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FORM 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended September 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________________ to ______________________
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)
(212) 541-5300
(Registrant's telephone number, including area code)
Securities Registered Pursuant to Section 12(b) of the Act:
Title of each class Name of exchange on which registered
Common Stock, par value $0.01 per share New York Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act:
None
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes _X_ No __
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
As of December 22, 1998, the aggregate market value of voting stock held by
non-affiliates of the registrant was $64,250,998.
As of December 22, 1998, the registrant had 23,693,254 shares of its common
stock, par value $0.01 per share (the "Common Stock"), issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
(1) portions of the registrant's definitive proxy statement (to be filed
pursuant to Regulation 14A) for the 1999 Annual Meeting of Stockholders (the
"Proxy Statement") are incorporated by reference into Part III hereof.
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Part I
Item 1. Business
Caribiner International, Inc. is a leading international producer of meetings,
events and training programs, a provider of audiovisual equipment rentals, sales
and installations and related staging services, and a provider of related
corporate meeting services and business communications services that enable
businesses to inform, sell to and train their sales forces, dealers,
franchisees, partners, stockholders and employees. As used herein, the terms
"Caribiner" or the "Company" refer to Caribiner International, Inc. and its
subsidiaries, and the references to a fiscal year are to the Company's fiscal
year ended September 30 in the referenced year.
Business activities and events that generate a need for business communications
and corporate meeting services include sales meetings, product launches,
training and education of employees and dealers, development of strategic and
organizational communications, conferences, stockholder meetings and other
executive management presentations that are used to convey important information
about the business and/or its products. Large-scale events and programs to
communicate essential corporate messages are often not part of a company's core
businesses because of the unique skills necessary to develop, produce and
successfully stage such events. As a result, many companies look to engage
outside firms to perform these functions. In addition, large corporate events
tend not to occur regularly, depending, for example, on timing of product
roll-outs, changing competitive environments and shifts in corporate strategy,
which makes it relatively costly to maintain the internal resources to create
and execute these events.
The Company offers a wide range of business communications services, including
conceptualizing, planning and producing corporate meetings and events and
providing audiovisual equipment rentals, sales and related staging services for
such meetings and events, developing training and educational materials relating
to new job skills, products, systems and organizational processes, handling
internal corporate communications and creating interactive trade show exhibits.
The Company believes it has benefited from a trend among major corporations
toward increased corporate outsourcing of meetings, events, training and
communications. The services can be delivered in all forms of media, including
film, interactive technologies (including CD-ROM), videotape, slides, computer
graphics and animation, print and multimedia.
Recent Acquisitions and Dispositions
One of the components of the Company's growth strategy has been to expand its
client base and service offerings by making acquisitions in the business
communications services industry. To this end, during the past five full fiscal
years Caribiner completed over 25 acquisitions. The following provides a brief
summary of the acquisitions completed by Caribiner since October 1, 1997.
In October, 1997, the Company acquired all of the capital stock of Spectrum Data
Systems, Inc. ("Spectrum Data"), an Atlanta-based provider of audiovisual
presentation systems design, installation and services with a primary customer
base in the Southeastern U.S. Spectrum Data had revenue of approximately $10.0
million for the year ended December 31, 1996. The acquisition has enabled the
Company to provide a more comprehensive range of audiovisual services to its
clients in the southeastern U.S.
In November, 1997, the Company acquired Visual Action Holdings plc (now known as
Visual Action Holdings Limited) ("Visual Action"), a United Kingdom public
company. Visual Action provides corporate meeting services in the United States
and the United Kingdom, including audiovisual and exhibition services. If
adjusted for certain subsequent acquisitions and dispositions, Visual Action
would have reported revenue, on a pro forma basis, of approximately $158.1
million for the year ended December 31, 1996, assuming that such acquisitions
and dispositions had occurred as of the beginning of the year. The total cash
acquisition price of all of the outstanding capital shares of Visual Action was
approximately $253.0 million (excluding transaction costs). In May, 1998, the
Company sold the video production equipment rental operations of Visual Action
for approximately $27.6 million in cash (excluding transaction costs).
In July, 1998, the Company completed the disposition of Visual Action's
U.K.-based audiovisual staging operations for approximately $26.7 million in
cash (excluding transaction costs). The proceeds from each such disposition were
used to repay outstanding indebtedness.
In December, 1997, the Company completed the acquisition of Consumer Access
Limited ("Consumer Access"), a business communications services provider based
in Hong Kong. Consumer Access had revenue of approximately
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$3.0 million for the year ended March 31, 1997. The Company integrated Consumer
Access into its Hong Kong office, which was opened in June, 1996.
In January, 1998, the Company acquired RightSource, Inc. ("RightSource"), a
marketing support and training services company, focusing primarily on product
launches and customer education for the information technology industry, with
offices in South Carolina and Connecticut, as well as training centers in
several other states. RightSource had revenue of approximately $22 million for
the nine months ended September 30, 1997. RightSource operates as a subdivision
of the Company's Communications division.
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 specializing in
communications and marketing support. Bridge Design reported revenue of
approximately $3.4 million for the year ended March 31, 1997. Similar to
Consumer Access, Bridge Design has been integrated into the Company's Hong Kong
Office.
In June, 1998, the Company acquired substantially all of the assets and certain
of the liabilities of Stagecraft Corporate Theatre ("Stagecraft"), an
Australia-based staging and audiovisual equipment rental company with offices in
Melbourne and Brisbane. Stagecraft was integrated into the Company's previously
existing Australian operations, which it acquired in May, 1997.
Also, in June, 1998, the Company acquired substantially all of the assets and
certain of the liabilities of M.D. McDonald, Inc. ("McDonald"), a Michigan-based
employee training services company specializing in the development of customized
training programs for the automobile industry. McDonald reported revenue of
approximately $1.1 million for the year ended December 31, 1997.
In August, 1998, the Company acquired substantially all of the assets and
certain of the liabilities of The Event Company Pty Ltd. ("TEC"), an
Australia-based producer of corporate meetings and events. TEC reported revenue
of approximately $2.8 million for the fiscal year ended June 30, 1997. TEC has
been integrated into the Company's Australian operations.
Also, in August, 1998, the Company acquired substantially all of the assets and
certain of the liabilities of Motivation Media, Inc. ("Motivation Media"), a
Chicago-based business communications services firm focusing on meeting and
event production and employee education and training programs. Motivation Media
reported revenue of approximately $10.9 million for the fiscal year ended July
31, 1997. Motivation Media has been integrated into the Chicago office of the
Company's Communications division.
In December, 1998, the Company announced that it intends to dispose of certain
non-core assets. The Company expects the net proceeds from any such sales to be
approximately $70 million to $100 million, which it will use to repay bank debt.
Pursuant to the terms of the Company's senior credit facilities, the Company may
not make future acquisitions which require, individually or in the aggregate,
cash consideration in excess of $5,000,000 in any fiscal year without the prior
consent of its lending banks holding greater than 50% of the outstanding
commitments under such facilities, in their reasonable discretion.
Services
Caribiner offers a wide range of business communications services, including
conceptualizing, planning and producing corporate meetings and events,
developing training and educational materials relating to new job skills,
products, systems and organizational processes, handling internal corporate
communications and creating interactive trade show exhibits, all of which are
provided by the Company's Communications division. The Company also provides,
through its audiovisual services divisions (the "AV operations"), audiovisual
equipment rentals, sales and installations and related staging services, as well
as hotel audiovisual outsourcing services. In addition, the Company provides,
through its Melville Exhibition Services ("MES") subsidiary (which was acquired
upon the acquisition of Visual Action), exhibition services, principally in the
United Kingdom, to exhibition organizers, hall owners and exhibitors.
Specifically, Caribiner's services include:
Production of business meetings and events that introduce new products, present
newly designed corporate strategies to targeted audiences or honor a company's
leading contributors.
Audiovisual equipment rentals, sales and installations and related staging
services, including (i) the Company's being the preferred in-house provider of
audiovisual equipment rentals in approximately 500 hotel properties located
throughout the U.S, Mexico and the Caribbean, (ii) and the Company's being a
supplier of such equipment and services to production companies, other business
communications services companies and corporations for use at meetings, events,
presentations and training programs. The Company also acts as the preferred
drop-off provider to approximately 25 additional hotels.
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Training programs using interactive and technology-driven hardware designed to
improve employee productivity, in the areas of product knowledge, team building,
sales skills, personal skills and behavioral development.
Exhibition services, including the rental of modular stand fittings, furniture,
floor coverings and floral displays, the provision of electrical contracting and
visitor registration services.
Corporate communications programs used to disseminate management's message to
employees and others through various media, including print, film and video and
CD ROM.
Exhibits and displays, which involves the design and development of a company's
trade show exhibit or a visitor's center/lobby display.
Clients
The Company's Communications division targets clients with large or potentially
large recurring needs for business communications services. Caribiner
Communications' client list covers a number of industry sectors including
automotive, information technology, insurance, pharmaceuticals, financial
services, fast food, lodging and petroleum.
Caribiner Communications' clients include ARAMARK, Eastman Kodak Corporation,
Ford Motor Co., Holiday Inn Worldwide, IBM, McDonald's Corporation, Parke-Davis,
a division of Warner Lambert, Schering-Plough and Shell Oil Company.
Caribiner Communications' size and strategic focus on enhancing and establishing
client relationships with large or potentially large accounts permits it to
dedicate personnel to a single client to strengthen and build the relationship
and increase the opportunity for cross-selling to other divisions or departments
of the client. When the Company recognized significant opportunities to expand
its relationship with Ford Motor Co., management decided to increase Company
resources devoted to the servicing of this account. Accordingly, the
Communications division maintains a Detroit facility with approximately 35
full-time employees to service the business communications needs of numerous
individual buyers from the various Ford business units for whom Caribiner
executes projects. Caribiner believes that the strategy it has followed with the
Ford Motor Co. to build and maintain these accounts can be utilized to develop
and build relationships with other clients having a significant need for
business communications services.
The Company's AV operations target hotels with sizable conference space whose
guests' meetings and events utilize audiovisual equipment; corporate clients
with significant audiovisual equipment needs and production companies; trade
associations and other business communications services companies that require
audiovisual and staging services. With respect to hotel audiovisual outsourcing,
the Company's AV operations serve members of various national hotel chains,
including those of Westin, Doubletree, Holiday Inn, Hyatt, Red Lion and
Sheraton. In addition to entering into agreements with hotels on an individual
basis, the Company has also entered into agreements with the Omni Hotels,
Inter-Continental Hotels and Doubletree Hotels Corporation pursuant to which
such companies promote the Company's audiovisual outsourcing services to
properties operated or franchised under their respective flags. The Company has
also entered into an agreement with an affiliate of Starwood Hotels & Resorts
Worldwide, Inc. ("Starwood") pursuant to which Starwood promotes the Company's
hotel audiovisual outsourcing services to various hotels owned and/or managed by
Starwood and certain of its affiliates.
MES's customers include exhibition and trade show organizers and conference and
convention center owners and/or operators, located principally in the United
Kingdom.
Among the ways the Company seeks to differentiate itself to clients from other
providers of business communications and corporate meeting services are by its
customer service, its breadth of creative and technical expertise, its ability
to execute programs successfully, with complete "back-up" system technology, its
demonstrated ability to produce a broad range of projects, large and small,
across a number of industries, its full range of business communications
services, its continuous investment in new technology and equipment, its size
and its international presence.
Sales and Marketing
Historically, Caribiner has acquired new clients and marketed its services
primarily by cross-selling to existing clients, responding to requests for
proposals, pursuing client referrals, identifying prospects through research of
a potential client's business communications needs, actively marketing to
potential new customers and through acquisitions of other business
communications services providers. The Company solicits prospective accounts
through personal contacts by members of Caribiner's senior management as well as
through the Company's managers responsible for
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business development. With respect to the Communications division, when a new
account is established, the Company assigns a sales executive (an account
manager) to the client to build the relationship and ensure that the client's
needs are being met, and to seek out further opportunities to penetrate this
account. The Communications division employs a full-time sales and marketing
staff and has dedicated a group of sales and marketing executives to identify
potential client relationship opportunities and promote Caribiner's expertise
and range of services. Generally, account managers are assigned a number of
different accounts which may be comprised of a number of businesses or a number
of divisions, departments or groups within the same business.
The Company's AV operations which are divided into three subdivisions (as
described below) market their services by type of service offered and by
geographic region. As with the Communications division, personnel are assigned
to those accounts that are identified by management to be strategically
significant. In addition, each of the AV operations' subdivisions employs a
full-time sales and marketing staff to evaluate market opportunities and
identify potential clients. The Company's personnel also work with the sales and
marketing personnel of the various hotels in which the Company's AV operations
are the preferred in-house provider to promote the hotels' meeting and
conference capabilities, thereby creating additional selling opportunities for
the Company.
Operations
Communications Division. The Communications division's operations in North
America are organized generally along geographic lines and are divided into
three regions - East Coast, Midwest and West Coast. Within each region, the
division maintains local offices within those metropolitan areas where there
tend to be a high concentration of the Company's clients. Each region is run by
a general manager, who is supported by sales executives (the account managers)
who establish and foster customer relationships; creative and technical
personnel who direct concept development; and producers and project managers who
have ultimate responsibility for project execution, media creation and, if
relevant to the project, theatrical staging of an event. Because of the
Communications division's Detroit office's focus on the servicing of only one
client - Ford Motor Co. - this office remains distinct from the regional
reporting structure, but is staffed similarly to the various local offices
within the regions.
In addition, because of the nature of the RightSource service offering, it
operates as a subdivision within the Communications division and works with the
division's regional offices to provide education and training services to such
offices' clients, as well as clients which it has generated on its own. Such
services include the operation of several training centers where customers of
RightSource's clients are trained in the use of such clients' products.
Internationally, the Communications' divisions operations are also organized
generally along geographical lines ((i) United Kingdom, (ii) Hong Kong and (iii)
Australia and New Zealand) and are staffed in a similar manner to the division's
North American offices.
AV Operations. The Company's AV operations are divided into three subdivisons,
generally along product lines and service offerings. The Company's hotel
audiovisual outsourcing division, which is based in Chicago, services the
approximately 500 hotels for which the Company has agreements to be the
preferred in-house provider of audiovisual equipment rental services. To service
each of the hotel properties, the Company employs on-site management and service
representatives who work with the hotels' respective management to assist hotel
guests and customers with their audiovisual equipment and office service needs
and to exploit opportunities to increase the volume of rental activity in such
hotels. In addition to employees maintained within each hotel, the division also
employs a full time sales and marketing staff which seeks out new opportunities
with individual hotels and hotel chains.
