installments of $9,723 and one final installment of $9,695
plus interest at 8.65% maturing August 26, 1997, secured by
all assets of the Company and guaranteed by its
shareholders ................................................. $ -- $ 77,756
Note payable, Chase Bank, the proceeds of which were used to
purchase retail equipment, with thirty-five monthly
installments of $13,887 and one final installment of $13,995
plus interest at the bank's publicly announced prime rate plus
1 1/4%, maturing April 26, 1999, secured by all assets of the
Company and guaranteed by its shareholders ................... 222,260 388,904
Note payable, Chase Bank, the proceeds of which were used to
purchase rental equipment, with thirty-five monthly
installments of of $34,722 and one final installment of
$34,730 plus interest at the bank's prime rate plus 1 1/4%,
maturing October 1, 1999 secured by all assets of the Company
and guaranteed by its shareholders ........................... 798,614 1,215,278
---------- ----------
1,112,534 2,166,822
Less: Current maturities ................................... 674,968 1,054,288
---------- ----------
TOTAL LONG TERM DEBT ........................................ $ 437,566 $1,112,534
========== ==========
The aggregate maturities of long-term debt for the subsequent
five year period is as follows:
1997
----
December 31,
1998.............................................. $ 674,968
1999.............................................. 437,566
----------
$1,112,534
==========
F-48
PRO-MIX, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
Note 5 CAPITAL LEASES:
The Company has obligations under capital leases expiring June 1, 2002.
The assets and liabilities under capital leases are recorded at the
lower of the present value of minimum lease payments or the fair market
value of the assets. Net present value of future minimum payments under
capital leases as of December 31, 1997 are as follows:
1997
----
1998 ................................... $ 514,361
1999 ................................... 504,486
2000 ................................... 504,487
2001 ................................... 479,929
2002 ................................... 240,637
----------
Total Minimum Lease Payments ........... 2,243,900
Less: Amounts representing interest .... 366,397
----------
Present value of net minimum
lease payments ....................... 1,877,503
Less: Current maturities through
December 31, 1998 and 1997 ..... 361,653
----------
$1,515,850
==========
Note 6 COMMITMENTS:
Operating leases -
The Company leases offices and warehouse space under lease agreements
as follows:
New York: In July of 1992, the Company entered into a five year lease
expiring on July 31, 1997, for new office and warehouse space. The
lease calls for monthly rentals of $11,500 for the period August 1,
1992 through July 31, 1994 and $12,000 from August 1, 1994 through July
31, 1997. An extension of the lease was negotiated through January 31,
1999 at a monthly rental beginning August 1, 1997 of $13,000. Rent
expense for the years ended December 31, 1997 and 1996 was $149,000 and
$144,000, respectively.
Florida: Five year lease expiring December 31, 2001. The lease calls
for monthly base rental of $3,040 and additional rent equal to 6.87% of
any annual increases in real estate taxes and common area maintenance.
Rent expense for the years ended December 31, 1997 and 1996 was $46,581
and $20,518, respectively.
F-49
PRO-MIX, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
--------------------------
Note 7 - CONCENTRATION OF CREDIT RISK:
Financial instruments, which potentially expose the Company to
concentrations of credit risk, consist primarily of cash and cash
equivalents and trade accounts receivable.
The Company maintains its cash balances in accounts which exceed
federally insured limits. The Company limits its credit risk by
selecting financial institutions considered to be creditworthy.
With respect to trade receivables, the Company performs ongoing credit
evaluations of its customers' financial condition and generally
requires no collateral from its customers. The Company expects to
collect all of its accounts receivable.
F-50
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus in connection with the Exchange Offer covered by this Prospectus
and, if given or made, such information or representations must not be relied
upon as having been authorized by the Company. Neither the delivery of this
Prospectus nor any sale made hereunder shall, under circumstances, create any
implication that there has been no change in the affairs of the Company since
the dates as of which information is given in this Prospectus. This Prospectus
does not constitute an offer or solicitation is not authorized or in which the
person making such offer of solicitation is not qualified to do so or to any
person to whom it is unlawful to make such offer of solicitations.
___________________________________
Until May 14, 1999 (one year after the date of this Exchange Offer) all Dealers
effecting transactions in the New Notes, whether or not participating in this
Exchange Offer, may be required to deliver a Prospectus.
