<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
COMMISSION FILE NUMBER: 1-14234
Caribiner International, Inc.
-------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3466655
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
16 West 61st Street, New York, NY 10023
------------------------------------- -------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 541-5300
---------------
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes [X] No [ ]
The registrant had 23,635,658 shares of Common Stock (par value $0.01 per
share) outstanding as of July 31, 1998.
<PAGE>
INDEX
------
PART I. Financial Information
Item 1. Financial Statements (Unaudited)
Review Report of Independent Accountants...................2
Consolidated Balance Sheets as of
September 30, 1997 and June 30, 1998.......................3
Consolidated Statement of Operations for
the nine months ended June 30, 1997 and 1998...............4
Consolidated Statements of Operations for
the three months ended June 30, 1997 and 1998..............5
Consolidated Statements of Cash Flows for
the nine months ended June 30, 1997 and 1998...............6
Consolidated Statement of Changes in Stockholders'
Equity for the nine months ended June 30, 1998.............7
Notes to Consolidated Financial Statements.................8
Management's Discussion and Analysis of
Financial Condition and Results of Operations.............13
PART II. Other Information
Item 2. Changes in Securities.....................................19
Item 6. Exhibits and Reports on Form 8-K..........................20
SIGNATURES...................................................................21
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<PAGE>
Review Report of Independent Accountants
Stockholders and Board of Directors
Caribiner International, Inc.
We have reviewed the accompanying consolidated balance sheet of Caribiner
International, Inc. as of June 30, 1998, and the related consolidated
statements of operations for the three and nine months ended June 30, 1997 and
1998, the consolidated statement of changes in stockholders' equity for the
nine months ended June 30, 1998 and the consolidated statements of cash flows
for the nine months ended June 30, 1997 and 1998. These financial statements
are the responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data, and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards, which will
be performed for the full year with the objective of expressing an opinion
regarding the financial statements taken as a whole. Accordingly, we do not
express such an opinion.
Based on our reviews, we are not aware of any material modifications that
should be made to the accompanying consolidated financial statements in order
for them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Caribiner International, Inc. as
of September 30, 1997, and the related consolidated statements of operations,
stockholders' equity, and cash flows for the year then ended, not presented
herein, and in our report dated December 3, 1997, we expressed an unqualified
opinion on those consolidated financial statements. In our opinion, the
information set forth in the accompanying consolidated balance sheet as of
September 30, 1997, is fairly stated, in all material respects, in relation to
the consolidated balance sheet from which it has been derived.
/s/ Ernst & Young LLP
---------------------
New York, New York
August 5, 1998
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<PAGE>
Caribiner International, Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30, June 30,
1997 1998
(Note 1) (unaudited)
------------------ -----------------
(amounts in thousands)
<S> <C> <C>
ASSETS
- ------
Current Assets:
Cash and cash equivalents $ 10,253 $ 20,447
Trade accounts receivable - net of allowance for doubtful
accounts of $1,497 and $3,263 at September 30, 1997 and
June 30, 1998, respectively 77,780 131,426
Deferred charges 10,229 17,398
Prepaid expenses and other current assets 9,128 14,946
Assets held for sale (Note 4) -- 26,650
------------------ -----------------
Total Current Assets 107,390 210,867
Property and equipment - net 45,714 93,334
Goodwill - net 157,154 418,422
Deferred tax asset -- 2,472
Other assets 3,619 10,598
------------------ -----------------
TOTAL ASSETS $ 313,877 $ 735,693
================== =================
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current Liabilities:
Current portion of long-term debt $ 1,217 $ 631
Trade accounts payable 18,816 19,866
Accrued expenses and other current liabilities 23,200 53,394
Accrued production costs 11,055 15,538
Taxes payable 4,726 6,097
Deferred income 12,225 16,661
------------------ ----------------
Total Current Liabilities 71,239 112,187
Long-term debt 60,642 422,790
Deferred income 5,617 7,806
Deferred tax liability 715 --
Other liabilities 4,230 5,724
------------------ ----------------
TOTAL LIABILITIES 142,443 548,507
Stockholders' Equity:
Preferred stock, $0.01 par value:
2,000 shares authorized, none issued and outstanding at
September 30, 1997 and June 30, 1998, respectively -- --
Common stock, $0.01 par value:
40,000 and 100,000 voting shares authorized at September 30, 1997
and June 30, 1998, respectively; 23,417 and 23,635 shares issued and
outstanding at September 30, 1997 and June 30, 1998, respectively 234 236
Additional paid-in capital 159,874 167,008
Translation adjustment 11 (496)
Retained earnings 11,315 20,438
------------------ -----------------
TOTAL STOCKHOLDERS' EQUITY 171,434 187,186
------------------ -----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 313,877 $ 735,693
================== =================
</TABLE>
See accompanying notes to the unaudited consolidated financial statements.
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<PAGE>
Caribiner International, Inc.
Consolidated Statements of Operations
For the Nine Months Ended
(unaudited)
<TABLE>
<CAPTION>
June 30,
1997 1998
----------------- ------------------
(amounts in thousands)
<S> <C> <C>
Service revenue $ 151,565 $ 204,853
Rental revenue 83,338 316,232
Intercompany eliminations (1,610) (8,360)
----------------- ------------------
Total revenue 233,293 512,725
Cost of service revenue 103,856 138,600
Cost of rental revenue 53,371 221,426
Intercompany eliminations (1,610) (8,360)
----------------- ------------------
Total cost of revenue 155,617 351,666
----------------- ------------------
Gross profit 77,676 161,059
Operating expenses:
Selling, general and administrative expenses 50,079 109,604
Restructuring charge (Note 3) -- 3,828
Depreciation and amortization 5,255 15,123
----------------- ------------------
Total operating expenses 55,334 128,555
----------------- ------------------
Equity in income of affiliated company (Note 4) -- 688
----------------- ------------------
Operating income 22,342 33,192
Interest expense, net 1,207 16,963
----------------- ------------------
Income before taxes and extraordinary charge 21,135 16,229
Provision for taxes 8,666 6,501
----------------- ------------------
Income before extraordinary charge 12,469 9,728
Extraordinary charge on early extinguishment of debt
(net of income taxes of $403) (Note 5) -- 605
----------------- ------------------
Net income $ 12,469 $ 9,123
================= ==================
Basic and diluted earnings per common share:
Income before extraordinary charge $ 0.59 $ 0.41
Extraordinary charge -- (0.02)
----------------- ------------------
Net income per common share $ 0.59 $ 0.39
================= ==================
</TABLE>
See accompanying notes to the unaudited consolidated financial statements.
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<PAGE>
Caribiner International, Inc.
Consolidated Statements of Operations
For the Three Months Ended
(unaudited)
<TABLE>
<CAPTION>
June 30,
1997 1998
----------------- ------------------
(amounts in thousands)
<S> <C> <C>
Service revenue $ 67,603 $ 85,734
Rental revenue 36,835 120,823
Intercompany eliminations (861) (3,659)
----------------- ------------------
Total revenue 103,577 202,898
Cost of service revenue 45,770 58,985
Cost of rental revenue 23,878 85,411
Intercompany eliminations (861) (3,659)
----------------- ------------------
Total cost of revenue 68,787 140,737
----------------- ------------------
Gross profit 34,790 62,161
Operating expenses:
Selling, general and administrative expenses 18,892 39,284
Depreciation and amortization 2,229 6,075
----------------- ------------------
Total operating expenses 21,121 45,359
----------------- ------------------
Operating income 13,669 16,802
Interest expense, net 88 7,059
----------------- ------------------
Income before taxes 13,581 9,743
Provision for taxes 5,568 3,907
----------------- ------------------
Net income $ 8,013 $ 5,836
================= ==================
Basic and diluted earnings per common share $ 0.35 $ 0.25
================= ==================
</TABLE>
See accompanying notes to the unaudited consolidated financial statements.