The Company's staging and rental services division, which is based in Los
Angeles, provides staging services and audiovisual equipment rentals to
corporate clients, production companies, trade associations and other business
communications services companies that require such services. The staging and
rental services division maintains regional inventory support and sales offices
in various locations throughout the U.S.
The Company's presentation technologies division of the AV operations, which is
based in Atlanta, provides audiovisual equipment installation and design
services to corporate clients (including hotel properties) in the design of
their meeting and conference rooms. This division also assists clients in
efficiently managing their proprietary audiovisual assets. Similar to the hotel
audiovisual outsourcing division, the presentation technologies division
employs, in certain instances as may be needed or requested, on-site personnel
within a client's offices. The division maintains several regional offices with
their own sales, engineering and support staffs to service clients and seek out
opportunities within such regions.
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General. Throughout each of the Company's operating units, each office
supplements its staff with independent contractors or part-time employees where
needed. Caribiner has long-standing relationships with freelance contractors and
part-time employees in various production, technical and creative disciplines,
which, management believes, gives it a competitive advantage in being able to
produce the highest quality events for its customers while keeping overhead
lower and utilizing resources more efficiently.
Caribiner's management emphasizes the coordination of activities between offices
and allocates, when necessary, resources from one office in order to support
another. This coordination of activities allows the Company to serve its clients
at a local level while at the same time providing clients with resources and
expertise of an international organization.
Foreign Operations. The Company's foreign operations, principally located in the
United Kingdom, Asia and Australia and consisting primarily of MES and the
activities of the Communications division's foreign offices, had identifiable
assets, including goodwill, of $55.4 million and $99.4 million at September 30,
1997 and 1998, respectively. Revenues of $52.8 million and $143.9 million, and
operating income of $1.5 million and $12.1 million, related to the Company's
foreign operations are included in the results of operations for the years ended
September 30, 1997 and 1998, respectively. The Company's foreign operations
during the year ended September 30, 1996 were not significant.
Employees
As of October 31, 1998, Caribiner employed approximately 4,100 full-time
employees, of which 3,540 employees were located domestically and 560 were
located internationally.
Except for approximately 25 employees of the Company's hotel audiovisual
outsourcing and audiovisual installation and design subdivisions of the AV
operations, whose terms of employment are covered by a collective bargaining
agreement with a union, the Company has no full-time employees whose employment
is covered by collective bargaining or similar agreements with unions; however,
the Company and its subsidiaries do from time to time independently contract
with or hire part-time union personnel, especially during the production of a
particular meeting or event, and, accordingly, the Company and/or its
subsidiaries, is a party to certain agreements with unions governing the hiring
and terms of employment of such personnel. Over the course of any given project
period, the Company evaluates the production personnel requirements and
determines the extent to which it must supplement its available employee base
with the use of freelance contractors or part-time employees. Depending on the
timing and specific requirements of the events and the number of overlapping
events in any given planning period, the use of freelance contractors and
part-time employees can vary significantly. The Company considers its relations
with its full-time employees, part-time employees and independent contractors to
be good.
Competition
Although no firm data exists with respect to the size of the business
communications and meeting services industry and the number and size of
competitors within the industry, management believes, based on its experience in
the industry, that the business communications and meeting services industry is
highly fragmented. Caribiner believes that no one participant or small number of
participants is dominant in the industry and that its competitors consist
primarily of small, generally regional firms which provide a limited range of
services, although there are several participants in the industry whose
business, like that of Caribiner, is full service in scope. Management believes
that certain competitors have capabilities and resources comparable to and in
certain respects greater than those of the Company. Caribiner also competes with
in-house communications staffs of existing and potential clients.
Management believes that the competitive factors most important in the business
communications and meeting services industry are organizational breadth,
creative, production and technical expertise, demonstrated ability to execute
projects, range of services offered, range of industries serviced, size,
geographical presence and price.
The Company believes its principal strengths are the depth of its creative and
production talent, its ability to consistently meet its clients' objectives and
expectations, its focus on quality and customer service and its ability to
manage effectively and reliably several complex, large-scale projects
contemporaneously. The Company believes it is at a competitive disadvantage in
certain regions where it does not have local offices.
Seasonality
The Company experiences quarterly variations in revenue, operating income and
net income as a result of many factors, including the timing of clients'
meetings and events, delays in or cancellation of clients' product launches and
events, as well as changes in the Company's revenue mix among its various
services offered. Historically, the Company's business has tended to be slower
in the first quarter of its fiscal year mainly due to the Thanksgiving and
Christmas holidays when clients and hotel guests traditionally stage fewer
meetings and events.
Item 2. Properties
Caribiner's corporate headquarters and the New York office of the Communications
division are located in leased offices occupying approximately 40,000 square
feet at 16 West 61st Street, New York, New York 10023-7604. The lease for the
Company's headquarters expires in 2000.
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The Company has entered into a lease for new headquarters and New York office
space located at 498 Seventh Avenue, New York, New York 10018. The lease calls
for the Company to occupy approximately 50,000 square feet of space initially,
with an option to occupy additional space in the future. The lease for the new
headquarters will expire in 2015. The Company expects to relocate to such new
space in summer, 1999.
The Company also leases offices and warehouse space in cities throughout the
United States, as well as in London, Sydney, Melbourne, Brisbane, Auckland,
Wellington, Glasgow and Hong Kong. The Company anticipates that as it expands,
it will require additional office space to support such growth and believes that
suitable additional or alternative space will be available as needed.
Item 3. Legal Proceedings
From time to time, the Company is involved in litigation incidental to its
business. In the opinion of the Company, no such litigation has had or is likely
to have a material adverse effect on the Company's results of operations,
financial condition or liquidity.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 4A. Executive Officers and Directors of the Company
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<CAPTION>
Name Age Position
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Raymond S. Ingleby...................... 35 Chairman of the Board of Caribiner International, Inc.
Christopher A. Sinclair................. 48 President, Chief Executive Officer and Director of
Caribiner International, Inc.
Robert F. Burlinson..................... 59 Executive Vice President and Chief Financial Officer of
Caribiner International, Inc.
Mark M. Cohen........................... 51 Executive Vice President of Caribiner International, Inc.
and Chief Operating Officer of Caribiner Communications
Brian Shepherd.......................... 41 Executive Vice President of Caribiner
International, Inc. and Chief Executive Officer of
Caribiner Communications
Errol M. Cook.......................... 59 Director
Bryan D. Langton....................... 62 Director
Sidney Lapidus......................... 61 Director
David E. Libowitz...................... 35 Director
C. Anthony Wainwright ................. 65 Director
</TABLE>
Raymond S. Ingleby has been a director of the Company since its formation in
1989, and Chairman since June, 1993. Mr. Ingleby also served as Chief Executive
Officer of the Company from 1989 to December, 1998. From 1988 through 1993, Mr.
Ingleby served as Chairman and Chief Executive Officer of Ingleby Communications
Corporation ("ICC"), which he founded in 1988. In 1985, Mr. Ingleby, a British
citizen, founded his own advertising company that was engaged in the
installation of advertising displays in hotels, which he sold in 1988.
Christopher A. Sinclair has been President, Chief Executive Officer and a
director of the Company since December, 1998. Prior to his joining the Company,
he served as President and Chief Executive Officer of Cutter Capital LLC, a
venture capital and commercial real estate investment firm from March, 1998 to
December, 1998. From September, 1996 to March, 1998, he served as President and
Chief Executive Officer of Quality Food, Inc., a multi regional
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supermarket chain. Prior thereto, Mr. Sinclair held various senior management
positions with PepsiCo, Inc., including Chairman and Chief Executive Officer of
Pepsi-Cola Company from April, 1996 to July, 1996, President and Chief Executive
Officer of PepsiCo Foods & Beverages International from 1993 to 1996, and
President and Chief Executive Officer of Pepsi-Cola International from 1989 to
1993. Mr. Sinclair is a member of the Board of Directors of Venator Group, Inc.
and Mattel, Inc.
Robert F. Burlinson has been Executive Vice President and Chief Financial
Officer of the Company since July, 1998. Prior to his joining the Company, Mr.
Burlinson served as Vice President and Treasurer of Handy & Harman from
September, 1996 to July, 1998. Prior thereto, Mr. Burlinson served as Senior
Vice President and Chief Financial Officer of The National Guardian Group from
October, 1986 to December, 1995.
Mark M. Cohen has been Executive Vice President of the Company and Chief
Operating Officer of Caribiner Communications since October, 1998. Prior
thereto, Mr. Cohen served as Executive Vice President-Strategic Planning and
Development of the Company from July, 1997 to October, 1998. Prior thereto, Mr.
Cohen served as Executive Vice President of the Company and President of
Caribiner Communications from November, 1995 to June, 1997. Mr. Cohen joined
Caribiner in November, 1994 as Executive Vice President of Caribiner, Inc. and
General Manager of its New York office.
Brian Shepherd has been Executive Vice President of the Company and President of
Caribiner Communications since July, 1997. From November, 1995 until July, 1997,
Mr. Shepherd served as Executive Vice President of Strategic Planning and
International Operations, of the Company. Mr. Shepherd joined the Company as
Vice President of Caribiner, Inc. and General Manager of its Atlanta office in
July, 1995. Prior thereto, Mr. Shepherd was President and Chief Executive
Officer of Imagination (USA) Inc., a subsidiary of Imagination, UK, a
European-based business communications company, from December, 1992 to July,
1995.
Errol M. Cook has been a director of the Company since June, 1992. Mr. Cook is a
Managing Director of E.M. Warburg, Pincus & Co., LLC ("EMW LLC"). Mr. Cook has
been a Managing Director of EMW LLC or its predecessor since March, 1991. Mr.
Cook serves on the board of directors of certain privately held companies.
Bryan D. Langton has been a director of the Company since April, 1996. Mr.
Langton served as Chairman and Chief Executive Officer of Holiday Inn Worldwide
and Holiday Inn, Inc. from February, 1990 to December, 1996. Mr. Langton serves
on the board of directors of Fairfield Communities, Inc.
Sidney Lapidus has been a director of the Company since June, 1992. Mr. Lapidus
is a Managing Director of EMW LLC. Mr. Lapidus has been associated with EMW LLC
or its predecessor since 1967. Mr. Lapidus serves on the board of directors of
Information Holdings, Inc., Lennar Corporation, Knoll, Inc., Grubb & Ellis
Company and Journal Register Company, as well as several privately held
companies.
David E. Libowitz has been a director of the Company since June, 1992. Mr.
Libowitz is a Vice President of EMW LLC and has been associated with EMW LLC or
its predecessor since July, 1991. Mr. Libowitz serves on the board of directors
of Information Holdings, Inc., as well as certain privately held companies.
C. Anthony Wainwright has been a director of the Company since March, 1997. Mr.
Wainwright has served as Vice Chairman of McKinney & Silver, a privately-held
advertising agency, since April, 1997. Mr. Wainwright was Chairman of Harris,
Drury, Cohen, Inc., an advertising agency, from 1995 to February, 1997. Prior
thereto Mr. Wainwright was Chairman of Compton Partners, Saatchi & Saatchi, a
national advertising agency, from 1994 to 1995 and was Vice Chairman of that
company from 1989 to 1994. Mr. Wainwright serves on the Board of Directors of
Marketing Services Group, Inc., American Woodmark Corporation, Del Webb Corp.,
Gibson Greetings, Inc. and Advanced Polymer Systems.
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Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
(a) The Common Stock is listed on the New York Stock Exchange under the symbol
"CWC." The following table sets forth on a per share basis, for the periods
indicated, the high and low closing prices of the Common Stock as reported by
the New York Stock Exchange. Such prices have been adjusted to reflect the
2-for-1 stock split effected by the Company on June 20, 1997. The number of
stockholders of record of Common Stock on December 1, 1998 was 146.
<TABLE>
<CAPTION>
Price Range
----------------
High Low
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<S> <C> <C>
Fiscal 1998:
First Quarter........................................................... $46 1/2 $36 11/16
Second Quarter.......................................................... 40 1/2 30 1/2
Third Quarter........................................................... 41 3/4 16 11/16
Fourth Quarter.......................................................... 18 8 5/16
Fiscal 1997:
First Quarter........................................................... 25 1/8 $20 7/8
Second Quarter.......................................................... 26 3/4 21 3/4
Third Quarter........................................................... 35 22 15/16
Fourth Quarter.......................................................... 44 7/8 32 3/4
</TABLE>
The closing price per share of the Common Stock on December 24, 1998 was 8 1/4.
The Company has not paid any dividends with respect to the Common Stock. The
Company presently intends to retain future earnings to finance its growth and
development and therefore does not anticipate any cash dividends in the
foreseeable future. Payment of future dividends, if any, will depend upon future
earnings and capital requirements of the Company and other factors which the
Board of Directors considers appropriate. In addition, the terms of the
Company's credit facility pursuant to which The Chase Manhattan Bank acts as
administrative agent contains limitations on the Company's ability to pay
dividends.
The Company issued and sold the following unregistered securities during the
quarterly period ended September 30, 1998:
On August 7, 1998, the Company issued and sold an aggregate of 53,387 shares of
Common Stock to The Event Company Pty Ltd. in connection with the purchase of
substantially all of the assets and the assumption of certain of the liabilities
of such company.
There were no underwriters employed in connection with the transaction set forth
above.
The transaction described above was effected in reliance upon an exemption from
the registration requirements of the Securities Act of 1933, as amended, on the
basis that such transaction did not involve any public offering. The recipients
of securities in such transaction represented their intentions to acquire the
securities for investment only and not with a view to sell or offer for sale the
securities in connection with any distribution thereof and appropriate legends
were affixed to the securities issued in such transactions.
(b) Not applicable to Company for fiscal year ended September 30, 1998.
8
<PAGE>
Item 6. Selected Financial Data
SELECTED FINANCIAL DATA
(In thousands, except share data)
The historical selected financial data presented below as of and for the fiscal
years ended September 30, 1994, 1995, 1996, 1997 and 1998, are derived from, and
are qualified by reference to, the consolidated financial statements that have
been audited by Ernst & Young LLP, independent auditors. The data presented
below should be read in conjunction with the Company's consolidated financial
statements and related notes thereto and other information included elsewhere in
this Form 10-K.