All tendered Old Notes, executed Letters of Transmittal and other related
documents should be directed to the Exchange Agent. Questions and requests for
assistance and request for additional copies of the Prospectus, the Letter of
Transmittal and other related documents should be addressed to the Exchange
Agent as follows:
The Exchange Agent for the Exchange Offer is:
FIRST UNION NATIONAL BANK
Corporate Trust Operations
1525 West W.T. Harris Blvd.
Charlotte, NC 28288
Facsimile Transmissions
(Eligible Institutions Only)
(704) 590-7628
To confirm by telephone
or for information call:
(704) 590-7408
(Originals of all documents submitted by facsimile should be sent promptly by
hand, overnight courier, or registered or certified mail.)
OFFER TO EXCHANGE ALL OUTSTANDING
11.50% Senior Subordinated
Notes Due 2008
($100,000,000 Principal Amount)
for
11.50% Senior Subordinated
Notes Due 2008
PRODUCTION RESOURCE GROUP, L.L.C.
PRG FINANCE CORPORATION
PRG PLANNING & DEVELOPMENT, L.L.C.
ECTS, A SCENIC TECHNOLOGY COMPANY, INC.
SHOWPAY, LLC
ATTRACTION MANAGEMENT LLC
----------------------------------
Prospectus
----------------------------------
Dated ___________________
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
Reference is made to Section 18-108 ("Section 18-108") of the Delaware
Limited Liability Company Act which provides for indemnification of members and
managers in certain circumstances and Section 145 ("Section 145") of the General
Corporation Law of the State of Delaware (the "DGCL") which provides for
indemnification of directors and officers in certain circumstances.
The Company's Operating Agreement provides that no Covered Person (as
defined therein) shall be obligated personally for any debt, obligation or
liability of the Company solely by reason of being a Covered Person. In
addition, the Operating Agreement provides that a Covered Person shall not be
personally liable to the Company for acts taken on behalf of the Company except
for liability for any loss damage or claim incurred by reason of such Covered
Person's gross negligence or willful misconduct. The Operating Agreement
provides that the Company shall indemnify any Covered Person to the full extent
permitted by law, except that no Covered Person will be entitled to
indemnification in respect of any loss, damage or claim incurred by such Covered
Person by reason of gross negligence or willful misconduct with respect to such
acts or omissions.
Finance Corp.'s Bylaws provide that the Company shall indemnify its
directors and officers to the full extent permitted by law. Further, Finance
Corp. is empowered by Section 145 of the DGCL, subject to the procedures and
limitations stated therein, to indemnify any person against expenses (including
attorney's fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in the defense of any threatened, pending or
competed action, suit or proceeding in which such person is made a party by
reason of his or her being or having been a director or officer of the Company.
The statute provides that indemnification pursuant to its provisions is not
exclusive of other rights of indemnification to which a person may be entitled
under any bylaw, agreement, vote of stockholders or disinterested directors, or
otherwise.
The Company has entered into agreements with certain managers and officers
that require the Company to indemnity such persons against expenses, judgments,
fines, settlements and other amounts to the fullest extent permitted by law
incurred in connection with any proceeding to which any such person may be made
a party by reason of the fact that such person is or was a manager or officer of
the Company or any of its affiliated enterprises, provided such person acted
honestly and in good faith with a view to the best interests of the corporation.
The Company is in the process of procuring directors', officers' and
managers' liability insurance policies to insure directors, officers and
managers of the Company and its subsidiaries.
Item 21. Exhibits and Financial Statement Schedules
(a) Exhibits:
Exhibit
Number Description
------- -----------
1.1 Purchase Agreement, dated as of December 19, 1997, by and among the
Issuers, Finance Corp., the Guarantors and the Initial Purchasers.
3.1 Certificate of Formation of the Company
3.2 Second Amended and Restated Limited Liability Company Agreement of the
Company
3.3 Certificate of Incorporation of Finance Corp.
3.4 Bylaws of Finance Corp.
II-1
4.1 Registration Rights Agreements, dated December 24, 1997, among the
Issuers, the Guarantors and the Initial Purchasers
4.2 Indenture, dated December 24, 1997 relating to $100,000,000 aggregate
principal amount 11% Senior Subordinated Notes due 2008 between the
Issuers and First Union National Bank, as trustee, including the Form
of Note
5.1 Opinion of Morrison & Foerster LLP
10.1 Acquistion Agreement dated as of July 3, 1997 among the Company and
Bash Theatrical Lighting, Inc. Bash Theatrical Lighting Services,
Inc., Bash Lighting Services, Inc., Bash Lighting Services
Mid-Atlantic, Inc., Bash Exposition Services, Inc. and Donald Stern
and Robert Cannon.