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<PAGE>
Caribiner International, Inc.
Consolidated Statements of Cash Flows
For the Nine Months Ended
(unaudited)
<TABLE>
<CAPTION>
June 30,
1997 1998
---------------- ------------------
(amounts in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 12,469 $ 9,123
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 9,549 26,886
Extraordinary charge on early extinguishment of debt, 605
net of tax --
Restructuring charge, net of cash payments -- 1,435
Change in assets and liabilities:
(Increase) in trade accounts receivable (22,397) (22,307)
(Increase) in deferred charges (472) (6,358)
(Increase) in prepaid expenses and
other current assets (5,224) (2,027)
(Increase) in other assets (2,001) (3,613)
(Decrease) in trade accounts payable (3,948)` (7,145)
Increase in deferred income 3,242 7,422
Increase in accrued expenses and
other liabilities 10,253 6,103
---------------- ------------------
Net cash provided by operating activities 1,471 10,124
---------------- ------------------
Cash flow used in investing activities:
Purchase of property and equipment (7,992) (39,960)
Net proceeds from disposition of business 25,637
Acquisitions of businesses, net of cash acquired (69,920) (298,909)
---------------- ------------------
Net cash used in investing activities (77,912) (313,232)
---------------- ------------------
Cash flow provided by financing activities:
Proceeds from issuance of long-term debt 81,200 725,300
Repayments of long-term debt (73,754) (408,728)
Deferred financing fees (1,090) (4,022)
Net proceeds from issuance of common stock 85,889 --
Proceeds from exercise of stock options -- 667
Net (repayments) of bank line of credit (2,000) --
---------------- ------------------
Net cash provided by financing activities 90,245 313,217
---------------- ------------------
Translation effect on cash and cash equivalents 633 85
Net increase in cash 14,437 10,194
Cash, beginning of period 8,432 10,253
================ ==================
Cash, end of period $ 22,869 20,447
================ ==================
Supplemental disclosure of cash flow information:
Interest paid $ 1,157 14,430
================ ==================
Income taxes paid $ 3,591 4,967
================ ==================
</TABLE>
See accompanying notes to the unaudited consolidated financial statements.
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Caribiner International, Inc.
Consolidated Statement of Changes in Stockholders' Equity
For the Nine Months Ended June 30, 1998
(unaudited)
(amounts in thousands)
<TABLE>
<CAPTION>
Common Stock Additional Retained Translation
Shares Amount Paid in Capital Earnings Adjustment
------ ------ --------------- -------- ----------
<S> <C> <C> <C> <C> <C>
Balance at September 30, 1997 23,417 $234 $159,874 $11,315 $11
Issuance of common stock upon acquisitions 185 2 6,442 -- --
Issuance of common stock upon exercise of 33 * 667 -- --
stock options
Issuance of common stock under nonemployee
directors' stock plan * * 25 -- --
Translation adjustment -- -- -- -- (507)
Net income -- -- -- 9,123 --
------ ---- -------- ------- -----
Balance at June 30, 1998 23,635 $236 $167,008 $20,438 $(496)
====== ==== ======== ======= =====
</TABLE>
*Amount less than 1,000
<TABLE>
<CAPTION>
Total
Stockholders'
Equity
------------
<S> <C>
Balance at September 30, 1997 $171,434
Issuance of common stock upon acquisitions 6,444
Issuance of common stock upon exercise of 667
stock options
Issuance of common stock under nonemployee
directors' stock plan 25
Translation adjustment (507)
Net income 9,123
---------
Balance at June 30, 1998 $187,186
=========
</TABLE>
*Amount less than 1,000
See accompanying notes to the unaudited consolidated financial statements.
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<PAGE>
Caribiner International, Inc.
Notes To Consolidated Financial Statements
------------------------------------------
(Unaudited)
1. Interim Financial Information
The accompanying unaudited consolidated financial statements of Caribiner
International, Inc. (the "Company") have been prepared in accordance with
generally accepted accounting principles for interim financial
information and the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, the
consolidated financial statements contain all adjustments, consisting of
normal recurring adjustments, considered necessary to present fairly the
consolidated financial position, results of operations and cash flows of
the Company. The results of operations for the nine months ended June 30,
1998 are not necessarily indicative of the results of operations that may
be expected for any other interim periods or for the fiscal year ending
September 30, 1998.
The balance sheet as of September 30, 1997 has been derived from the
Company's audited financial statements at that date, but does not include
all of the information and footnotes required by generally accepted
accounting principles for complete financial statements.
Certain reclassifications have been made to the consolidated statements of
operations for the three and nine months ended June 30, 1997 and 1998 to
conform presentation in each period.
2. Summary of Significant Accounting Policies
New Accounting Pronouncements
In February, 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings Per Share ("Statement 128"), which was
required to be adopted on December 31, 1997. At that time, the Company
changed the method used to compute earnings per share and has restated
all prior periods. Under the new requirements for calculating basic
earnings per share, the dilutive effect of stock options has been
excluded.
In June, 1997, the Financial Accounting Standards Board issued SFAS No.
131, Financial Reporting for Segments of a Business Enterprise
("Statement 131"), which applies to all public business enterprises.
Statement 131 establishes standards for the way that public business
enterprises report information about operating segments in annual
financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports issued
to shareholders. Statement 131 is effective for financial statements for
periods beginning after December 15, 1997. Management is in the process
of determining the effect of Statement 131 on its financial statement
disclosures.
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<PAGE>
3. Restructuring Charge
During the nine months ended June 30, 1998, the Company continued the
integration of its acquired businesses, primarily in the audio visual
services businesses. These efforts included strategic evaluations of
operating infrastructures, personnel, facilities and equipment to enhance
efficiency. Accordingly, the Company recorded a pre-tax restructuring
charge of $3.8 million during the three months ended March 31, 1998. The
charge included $2.8 million related to employee termination and
severance costs associated with a reduction in the workforce of
approximately 155 people and $1.0 million relating to lease terminations.
The remaining restructuring liability at June 30, 1998 was $1.4 million.
4. Business Acquisitions/Dispositions
In October, 1997, the Company acquired all of the outstanding capital
stock of Spectrum Data Systems, Inc. ("Spectrum Data"), an Atlanta-based
provider of audio-visual presentation systems, design and installation
services with a primary customer base in the southeastern United States.
Aggregate consideration paid for the acquisition was $2.8 million in cash
and the issuance of 43,628 shares of the Company's common stock having a
fair market value of $1.9 million.
Pursuant to an offer document dated November 1, 1997, (the "Offer
Document"), the Company announced a cash offer (the "Offer") by a wholly
owned United Kingdom subsidiary, Caribiner Services Limited, to acquire
all of the outstanding capital shares of Visual Action Holdings plc, a
United Kingdom company ("Visual Action").
As of November 24, 1997, by means of open market purchases and shares
tendered pursuant to the Offer Document, the Company owned or had the
obligation to acquire a total of 46,680,682 shares of Visual Action (or
approximately 93.2% of the issued shares capital). Thereafter, the
Company began the process of acquiring those shares of Visual Action not
tendered pursuant to the Offer by compulsory purchases pursuant to the
provisions of the UK Companies Act of 1985. Such compulsory purchases
were completed during February 1998. Prior to November 24, 1997, the
Company acquired a minority interest in Visual Action through open market
purchases resulting in the equity income reflected for the period. The
Company commenced consolidating the financial results of Visual Action as
of December 1, 1997. The goodwill resulting from the acquisition of
Visual Action is being amortized over 40 years.