<TABLE>
<CAPTION>
Year ended September 30,
---------------------------------------------------------------
1994 1995 1996 1997 1998
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Service revenue $ 59,174 $ 81,131 $ 148,330 $ 213,239 $ 296,393
Rental revenue -- -- -- 131,843 414,941
Intercompany eliminations -- -- -- (2,824) (14,556)
---------- ---------- ---------- ---------- ----------
Total revenue 59,174 81,131 148,330 342,258 696,778
Cost of service revenue 39,724 54,312 99,797 144,980 204,511
Cost of rental revenue -- -- -- 86,885 299,520
Intercompany eliminations -- -- _-- (2,824) (14,556)
---------- ---------- ---------- ---------- ----------
Total cost of revenue 39,724 54,312 99,797 229,041 489,475
---------- ---------- ---------- ---------- ----------
Gross profit 19,450 26,819 48,533 113,217 207,303
Selling, general and administrative expenses 14,349 19,306 30,442 71,270 153,568
Restructuring charge (a) -- -- -- -- 6,953
Non-cash compensation expense (b) -- -- 1,072 -- --
Depreciation and amortization 2,137 2,330 3,142 8,905 21,586
---------- ---------- ---------- ---------- ----------
Total operating expenses 16,486 21,636 34,656 80,175 182,107
Equity in income of affiliated company -- -- -- -- 688
---------- ---------- ---------- ---------- ----------
Operating income 2,964 5,183 13,877 33,042 25,884
Interest expense with related parties 2,107 2,234 1,199 -- --
Interest expense, other 502 1,259 387 2,429 24,325
---------- ---------- ---------- ---------- ----------
Income before taxes and extraordinary charge 355 1,690 12,291 30,613 1,559
Provision for taxes 62 264 4,302 12,551 624
---------- ---------- ---------- ---------- ----------
Income before extraordinary charge 293 1,426 7,989 18,062 935
Extraordinary charge on early extinguishment of debt
(net of income taxes of $403) (c) -- -- -- -- 605
---------- ---------- ---------- ---------- ----------
Net income $ 293 $ 1,426 $ 7,989 $ 18,062 $ 330
Preferred stock dividends (d) (582) (655) (327) -- --
---------- ---------- ---------- ---------- ----------
Net income available to common stockholders $ (289) $ 771 $ 7,662 $ 18,062 $ 330
---------- ---------- ---------- ---------- ----------
Basic and diluted earnings per common share:
Income before extraordinary charge $ 0.60 $ 0.25 $ 0.53 $ 0.83 $ 0.04
Extraordinary charge -- -- -- -- (0.03)
---------- ---------- ---------- ---------- ----------
Net income per common share (e) $ 0.60 $ 0.25 $ 0.53 $ 0.83 $ 0.01
========== ========== ========== ========== ==========
<CAPTION>
Year ended September 30,
-----------------------------------------------------------------
1994 1995 1996 1997 1998
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital (deficit) $ (1,452) $ 352 $ 7,488 $ 36,151 $ 56,974
Total assets 31,266 45,298 126,322 313,877 697,949
Total debt 24,531 34,175 22,839 61,859 397,240
Stockholders' equity (deficit) (13,249) (12,434) 53,468 171,434 175,775
</TABLE>
See Notes to Selected Financial Data
9
<PAGE>
NOTES TO SELECTED FINANCIAL DATA
(a) In connection with the Company's efforts to integrate its acquired
businesses, primarily in the audiovisual services division and to
streamline its organizational structure, the Company recorded an
aggregate pre-tax restructuring charge of $7.0 million during the year
ended September 30, 1998, of which $3.8 million and $3.2 million were
recorded in the three months ended March 31, 1998 and September 30, 1998,
respectively. The charges related primarily to employee termination and
severance costs, lease termination costs and certain other asset
write-offs.
(b) Non-cash compensation expense for the year ended September 30, 1996
of $1.1 million (or $0.06 per share) resulting primarily from the vesting
of non-voting common stock issued at a price lower than its fair market
value under the Company's 1993 Management Stock Plan which was terminated
upon consummation of the Company's initial public offering (the "Initial
Public Offering") of shares of Common Stock in March, 1996.
(c) In connection with the acquisition of Visual Action Holdings, plc,
the Company entered into a new credit facility in October, 1997 (the
"1997 Facilities"). 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 the Company's former bank facilities that were repaid from the
proceeds of the 1997 Facilities.
(d) All preferred stock was converted into Common Stock in connection
with the Initial Public Offering.
(e) Basic and diluted earnings per common share for the years ending
September 30, 1994, 1995 and 1996 were calculated using the weighted
average number of shares of Common Stock outstanding during the period,
assuming Common Stock issued for nominal consideration arising from the
conversion and exercise of all dilutive securities was outstanding for
all periods presented.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Certain statements contained herein may be deemed to be forward-looking
statements as defined in the Safe Harbor Provisions of the Private Securities
Litigation Reform Act of 1995. Forward-looking statements involve known and
unknown risks and uncertainties which may cause the Company's actual results in
future periods or plans for future periods to differ materially from what is
currently anticipated. Those risks include, among others, general competitive
factors, the Company's ability to successfully complete and integrate its
acquisitions and to implement operational improvements in its acquired
businesses, the seasonality and episodic nature of the Company's business and
other risks and uncertainties detailed from time to time in the Company's
filings with the Securities and Exchange Commission. Other factors and
assumptions not identified above were also involved in the derivation of these
forward-looking statements, and the failure of such other assumptions to be
realized, as well as other factors, may also cause actual results to differ
materially from those projected. The Company assumes no obligation to update
these forward-looking statements to reflect actual results, changes in
assumptions or changes in other factors affecting such forward-looking
statements.
10
<PAGE>
Results of Operations
The following table sets forth, for the periods indicated, certain components of
the Company's operating statement data, including such data as a percentage of
revenue.
<TABLE>
<CAPTION>
Year ended September 30,
-----------------------------------------------------------------------
1996 1997 1998
-------------------- --------------------- ---------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Service revenue $ 148,330 100.0% $ 213,239 62.3% $ 296,393 42.5%
Rental revenue -- -- 131,843 38.5 414,941 59.6
Intercompany eliminations -- -- (2,824) (0.8) (14,556) (2.1)
--------- ----- --------- ----- --------- -----
Total revenue 148,330 100.0% 342,258 100.0% 696,778 100.0%
Cost of service revenue 99,797 67.3 144,980 42.4 204,511 29.4
Cost of rental revenue -- -- 86,885 25.4 299,520 42.9
Intercompany eliminations -- -- (2,824) (0.8) (14,556) (2.1)
--------- ----- --------- ----- --------- -----
Total cost of revenue 99,797 67.3 229,041 66.9 489,475 70.2
--------- ----- --------- ----- --------- -----
Gross profit 48,533 32.7 113,217 33.1 207,303 29.8
Selling, general and administrative expenses 30,442 20.5 71,270 20.8 153,568 22.0
Restructuring charge -- -- -- -- 6,953 1.0
Non-cash compensation expense 1,072 0.7 -- -- -- --
Depreciation and amortization 3,142 2.1 8,905 2.6 21,586 3.1
--------- ----- --------- ----- --------- -----
Total operating expenses 34,656 23.4 80,175 23.4 182,107 26.1
Equity in income of affiliated company -- -- -- -- 688 --
--------- ----- --------- ----- --------- -----
Operating income 13,877 9.4 33,042 9.6 25,884 3.7
Interest expense with related parties 1,199 0.8 -- -- -- --
Interest expense, other 387 0.3 2,429 0.7 24,325 3.5
--------- ----- --------- ----- --------- -----
Income before taxes and extraordinary charge 12,291 8.3 30,613 8.9 1,559 0.2
Provision for taxes 4,302 2.9 12,551 3.7 624 0.1
--------- ----- --------- ----- --------- -----
Income before extraordinary charge 7,989 5.4 18,062 5.2 935 0.1
Extraordinary charge on early extinguishment of
debt (net of income taxes of $403) -- -- -- -- 605 0.1
--------- ----- --------- ----- --------- -----
Net income $ 7,989 5.4% $ 18,062 5.2% $ 330 --%
========= ===== ========= ===== ========= =====
</TABLE>
Fiscal 1998 Compared to Fiscal 1997
Revenue. Revenue increased $354.5 million, or 103.6%, from $342.3 million in
fiscal 1997 to $696.8 million in fiscal 1998. Approximately 79.9% of the
increase represented revenue (before intercompany eliminations) from the
Company's audiovisual services division, primarily as a result of the Company's
acquisition of Visual Action Holdings plc ("Visual Action") effective December
1, 1997. Increases in the Communications division's service revenue (before
intercompany eliminations) accounted for the remaining 20.1% of the total
revenue growth, primarily from clients in the financial services, government,
insurance and information technology industries. Decreases in service revenue
from the automotive industry were offset by increases in revenue from clients in
the pharmaceuticals and food service industries.
Gross Profit. Total gross profit increased $94.1 million, or 83.1%, from $113.2
million in fiscal 1997 to $207.3 million in fiscal 1998, as a result of the
revenue growth described above. As a percentage of the Communications division's
service revenue, gross profit (before intercompany eliminations) was 32.0% and
31.0% in fiscal 1997 and fiscal 1998, respectively. Gross profit (before
intercompany eliminations) as a percentage of rental revenue was 34.1% and 27.8%
in fiscal 1997 and fiscal 1998, respectively. The decrease in the gross margin
on rental revenue resulted primarily from the impact of acquired rental
businesses, which had historically operated at lower gross margins, and
investments made to strengthen the infrastructure of the Company's rental
businesses to enable them to handle future revenue growth. Gross profit on
rental revenue for the years ended September 30, 1997 and 1998 was impacted by
$4.2 million and $16.2 million, respectively, of depreciation expense related to
rental equipment used in the audiovisual services businesses. Such depreciation
expense is included in cost of rental revenue.
11
<PAGE>
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $82.3 million, or 115.5%, from $71.3 million
in fiscal 1997 to $153.6 million in fiscal 1998, resulting primarily from the
expansion of the Company as a result of its various acquisitions. Salaries and
related costs increased $49.6 million as a result of increased personnel to
support the overall growth of the Company and normal inflationary increases.
Other general and administrative expenses such as rent and related costs,
telephone, office supplies and equipment, as well as insurance and other
miscellaneous costs increased $25.6 million. Direct selling expenses such as
travel, marketing, postage and other costs related to obtaining business
increased $7.1 million. Selling, general and administrative expenses, as a
percentage of total revenue, were 20.8% and 22.0% in fiscal 1997 and 1998,
respectively.
Restructuring Charge. In fiscal 1998, the Company initiated a review of all of
its operations, primarily focusing on the integration of the audiovisual
services businesses that it has acquired, as well as the Company's overall
management organizational structure. In connection with this review, the Company
adopted a reorganization plan to streamline its organizational structure and
evaluate its overall operational efficiency.
Accordingly, during the three months ended March 31, 1998, the Company recorded
a pre-tax restructuring charge of $3.8 million. 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 and other related costs. During the three months ended September 30,
1998, the Company recorded an additional pre-tax restructuring charge of $3.2
million in connection with the continuation of the reorganization plan begun in
March 1998. The charge included $1.0 million related to severance and
termination costs for approximately 330 people, $0.7 million of lease
termination costs, $1.0 million relating to the write-off of certain assets and
$0.5 million of other termination and shut down costs to be incurred during the
reorganization.
The total remaining restructuring liability as of September 30, 1998 was $4.1
million.
In addition, the Company expects to incur up to $8.5 million in transition costs
during fiscal 1999 in connection with the Company's continued implementation of
its overall strategic plans. Such transition costs primarily consist of
duplicate costs currently existing within the Company's audiovisual businesses,
such as rent on facilities, certain administrative costs and consulting services
associated with implementing such plans.
Depreciation and amortization. Depreciation and amortization increased to $21.6
million in fiscal 1998, an increase of $12.7 million as compared to $8.9 million
in fiscal 1997. Property and equipment acquired through acquisitions and
increased capital expenditures for computer and other technology equipment
resulted in increased depreciation of $3.5 million. Amortization expense
increased $9.2 million resulting primarily from goodwill arising from
acquisitions.
Equity in Income of Visual Action. In November, 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 began consolidating
the financial results of Visual Action as of December 1, 1997.
Interest expense, net. Net interest expense increased by $21.9 million from $2.4
million in fiscal 1997 to $24.3 million in fiscal 1998 due to higher borrowings
to finance acquisitions, operational expansion, capital expenditures and
increased working capital requirements.
Income before taxes. Income before taxes decreased from $30.6 million in fiscal
1997 to $1.6 million in fiscal 1998 due to (i) a decrease in operating income of
approximately $7.1 million due to the factors described above and (ii) increased
net interest expense of $21.9 million as a result of financing the Company's
acquisitions.
Provision for taxes. The provision for taxes as a percentage of income before
taxes was 41% and 40% in fiscal 1997 and 1998, respectively, which reflects
statutory tax rates adjusted for book/tax differences such as non-deductible
expenses.
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 that were repaid from the proceeds of such new credit facility.
12
<PAGE>
Net income. Net income for fiscal 1998 decreased $17.8 million to $0.3 million
from net income of $18.1 million in fiscal 1997 due to the factors described
above. Basic and diluted earnings per common share after the aggregate pre-tax
restructuring charge of $7.0 million and the extraordinary charge on early
extinguishment of debt was $0.01 for fiscal 1998 as compared with $0.83 for
fiscal 1997. Basic and diluted earnings per common share before the
restructuring charge and the extraordinary charge on early extinguishment of
debt would have been $0.22 for fiscal 1998.
Fiscal 1997 Compared to Fiscal 1996
Revenue. Revenue increased $194.0 million, or 130.7%, from $148.3 million in
fiscal 1996 to $342.3 million in fiscal 1997. The increase resulted primarily
from expanded activities from existing clients, projects for new clients and the
acquisition of other business communications services and audio-visual and
rental, sales and companies. Approximately 67% of the increase represented
revenue from the rental of audiovisual equipment through the Company's
Audio Visual Services division, which includes the results from the respective
dates of acquisition of the following audio-visual companies acquired in fiscal
1997: Video Supply Company, Inc. d/b/a Projexions Video Supply and
Projections/Video Supply Company (together "Projexions") (acquired in January,
1997), Blumberg Communications, Inc. ("Blumberg") (acquired in January, 1997),
D&D Enterprises, Inc. d/b/a Show Solutions ("Show Solutions") (acquired in
April, 1997) and Bauer Audiovisual, Inc. (acquired in July, 1997). Increases in
service revenue accounted for the remaining 33% of the total revenue growth due
primarily from clients in the automotive, consumer products, telecommunications,
information technologies and government industries. Service revenue from clients
in the financial services industry decreased primarily as a result of a
triennial sales meeting held by a financial services client in fiscal 1996.