10.2 Employment Agreement dated as of January 1, 1996 between Jeremiah J.
Harris and the Company.
10.3 Employment Agreement dated as of June 6, 1997 between Kenneth L.
Shearer and the Company.
10.4 Employment Agreement dated as of June 7, 1997 between Bradley G.
Miller and the Company.
10.5 Employment Agreement dated as of August 6, 1997 between Robert A.
Manners and the Company.
10.6 Agreement of Lease dated September 11, 1997 between Danis Properties
Limited Partnership and the Company.
10.7 Credit Agreement, dated as of July 31, 1997, by and among the Company,
the lenders party thereto and the Bank of New York, as agent.
10.8 First Amendment to Credit Agreement, dated as of December 12, 1997, by
and among the Company, the lenders party thereto and the Bank of New
York, as agent.
12.1 Computation of Ratio of Earnings to Fixed Charges*
21.1 Subsidiaries of the Company
23.1 Consent of Ernst & Young LLP*
23.2 Consent of Morrison & Foerster LLP (Included in Exhibit 5.1)
23.3 Consent of Band, Rosenbaum & Martin P.C.*
24 Powers of Attorney (included in Part II to the Registration Statement)
(previously filed)
25.1 Statement Regarding Eligibility of Trustee
27.1 Financial Data Schedule*
99.1 Form of Letter of Transmittal
99.2 Form of Notice of Guaranteed Delivery
- ----------
* Filed herewith
(b) Financial Statement Schedule:
II - Valuation and Qualifying Accounts
II-2
Item 22. Undertakings
(a) The undersigned hereby undertakes that, for purposes of determining any
liability under the Securities Act, each filing of the registrants's annual
report pursuant to Section 13(a) or Section 15(d) of the Exchange Act (and, were
applicable, each filing of an employee benefit plan's annual report pursuant to
Section 15(d) of the Exchange Act) that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(b) Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the registrant
pursuant to the provisions described in Item 20 above, or otherwise, the
registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(c) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in the form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that tie shall be deemed to
be the initial bona fide offering thereof.
(d) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the Prospectus pursuant to
Items 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration Statement through the
date of responding to the request.
(e) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and
the company being acquired involved herein, that was not the subject
of and included in the Registration Statement when it became
effective.
(f) The undersigned registrant hereby undertakes
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include a prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually, or in the aggregate,
represent a fundamental change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high and of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b)if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at the time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this amendment to Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized in the City of New York, State of New
York on May 19, 1998.
PRODUCTION RESOURCE GROUP, L.L.C.
By: /s/ Robert A. Manners
----------------------
Robert A. Manners
Title: Executive Vice President and General Counsel
Pursuant to the requirements of the Securities Act, this amendment to
Registration Statement has been signed below by the following persons and in the
capacities indicated on the date indicated.
Signature Title Date
--------- ----- ----
PRODUCTION RESOURCE GROUP, L.L.C.:
By: * Chief Executive Officer, sole Manager of the Board of May 19, 1998
---------------------- Managers (Principal Executive Officer)
Jeremiah J. Harris
By: * Executive Vice President, Chief Operating and May 19, 1998
--------------------- Financial Officer and Director (Principal Financial
Bradley G. Miller Officer)
By: /s/ Robert A. Manners Senior Vice President and General Counsel (Principal May 19, 1998
--------------------- Executive Officer)
Robert A. Manners
By: * Corporate Controller (Principal Accounting Officer May 19, 1998
--------------------
James M. Mahoney
/s/ Robert A. Manners
- ----------------------
*By Robert A. Manners,
as Attorney-in-fact
II-4
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this amendment to Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized in the City of New York, State of New
York on May 19, 1998.
PRG FINANCE CORPORATON
By: /s/ Robert A. Manners
-----------------------
Robert A. Manners
Title: Vice President
Pursuant to the requirements of the Securities Act, this amendment to
Registration Statement has been signed below by the following persons and in the
capacities indicated on the date indicated.
Signature Title Date
--------- ----- ----
PRG FINANCE CORPORATION:
By: * Chairman, Chief Executive Officer, President and May 19, 1998
---------------------- Director (Principal Executive Officer)
Jeremiah J. Harris
By: * Vice President and Director (Principal Financial May 19, 1998
--------------------- Officer and Principal Accounting Officer)
Bradley G. Miller
By: /s/ Robert A. Manners Vice President and Director (Principal Executive May 19, 1998
--------------------- Officer)
Robert A. Manners
/s/ Robert A. Manners
- ----------------------
*By Robert A. Manners,
as Attorney-in-fact
II-5
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this amendment to Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized in the City of New York, State of New
York on May 19, 1998.