The total acquisition price for the shares was approximately $265.0
million, including transaction costs of approximately $15.0 million. In
addition, the Company assumed approximately $44.3 million in outstanding
indebtedness of Visual Action. The cost of the acquisition, including
transaction costs, was financed through the Company's loan agreement
entered into in October, 1997 (see Note 5).
Visual Action provides corporate meeting services, including audio visual
and exhibition services, in the United States and the United Kingdom.
In December, 1997, the Company acquired substantially all of the assets
and assumed certain of the liabilities of Consumer Access Limited
("Consumer Access"), a business communications services provider based in
Hong Kong. The Company paid aggregate
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<PAGE>
consideration of $3.8 million, consisting of cash of $2.8 million and the
issuance of 22,859 shares having a fair market value of approximately
$1.0 million.
In January, 1998, the Company acquired Right Source, Inc. for an initial
consideration of $17 million in cash, plus the repayment of approximately
$2.4 million in outstanding indebtedness. In addition, Caribiner will pay
additional consideration of up to $17 million in cash and common stock in
the event that the acquired business meets certain performance goals
during the fiscal year ending September 30, 1998. Right Source, Inc.,
with offices in South Carolina and Connecticut, is a marketing support
and training services company, focusing primarily on product launches and
customer education for the information technology industry.
In February, 1998, the Company acquired substantially all of the assets
and assumed certain of the liabilities of The Bridge Design Limited
("Bridge Design"), a Hong Kong-based provider of design services. The
Company paid aggregate consideration of approximately $6.2 million, which
consisted of approximately $4.4 million in cash and the issuance of
53,958 shares of the Company's common stock having a fair market value of
approximately $1.8 million.
In May, 1998, the Company completed the disposition of the broadcast video
services business of Visual Action for approximately $27.6 million in cash,
excluding transaction costs of $2.0 million. The Company announced its
intention to sell Visual Action's broadcast video services unit when it
acquired Visual Action in November, 1997. No gain or loss was recognized on
the transaction. Losses of $0.8 million related to the broadcast video
services business were recorded as an adjustment to the purchase price of
Visual Action.
In June, 1998, the Company acquired substantially all of the assets and
certain of the liabilities of Stagecraft Corporate Theatre
("Stagecraft"), an Australian-based company. Aggregate consideration of
$1.9 million consisted of $1.6 million in cash and the issuance of 16,106
shares of the Company's common stock with a fair market value of
approximately $0.3 million.
In June, 1998, the Company also acquired substantially all of the assets
and assumed certain of the liabilities of M.D. McDonald, Inc., a
Michigan-based training services company. The Company paid aggregate
consideration of approximately $3.6 million, which consisted of
approximately $3.3 million in cash and the issuance of 17,053 shares of
the Company's common stock with a fair market value of approximately $0.3
million. The Company will pay additional consideration of up to $1.5
million in the event that the acquired business meets certain performance
goals.
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<PAGE>
Subsequent Event
On July 30, 1998, the Company completed the disposition of the U.K.-based
audio visual staging operations of Visual Action for approximately $26.7
million in cash. The Company retained the hotel audio visual outsourcing
services portion of this business, integrating it with Visual Action's
existing U.K. operations. The Company used the cash proceeds from the sale
of the business to repay outstanding bank debt. The accompanying results
of operations of the Company for the three months ended June 30, 1998 do
not include the results of operations of this disposed business. No gain
or loss was recognized on the transaction. Earnings of $0.2 million of the
U.K.-based audio visual staging operations were recorded as an adjustment
to the purchase price of Visual Action.
The following unaudited consolidated pro forma results of operations of
the Company for the nine months ended June 30, 1997 and 1998 give effect
to the acquisitions of Video Supply Company, Inc. d/b/a Projexions Video
Supply, Blumberg Communications, Inc., D&D Enterprises, Inc. d/b/a Show
Solutions, WCT Live Communication Limited, Bauer Audio Visual, Inc.,
Visual Action and Right Source, Inc., as well as the dispositions of
Visual Action's broadcast video services unit and its U.K. staging and
equipment rental services unit, and reflect the extraordinary charge
resulting from the write-off of unamortized fees relating to the
Company's former bank facilities (see Note 5), as if such transactions
had occurred in each case on October 1, 1996. The acquisitions of
Spectrum Data, Consumer Access, Bridge Design, M.D. McDonald, Inc. and
Stagecraft would not have had or did not have, as the case may be, a
significant effect on the Company's results of operations during the nine
months ended June 30, 1997 and 1998.
<TABLE>
<CAPTION>
Nine Months Ended
June 30,
1997 1998
--------------------------- -------------------------
(in millions, except per share data)
<S> <C> <C>
Revenue $ 498.7 $ 549.8
Income before taxes and extraordinary charge
18.8 16.1
Net income 11.3 8.8
Pro forma basic and diluted earnings per common share
$ 0.49 $ 0.37
</TABLE>
The above calculation of pro forma diluted earnings per common share
assumes that approximately 22,967,735 and 23,694,066 shares were
outstanding during the nine months ended June 30, 1997 and 1998,
respectively.
The unaudited pro forma consolidated results of operations do not purport
to be indicative of the actual results of operations that would have
occurred had the acquisitions described above been made on October 1,
1996 or of results which may occur in any future period.
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<PAGE>
5. Debt
On October 28, 1997, the Company entered into a new loan agreement with a
syndicate of banks pursuant to which the Company increased its aggregate
available bank financing from $100 million to $550 million, consisting of
a $300 million six year revolving line of credit to be used in connection
with future acquisitions and for working capital and general corporate
purposes and a $250 million six year term loan ("the 1997 Facilities")
which was utilized in connection with the acquisition of Visual Action
(see Note 4). Amounts outstanding under the Company's former bank
facilities were repaid with the proceeds from the 1997 Facilities. The
Company recognized an extraordinary charge of $0.6 million, net of taxes
of $0.4 million, in the quarter ended December 31, 1997 resulting from
the write-off of the unamortized debt issuance fees relating to the
Company's former bank facilities. The Company incurred approximately $5.0
million of debt issuance fees relating to the 1997 Facilities, to be
amortized over six years. The maturity date of each of the 1997
Facilities is September 30, 2003. Interest on outstanding amounts under
the 1997 Facilities is payable quarterly in arrears and, at the option of
the Company, accrues at either (i) LIBOR plus an applicable margin or
(ii) an alternate base rate based upon the greatest of (a) the agent
bank's prime rate, (b) the three-month secondary certificate of deposit
rate and (c) the federal funds rate. The interest rate on the 1997
Facilities is currently LIBOR plus 1.125%. As of August 4, 1998, the
Company had approximately $404.0 million outstanding under the 1997
Facilities. In addition, as of July 31, 1998, all debt which was
outstanding under credit facilities assumed in connection with the
acquisition of Visual Action has been repaid by the Company.
6. Earnings per Common Share
A reconciliation of the number of shares used for the calculation of
basic and dilutive earnings per common share is as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
1997 1998 1997 1998
------------------- ------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
Weighted average number of
common shares
outstanding 23,112,647 23,610,343 20,993,415 23,542,307
Effect of stock options 106,214 85,617 88,798 151,759
---------- ---------- ---------- ----------
Weighted average number
of common shares
outstanding, including
effect of dilutive securities 23,218,861 23,695,960 21,082,213 23,694,066
</TABLE>
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<PAGE>
Caribiner International, Inc.
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
Nine months Ended June 30, 1998 Compared to
Nine months Ended June 30, 1997
Revenue. Revenue increased $279.4 million, or 119.8%, from $233.3 million in
the nine months ended June 30, 1997 to $512.7 million in the nine months ended
June 30, 1998. The increase resulted primarily from expanded activities from
existing clients, projects for new clients and the acquisition of other
business communications services companies. Approximately 83.3% of the
increase was attributable to revenue from the rental of audio visual equipment
through the Company's audio visual services division, including the impact of
the Company's acquisition of Visual Action Holdings plc ("Visual Action") in
November, 1997. Increases in service revenue primarily from clients in the
petroleum, government, financial services and food services industries
accounted for the remainder of the total revenue growth.