Gross profit. Total gross profit increased $64.7 million, or 133.3%, from $48.5
million in fiscal 1996 to $113.2 million in fiscal 1997, primarily as a result
of the revenue growth described above. As a percentage of service revenue, gross
profit was 32.0% in each of fiscal 1996 and 1997. Gross profit as a percentage
of rental revenue was 34.1%. Gross profit on rental revenue for fiscal 1997 was
impacted by $4.2 million of depreciation expense related to rental equipment
used in the audiovisual services businesses. Such depreciation expense is
included in cost of rental revenue.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $40.9 million, or 134%, from $30.4 million in
fiscal 1996 to $71.3 million in fiscal 1997. The increase resulted primarily
from the expansion of operations both organically and through acquisitions, as
well as from normal inflationary increases. Salaries and related costs increased
$23.8 million to support the Company's overall significant growth, as well as
increased personnel resulting from acquisitions. Other general and
administrative expenses, including rent and related costs, telephone, office
supplies, as well as insurance costs, and other miscellaneous expenses,
increased $12.9 million to support the significant revenue and acquisition
growth. Direct selling expenses such as travel, marketing and other costs
related to obtaining business increased $4.2 million. Selling, general and
administrative expenses, as a percentage of total revenue, were comparable in
both periods. The $1.1 million nonrecurring, non-cash compensation charge during
fiscal 1996 was the result of the vesting of common stock sold pursuant to the
Company's 1993 Management Stock Plan at a price lower than its fair market
value.
Depreciation and amortization. Depreciation and amortization expense increased
to $8.9 million in fiscal 1997, an increase of $5.8 million as compared to $3.1
million in fiscal 1996. The continued investment in information technology, as
well as property and equipment acquired through acquisitions, resulted in
increased depreciation expense of $2.5 million. Amortization expense increased
$3.3 million resulting primarily from goodwill arising from acquisitions.
Interest expense. Net interest expense increased by $2.0 million from fiscal
1996 to fiscal 1997 primarily due to higher average borrowings to finance
acquisitions, operational expansion, capital expenditures and increased working
capital requirements. Interest expense with related parties decreased $1.2
million from fiscal 1996 due to the repayment and conversion of debt on March
15, 1996 in connection with the Company's initial public offering.
Income before taxes. Income before taxes increased from $12.3 million in fiscal
1996 to $30.6 million in fiscal 1997 as increased revenue from existing and new
accounts and acquired businesses contributed to the improved earnings of the
Company.
Provision for taxes. The provision for taxes as a percentage of income before
taxes was 35% and 41% for fiscal 1996 and fiscal 1997, respectively. The
increase in the effective tax rate is due to the fact that a portion of income
before tax in fiscal 1996 was offset by net operating loss carryforwards.
Net income. Net income increased to $18.1 million in fiscal 1997 from $8.0
million in fiscal 1996. Earnings per common share increased in fiscal 1997 to
$0.83 from $0.53 in fiscal 1996. Earnings per share in fiscal 1996 was
13
<PAGE>
computed on a pro forma basis assuming conversion of the convertible promissory
note and all outstanding shares of preferred stock into common stock (which, in
each case, occurred on March 15, 1996 immediately prior to the consummation of
the Company's initial public offering) as if such conversions occurred on
October 1, 1995. The pro forma earnings per share computation reflects
adjustments to eliminate the interest expense incurred on the convertible
promissory note and to eliminate accrued preferred stock dividends. Excluding
the effect of the nonrecurring non-cash compensation charge of $1.1 million, net
income per common share would have been $0.59 for fiscal 1996.
Liquidity and Capital Resources
The following table sets forth certain information from the Company's
Consolidated Statement of Cash Flows for periods indicated:
<TABLE>
<CAPTION>
Year Ended September 30,
------------------------------------------------------------------------
1996 1997 1998
---- ---- -----
<S> <C> <C> <C>
Net cash provided by (used in):
Operating activities $ 7,260 $ 7,884 $ 22,990
Investing activities (46,204) (128,522) (302,973)
Financing activities 47,077 122,113 285,499
</TABLE>
In fiscal 1996, the Company generated $7.3 million from its operating
activities. Net income plus depreciation and amortization and the nonrecurring
non-cash compensation charge described above provided $12.2 million. The net
change in working capital used $4.9 million, with increases in accounts
receivable, prepaid expenses and other current assets as well as a decrease in
accrued interest payable, offset by a net increase in accrued expenses and
accounts payable. Investing activities required $46.2 million, resulting
primarily from the acquisition of businesses and the purchase of equipment.
Financing activities provided approximately $47.1 million, of which an aggregate
of $44.4 million of net proceeds were received in fiscal 1996 from the issuance
of the Company's common stock and the exercise of warrants to purchase the
Company's common stock, $19.8 million was provided by the Company's
then-existing bank facilities. Such amounts were offset by $16.9 million used to
repay certain outstanding bank borrowings and substantially all other long-term
indebtedness, and to pay accrued preferred stock dividends. In addition, $0.2
million was used to repurchase the Company's common stock in fiscal 1996.
In fiscal 1997, the Company generated $7.9 million from its operating
activities. Net income plus depreciation and amortization provided $31.1
million. The net change in working capital used $23.3 million, with increases in
accounts receivable, prepaid expenses and other assets as well as decreases in
deferred income, offset by increases in accrued expenses and other liabilities
and a decrease in deferred charges. A total of $128.5 million was used for
investing activities, primarily for the acquisition of businesses and the
purchase of equipment. Financing activities provided $122.1 million, of which
$135.9 million was provided by the Company's existing banking facilities, and
$85.8 million of net proceeds were received in fiscal 1997 from the issuance of
common stock. In addition, $98.5 million was used to repay outstanding bank
borrowings during the period, and $1.0 million was used to pay financing fees in
connection with the loan agreement described below.
In fiscal 1998, the Company generated $23.0 million from its operating
activities. Net income adjusted for depreciation and amortization and the
extraordinary and restructuring charges provided $42.9 million. The net change
in working capital used $19.9 million, with an increase in deferred income, and
a decrease in accrued expenses and other liabilities and prepaid expenses and
other current assets, which were more than offset by an increase in accounts
receivable and other assets and a decrease in taxes payable and accounts
payable. Investing activities used $303.0 million due to acquisition-related
expenditures and fixed asset purchases, primarily audiovisual and computer
equipment, as well as information technology enhancements. Aggregate net
proceeds of $48.9 million related to the disposition of the Company's U.K.-based
broadcast video and audiovisual staging divisions offset the expenditures
described above. Financing activities provided $285.5 million, of which $759.1
million was provided by drawings under the Company's bank facilities, offset by
repayments of $470.5 million. In addition, the Company received $0.7 million
from the exercise of employee stock options.
On December 4, 1996, the Company entered into a loan agreement with a syndicate
of banks pursuant to which the Company increased its aggregate available bank
financing from $27 million in fiscal 1996 to $100 million in fiscal 1997,
consisting of a $75 million six year reducing revolving credit facility (the
"Reducing Revolver") to be utilized in connection with the financing of
acquisitions and a $25 million six year revolving line of credit (the "Revolving
Line" and together with the Reducing Revolver, the "1996 Facilities"). Amounts
outstanding under the Company's former bank facilities were repaid with proceeds
from the 1996 Facilities. Interest on outstanding amounts under the 1996
Facilities was payable quarterly in arrears and, at the option of the Company,
interest accrued at either (i) LIBOR plus an applicable margin or (ii) an
alternate base rate based on 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. Pursuant to the terms of the 1996 Facilities, the Company was
required to reduce outstanding amounts under the Revolving Line to less than
$5.0 million for a period of not less than 30 days during every 12-month period
commencing on December 4, 1996.
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 (the "Revolving Facility") to be
utilized in connection with future acquisitions and for working capital and
general corporate purposes and a $250 million six year term loan (the "Term
Facility" and together with the Revolving Facility, the "1997 Facilities") to be
utilized in connection with the acquisition of Visual Action Holdings plc.
Amounts outstanding under the 1996 Facilities were
14
<PAGE>
repaid with the proceeds from the 1997 Facilities. Approximately $4.8 million in
debt issuance fees were incurred in connection with the 1997 Facilities. Such
fees are being amortized over the term of the 1997 Facilities, which is
approximately six years.
In May, 1998, the Company repaid approximately $26 million under the Term
Facility thereby permanently reducing availability thereunder by such amount. In
December, 1998, the terms of the Revolving Facility were amended to reduce the
aggregate availability thereunder from $300 million to $250 million, to amend
certain financial covenants contained therein and to increase the interest rate
on amounts outstanding under the 1997 Facilities. Fees of approximately $1.2
million were incurred in connection with the amendments made to the 1997
Facilities in December, 1998. Such fees will be amortized over the remaining
term of the 1997 Facilities. As of December 18, 1998, the Company had
approximately $412.9 million outstanding under the 1997 Facilities. Cash on hand
as of such date was $12.9 million.
The maturity date of each of the Term Facility and the Revolving Facility 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 presently LIBOR plus 2.75%.
Principal on the Term Facility is payable in quarterly installments beginning on
December 31, 1998 with the final scheduled payment due on September 30, 2003.
Subject to reductions in such quarterly installments for prepayments made under
the Term Facility, at present, the Company will be required to repay an
aggregate of: (i) $22.4 million in fiscal 1999, (ii) $33.6 million in fiscal
2000, (iii) $44.8 million in fiscal 2001, (iv) $56 million in fiscal 2002 and
(v) $67.8 million in fiscal 2003. The Company is permitted and intends to draw
on the Revolving Facility to make such payments.
The 1997 Facilities are secured by substantially all of the assets of the
Company and its subsidiaries, and the Company and its subsidiaries have pledged
the stock of their respective subsidiaries for the ratable benefit of its
lending banks. The 1997 Facilities contain certain financial and other covenants
and restrictions, including without limitation restrictions on the ability of
the Company to pay dividends.
Capital expenditures were $2.2 million in fiscal 1996, $17.7 million in fiscal
1997 and $46.5 million in fiscal 1998. During fiscal 1995 and 1996, the purchase
of additional personal computers and expanded capabilities for the computer
system accounted for the largest areas of expenditure. During fiscal 1997 and
fiscal 1998, the purchase of audio-visual rental equipment and the continued
investment in information technology comprised the major portion of capital
expenditures.
In December, 1998, the Company announced that it intends to dispose of certain
non-core assets. The Company expects the net proceeds from any such sales to be
approximately $70 million to $100 million, which it will use to repay bank debt.
Quarterly Results
The following table sets forth the unaudited quarterly results of operations for
each of the quarters in the two years ended September 30, 1997 and 1998. In
management's opinion, this unaudited quarterly information includes all
adjustments which are necessary for a fair presentation of the information for
the quarters presented. The operating results in any quarter are not necessarily
indicative of the results which may be expected for any other future period.
<TABLE>
<CAPTION>
Fiscal 1997 Fiscal 1998
------------------------------------------- ----------------------------------------------
1st 2nd 3rd 4th 1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
------- ------- ------- ------- ------- ------- ------- -------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue $52,659 $77,435 $103,577 $108,587 $122,449 $187,378 $202,898 $184,053
Gross profit 17,711 25,174 34,790 35,542 37,440 61,459 62,161 46,243
Operating income (loss) 1,771 6,902 13,669 10,700 3,135 13,256 16,802 (7,309)
Net income (loss) 736 3,721 8,013 5,592 (477) 3,765 5,836 (8,794)
</TABLE>
Billings and Collections
Customers are normally billed on a per-project or per-rental basis. Generally,
the Company produces projects on a fixed-price basis. The components of the
fixed price are labor, both internal and external, outside purchases and
equipment utilization. The Company also produces projects priced on a
"cost-plus" basis, whereby the Company bills its employees' services to the
client at hourly or per diem rates, depending upon the employee, and then
charges for actual outside purchases plus an agreed upon mark-up. Like fixed
pricing, however, cost-plus pricing has a ceiling that cannot be exceeded
without written permission of the client. For both fixed-price and cost-plus
projects, the Company
15
<PAGE>
has a project change notice system to authorize all production/price changes.
Generally, billing terms are one-third due upon contract signing, one-third due
during production and the remainder due upon delivery and completion of the
project. In the case of the Company's AV Operations, customers are billed upon
completion of the staging service or rental. The Company provides audiovisual
equipment rentals to customers based on published price lists. Billings prior to
delivery date are carried as deferred income in the Company's financial
statements and costs incurred prior to the delivery date are carried as deferred
charges. The Company has not had any material collection problems in connection
with its business. In the event a client cancels a project after production work
has begun, the client is billed for work performed and expenses incurred through
the date of cancellation.
New Accounting Pronouncements
In June 1997, the Financial Accounting Standards Boards 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.
Year 2000 Compliance
The Year 2000 Issue is the result of computer software and hardware, as well as
chips and processors embedded in various products ("Computer Applications"),
using two digits rather than four digits to define the applicable year.
Consequently, these Computer Applications may not be able to properly recognize
dates beginning with the year 2000 which could result in miscalculations or
system failures.
The Company's Computer Applications consist of both internal systems and systems
provided by third parties. The Company is in the process of examining and
testing its Computer Applications. Based on internal assessments completed to
date and upon third party representations, the Company believes that its
exposure to Year 2000 problems is not significant.
The Company has identified non-compliant systems in certain business units.
However, notwithstanding the Year 2000 Issue, the Company had planned to replace
those systems. The Company plans to achieve Year 2000 compliance across all
business lines by September 30, 1999 and is in the process of developing a
contingency plan in the event that it is not able to convert the non-compliant
systems in a timely manner. Such plan includes processing the affected
businesses temporarily on other existing Year 2000 compliant systems.
Although the Company believes that it will be able to resolve the Year 2000
Issue, there can be no assurance that the Company will identify all susceptible
systems or that systems provided by third parties will be Year 2000 compliant or
that any resulting Year 2000 Issues would not have an adverse effect on the
results of operations of the Company.