PRG PLANNING & DEVELOPMENT, L.L.C.
By: /s/ Robert A. Manners
----------------------
Robert A. Manners
Title: Vice President
Pursuant to the requirements of the Securities Act, this amendment to
Registration Statement has been signed below by the following persons and in the
capacities indicated on the date indicated.
Signature Title Date
--------- ----- ----
PRG PLANNING & DEVELOPMENT LLC:
By: * Chief Executive Officer (Principal Executive Officer) May 19, 1998
----------------------
Jeremiah J. Harris
By: Production Resource Group,
L.L.C., sole member Sole Member May 19, 1998
By: *
----------------------
Jeremiah J. Harris,
Chairman
By: * President (Principal Executive Officer) May 19, 1998
-------------------
Kevin J. Baxley
By: * Vice President (Principal Financial Officer) May 19, 1998
---------------------
Bradley G. Miller
By: /s/ Robert A. Manners Vice President (Principal Executive Officer) May 19, 1998
---------------------
Robert A. Manners
/s/ Robert A. Manners
- ----------------------
*By Robert A. Manners,
as Attorney-in-fact
II-6
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this amendment to Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized in the City of New York, State of New
York on May 19, 1998.
ECTS, A SCENIC TECHNOLOGY COMPANY, INC.
By: /s/ Robert A. Manners
----------------------
Robert A. Manners
Title: Vice President
Pursuant to the requirements of the Securities Act, this amendment to
Registration Statement has been signed below by the following persons and in the
capacities indicated on the date indicated.
Signature Title Date
--------- ----- ----
ECTS, A SCENIC TECHNOLOGY COMPANY, INC.:
By: * President and Director (Principal Executive Officer) May 19, 1998
----------------------
Jeremiah J. Harris
By: * Treasurer and Director (Principal Accounting Officer) May 19, 1998
-------------------
Kevin J. Baxley
By: * Vice President (Principal Financial Officer) May 19, 1998
---------------------
Bradley G. Miller
By: /s/ Robert A. Manners Vice President (Principal Executive Officer) May 19, 1998
---------------------
Robert A. Manners
By: * Director May 19, 1998
-----------------
William Ennis
/s/ Robert A. Manners
- ----------------------
*By Robert A. Manners,
as Attorney-in-fact
II-7
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this amendment to Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized in the City of New York, State of New
York on May 19, 1998.
SHOWPAY, L.L.C.
By: /s/ Robert A. Manners
----------------------
Robert A. Manners
Title: Vice President
Pursuant to the requirements of the Securities Act, this amendment to
Registration Statement has been signed below by the following persons and in the
capacities indicated on the date indicated.
Signature Title Date
--------- ----- ----
SHOWPAY, L.L.C..:
By: * President (Principal Executive Officer) May 19, 1998
----------------------
Jeremiah J. Harris
By: Production Resource Group,
L.L.C., sole member Sole Member May 19, 1998
By: *
----------------------
Jeremiah J. Harris, Chairman
By: * Vice President (Principal Financial Officer and May 19, 1998
--------------------- Principal Accounting Officer)
Bradley G. Miller
By: /s/ Robert A. Manners Vice President (Principal Executive Officer) May 19, 1998
---------------------
Robert A. Manners
/s/ Robert A. Manners
- ----------------------
*By Robert A. Manners,
as Attorney-in-fact
II-8
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this amendment to Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized in the City of New York, State of New
York on May 19, 1998.
ATTRACTION MANAGEMENT LLC
By: /s/ Robert A. Manners
----------------------
Robert A. Manners
Title: Vice President
Pursuant to the requirements of the Securities Act, this amendment to
Registration Statement has been signed below by the following persons and in the
capacities indicated on the date indicated.
Signature Title Date
--------- ----- ----
ATTRACTION MANAGEMENT LLC:
By: * President and Chairman of Majority Member (Principal May 19, 1998
---------------------- Executive Officer)
Jeremiah J. Harris
By: Production Resource Group,
L.L.C., majority member Majority Member May 19, 1998
By: *
----------------------
Jeremiah J. Harris, Chairman
By: * Vice President (Principal Financial Officer and May 19, 1998
--------------------- Principal Accounting Officer)
Bradley G. Miller
By: /s/ Robert A. Manners Vice President (Principal Executive Officer) May 19, 1998
---------------------
Robert A. Manners
/s/ Robert A. Manners
- ----------------------
*By Robert A. Manners,
as Attorney-in-fact
II-9
Report of Independent Auditors on Schedule
Members
Production Resource Group, L.L.C.