Gross profit. Total gross profit increased $83.4 million, or 107.3%, from
$77.7 million in the nine months ended June 30, 1997 to $161.1 million in the
same period of 1998, primarily as a result of the revenue growth described
above. As a percentage of service revenue, the gross profit margin increased
from 31.5% in the nine months ended June 30, 1997 to 32.3% in the nine months
ended June 30, 1998, before considering intercompany eliminations. The
increased gross profit margin is due to the specific production requirements
of the contracts completed during the period. Gross profit as a percentage of
rental revenue was 30.0% for the nine months ended June 30, 1998 compared to
36.0% in the prior comparable period, before considering intercompany
eliminations. The decrease in the gross margin resulted primarily from a
higher level of equipment sales and installations revenue, which generates a
lower gross margin, the impact of acquired rental businesses which have
historically operated at lower gross margins, increased costs relating to the
strengthening of the rental infrastructure enabling it to handle future
revenue growth and the inclusion of Visual Action for the month of December, a
period with fixed costs but lower revenue due to the holidays. Gross profit on
rental revenue for the nine months ended June 30, 1997 and 1998, respectively,
is impacted by approximately $2.9 million and $11.8 million, respectively, of
depreciation expense related to rental equipment used in the audio visual
businesses. Such depreciation expense is included in cost of rental revenue.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $59.5 million, or 118.9%, from $50.1 million
in the nine months ended June 30, 1997 to $109.6 million in the nine months
ended June 30, 1998. The increase was due primarily to acquisitions and to
support other revenue growth, as well as to normal inflationary increases.
Salaries and related costs increased $36.2 million, or 116.6%, from
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<PAGE>
increased personnel resulting from acquisitions and to support the Company's
overall significant growth, as well as normal inflationary increases. Other
general and administrative expenses, including rent and related costs,
telephone, office supplies, as well as other miscellaneous expenses, increased
$18.0 million, or 138.7%, due to acquisitions and to support the revenue
growth. Direct selling expenses such as travel, marketing and other costs
related to obtaining business increased $5.4 million, or 88.1%. Selling,
general and administrative expenses, as a percentage of total revenue, were
comparable during the nine months ended June 30, 1997 and 1998.
Restructuring Charge. During the nine months ended June 30, 1998, the Company
continued to focus on the integration of its acquired businesses, primarily in
the audio visual services businesses. These efforts have included strategic
evaluations of operating infrastructures, personnel, facilities and equipment to
enhance efficiency. Accordingly, the Company recorded a pre-tax restructuring
charge of $3.8 million during the three months ended March 31, 1998. The charge
included $2.8 million related to employee termination and severance costs
associated with a reduction in the workforce of approximately 155 people and
$1.0 million related to lease termination costs. The remaining restructuring
liability at June 30, 1998 was $1.4 million.
Depreciation and amortization. Depreciation and amortization expense for the
nine months ended June 30, 1998 was $15.1 million, an increase of $9.8 million
as compared to $5.3 million for the corresponding period in the prior year.
Property and equipment acquired through acquisitions and the continued
investment in information technology resulted in increased depreciation
expense of $2.5 million. Amortization expense increased $7.3 million resulting
from goodwill arising from acquisitions.
Equity in Income of Visual Action. Prior to November 24, 1997, the Company
acquired a minority interest in Visual Action through open market purchases
resulting in the equity in income reflected for the period. The Company
consolidated the financial results of Visual Action as of December 1, 1997.
Interest expense, net. Interest expense, net increased $15.8 million in the
nine months ended June 30, 1998 from $1.2 million due to higher average
borrowings to finance acquisitions and increased working capital requirements.
Provision for taxes. Taxes reflect an allocation based on the full year
anticipated effective tax rate. The provision for taxes as a percentage of
income before taxes was 41% and 40% for the nine months ended June 30, 1997
and 1998, respectively.
Extraordinary Charge on Early Extinguishment of Debt. In connection with the
acquisition of Visual Action, the Company entered into a new credit facility
in October, 1997. As a result, during the three months ended December 31,
1997, the Company wrote off approximately $0.6 million (net of taxes of $0.4
million) of the remaining unamortized debt issuance costs related to its
former bank facilities.
Net income. Net income was $9.1 million in the nine months ended June 30, 1998
compared to net income of $12.5 million in the nine months ended June 30,
1997. Basic
-14-
<PAGE>
and diluted earnings per common share after the non-recurring restructuring
charge and the extraordinary charge on early extinguishment of debt was $0.39
for the nine months ended June 30, 1998 as compared with an earnings per
common share of $0.59 for the comparable period in fiscal 1997. Earnings per
common share before the non-recurring restructuring charge and the
extraordinary charge on early extinguishment of debt would have been $0.51 for
the nine months ended June 30, 1998.
Three months Ended June 30, 1998 Compared to
Three months Ended June 30, 1997
Revenue. Revenue increased $99.3 million, or 95.9%, from $103.6 million in the
three months ended June 30, 1997 to $202.9 million in the three months ended
June 30, 1998. The increase resulted primarily from expanded activities from
existing clients, projects for new clients and the acquisition of other
business communications services companies. Approximately 84.6% of the
increase represented revenue from the rental of audio visual equipment through
the Company's audio visual services division, including the impact of the
Company's acquisition of Visual Action. Increases in service revenue primarily
from clients in the financial services, insurance, pharmaceuticals and
government industries accounted for the remainder of the total revenue growth.
Gross profit. Total gross profit increased $27.4 million, or 78.7%, from $34.8
million in the three months ended June 30, 1997 to $62.2 million in the same
period of 1998, primarily as a result of the revenue growth described above.
As a percentage of service revenue, the gross profit margin decreased from
32.3% in the three months ended June 30, 1997 to 31.2% in the three months
ended June 30, 1998, before considering intercompany eliminations. The
decreased gross profit margin is due to the specific production requirements
of the contracts completed during the period. Gross profit as a percentage of
rental revenue was 29.3% for the three months ended June 30, 1998 compared to
35.2% in the prior comparable quarter, before considering intercompany
eliminations. The decrease in the gross margin resulted primarily from a
higher level of equipment sales and installations revenue, which generates a
lower gross margin, the impact of acquired rental businesses which have
historically operated at lower gross margins and increased costs relating to
the strengthening of the rental infrastructure enabling it to handle future
revenue growth. Gross profit on rental revenue for the three months ended June
30, 1997 and 1998 is impacted by approximately $1.2 million and $3.9 million,
respectively, of depreciation expense related to rental equipment used in the
audio visual business. Such depreciation expense is included in cost of rental
revenue.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $20.4 million, or 107.9%, from $18.9 million
in the three months ended June 30, 1997 to $39.3 million in the three months
ended June 30, 1998. The increase was due primarily to acquisitions and to
support other revenue growth, as well as to normal inflationary increases.
Salaries and related costs increased $12.4 million, or 109.3%, from increased
personnel resulting from acquisitions and to support the Company's overall
significant growth, as well as normal inflationary increases. Other general and
administrative expenses, including rent and related utility costs,
professional fees, insurance costs, as well as other miscellaneous expenses,
increased $6.2, million or 114.6%, due to
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<PAGE>
the expansion of the business and to support the overall revenue growth.
Direct selling expenses such as travel, marketing and other costs related to
obtaining business increased $1.8 million, or 84.2%. Selling, general and
administrative expenses, as a percentage of total revenue, increased from 18.2%
during the three months ended June 30, 1997 to 19.4% in the three months ended
June 30, 1998.