The Company has not incurred any significant costs to date that are specifically
attributable to resolving the Year 2000 issue and does not estimate the future
costs related to the resolution of this matter to be material.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The Company has operations in various foreign countries. In the normal course of
business, these operations are exposed to fluctuations in currency values.
Management does not consider the impact of currency fluctuations to represent a
significant risk. The Company's interest expense is sensitive to changes in the
general level of U.S. interest rates. In this
16
<PAGE>
regard, changes in the U.S. rates affect the interest paid on a portion of its
debt. The Company does not generally enter into derivative financial instruments
in the normal course of business, nor are such instruments used for speculative
purposes.
17
<PAGE>
Item 8. Financial Statements and Supplementary Data
REPORT OF INDEPENDENT AUDITORS
To the Stockholders and Board of Directors
Caribiner International, Inc.
We have audited the accompanying consolidated balance sheets of Caribiner
International, Inc. (the "Company") as of September 30, 1997 and 1998, and the
related consolidated statements of operations, stockholders' equity (deficit)
and cash flows for each of the three years in the period ended September 30,
1998. 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 consolidated financial position of the Company at
September 30, 1997 and 1998 and the consolidated results of its operations and
its cash flows for each of the three years in the period ended September 30,
1998, in conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
New York, New York
December 18, 1998
18
<PAGE>
CARIBINER INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30,
----------------------------------
1997 1998
---- ----
(amounts in thousands)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 10,253 $ 15,117
Trade accounts receivable, net of allowance for doubtful accounts of $740 in
1997 and $2,150 in 1998 77,780 124,936
Deferred charges 10,229 12,923
Prepaid expenses and other current assets 9,128 11,610
---------- ----------
Total Current Assets 107,390 164,586
Property and equipment, net 45,714 98,070
Goodwill, net 157,154 419,581
Taxes receivable -- 4,479
Deferred tax asset -- 362
Other assets 3,619 10,871
---------- ----------
Total Assets $ 313,877 $ 697,949
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 1,217 $ 1,000
Trade accounts payable 18,816 23,739
Accrued expenses and other current liabilities 23,200 39,449
Accrued production costs 11,055 25,331
Taxes payable 4,726 --
Deferred income 12,225 18,093
---------- ----------
Total Current Liabilities 71,239 107,612
Long-term debt 60,642 396,240
Deferred income 5,617 8,409
Deferred tax liability 715 --
Other liabilities 4,230 9,913
---------- ----------
Total Liabilities 142,443 522,174
Stockholders' Equity:
Preferred stock, $.01 par value:
2,000 shares authorized, none issued and outstanding at 1997 and 1998 -- --
Common stock, $.01 par value:
40,000 voting shares authorized, and 23,417 and 23,689 shares issued and
outstanding at 1997 and 1998, respectively 234 236
Additional paid-in capital 159,874 167,608
Translation adjustment 11 (3,714)
Retained earnings 11,315 11,645
---------- ----------
Total Stockholders' Equity 171,434 175,775
---------- ----------
Total Liabilities and Stockholders' Equity $ 313,877 $ 697,949
========== ==========
</TABLE>
See accompanying notes to the consolidated financial statements.
19
<PAGE>
CARIBINER INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended September 30,
----------------------------------------------
(amounts in thousands)
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Service revenue $ 148,330 $ 213,239 $ 296,393
Rental revenue -- 131,843 414,941
Intercompany eliminations -- (2,824) (14,556)
---------- ---------- ----------
Total revenue 148,330 342,258 696,778
---------- ---------- ----------
Cost of service revenue 99,797 144,980 204,511
Cost of rental revenue -- 86,885 299,520
Intercompany eliminations -- (2,824) (14,556)
---------- ---------- ----------
Total cost of revenue 99,797 229,041 489,475
---------- ---------- ----------
Gross profit 48,533 113,217 207,303
Operating expenses:
Selling, general and administrative expenses 30,442 71,270 153,568
Restructuring charge (note 3) -- -- 6,953
Non-cash compensation expense (note 7) 1,072 -- --
Depreciation and amortization 3,142 8,905 21,586
---------- ---------- ----------
Total operating expenses 34,656 80,175 182,107
Equity in income of affiliated company (note 4) -- -- 688
---------- ---------- ----------
Operating income 13,877 33,042 25,884
Interest expense with related parties 1,199 -- --
Other interest expense, net 387 2,429 24,325
---------- ---------- ----------
Income before taxes and extraordinary charge 12,291 30,613 1,559
Provision for taxes 4,302 12,551 624
---------- ---------- ----------
Income before extraordinary charge 7,989 18,062 935
Extraordinary charge on early extinguishment of debt (net of income taxes
of $403) (note 6) -- -- 605
---------- ---------- ----------
Net income $ 7,989 $ 18,062 $ 330
========== ========== ==========
Basic and diluted earnings per common share:
Income before extraordinary charge $ 0.53 $ 0.83 $ 0.04
Extraordinary charge -- -- (0.03)
---------- ---------- ----------
Net income per common share $ 0.53 $ 0.83 $ 0.01
========== ========== ==========
</TABLE>
See accompanying notes to the consolidated financial statements.
20
<PAGE>
CARIBINER INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended September 30,
----------------------------------------------
1996 1997 1998
---- ---- ----
(amounts in thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 7,989 $ 18,062 $ 330
Adjustments to reconcile net income to net cash provided by operating
activities:
Restructuring charge, net of cash payments -- -- 4,125
Non-cash compensation expense 1,072 -- --
Extraordinary charge on early extinguishment of debt, net of tax -- -- 605
Depreciation and amortization 3,142 13,082 37,801
Change in assets and liabilities, net of amounts acquired:
(Increase) in accounts receivable (4,520) (19,547) (11,158)
(Increase) decrease in deferred charges (770) 1,469 (1,880)
(Increase) decrease in prepaid expenses and other
current assets (974) (3,714) 1,280
Decrease (increase) in other assets 443 (1,646) (3,866)
(Decrease) in accounts payable (1,650) (450) (3,851)
Increase (decrease) in deferred income (63) (5,165) 6,428
Increase (decrease) in accrued expenses and other liabilities 2,591 5,793 (6,824)
---------- ---------- ----------
Net cash provided by operating activities 7,260 7,884 22,990
---------- ---------- ----------
Cash flow provided by (used in) investing activities:
Purchase of property and equipment (2,222) (17,725) (46,454)
Net proceeds from disposition of businesses -- -- 48,892
Acquisition of intangibles and businesses, net of cash acquired (43,982) (110,797) (305,411)
---------- ---------- ----------
Net cash used in investing activities (46,204) (128,522) (302,973)
Cash flow provided by (used in) financing activities:
Net proceeds from issuance of common stock 42,480 85,792 --
Proceeds from exercise of warrants 1,691 -- --
Proceeds from exercise of stock options -- -- 667
Net proceeds from (repayments of) bank line of credit 1,780 (6,000) --
Proceeds from long-term debt 18,000 135,870 759,122
Repayments of long-term debt (14,669) (92,517) (470,478)
Deferred financing fees -- (1,032) (3,812)
Payment of preferred dividends (2,202) -- --
Proceeds from issuance of common stock under the 1993 Management Stock
Plan 174 -- --
Repurchase of common stock (177) -- --
---------- ---------- ----------
Net cash provided by financing activities 47,077 122,113 285,499
---------- ---------- ----------
Effect of exchange rate changes on cash and cash equivalents 86 346 (652)
---------- ---------- ----------
Net increase in cash and cash equivalents 8,219 1,821 4,864
Cash and cash equivalents beginning of year 213 8,432 10,253
---------- ---------- ----------
Cash and cash equivalents end of year $ 8,432 $ 10,253 $ 15,117
========== ========== ==========
</TABLE>
See accompanying notes to the consolidated financial statements.
21
<PAGE>
CARIBINER INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
for the Three Years Ended September 30, 1998
(amounts in thousands)
<TABLE>
<CAPTION>
Total
Stock-
Common Stock Preferred Stock Additional Retained holders'
--------------- --------------- Paid-in Earnings Translation Equity
Shares Amount Shares Amount Capital (Deficit) Adjustment (Deficit)
------ ------ ------ ------ ------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at October 1, 1995 5,003 $ 50 450 $ 5 $ 1,921 $(14,409) -- $(12,433)
Issuance of common stock under the 1993
Management Stock Plan 174 2 -- -- 172 -- -- 174
Issuance of warrants to purchase 151 shares of
common stock -- -- -- -- 79 -- -- 79
Repurchase of common stock (62) * -- -- (177) -- -- (177)
Accrued preferred stock dividends -- -- -- -- -- (327) -- (328)
Conversion of Convertible Note into preferred
stock -- -- 600 6 11,979 -- -- 11,985
Conversion of preferred stock into common stock 7,193 72 (1,050) (11) (46) -- -- 15
Exercise of warrants 1,069 11 -- -- 1,680 -- -- 1,691
Issuance of common stock upon consummation of
initial public offering 5,756 57 -- -- 42,257 -- -- 42,315
Issuance of common stock upon acquisition of
Lighthouse, Ltd. 64 * -- -- 1,000 -- -- 1,000
Non-cash compensation charge -- -- -- -- 1,072 -- -- 1,072
Translation adjustment -- -- -- -- -- -- 86 86
Net income -- -- -- -- -- 7,989 -- 7,989
------ ---- ------ ---- -------- -------- ------- --------
Balance at September 30, 1996 19,197 192 -- -- 59,937 (6,747) 86 53,468
Issuance of common stock under non-employee
directors' stock plan 2 -- -- -- 37 -- -- 37
Issuance of common stock upon offering 3,744 37 -- -- 85,754 -- -- 85,791
Issuance of common stock upon acquisitions
completed during fiscal 1997 474 5 -- -- 14,146 -- -- 14,151
Translation adjustment -- -- -- -- -- -- (75) (75)
Net income -- -- -- -- -- 18,062 -- 18,062
------ ---- ------ ---- -------- -------- ------- --------
Balance at September 30, 1997 23,417 234 -- -- 159,874 11,315 11 171,434
Issuance of common stock upon acquisitions
completed during fiscal 1998 239 2 -- -- 7,042 -- -- 7,044
Issuance of common stock upon exercise of
stock options 33 * -- -- 692 -- -- 692
Translation adjustment -- -- -- -- -- -- (3,725) (3,725)
Net income -- -- -- -- -- 330 -- 330
------ ---- ------ ---- -------- -------- ------- --------
Balance at September 30, 1998 23,689 $236 -- $ -- $167,608 $ 11,645 $(3,714) $175,775
====== ==== ====== ==== ======== ======== ======= ========
</TABLE>
*Less than $1 thousand
See accompanying notes to the consolidated financial statements.
22
<PAGE>
CARIBINER INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The Company
Caribiner International, Inc. (the "Company") is a producer of meetings, events
and training programs, a provider of audiovisual equipment rentals, sales and
installations and related staging services, and a provider of related business
communications and corporate meeting services that enable businesses to inform,
sell to and train their sales forces, dealers, franchisees, partners,
stockholders and employees.
The Company was organized on December 1, 1989 by its then parent, Ingleby
Communications Corporation ("ICC") and comprised substantially all of the
operations of ICC. Effective as of June 30, 1992, the Company completed a $16
million private placement (the "Private Placement") with Warburg, Pincus
Investors, L.P. ("Warburg") consisting of an 11.5% Convertible Promissory Note
in the aggregate principal amount of $12 million (the "Convertible Note") and
$4 million of Cumulative Redeemable Convertible Voting Preferred Stock, par
value $0.01 per share (the "Preferred Stock").
In March 1996, the Company consummated an initial public offering (the "Initial
Public Offering") of its Common Stock, which included the sale by the Company of
5.8 million shares of Common Stock, resulting in net proceeds of $42.3 million,
which were principally used to repay outstanding indebtedness and to fund
acquisitions, working capital needs and for general corporate purposes.
Immediately prior to the consummation of the Initial Public Offering, the
Convertible Note was converted into 0.6 million shares of Preferred Stock, which
were then immediately converted into 4.1 million shares of the Company's Common
Stock. Upon consummation of the Initial Public Offering, accrued interest of
$6.3 million relating to the Convertible Note was paid to Warburg. Also,
immediately prior to the consummation of the Initial Public Offering, Warburg
converted its shares of the Preferred Stock into 3.1 million shares of the
Company's Common Stock. In addition, Warburg exercised warrants to purchase 1.1
million shares of Common Stock at a weighted average exercise price of $1.58 per
share.
In March, 1997, the Company consummated an offering of 3.7 million shares of its
Common Stock, yielding net proceeds of approximately $85.8 million, of which
approximately $64.5 million were used to repay all of the Company's then
outstanding bank borrowings. The remaining net proceeds were available to make
acquisitions, fund working capital needs and for general corporate purposes.
2. Summary of Significant Accounting Policies
Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries. All intercompany balances and transactions have
been eliminated in consolidation.
Certain reclassifications have been made to the 1996 and 1997 financial
statements to conform to the current year presentation.
Revenue Recognition
Service revenue is recorded principally on the completed contract method of
accounting. The recognition of revenue and cost of revenue is deferred until a
project is completed, usually within a three to six month time period. For
those projects which provide for multiple events, the contract revenue and costs
are apportioned and revenue and profit are recognized as each event occurs. If a
client cancels a project after production has begun, the client is billed for
work performed and expenses incurred through the date of cancellation, and there
are no provisions for non-payment by the client. Deferred income, which
represents advance billings on uncompleted jobs, is classified as long-term in
the same proportion that anticipated profit on such jobs bears to the related
contract price. Deferred charges represent costs incurred on uncompleted jobs.
Rental revenue is recognized over the related rental period.
Cost of Revenue
Cost of service revenue is comprised of production costs, including salaries and
benefits of production, creative and technical personnel involved with the
specific contracts, and other direct costs, including contracted services,
equipment rentals and costs associated with the production of audio-visual
effects. Such costs are deferred until project completion.
Cost of rental revenue is comprised principally of direct labor costs,
commissions, depreciation and equipment rentals.
23
<PAGE>
CARIBINER INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.