We have audited the combined balance sheets of Production Resource Group,
L.L.C. as of December 31, 1996 and 1997, and the related combined statements
of operations and members' equity and cash flows for each of the three years in
the period ended December 31, 1997, and have issued our report thereon dated
March 16, 1998 (included elsewhere in this Registration Statement). Our audits
also included the financial statement schedule listed in Item 21(b) of this
Registration Statement. This schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion on this schedule based
on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein for
the periods stated above.
ERNST & YOUNG LLP
New York, New York
March 16, 1998
S-1
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
PRODUCTION RESOURCE GROUP, L.L.C.
(Dollar in thousands)
- -------------------------------------------------------------- ------------------------------- ---------------- ----------------
COL. A COL. B COL. C COL. D COL. E
- -------------------------------------------------------------- ------------------------------- ---------------- ----------------
Additions
-------------------------------
Balance at Charged to Charged to
Beginning of Costs and Other Accounts Deductions- Balance at End
Description Period Expenses - Describe Describe of Period
- -------------------------------------------------------------- -------------- ---------------- ---------------- ----------------
YEAR ENDED DECEMBER 31, 1997:
Reserve and allowances deducted from
asset accounts:
Allowance for uncollectible accounts $323 $2,512 ($263)(1) $2,572
YEAR ENDED DECEMBER 31, 1996:
Reserve and allowances deducted from
asset accounts:
Allowance for uncollectible accounts $100 $311 $(88)(1) $323
YEAR ENDED DECEMBER 31, 1995:
Reserve and allowances deducted from
asset accounts:
Allowance for uncollectible accounts $136 - ($36)(1) $100
(1) Uncollectible accounts written off, net of recoveries.
S-2
EXHIBIT INDEX
Exhibit
Number Description
- ------- -----------
1.1 Purchase Agreement, dated as of December 19, 1997, by and among the
Issuers, Finance Corp., the Guarantors and the Initial Purchasers.
3.1 Certificate of Formation of the Company
3.2 Second Amended and Restated Limited Liability Company Agreement of the
Company
3.3 Certificate of Incorporation of Finance Corp.
3.4 Bylaws of Finance Corp.
4.1 Registration Rights Agreements, dated December 24, 1997, among the
Issuers, the Guarantors and the Initial Purchasers
4.2 Indenture, dated December 24, 1997 relating to $100,000,000 aggregate
principal amount 11% Senior Subordinated Notes due 2008 between the
Issuers and First Union National Bank, as trustee, including the Form
of Note
5.1 Opinion of Morrison & Foerster LLP
10.1 Acquistion Agreement among the Company and Bash Theatrical Lighting,
Inc. Bash Theatrical Lighting Services, Inc., Bash Lighting Services,
Inc., Bash Lighting Services Mid-Atlantic, Inc., Bash Exposition
Services, Inc. and Donald Stern and Robert Cannon.
10.2 Employment Agreement dated as of January 1, 1996 between Jeremiah J.
Harris and the Company.
10.3 Employment Agreement dated as of June 6, 1997 between Kenneth L.
Shearer and the Company.
10.4 Employment Agreement dated as of June 7, 1997 between Bradley G.
Miller and the Company.
10.5 Employment Agreement dated as of August 6, 1997 between Robert A.
Manners and the Company.
10.6 Agreement of Lease dated September 11, 1997 between Danis Properties
Limited Partnership and the Company.
10.7 Credit Agreement, dated as of July 31, 1997, by and among the Company,
the lenders party thereto and the Bank of New York, as agent.
10.8 First Amendment to Credit Agreement, dated as of December 12, 1997, by
and among the Company, the lenders party thereto and the Bank of New
York, as agent.
12.1 Computation of Ratio of Earnings to Fixed Charges*
21.1 Subsidiaries of the Company
23.1 Consent of Ernst & Young LLP*
23.2 Consent of Morrison & Foerster LLP (Included in Exhibit 5.1)
23.3 Consent of Band, Rosenbaum & Martin P.C.*
24 Powers of Attorney (included in Part II to the Registration Statement)
25.1 Statement Regarding Eligibility of Trustee
27.1 Financial Data Schedule*
99.1 Form of Letter of Transmittal
99.2 Form of Notice of Guaranteed Delivery
- ----------
* Filed herewith