Depreciation and amortization. Depreciation and amortization expense for the
three months ended June 30, 1998 was $6.1 million, an increase of $3.9 million
as compared to $2.2 million for the corresponding period in the prior year.
Property and equipment acquired through acquisitions and the continued
investment in information technology resulted in increased depreciation
expense of $1.1 million. Amortization expense increased $2.8 million resulting
from goodwill arising from acquisitions.
Interest expense, net. Interest expense, net increased $7.0 million in the
three months ended June 30, 1998 compared to the comparable period in fiscal
1997 due to higher average borrowings to finance acquisitions and increased
working capital requirements.
Provision for taxes. Taxes reflect an allocation based on the full year
anticipated effective tax rate. The provision for taxes as a percentage of
income before taxes was 41% and 40% for the three months ended June 30, 1997
and 1998, respectively.
Net income. Net income was $5.8 million in the three months ended June 30,
1998 compared to net income of $8.0 million in the three months ended June 30,
1997. Basic and diluted earnings per common share was $0.25 for the three
months ended June 30, 1998 as compared to an earnings per common share of
$0.35 for the comparable period in fiscal 1997.
-16-
<PAGE>
Liquidity and Capital Resources
On October 28, 1997, the Company entered into a loan agreement with a syndicate
of banks pursuant to which the Company increased its aggregate available bank
financing from $100 million to $550 million, consisting of a $300 million
six-year revolving line of credit to be used in connection with acquisitions and
for working capital and general corporate purposes and a $250 million six year
term loan (the "1997 Facilities") to be utilized in connection with the
acquisition of Visual Action. Amounts outstanding under the Company's former
bank facilities were repaid with the proceeds from the 1997 Facilities. The
Company has recognized an extraordinary loss of $0.6 million, net of taxes of
$0.4 million, in the quarter ending December 31, 1997 resulting from the
write-off of the unamortized debt issuance fees relating to the Company's former
facilities. The Company incurred approximately $5.0 million of debt issuance
fees relating to the 1997 Facilities, to be amortized over six years. The
maturity date of each of the 1997 Facilities is September 30, 2003. Interest on
outstanding amounts under the 1997 Facilities is payable quarterly in arrears
and at the option of the Company accrues at either (i) LIBOR plus an applicable
margin or (ii) an alternate base rate based upon the greatest of (a) the agent
bank's prime rate, (b) the three-month secondary certificate of deposit rate and
(c) the federal funds rate. The interest rate on the 1997 Facilities is
currently LIBOR plus 1.125%. As of August 4, 1998, the Company had approximately
$404.0 million outstanding under the 1997 Facilities. In addition, as of June
30, 1998, all debt which was outstanding under credit facilities assumed in
connection with the acquisition of Visual Action has been repaid.
The following table sets forth certain information from the Company's
Consolidated Statement of Cash Flows for the nine months ended June 30, 1997
and 1998:
<TABLE>
<CAPTION>
Nine months Ended June 30,
1997 1998
------------------------- --------------------------
(in thousands) (in thousands)
<S> <C> <C>
Net cash provided by (used in):
Operating activities $ 1,471 $ 10,124
Investing activities (77,912) (313,232)
Financing activities 90,245 313,217
</TABLE>
For the nine months ended June 30, 1998, $10.1 million was provided by operating
activities. The net income adjusted for depreciation and amortization and the
extraordinary and restructuring charges provided $38.0 million. The net change
in working capital used $27.9 million, with an increase in deferred income and
accrued expenses and other liabilities, which was more than offset by increases
in accounts receivable, deferred charges, prepaid expenses and other assets, and
a decrease in trade accounts payable. Investing activities required $313.2
million due to acquisition-related expenditures and property and equipment
additions, partially offset by the net proceeds of the disposition of the
broadcast video services business of Visual Action. Financing activities
provided $313.2 million in the nine months ended June 30, 1998, of which $721.3
million was provided by drawings, net of deferred financing fees, under the
Company's existing credit facilities, offset by repayments of $408.7 million. In
addition, the Company received $0.7 million from the exercise of employee stock
options.
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<PAGE>
For the nine months ended June 30, 1997, $1.5 million was provided by
operating activities. The net income adjusted for depreciation and
amortization provided $22.0 million. The net change in working capital used
$20.5 million, with increases in accrued expenses and other liabilities and an
increase in deferred income, which was more than offset by increases in
accounts receivable, prepaid expenses and other current assets, and a decrease
in trade accounts payable. Investing activities required $77.9 million due to
acquisition-related expenditures and property and equipment additions.
Financing activities provided $90.2 million in the nine months ended June 30,
1997, of which $85.9 million of net proceeds were received during the period
from the issuance of common stock and $80.1 million was provided by drawings,
net of deferred financing fees, under the Company's Reducing Revolver, offset
by repayments on each of the 1996 Facilities.
Capital expenditures were $8.0 million and $40.0 million during the nine
months ended June 30, 1997 and 1998, respectively. During the nine months
ended June 30, 1997, the enhancement to computer systems accounted for the
expenditure. During the nine months ended June 30, 1998, the majority of the
capital expenditures related to the purchase of audio visual equipment as well
as the continued investment in information technology.
The Company believes that cash flow from operations and net available credit
under existing bank facilities will be sufficient to meet operating needs and
capital spending requirements and to fund its acquisition strategies for the
foreseeable future.
Year 2000
The Company has determined that it will need to modify or replace some
portions of its software so that its computer systems will function properly
with respect to dates in the year 2000 and beyond. Furthermore, certain
systems are being replaced as part of the Company's ongoing systems
development projects which will be Year 2000 compliant. The costs for Year
2000 modifications are not expected to have a material impact on the Company's
results of operations or financial position.
-18-
<PAGE>
PART II
OTHER INFORMATION
- -----------------
ITEM 2. CHANGES IN SECURITIES
---------------------
a) Not Applicable
b) Not Applicable
c) The Company issued and sold the following unregistered securities during
the three months ended June 30, 1998:
1. In April, 1998, the Company issued to Bryan D. Langton, a director
of the Company, 333 shares of common stock, par value $0.01 per
share ("Common Stock") at a price per share of $37.4375 pursuant to
the Company's Non-Employee Directors' Stock Plan (the "Plan").
Pursuant to the Plan, the number of shares of Common Stock issued
was determined by dividing $12,500 by 37.4375 (the average of the
high and low sales price per share of the Common Stock on the
anniversary date of Mr. Langton's appointment to the Board of
Directors (April 11, 1996)).
2. On May 8, 1998, the Company granted to 350 employees option to
purchase an aggregate of 507,102 shares of Common Stock at an
exercise price per share of $20.75 pursuant to stock option
agreements under the Company's 1996 Stock Option Plan, as amended.
Pursuant to the terms of such option agreements, one third of such
options vest and become exercisable on May 8, 1999; one third of
such options vest and become exercisable on May 8, 2000; and one
third of such options vest and become exercisable on May 8, 2001.
3. In June, 1998, the Company issued and sold an aggregate of 16,106
shares of Common Stock to Cahl Pty Limited, an Australian company,
in connection with the purchase of substantially all of the assets
and the assumption of certain of the liabilities of the business
known as Stagecraft Corporate Theatre.
4. In June, 1998, the Company issued and sold an aggregate of 17,053
shares of Common Stock to M.D. McDonald, Inc. in connection with the
purchase of substantially all of the assets and the assumption of
substantially all of the liabilities of M.D. McDonald, Inc.
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<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits Required by Item 601 of Regulation S-K:
3.1 Restated Certificate of Incorporation of the
Company filed March 15, 1996 with the
Secretary of State of the State of Delaware
(filed as Exhibit 3.1 to the Company's
Quarterly Report on Form 10-Q for the three
months ended March 31, 1996 and incorporated
herein by reference).