In connection with certain of the acquisitions described in Note 4, Business
Acquisitions/Dispositions, the Company was contractually required to retain a
portion of the purchase price in segregated bank accounts. Such amounts will be
paid to certain of the sellers in future periods in accordance with the purchase
agreements and subject to any arising purchase price adjustments. At September
30, 1998, the Company held $1.0 million in cash which was restricted for such
purposes.
Property and Equipment
Property and equipment are stated at cost. Depreciation is calculated on the
straight-line method over the estimated useful lives of the assets ranging from
five to seven years. Leasehold improvements are amortized on the straight-line
method over the shorter of the lease term or the estimated useful life.
Goodwill
Goodwill represents the excess of the cost over the fair value of net assets of
purchased businesses and is amortized on a straight-line basis over periods
ranging from 15 years to 40 years. Accumulated amortization of goodwill was $6.8
million and $20.0 million at September 30, 1997 and 1998, respectively.
The Company reviews the recoverability of intangible and other long-lived assets
whenever events or changes in circumstances indicate that the carrying amount
may not be recoverable. A loss is recognized for the difference between the
carrying amount and the estimated fair value of the asset.
Deferred Financing Fees
Deferred financing fees are amortized on a straight-line basis over the term of
the related debt. The amortization of deferred financing fees is reflected as a
component of interest expense. Deferred financing fees amortized during the
years ending September 30, 1996, 1997 and 1998 were $0.2 million, $0.3 million
and $0.9 million, respectively.
Foreign Currency Translation
The financial statements of foreign subsidiaries are translated into U.S.
dollars at current rates as of the balance sheet date, except for revenue, costs
and expenses which are translated at average current rates during each reporting
period. The gains or losses resulting from translation are included as a
separate component in stockholders' equity. The gains and losses resulting from
foreign currency transactions are included in the Company's current results of
operations. Transaction gains or losses in the years ended September 30, 1996,
1997 and 1998 were not significant.
Foreign Operations
The Company's foreign operations, principally located in the United Kingdom, had
identifiable assets, including goodwill, of $55.4 million and $99.4 million at
September 30, 1997 and 1998, respectively. Revenues of $52.8 million and $143.9
million, and operating profits of $1.5 million and $12.1 million, related to the
Company's foreign operations are included in the results of operations for the
years ended September 30, 1997 and 1998, respectively. The Company's foreign
operations during the year ended September 30, 1996 were not significant.
Risks and Uncertainties
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 financial statements and accompanying notes.
Actual results could differ from those estimates.
24
<PAGE>
CARIBINER INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Stock Based Compensation
The Company grants to certain employees stock options for a fixed number of
shares with an exercise price equal to the fair value of the shares at the date
of grant. The Company accounts for stock option grants in accordance with APB
Opinion 25, "Accounting for Stock Issued to Employees," and, accordingly,
recognizes no compensation expense for such grants.
New Accounting Pronouncements
In June 1997, the Financial Accounting Standards Boards 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.
3. Restructuring Charge
In fiscal 1998, the Company initiated a review of all of its operations,
primarily focusing on the integration of the audio visual services businesses
that it has acquired, as well as the Company's overall management
organizational structure. In connection with this review, the Company adopted
a reorganization plan to streamline its organizational structure and evaluate
its overall operational efficiency.
Accordingly, during the three months ended March 31, 1998, the Company recorded
a pre-tax restructuring charge of $3.8 million. 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 and other related costs. During the three months ended September 30,
1998, the Company recorded an additional pre-tax restructuring charge of $3.2
million in connection with the continuation of the reorganization plan begun in
March 1998. The charge included $1.0 million related to severance and
termination costs for approximately 330 people, $0.7 million of lease
termination costs, $1.0 million relating to the write-off of certain assets and
$0.5 million of other termination and shut down costs to be incurred during the
reorganization.
The total remaining restructuring liability as of September 30, 1998 was $4.1
million.
4. Business Acquisitions/Dispositions
During fiscal 1997 and fiscal 1998, the Company purchased several companies
engaged in providing business communication services, as well as providing
audio-visual equipment rentals, sales and related staging services.
Fiscal 1997 Acquisitions
In January, 1997, the Company acquired substantially all of the assets of Video
Supply Company, Inc. d/b/a Projexions Video Supply and Projexions/Video Supply
Company (together, "Projexions"), a provider of audiovisual equipment rentals
and related staging services in the southeastern U.S., for approximately $13.6
million in cash and $1.4 million in the repayment of certain indebtedness at
closing.
Also in January, 1997, the Company completed the acquisition of all of the
outstanding capital stock of Blumberg Communications Inc. ("Blumberg"), a
provider of audiovisual equipment rentals, sales and related staging services,
including hotel audiovisual equipment rentals, sales and related staging
services, including hotel audiovisual outsourcing services in the upper midwest
and southern U.S. The Company paid aggregate consideration of $18.0 million,
which consisted of approximately $16.6 million in cash and the issuance of
59,880 shares of the Company's common stock having a fair market value of
approximately $1.4 million. In addition, the Company repaid $3.9 million in
outstanding indebtedness of Blumberg at closing.
25
<PAGE>
CARIBINER INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In April, 1997, the Company completed the acquisition of the assets of D&D
Enterprises, Inc., d/b/a Show Solutions ("Show Solutions"), a provider of
staging and show services based in Atlanta, for aggregate considerate of
approximately $11.4 million, which consisted of $8.4 million in cash paid at
closing, $1.0 million placed in escrow to be paid at a later date upon
satisfaction of certain terms and conditions, and the issuance of 76,360 shares
of the Company's common stock having a fair market value of approximately $2.0
million. In addition, the Company repaid approximately $0.6 million in
outstanding indebtedness of Show Solutions at closing.
In June, 1997, the Company acquired all of the outstanding capital stock of WCT
Live Communication Limited ("WCT"), a London-based business communications
services provider, for aggregate consideration of approximately $12.0 million,
which consisted of $10.1 million in cash and the issuance of 53,818 shares of
the Company's common stock having a fair market value of $1.9 million.
In July, 1997, the Company acquired all of the outstanding capital stock of
Bauer Audiovisual, Inc. ("Bauer"), a provider of audiovisual equipment rentals
and audiovisual outsourcing services throughout the United States. Consideration
paid for the acquisition was $14.6 million in cash and the issuance of 167,762
shares of the Company's common stock with an aggregate fair market value of
approximately $5.3 million. In addition, the Company repaid approximately $7.0
million in outstanding long-term indebtedness of Bauer and $4.8 million in
outstanding short-term indebtedness of Bauer at closing.
In addition, during fiscal 1997, the Company made four additional acquisitions
with an aggregate purchase price of $17.3 million, consisting principally of
cash and shares of the Company's common stock.
All of the transactions described above were financed by additional drawings on
one of the Company's credit facilities, except for the acquisition of Show
Solutions, which was paid from the Company's cash on hand remaining from the net
proceeds of the issuance of Common Stock in March, 1997.
Fiscal 1998 Acquisitions/Dispositions
Effective December 1, 1997, the Company acquired the outstanding capital stock
of Visual Action Holdings plc ("Visual Action") for an aggregate purchase price
of $253.0 million (excluding transaction costs). In addition, the Company
assumed approximately $44.3 million in outstanding indebtedness of Visual
Action. Visual Action provides corporate meeting services, including audiovisual
and exhibition services, in the United States and United Kingdom. The goodwill
resulting from the acquisition of Visual Action is being amortized over 40
years. The cost of the acquisition, including transaction costs, was financed
through the Company's loan agreement entered into in October, 1997 (see Note 6).
Prior to December 1997, the Company had acquired a minority interest through
open market purchases resulting in the equity in income reflected for the
period.
In January, 1998, the Company acquired RightSource, Inc. ("RightSource") for an
initial consideration of $17.0 million in cash, plus the repayment of
approximately $2.4 million in outstanding indebtedness. In addition, Caribiner
may pay additional consideration of up to $2.0 million in cash and common stock.
Right Source, Inc., with offices in South Carolina and Connecticut and training
centers in several other states, is a marketing support and training services
company, focusing primarily on product launches and customer education for the
information technology industry.
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. In July, 1998, the Company
completed the disposition of the U.K.-based audiovisual staging operations of
Visual Action for approximately $26.7 million in cash. The Company retained the
hotel audiovisual outsourcing services portion of this business, integrating it
with Visual Action's existing U.K. operations. The Company used the cash
proceeds from the sales of the businesses to repay outstanding bank debt. No
gain or loss was recognized on such disposition transactions.
In addition, during fiscal 1998, the Company made seven additional acquisitions
with an aggregate purchase price of $24.7 million, consisting principally of
cash and shares of the Company's common stock.
In December 1998, the Company announced that it intends to dispose of certain
non-core assets. The Company expects the net proceeds from any such sales to be
approximately $70.0 million to $100.0 million, which it will use to repay bank
debt.
26
<PAGE>
CARIBINER INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The accounting for the above-mentioned acquisitions is in accordance with the
purchase method and, accordingly, operations of the acquired businesses are
included in the accompanying consolidated statements of operations from their
respective dates of acquisition.
Certain of the Company's acquisitions have provided for contingent payments for
three years following the purchase based upon the achievement of certain
performance goals relating to revenue, gross profit or earnings before interest,
taxes, depreciation and amortization. Contingent payments are accounted for as
additional purchase price as they become known. During the years ending
September 30, 1996 and 1997, $1.4 million and $2.1 million was paid and/or
accrued as additional consideration with respect to these acquisitions.
The following unaudited consolidated pro forma results of operations of the
Company for the years ended September 30, 1997 and 1998 give effect to the
acquisitions of Projexions, Blumberg, Show Solutions, WCT, Bauer, Visual Action
and RightSource, 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 6), as if such
transactions had occurred in each case on October 1, 1996. The other
acquisitions completed by the Company 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 years ended September 30, 1997 and 1998.
<TABLE>
<CAPTION>
Year ended
September 30,
--------------------
1997 1998
---- ----
(in thousands,
except per share data)
<S> <C> <C>
Revenue $655,319 $733,851
Income before taxes and extraordinary charge 24,650 1,407
Net income 14,790 (8)
Pro forma basic and diluted earnings per common share $0.63 $0.0
</TABLE>
The above calculation of pro forma basic and diluted net income per common share
assumes that approximately 23,604,855 and 23,616,398 shares were outstanding
during 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 at the beginning of fiscal 1997 or of
results which may occur in the future.
5. Property and Equipment
At September 30, 1997 and 1998 property and equipment consisted of:
<TABLE>
<CAPTION>
At September 30,
----------------------
1997 1998
---- ----
(in thousands)
<S> <C> <C>
Audiovisual rental and production equipment $ 32,644 $ 85,254
Furniture and fixtures 8,208 13,280
Information systems 12,077 25,438
Leasehold improvements 5,447 11,670
Other 1,658 2,065
---------- ----------
60,034 137,707
Less--accumulated depreciation and amortization 14,320 39,637
---------- ----------
$ 45,714 $ 98,070
========== ==========
</TABLE>
The related depreciation and amortization expense for the years ended September
30, 1997 and 1998 was $8.5 million and $25.7 million, respectively.
27
<PAGE>
CARIBINER INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. Debt
At September 30, 1997 and 1998, long-term debt consisted of:
<TABLE>
<CAPTION>
At September 30,
---------------------
1997 1998
---- ----
(in thousands)
<S> <C> <C>
Bank term loan $ 58,800 $ 394,500
Notes payable 2,294 1,825
Other 765 915
---------- ----------
61,859 397,240
Less--current portion of long-term debt 1,217 1,000
---------- ----------
$ 60,642 $ 396,240
========== ==========
At September 30, 1998, the carrying amount of the above commitments approximated
fair value.
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 (the "Revolving Facility") to be utilized in
connection with future acquisitions and for working capital and general
corporate purposes and a $250 million six year term loan ( the "Term Facility"
and together with the Revolving Facility, the "1997 Facilities") to be utilized
in connection with the acquisition of Visual Action. (See Note 4, Business
Acquisitions/Dispositions). The Company recognized an extraordinary loss of $0.6
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. Approximately $4.8 million in debt issuance fees were incurred in
connection with the 1997 Facilities. Such fees are being amortized over the term
of the 1997 Facilities, which is approximately six years.
In May, 1998, the Company repaid approximately $26 million under the Term
Facility thereby permanently reducing availability thereunder by such amount. In
December, 1998, the terms of the Revolving Facility were amended to reduce the
aggregate availability thereunder from $300 million to $250 million, to amend
certain financial covenants contained therein and to increase the interest rate
on amounts outstanding under the 1997 Facilities. Fees of approximately $1.2
million were incurred in connection with the amendments made to the 1997
Facilities in December, 1998. Such fees will be amortized over the remaining
term of the 1997 Facilities. As of December 18, 1998, the Company had
approximately $412.9 million outstanding under the 1997 Facilities. Cash on hand
as of such date was $12.9 million.
The maturity date of each of the Term Facility and the Revolving Facility 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 presently LIBOR plus 2.75%.
Principal on the Term Facility is payable in quarterly installments beginning on
December 31, 1998 with the final scheduled payment due on September 30, 2003.
Subject to reductions in such quarterly installments for prepayments made under
the Term Facility, at present, the Company will be required to repay an
aggregate of: (i) $22.4 million in fiscal 1999, (ii) $33.6 million in fiscal
2000, (iii) $44.8 million in fiscal 2001, (iv) $56 million in fiscal 2002 and
(v) $67.8 million in fiscal 2003. The Company is permitted and intends to draw
on the Revolving Facility to make certain of the above payments.
The 1997 Facilities are secured by substantially all of the assets of the
Company and its subsidiaries, and the Company and its subsidiaries have pledged
the stock of their respective subsidiaries for the ratable benefit of its
lending banks. The 1997 Facilities contain certain financial and other covenants
and restrictions, including without limitation restrictions on the ability of
the Company to pay dividends.
The aggregate scheduled payments of all long-term debt outstanding at September
30, 1998 (including amounts outstanding under the Term Facility), for the next
five years, are as follows: 1999--$24.3 million; 2000--$34.0 million;
2001--$70.0 million; 2002--$81.1 million; and 2003--$187.8 million; totaling
$397.2 million.
28
<PAGE>
CARIBINER INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. Capital Stock
Stock Split
The Company declared a 2-for-1 split of its common stock effected by paying a
stock dividend of one new share for every share of the Company's common stock
outstanding. The stock dividend was paid on June 20, 1997 to stockholders of
record as of May 30, 1997. The accompanying consolidated financial statements,
including the earnings per common share calculation, have been restated to
reflect such stock split.
1993 Management Stock Plan
During the year ended September 30, 1993, the Company adopted the 1993
Management Stock Plan (the "Management Stock Plan"). Under the Management Stock
Plan, a committee of the Board of Directors granted to employees awards of the
Company's Series A non-voting common stock, par value $0.01 per share.
Prior to the Initial Public Offering in March, 1996, the Company sold common
stock pursuant to the Management Stock Plan at a price lower than its fair
market value and recorded non-cash compensation expense of $93,000 at such
time. Upon consummation of the Initial Public Offering, all shares of non-voting
common stock outstanding under the Management Stock Plan were converted into
664,450 shares of voting common stock, and such Management Stock Plan was then
terminated. In addition, the Company incurred an additional non-cash
compensation charge of $1.1 million upon the immediate vesting of such stock in
connection with the Initial Public Offering.
1996 Stock Option Plan
Effective January 1, 1996, the Company adopted the 1996 Stock Option Plan (the
"Option Plan"). The Option Plan is designed to provide employees with a more
direct stake in the Company's future welfare and an incentive to remain with the
Company. The Option Plan provides that options for an aggregate of 1,928,000
shares of the Company's Common Stock shall be available for grant, subject to
authorization by the Compensation Committee of the Board of Directors. The
purchase price per share under the Option Plan is the market price of the Common
Stock on the grant date. Generally, options granted under the Option Plan vest
over a period of three years from the grant date. As of September 30, 1998,
stock options to purchase an aggregate of 1,200,428 shares of Common Stock were
outstanding, of which options to purchase 261,858 shares of Common Stock were
vested.
The Company applies the provisions of APB No. 25, Accounting for Stock Issued to
Employees, in accounting for its stock-based awards. Accordingly, no
compensation cost has been recognized for its stock option plans.
The fair value of each option grant was estimated on the date of grant using the
Black-Scholes option-pricing model with the following assumptions: risk-free
interest rate of 7%, 5% and 4% in 1996, 1997 and 1998, respectively; a dividend
yield of 0% in 1996, 1997 and 1998; volatility of 32.7% in 1996 and 1997 and
67.4% in 1998, respectively, and an expected life of 5 years in 1996, 1997 and
1998.
Had the Company elected to apply the provisions of Statement of Financial
Accounting Standards (SFAS No. 123), Accounting for Stock Based Compensation,
net income would have been reduced by $78,000, or $0.01 per share, $675,000, or
$0.03 per share, and $823,000, or $0.03 per share, for fiscal years 1996, 1997 and
1998, respectively after accounting for stock-based compensation effective for
awards made after October 1, 1995.
29
<PAGE>
CARIBINER INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
A summary of the status of the Company's Option Plan at September 30, 1998 and
activity during the years ended September 30, 1998 is as follows:
</TABLE>
<TABLE>
<CAPTION>
1996 1997 1998
------------------------ ------------------------ ------------------------
Weighted average Weighted average Weighted average
(in thousands of shares) Shares exercise price Shares exercise price Shares exercise price
- ------------------------ ------ ---------------- ------ ---------------- ------ ----------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year -- $ -- 303 $14.75 737 23.22
Options granted 303 14.75 461 28.38 561 20.25
Options exercised -- -- (30) 23.38
Options forfeited/expired -- -- (27) 16.14 220 23.10
--- ------ --- ------ ----- -----
Options outstanding at end of year 303 14.75 737 23.22 1,048 21.75
--- ------ --- ------ ----- -----
Exercisable at end of year 3 20.19 110 15.84 275 20.69
--- ------ --- ------ --- -----
Weighted average fair value of options
granted during the year 6.08 10.67 12.00
------ ----- -----
</TABLE>
A summary of information about stock options outstanding and options exercisable
at September 30, 1998 is as follows (in thousands of shares):
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------- -------------------
Weighted Weighted
Weighted Average Average
Average Exercise Exercise
Range of exercise prices Shares Remaining Term Price Shares Price
- ------------------------ ------ -------------- --------- ------ ---------
<S> <C> <C> <C> <C> <C>
$12.84 to $14.53 259 8.21 $14.42 149 $14.40
$20.19 to $29.28 643 9.20 $21.42 80 $22.83
$31.75 to $40.31 146 8.88 $37.60 46 $37.16
$12.84 to $40.31 1,048 8.91 $21.75 -- --
</TABLE>
In December, 1998, the Company permitted non-executive employees to forfeit any
outstanding options that they had been granted under the Option Plan and
exchange them for the same number of options with an exercise price equal to the
then current market price of the common stock (the "Repricing Plan"). Pursuant
to the terms of the Repricing Plan, participating employees were required to
consent to a new three-year vesting schedule for such newly-granted options.
1998 Stock Option Plan
Effective January 7, 1998, the Company adopted the 1998 Stock Option Plan (the
"1998 Option Plan"). The 1998 Option Plan, which has substantially identical
terms to the Option Plan, provides that options for an aggregate of 500,000
shares of Common Stock shall be available for award to all employees of the
Company with the exception of senior management of the Company, who are not
eligible to receive options under the 1998 Option Plan. As of September 30,
1998, no options had been granted under the 1998 Option Plan. The Company
intends to terminate the 1998 Option Plan as of December 31, 1998.
8. Related Party Transactions
In the normal course of producing projects for clients, the Company periodically
uses the services of individuals related to and/or companies owned by relatives
of certain of its employees. During the years ending September 30, 1996, 1997
and 1998, the Company paid such vendors approximately $1.6 million, $0.6 million
and $1.4 million, respectively.
Rent paid to related parties during the years ending September 30, 1996, 1997
and 1998 was $0.1 million, $0.6 million and $0.6 million, respectively.
During fiscal 1998, the Company made loans aggregating $0.3 million to an
executive officer of the Company. The loans were made in part in connection with
the relocation of such executive and for other personal purposes. The loans bear
an interest rate of 8% per annum and mature in annual installments over a period
of three years.
9. Employee Benefit Plans
The Company maintains several defined contribution plans covering all qualified
employees. Effective January 1, 1997, the Company began matching $0.25 for each
dollar contributed by an employee, up to a maximum of 3% of such employee's base
compensation (subject to applicable limits under the Internal Revenue
30
<PAGE>
CARIBINER INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Code of 1986, as amended. In addition, the Company continues to maintain several
existing defined contribution plans that it inherited in connection with its
acquisition of Visual Action in December, 1997. Under such plans, the Company
contributes varying amounts ranging from $0.25 to $0.50 for each dollar
contributed by an employee to such plan up to a maximum of 4% of base salary.
Company matching contributions during the years ended September 30, 1997 and
1998 totaled $0.1 million and $1.0 million, respectively.
10. Income Taxes
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the carrying amounts used for income tax purposes which resulted
from the acquisition of certain business operations, the difference between
financial reporting recovery periods and tax reporting recovery periods and the
write-down of certain assets for financial reporting purposes.
Significant components of the Company's deferred tax assets and liabilities as
of September 30, 1997 and September 30, 1998 are as follows:
<TABLE>
<CAPTION>
1997 1998
---- ----
(in thousands)
<S> <C> <C>
Deferred tax assets:
NOL and tax credit carryforwards $ 973 $ 1,776
Accrued interest -- 247
Allowance for doubtful accounts 155 733
Restructuring and other reserves 1,654 4,351
---------- ----------
Total deferred tax assets 2,782 7,107
Valuation allowance (672) (653)
---------- ----------
Net deferred tax assets $ 2,110 $ 6,454
Deferred tax liabilities:
Tax over book depreciation and amortization 1,899 5,293
Amortization of intangibles 890 389
Other 36 410
---------- ----------
Total deferred tax liabilities $ 2,825 $ 6,092
---------- ----------
Net deferred tax liability/(asset) $ 715 $ (362)
---------- ----------
</TABLE>
At September 30, 1998, the Company had net operating loss ("NOL") carryforwards
for federal income tax purposes of approximately $1.6 million, that expire in
the years 2001 through 2007. All of these NOL carryforwards may be subject to
limitations under the change in ownership and consolidated return provisions of
the Internal Revenue Code. The use of the NOL carryforwards, as adjusted, may
also be limited for state and local income tax purposes. The Company has not
recorded any future benefit related to the usage of these NOL carryforwards. In
addition, during the year, the Company incurred a tax loss which will be carried
forward for state tax purposes. For foreign tax purposes, there are
approximately $1.0 million of foreign NOL carryforwards that may be carried
forward indefinitely.
Significant components of the provision for income taxes attributable to
continuing operations are as follows:
31
<PAGE>
CARIBINER INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Current:
Federal $ 2,121 $ 7,224 $ (2,041)
State 1,736 2,150 831
Foreign 35 1,112 280
----------- ----------- -----------
Total current tax 3,892 10,486 (930)
Deferred:
Federal 281 1,758 1,345
State 129 352 (992)
Foreign -- (45) 1,201
----------- ----------- -----------
Total deferred tax 410 2,065 1,554
----------- ----------- -----------
Total provision for taxes $ 4,302 $ 12,551 $ 624
=========== =========== ===========
</TABLE>
The reconciliation of income tax attributable to operations computed at the U.S.
federal statutory tax rates to income tax expense is as follows:
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Tax expense at statutory rate $ 4,302 $ 10,714 $ 546
State income tax expense/(benefit) (net of federal tax) 1,212 1,626 (104)
Non-cash compensation expense 375 -- --
Non-deductible goodwill amortization 21 483 1,236
Non-deductible expenses 243 113 181
Change in valuation allowance (2,012) (645) (19)
Rate differential related to foreign operations -- -- (1,205)
Other 161 260 (11)
----------- ----------- -----------
$ 4,302 $ 12,551 $ 624
=========== =========== ===========
</TABLE>
11. Major Customers
Revenue from two customers in the automotive and information technology
industries aggregated 15% and 13%, respectively, in fiscal 1996. In fiscal 1997
and 1998, there was no single customer which contributed more than 10% of the
Company's total revenue or accounted for more than 5% of accounts receivable at
September 30, 1997 or 1998, respectively.
12. Commitments and Contingencies
Minimum annual rentals under noncancelable leases, excluding escalations based
upon increases in real estate taxes and operating expenses, are payable as
follows, for the year ended September 30: 1999--$9.3 million; 2000--$7.4
million; 2001--$6.2 million; 2002--$5.2 million; 2003 -- $4.4 million;
thereafter--$23.5 million; totaling $56.0 million.
Rent expense charged to operations in fiscal 1996, fiscal 1997 and fiscal 1998
was $2.7 million, $6.6 million and $9.4 million, respectively.
The Company is, from time to time, a defendant in various lawsuits arising in
the ordinary course of business. In the opinion of management resolving these
actions will not have a material effect on the Company's financial condition,
results of operations or liquidity.
32
<PAGE>
CARIBINER INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. Supplemental Disclosures of Cash Flow Information
Interest paid was $7.9 million, $2.0 million and $21.9 million during the years
ended September 30, 1996, 1997 and 1998, respectively. Taxes paid were $2.1
million, $8.1 million and $12.2 million during the years ended September 30,
1996, 1997 and 1998, respectively.
14. Earnings per Common Share
Effective October 1, 1997, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 128, Earnings per Share. The standard
requires a change in the method used to compute earnings per share, a dual
presentation of basic earnings per common share and diluted earnings per common
share and the restatement of prior periods presented.
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
1996 1997 1998
(amounts in thousands, except per share amounts)
------------------------------------------------
<S> <C> <C> <C>
Net income for basic and diluted earnings per share:
Income before taxes and extraordinary charge $12,291 $30,613 $1,559
Reduction in interest expense from the conversion
of the Convertible Note 926 -- --
------------------------------------------------
Adjusted income before taxes and extraordinary charge 13,217 30,613 1,559
Tax provision (4,560) (12,551) (624)
------------------------------------------------
Adjusted net income before extraordinary charge 8,657 18,062 935
Extraordinary charge -- -- (605)
------------------------------------------------
Net income $8,657 $18,062 $330
================================================
Weighted average shares of common stock outstanding:
Weighted average shares of common stock outstanding 8,144 21,719 23,616
Conversion of 11.5% Convertible Note 4,110 -- --
Conversion of preferred stock 3,083 -- --
Exercise of warrants 1,069 -- --
------------------------------------------------
Weighted average shares of common stock
outstanding for basic earnings per share 16,406 21,719 23,616
Effect of stock options -- -- --
------------------------------------------------
Weighted average shares of common stock
outstanding for diluted earnings per share 16,406 21,719 23,616
================================================
Basic and diluted earnings per share:
Net income before extraordinary charge $0.53 $0.83 $0.04
Extraordinary charge -- -- (0.03)
------------------------------------------------
Net income $0.53 $0.83 $0.01
================================================
</TABLE>
Basic and diluted earnings per common share for the year ended September 30,
1996 has been calculated assuming the issuance of common stock for nominal
consideration arising from the conversion and exercise of all dilutive
securities (which took place prior to the Company's initial public offering on
March 15, 1996) were outstanding for all periods presented.
33
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
Part III
Item 10. Directors and Executive Officers of the Registrant
"Election of Directors" and "Section 16(a) Beneficial Ownership Reporting
Compliance" to be contained in the Proxy Statement are hereby incorporated by
reference. See also "Executive Officers and Directors of the Company" set forth
in item 4A of Part I hereto.
Item 11. Executive Compensation
"Executive Compensation" to be contained in the Proxy Statement is hereby
incorporated by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
"Security Ownership of Certain Beneficial Owners and Management" to be contained
in the Proxy Statement is hereby incorporated by reference.
Item 13. Certain Relationships and Related Transactions
"Certain Relationships and Transactions with Related Persons" to be contained in
the Proxy Statement is hereby incorporated by reference.
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as part of this Annual Report on Form
10-K:
(1) The response to this portion of Item 14 is set forth in Item 8 of
Part II hereof.
(2) Financial Statement Schedules.
Schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required
under the related instructions or are inapplicable, and therefore have
been omitted.
(3) Exhibits
See accompanying Index to Exhibits. The Company will furnish to any
stockholder, upon written request, any exhibit listed in the accompanying
Index to Exhibits upon payment by such stockholder of the Company's
reasonable expenses in furnishing any such exhibit.
(b) Reports on Form 8-K
None.
34
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, as amended, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized, on December 28,
1998.
CARIBINER INTERNATIONAL, INC.