3.2 Certificate of Amendment to the Restated
Certificate of Incorporation of the Company
filed March 30, 1998 with the Secretary of
State of the State of Delaware (filed as
Exhibit 3.2 to the Company's Quarterly
Report on Form 10-Q for the three months
ended March 31, 1998 and incorporated herein
by reference).
3.3 Second Amended and Restated By-Laws of the
Company (filed as Exhibit 3.2 (b) to the
Company's Registration Statement on Form S-1
(Registration No. 33-80481) and incorporated
herein by reference).
10.1 Employment Agreement, dated as of June 9,
1998, by and between the Company and Robert F.
Burlinson.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K:
None.
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<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CARIBINER INTERNATIONAL, INC.
(Registrant)
Date: August 14, 1998 By: /s/ Raymond S. Ingleby
------------------------
Raymond S. Ingleby
Chairman of the Board and
Chief Executive Officer
By: /s/ Robert F. Burlinson
--------------------------
Robert F. Burlinson
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer and
Chief Accounting Officer)
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<PAGE>
EXHIBIT INDEX
-------------
Page Number
-----------
3.1 Restated Certificate of Incorporation of the Company filed March 15,
1996 with the Secretary of State of the State of Delaware (filed as
Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q for the
three months ended March 31, 1996 and incorporated herein by
reference).
3.2 Certificate of Amendment to the Restated Certificate of Incorporation
of the Company filed March 30, 1998 with the Secretary of State of
the State of Delaware (filed as Exhibit 3.2 to the Company's
Quarterly Report on Form 10-Q for the three months ended March 31,
1998 and incorporated herein by reference).
3.3 Second Amended and Restated By-Laws of the Company (filed as
Exhibit 3.2 (b) to the Company's Registration Statement on Form S-1
(Registration No. 33-80481) and incorporated herein by reference).
10.1 Employment Agreement, dated as of June 9, 1998, by and between the
Company and Robert F. Burlinson.
27.1 Financial Data Schedule.
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<PAGE>
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EMPLOYMENT AGREEMENT
By and Between
CARIBINER INTERNATIONAL, INC.
and
ROBERT BURLINSON
-----------------------------------------------------------------------
-----------------------------------------------------------------------
As of June 9, 1998
<PAGE>
TABLE OF CONTENTS
Page
----
1. Employment............................................................1
2. Duties and Responsibilities of Employee...............................1
3. Exclusivity of Service................................................2
4. Compensation; Bonus...................................................2
5. Benefits..............................................................2
6. Term of Employment....................................................3
7. Confidentiality; Inventions; Product Development, Etc.................3
8. Non-Competition; Non-Solicitation.....................................5
9. Termination...........................................................6
(a) Cause........................................................6
(b) Incapacity...................................................6
(c) Death........................................................6
10. Violation of Other Agreements.........................................6
11. Specific Performance; Damages.........................................7
12. Notices...............................................................7
13. Waivers...............................................................8
14. Preservation of Intent................................................8
15. Entire Agreement......................................................8
16. Inurement; Assignment.................................................8
17. Amendment.............................................................8
18. Headings..............................................................8
19. Counterparts..........................................................9
20. Governing Law.........................................................9
-i-
<PAGE>
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (this "Agreement") dated as of June ___, 1998,
by and between CARIBINER INTERNATIONAL, INC., a Delaware corporation having an
office at 16 West 61st Street, New York, New York 10023 ("Employer"), and
ROBERT BURLINSON, an individual residing at 162 Murray Avenue, Larchmont, New
York 10538 ("Employee").
W I T N E S S E T H:
WHEREAS, Employer desires to engage Employee as an employee and
Employee desires to provide his services to Employer in connection with
Employer's business; and
WHEREAS, both parties desire to clarify and specify the rights and
obligations which each have with respect to the other in connection with
Employee's employment.
NOW, THEREFORE, in consideration of the agreements and covenants
herein set forth, the parties hereby agree as follows:
1. Employment
Employer hereby employs Employee as its Executive Vice President and
Chief Financial Officer and Employee hereby accepts such employment and agrees
to render his services as an employee of Employer, for the term of this
Agreement (as set forth in Section 6 hereof), all subject to and on the terms
and conditions herein set forth.
2. Duties and Responsibilities of Employee
Employee shall be employed as Employer's Executive Vice President and
Chief Financial Officer, subject to the other provisions of this Section 2. In
the performance of his duties, Employee shall report to Employer's Chief
Executive Officer or, in the discretion of Employer's Board of Directors (the
"Board"), the Chairman. Employee shall use his best efforts to maintain and
enhance the business and reputation of Employer. Employee's duties and
responsibilities shall be designated to Employee by the Board, its Chairman or
Employer's Chief Executive Officer. Upon Employer's request, Employee shall
also perform similar services in an identical capacity for any subsidiary or
division of Employer (or a subsidiary thereof) designated by Employer.
Employee shall be available to travel as the reasonable needs of Employer
shall require. Employee shall be based in Employer's offices located in New
York, New York (or the New York City metropolitan area), which offices
Employee understands may be relocated by Employer within a fifty (50) mile
radius of its current location.
<PAGE>
3. Exclusivity of Service
Employee agrees to devote all of his business time, efforts and
attention to the business and affairs of Employer on an exclusive basis, and
not to engage in any other business activities for any person or entity, other
than personal investment activities, provided that such activities do not
materially affect the performance of Employee's duties hereunder.
4. Compensation; Bonus
(a) In consideration for his services to be performed under this
Agreement and as compensation therefor, Employee shall receive, in addition to
all other benefits provided in this Agreement, a base salary (the "Base
Salary") at the annual rate of two hundred twenty-five thousand ($225,000)
Dollars. All payments of Base Salary shall be payable in bi-weekly
installments or otherwise in accordance with Employer's policies.
(b) In addition to the Base Salary, Employee shall be entitled to an
annual bonus (the "Bonus"), payable on approximately December 15 of each year
(commencing December 15, 1999), pursuant to the bonus compensation plan then
in effect by Employer for Employee and Employer's other senior executives.
Such bonus plan shall be tailored to Employee's particular skills and
Employer's goals, provided that any such bonus plan formulated for Employee
shall be within Employer's sole and absolute discretion. Notwithstanding
anything to the contrary contained herein, Employee's bonus compensation for
Employer's fiscal year ending September 30, 1999 (payable on approximately
December 15, 1999) shall not be less than $50,000.
5. Benefits
In addition to the Base Salary and Bonus provided for in Section 4
hereof, Employee shall be entitled to the following benefits during and in
respect of the Term (as defined below):
(a) Employer shall provide Employee with the hospitalization, medical
and dental insurance coverage and other benefits (including long term
disability and life insurance) on the same basis as provided to the majority
of the other senior executive employees of Employer, in accordance with
Employer's practices. Employee shall be entitled to participate in Employer's
401(K) plan and other similar plans adopted by Employer for similar employees.
(b) Employee shall be entitled to four (4) weeks paid vacation to be
taken by Employee at times mutually and reasonably agreed upon by Employer and
Employee in addition to all other holidays established as part of Employer's
standard practices. No payment shall be made to Employee for unused vacation
days nor may such days be carried over to future years.
(c) Employee shall be entitled to reimbursement for all reasonable
travel, entertainment and other reasonable expenses incurred in connection
with Employer's business, provided that such expenses are adequately
documented and vouchered in accordance with Employer's policies.
-2-
<PAGE>
(d) Employee shall be entitled to an automobile allowance in the
amount of $500 per month, payable in equal installments during each payroll
period, to defray all costs incurred by Employee in connection with Employee's
use of his automobile in connection with the business of Employer (except for
those which Employee is entitled to reimbursement pursuant to Section 5(c)
hereof).
(e) Employer shall grant to Employee options to purchase fifty
thousand (50,000) shares of common stock (the "Common Stock") of Employer, par
value $0.01 per share, pursuant to Employer's 1996 Stock Option Plan (the
"Plan") and a Stock Option Agreement to be entered into by Employer and
Employee in the form adopted pursuant to the Plan promptly following the
mutual execution and delivery of this Agreement. All options so granted shall,
subject to the terms and conditions of the Plan, be exercisable at the price
per share of the Common Stock on the date of the issuance of such options.
6. Term of Employment
The term (the "Term") of employment shall be from July 15, 1998 for a
period of two (2) years, unless terminated prior thereto in accordance with
Section 9 hereof. Employer agrees that no sooner than six (6) months prior to
the end of the Term and any renewal term (a "Renewal Term"), Employer will
confirm to Employee in writing, following Employee's written request therefor
(a "Renewal Indication"), whether Employer intends to extend the term of this
Agreement upon terms no less favorable than those contained herein. If such
Renewal Indication shall state that Employer intends to renew this Agreement
at the end of the Term, or a Renewal Term, as the case may be, subject to
Section 9 hereof, this Agreement shall be extended for an additional two (2)
year term upon terms no less favorable than those contained herein, provided,
however, that it is contemplated that the parties will negotiate in good faith
the terms of such extended employment.
7. Confidentiality; Inventions; Product Development, Etc.
(a) Employee agrees and covenants that, at any time during employment
by Employer (which, for purposes of Sections 7 and 8 hereof shall include
Employer's subsidiaries and affiliates) or thereafter, he will not (without
first obtaining the written permission of Employer) (i) at any time during
employment by Employer and for a period of three (3) years thereafter, divulge
to any person or entity, nor use (either himself or in connection with any
business) any "Confidential Information" (as hereinafter defined in Section
7(c) hereof) and (ii) at any time during employment by Employer and
thereafter, divulge to any person or entity, nor use (either himself or in
connection with any business) any "Trade Secrets" (as hereinafter defined in
Section 7(c) hereof) to which he may have had access or which had been
revealed to him during the course of his employment unless such disclosure is
pursuant to a court order, disclosure in litigation involving the Employer or
in any reports or applications required by law to be filed with any
governmental agency.
-3-
<PAGE>
(b) Employee hereby grants to Employer or its nominee all rights of
every kind whatsoever, exclusively and perpetually, in and to all services
performed, products created and product ideas conceived by Employee for
Employer or its nominee, and hereby agrees, upon Employer's request therefor,
to assign and transfer to Employer or its nominee, any and all inventions,
Trade Secrets, product ideas, improvements, processes, Confidential
Information and "know how" relating to the business or products of Employer or
any subsidiary or division thereof, including any thereof which Employee may
learn, possess or acquire during Employee's employment by Employer, and agrees
that all such things and such knowledge are, and will be, the sole and
exclusive property of Employer or its nominee, and are known or held by
Employee only for the benefit of Employer or its nominee. Any patent,
trademark, servicemark or copyright applications and patents, trademarks,
servicemarks or copyrights developed, obtained or conceived by Employee while
employed or engaged by Employer which relate to the business or product
development activities of Employer or its nominee, as well as all physical
embodiments of Confidential Information, shall be and remain the sole
exclusive property of Employer, or its nominee. At Employer's request,
Employee will execute any and all applications, assignments or other
instruments which Employer or its nominee shall deem necessary to apply for
and obtain Letters Patent of the United States or any foreign country or to
protect otherwise Employer's interest therein.
(c) As used in this Agreement, the term "Confidential Information"
shall mean and include all information and data in respect of Employer's
operations, financial condition, products, customers and business (including,
without limitation, artwork, photographs, specifications, facsimiles, samples,
business, marketing or promotional plans, creative written material and
information relating to characters, concepts, names, trademarks and
copyrights) which may be communicated to Employee or to which Employee may
have access in the course of Employee's employment by Employer.
Notwithstanding the foregoing, the term "Confidential Information" shall not
include information which:
(i) is, at the time of the disclosure, a part of the
public domain through no act or omission by Employee;
(ii) was otherwise in Employee's lawful possession prior to the
disclosure; or
(iii) is hereafter lawfully disclosed to Employee by a
third party who or which did not acquire the
information under an obligation of confidentiality
to or through Employer.
As used in this Agreement, the term "Trade Secrets" shall mean and
include information, without regard to form, including, but not limited to,
technical or non-technical data, a formula, a pattern, a compilation, a
program, a device, a method, a technique, a drawing, a process, financial
data, financial plans, product plans, or a list of actual or potential
customers or suppliers which is not commonly known by or available to the
public and which information (i) derives economic value, actual or potential,
from not being known to, and not being readily ascertainable by proper
-4-
<PAGE>
means by, other persons who can obtain economic value from its disclosure or
use; and (ii) is the subject of efforts that are reasonable under the
circumstances to maintain its secrecy.
Any combination of known information shall be within any of the
foregoing exclusions only if the combination as such is within such
exclusions.
Nothing in this Section 7 shall limit any protection, definition or
remedy provided to Employer under any law, statute or legal principle relating
to Confidential Information or Trade Secrets.
(d) Employee agrees that at the time of leaving the employ of
Employer he will deliver to Employer and not keep or deliver to anyone else
any and all notes, notebooks, drawings, memoranda, documents, and in general,
any and all material relating to the business of Employer (except Employee's
personal files and records) or relating to any employee, officer, director,
agent or representative of Employer.
8. Non-Competition; Non-Solicitation
(a) Employee hereby agrees and covenants that commencing as of the
date hereof and for a period of two (2) years following the termination of his
employment with Employer (the "Limited Period") he will not directly or
indirectly engage in or become interested (whether as an owner, principal,
agent, stockholder, member, partner, trustee, venturer, lender or other
investor, director, officer, employee, consultant or through the agency of any
corporation, limited liability company, partnership, association or agent or
otherwise) in any business or enterprise that shall, at the time, be in whole
or in substantial part competitive with any material part of the business
conducted by Employer during the period of Employee's employment with Employer
(except that ownership of not more than 1% of the outstanding securities of
any class of any entity that are listed on a national securities exchange or
traded in the over-the-counter market shall not be considered a breach of this
Section 8(a)).
(b) Employee agrees and covenants that for the Limited Period he will
not (without first obtaining the written permission of Employer) directly or
indirectly participate in the solicitation of any business of any type
conducted by Employer during the period of Employee's employment with Employer
from any person or entity which was a client or customer of Employer during
the period of Employee's employment with Employer, or was a prospective
customer of Employer from which Employee (or employees under Employee's
supervision) solicited business or for which a proposal for submission was
prepared during the period of Employee's employment with Employer.
(c) Employee agrees and covenants that for the Limited Period he will
not (without first obtaining the written permission of Employer) directly or
indirectly, recruit for employment, or induce or seek to cause such person to
terminate his or his employment with Employer, any person who then is an
employee of Employer.
-5-
<PAGE>
9. Termination
(a) Cause. Notwithstanding the terms of this Agreement, Employer may
discharge Employee and terminate this Agreement in the event that (i) Employee
shall wilfully fail materially to perform his duties hereunder with reasonable
diligence or shall violate any covenant of his herein contained, (ii) Employee
shall engage in an act of dishonesty in connection with his duties hereunder
or theft, (iii) Employee shall unreasonably refuse to carry out the lawful
order of Employer commensurate with Employee's duties to be performed
hereunder or (iv) Employee shall be charged with a felony involving moral
turpitude (which shall include any felony relating to drugs) or shall be
convicted of, or plead nolo contendere (or make an equivalent plea) in respect
of, any governmental indictment, complaint or other formal allegation.
Notwithstanding the foregoing to the contrary, prior to discharging Employee
pursuant to clauses (i) or (iii) of the immediately preceding sentence,
Employer shall give Employee ten (10) days' prior written notice of any breach
or failure and a reasonable opportunity to cure any such breach or failure, or
cease violating any covenant contained herein, to the extent curable or
ceasable; provided, however, that no notice shall be required to be given in
the event such breach, failure or violation is not curable or ceasable. In the
event Employee is discharged pursuant to this Section 9, Employee's Base
Salary and bonus under Section 4 hereof and all benefits under Section 5
hereof shall terminate immediately upon such discharge (subject to applicable
law such as COBRA), and Employer shall have no further obligation to Employee
except the payment to and reimbursement to Employee for any monies due to
Employee which right to payment or reimbursement accrued prior to such
discharge. In the event Employee is terminated other than pursuant to this
Section 9, Employee's Base Salary and Bonus under Section 4 hereof and all
benefits under Section 5 hereof shall, notwithstanding such termination, be
paid pursuant to the terms of this Agreement.
(b) Incapacity. Should Employee, in the reasonable judgment of a
physician chosen by the Board, become incapacitated to the extent that he is
unable to perform his material duties pursuant to this Agreement for a period
of two (2) consecutive months by reason of illness, disability, or other
incapacity, Employer may terminate this Agreement upon one (1) month's notice
after said two (2) month period.
(c) Death. This Agreement shall terminate immediately upon the death
of Employee, in which case Employee's legal representatives shall be entitled
to receive promptly a payment equal to one (1) month's Base Salary.
10. Violation of Other Agreements
Employee represents and warrants to Employer that he is legally able
to enter into this Agreement and accept employment with Employer; that
Employee is not prohibited by the terms of any agreement, understanding or
policy from entering into this Agreement; and the terms hereof will not and do
not violate or contravene the terms of any agreement, understanding or policy
to which Employee is or may be a party, or by which Employee may be bound.
Employee agrees that, as it is a material inducement to Employer that Employee
make the foregoing
-6-
<PAGE>
representations and warranties and that they be true in all respects, Employee
shall forever indemnify and hold Employer harmless from and against all
liability, costs or expenses (including attorney's fees and disbursements) on
account of the foregoing representations being untrue.
11. Specific Performance; Damages
In the event of a breach or threatened breach of the provisions of
Sections 7 or 8 hereof, Employee agrees that the injury which would be
suffered by Employer would be of a character which could not be fully
compensated for solely by a recovery of monetary damages. Accordingly,
Employee agrees that in the event of a breach or threatened breach of Section
7 or 8 hereof, in addition to and not in lieu of any damages sustained by
Employer and any other remedies which Employer may pursue hereunder or under
any applicable law, Employer shall have the right to equitable relief,
including issuance of a temporary or permanent injunction, by any court of
competent jurisdiction against the commission or continuance of any such
breach or threatened breach, without the necessity of proving any actual
damages or posting of any bond or other surety therefor. In addition to, and
not in limitation of the foregoing, Employee understands and confirms that, in
the event of a breach or threatened breach of Section 7 or 8 hereof, Employee
may be held financially liable to Employer for any loss suffered by Employer
as a result.
12. Notices
Any and all notices, demands or requests required or permitted to be
given under this Agreement shall be given in writing and sent, by registered
or certified U.S. mail, return receipt requested, by hand, or by overnight
courier, addressed to the parties hereto at their addresses set forth above or
such other addresses as they may from time-to-time designate by written
notice, given in accordance with the terms of this Section, together with
copies thereof as follows:
In the case of Employer, with a copy to:
Zukerman Gore & Brandeis, LLP
900 Third Avenue
New York, New York 10022-4728
Attention: Jeffrey D. Zukerman, Esq.
Notice given as provided in this Section shall be deemed effective: (i) on the
date hand delivered, (ii) on the first business day following the sending
thereof by overnight courier, and (iii) on the seventh calendar day (or, if it
is not a business day, then the next succeeding business day thereafter) after
the depositing thereof into the exclusive custody of the U.S. Postal Service.
-7-
<PAGE>
13. Waivers
No waiver by any party of any default with respect to any provision,
condition or requirement hereof shall be deemed to be a waiver of any other
provision, condition or requirement hereof; nor shall any delay or omission of
any party to exercise any right hereunder in any manner impair the exercise of
any such right accruing to it thereafter.
14. Preservation of Intent
Should any provision of this Agreement be determined by a court
having jurisdiction in the premises to be illegal or in conflict with any laws
of any state or jurisdiction or otherwise unenforceable, Employer and Employee
agree that such provision shall be modified to the extent legally possible so
that the intent of this Agreement may be legally carried out.
15. Entire Agreement
This Agreement sets forth the entire and only agreement or
understanding between the parties relating to the subject matter hereof and
supersedes and cancels all previous agreements, negotiations, letters of
intent, correspondence, commitments and representations in respect thereof
among them, and no party shall be bound by any conditions, definitions,
warranties or representations with respect to the subject matter of this
Agreement except as provided in this Agreement.
16. Inurement; Assignment
The rights and obligations of Employer under this Agreement shall
inure to the benefit of and shall be binding upon any successor of Employer or
to the business of Employer, subject to the provisions hereof. Employer may
assign this Agreement to any person, firm or corporation controlling,
controlled by, or under common control with Employer. Neither this Agreement
nor any rights or obligations of Employee hereunder shall be transferable or
assignable by Employee.
17. Amendment
This Agreement may not be amended in any respect except by an
instrument in writing signed by the parties hereto.
18. Headings
The headings in this Agreement are solely for convenience of
reference and shall be given no effect in the construction or interpretation
of this Agreement.
-8-
<PAGE>
19. Counterparts
This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original, but all of which when taken together shall
constitute one and the same instrument.
20. Governing Law
This Agreement shall be governed by, construed and enforced in
accordance with the internal laws of the State of New York, without giving
reference to principles of conflict of laws.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the date first above written.
EMPLOYEE:
/s/ Robert Burlinson
------------------------------
Robert Burlinson
EMPLOYER:
CARIBINER INTERNATIONAL, INC.
By: /s/ Raymond S. Ingleby
------------------------------
Raymond S. Ingleby
Chairman and Chief Executive Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAIDITED CONSOLIDATED BALCANCE SHEET AS OF JUNE 30,1998 AND THE CONSOLIDATED
STATEMENT OF INCOME FOR THE THREE AND NINE MONTHS ENDED JUNE 30, 1998 OF
CARIBINER INTERNATIONAL, INC. AS SET FORTH IN THIS FORM 10-Q AND IS QUALIFIED
IN ITS ENTIRETY BY REFERNCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> JUN-30-1998
<CASH> 20,447
<SECURITIES> 0
<RECEIVABLES> 134,689
<ALLOWANCES> 3,263
<INVENTORY> 0
<CURRENT-ASSETS> 210,867
<PP&E> 170,351
<DEPRECIATION> 77,017
<TOTAL-ASSETS> 735,693
<CURRENT-LIABILITIES> 112,187
<BONDS> 0
0
0
<COMMON> 236
<OTHER-SE> 186,950
<TOTAL-LIABILITY-AND-EQUITY> 735,693
<SALES> 512,725
<TOTAL-REVENUES> 512,725
<CGS> 351,666
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 113,432
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,963
<INCOME-PRETAX> 16,229
<INCOME-TAX> 6,501
<INCOME-CONTINUING> 16,229
<DISCONTINUED> 0
<EXTRAORDINARY> 605
<CHANGES> 0
<NET-INCOME> 9,123
<EPS-PRIMARY> 0.39
<EPS-DILUTED> 0.39
</TABLE>