(Registrant)
By: /S/ ROBERT F. BURLINSON
-------------------------------------------
Name: Robert F. Burlinson
Title: Executive Vice President and Chief
Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
this Report has been signed by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/S/ RAYMOND S. INGLEBY Chairman of the Board* December 28, 1998
- -----------------------------------------
Raymond S. Ingleby
President, Chief Executive Officer and December __, 1998
- ----------------------------------------- Director*
Christopher A. Sinclair
/S/ ROBERT F. BURLINSON Executive Vice President and Chief December 28, 1998
- ----------------------------------------- Financial Officer (Principal Financial
Robert F. Burlinson and Accounting Officer)
/S/ ERROL M. COOK Director December 28, 1998
- -----------------------------------------
Errol M. Cook
/S/ BRYAN D. LANGTON Director December 28, 1998
- -----------------------------------------
Bryan D. Langton
/S/ SIDNEY LAPIDUS Director December 28, 1998
- -----------------------------------------
Sidney Lapidus
/S/ DAVID E. LIBOWITZ Director December 28, 1998
- -----------------------------------------
David E. Libowitz
/S/ C. ANTHONY WAINWRIGHT Director December 28, 1998
- -----------------------------------------
C. Anthony Wainwright
</TABLE>
*Mr. Ingleby was principal executive officer of the Registrant during the period
covered by this Report, as well as on the date on which the Registrant's
independent auditors completed their audit in respect of the financial
statements contained herein. Mr. Sinclair commenced employment with the
Registrant on December 21, 1998.
35
<PAGE>
INDEX TO EXHIBITS
The following is a list of all exhibits filed as part of this report
Exhibit
Number Description of Document
- -------
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 quarterly period 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 quarterly
period 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).
4 Specimen of Certificate of Common Stock of the Company (filed as
Exhibit 4 to the Company's Registration Statement on Form S-1
(Registration No. 33-80481) and incorporated herein by reference).
+10.1 1996 Stock Option Plan of the Company, as amended (filed as exhibit
10.1 to the Company's Quarterly Report on Form 10-Q for the
quarterly period Ended March 31, 1998 and incorporated herein by
reference).
+10.2 1998 Stock Option Agreement (filed as Exhibit 10.2 to the Company's
Quarterly Report on Form 10-Q for the quarterly period ended March
31, 1998 and incorporated herein by reference).
+10.3 Form of Stock Option Agreement in connection with 1996 Stock Option
Plan of the Company (filed as Exhibit 10.2 to the Company's Annual
Report on Fork 10-K for the fiscal year ended September 30, 1996
and incorporated herein by reference).
+10.4 Non-Employee Directors' Stock Plan of the Registrant (filed as an
exhibit to the Company's Registration Statement on Form S-1
(Registration No. 33-80481) and incorporated herein by reference).
+10.5 Employment Agreement, dated as of October 1, 1995 (the "Ingleby
Employment Agreement"), by and between the Company and Raymond S.
Ingleby (filed as Exhibit 10.5 to the Company's Registration
Statement on Form S-1 (Registration No. 33-80481) and incorporated
herein by reference).
+10.6 Amendment No.1, dated as of October 1, 1998, to the Ingleby
Employment Agreement.
+10.7 Employment Agreement, dated as of December 21, 1998, by and between
the Company and Christopher A. Sinclair.
+10.8 Employment Agreement, dated as of December 1, 1995, by and between
the Company and Mark M. Cohen (filed as an exhibit to the Company's
Registration Statement on Form S-1 (Registration No. 33-80481) and
incorporated herein by reference).
+10.9 Employment Agreement, dated as of July 25, 1995, by and between
Caribiner, Inc. and Brian Shepherd (filed as Exhibit 10.7 to the
Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1996 and incorporated herein by reference).
+10.10 Employment Agreement, dated October 14, 1996, by and between the
Company and
36
<PAGE>
Lawrence P. Golen (filed as Exhibit 10.8 to the Company's Annual
Report on Form 10-K for the fiscal year ended September 30, 1996
and incorporated herein by reference).
+10.11 Employment Agreement, dated June 9, 1998, by and between the
Company and Robert F. Burlinson (filed as Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the quarterly period
ended June 30, 1998).
10.12 Credit Agreement, dated as of October 28, 1997 (the "Credit
Agreement"), among the Company, Caribiner, Inc., the several
lenders named therein and the Chase Manhattan Bank, as
Administrative Agent, and Merrill Lynch Capital Corporation, as
Syndication Agent (schedules and exhibits omitted-- the Company
agrees to furnish a copy of any schedule or exhibit to the
Commission upon request).
10.13 First Amendment and Agreement, dated as of March 31, 1998, to the
Credit Agreement (schedules and exhibits omitted-- the Company
agrees to furnish a copy of any schedule or exhibit to the
Commission upon request).
10.14 Second Amendment and Waiver, dated as of December 18, 1998, to the
Credit Agreement (schedules and exhibits omitted-- the Company
agrees to furnish a copy of any schedule or exhibit to the
Commission upon request).
10.15 Stockholders Agreement, dated as of March 15, 1996, among the
Company, Warburg, Pincus Investors, L.P. and Raymond S. Ingleby
(filed as an exhibit to the Company's Registration Statement on
Form S-1 (Registration No. 33-80481) and incorporated herein by
reference).
21 Subsidiaries of the Company.
23 Consent of Ernst & Young LLP.
27 Financial Data Schedule.
- -------
+ Management contracts or compensatory plans or arrangements required
to be filed as an exhibit to this Form 10-K pursuant to Item 14(a)
(3).
<PAGE>
AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT
AMENDMENT NO. 1 dated as of October 1, 1998 (this "Amendment"), TO
EMPLOYMENT AGREEMENT, dated as of October 1, 1995, by and between CARIBINER
INTERNATIONAL, INC., a Delaware corporation having offices at 16 West 61st
Street, New York, New York 10023 (the "Company") and RAYMOND S. INGLEBY, an
individual residing at 150 Columbus Avenue, New York, New York 10023
("Employee").
W I T N E S S E T H:
WHEREAS, the Company and Employee are each parties to that certain
Employment Agreement, dated as of October 1, 1995, between the Company and
Employee (the "Employment Agreement");
WHEREAS, the parties hereto desire to amend and supplement the
Employment Agreement subject to the terms and conditions hereof.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained, the parties hereto hereby agree to amend and
supplement the Employment Agreement as follows:
1. Compensation; Bonuses; Options. (a) Section 4(a) of the Employment
Agreement shall be amended by deleting the figure $385,000 and replacing it
with the figure $500,000 so that Employee's Base Salary shall be equal to
$500,000 per year during the Term (as herein extended).
(b) Section 4(b) of the Employment Agreement shall be
amended to provide that Employee's annual bonus compensation (the "Bonus"),
payable on or about December 15th of each year during the Term (the first of
such bonuses shall be payable on or about December 15, 1998), shall be in an
amount equal to up to fifty percent (50%) of Employee's Base Salary (or such
higher amount as the Board (or the Compensation Committee thereof (the
"Committee")) shall determine. Payment of the Bonus shall be subject to the
Company's achievement of certain performance objectives (the "Performance
Objectives") and the Company's or Employee's achievement, as applicable, of
certain Management Business Objectives ("MBO's"), each as determined by the
Board or the Committee for each applicable fiscal year of the Company. Seventy
percent (70%) of the Bonus shall be predicated upon achievement of the
Performance Objectives and thirty percent (30%) of the Bonus shall be
predicated upon achievement of the MBO's (as determined by the Board or the
Committee in its discretion). The Bonus shall be in lieu of the Tier 1 bonus
provided for in Section 4(b) of the Employment Agreement.
(c) As soon as practicable after the execution and delivery
of this Amendment, the Company shall grant to Employee such number of stock
options under the Company's 1996
<PAGE>
Stock Option Plan, as amended (the "Plan"), commensurate with Employee's title
and responsibilities hereunder (subject to approval by the Company's
stockholders, if applicable). Promptly after the grant thereof, Employee and
the Company shall enter into a Stock Option Agreement in the form adopted
pursuant to the Plan.
2. Term. Section 6 of the Employment Agreement shall be amended so
that the Term shall be extended for a period of three (3) years from the date
hereof, unless terminated prior thereto in accordance with Section 8 of the
Employment Agreement. The last two (2) sentences of Section 6 of the
Employment Agreement (with respect to Non-Renewal Notice) shall remain as set
forth therein.
3. Ratification. As amended and supplemented by this Amendment, the
terms and conditions of the Employment Agreement are hereby ratified and
confirmed and shall continue to be and remain in full force and effect
throughout the remainder of the Term.
4. Capitalized Terms. Unless otherwise defined herein, the defined
terms utilized herein shall have the same meaning as set forth in the
Employment Agreement.
5. Counterparts. The Amendment may be executed in two (2) or more
counterparts, each of which shall be deemed an original but all of which taken
together shall constitute one and the same instrument.
IT WITNESS WHEREOF, the parties hereto have hereunto set their hands
as of the day and year first above written.
/s/ Raymond S. Ingleby
--------------------------------
RAYMOND S. INGLEBY
CARIBINER INTERNATIONAL, INC.
By /s/ Errol M. Cook
------------------------------
Name: Errol M. Cook
Title: Director - Chairman of
Compensation Committee
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
EMPLOYMENT AGREEMENT
By and Between
CARIBINER INTERNATIONAL, INC.
and
CHRISTOPHER A. SINCLAIR
December 21, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
1. Employment.................................................................1
2. Duties and Responsibilities of Employee; Board Membership..................1
3. Exclusivity of Service.....................................................2
4. Compensation; Bonus........................................................2
5. Benefits...................................................................3
6. Term of Employment.........................................................4
7. Confidentiality; Inventions; Product Development, Etc......................5
8. Non-Competition; Non-Solicitation..........................................6
9. Termination................................................................7
(a) Cause..................................................................7
(b) Incapacity.............................................................8
(c) Death..................................................................8
10. Violation of Other Agreements..............................................9
11. Specific Performance; Damages..............................................9
12. Notices...................................................................10
13. Waivers...................................................................10
14. Preservation of Intent....................................................10
15. Indemnification...........................................................10
16. Entire Agreement..........................................................11
17. Inurement; Assignment.....................................................11
18. Amendment.................................................................11
19. Headings..................................................................11
20. Counterparts..............................................................11
21. Governing Law.............................................................12
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<PAGE>
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (this "Agreement") dated as of December 21, 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
CHRISTOPHER A. SINCLAIR, an individual residing at 565 Stanwich Road,
Greenwich, Connecticut 06831 ("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 President and Chief Executive
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; Board
Membership
(a) Employee shall be employed as Employer's President and Chief
Executive Officer, subject to the other provisions of this Section 2.
Employee's duties shall be commensurate with those of a President and Chief
Executive Officer of a company engaged in the business engaged in by Employer.
In the performance of his duties, Employee shall report to Employer's Board of
Directors (the "Board"). 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. Upon Employer's
request, Employee shall also perform similar services in an identical capacity
for (and, if requested, shall hold directorships with) any subsidiary or
division of Employer (or a subsidiary thereof) designated by the Board.
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
<PAGE>
metropolitan area, which for purposes hereof shall mean within a fifty (50)
mile radius of Employer's current offices).
(b) Employee shall be appointed to the Board at the next regularly
scheduled meeting of the Board. Employer agrees that, during each year of the
Term (as hereinafter defined), Employee shall be nominated for election to the
Board by Employer's stockholders to serve a term of one (1) year until the
subsequent annual meeting of stockholders or until his successor shall be
otherwise elected and qualified. In the event that Employee's employment is
terminated for any reason whatsoever including, without limitation, Employee's
resignation, Employee shall automatically upon any such termination be deemed
to have resigned from the Board. Promptly upon request therefor, Employee
agrees to confirm in writing such resignation from the Board upon any such
termination.
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 and, subject to Employer's prior written
approval, directorships, provided that such activities do not materially
affect the performance of Employee's duties hereunder. Employer hereby
approves Employee's service on the board of directors of each of Venator
Group, Inc. and Mattel, Inc.
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 five hundred thousand ($500,000) 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), at the Tier I level bonus pursuant to
Employer's Performance Bonus Program (or such equivalent level to which the
Chairman of the Board of Employer shall be entitled) as in effect for the
fiscal year ended immediately prior to the final year in which such bonus is
actually paid; provided, however, that notwithstanding the foregoing to the
contrary, Employer shall pay Employee a Bonus in respect of Employer's fiscal
year ending September 30, 1999 (payable upon approximately December 15, 1999)
of at least $250,000 (the "Guaranteed Bonus").
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<PAGE>
(c) Employee's Base Salary and Bonus shall be reviewed annually by
the Board and increased in the Board's discretion.
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 any plan of
Employer relating to vacation, sick leave, stock options, stock purchases,
stock grants, pension, thrift, profit sharing, insurance, medical coverage,
education or other retirement or employee benefits that Employer has adopted
or may adopt for the benefit of its executive officers, officers and/or
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.
(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, promptly after the execution hereof, grant to
Employee options (the "Options") to purchase up to Six Hundred Thousand
(600,000) shares of common stock (the "Common Stock") of Employer, par value
$0.01 per share. Of such Options, Three Hundred and Fifty Thousand (350,000)
shall be exercisable at the Market Price (as defined in Employer's 1996 Stock
Option Plan, as amended (the "Plan"))and Two Hundred and Fifty Thousand
(250,000) of such Options shall be exercisable at $15.00 per
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<PAGE>
share. Such Options shall be issued upon the execution of a stock option
agreement to be entered into by Employer and Employee, in substantially the
form of the Stock Option Agreement adopted pursuant to the Plan, promptly
following the mutual execution and delivery of this Agreement. The Options
shall be subject to substantively the same terms and conditions as are set
forth in the Plan and the Stock Option Agreement adopted thereunder with
respect to options granted under the Plan except that: (i) upon Employee's
termination for "Cause" (as defined in Section 9(a) hereof) the Options may be
exercised by Employee (to the extent Employee shall have been entitled to do
so as of the date of the termination of his employment with Employer) at any
time prior to the expiration date of the Options or within sixty (60) days
after such termination, whichever is earlier; and (ii) upon Employee's
termination without Cause or if Employee resigns for Good Reason (each as
defined in Section 9(d) hereof) the Options shall, to the extent of any
unexercised portion thereof, whether or not then currently exercisable, become
immediately exercisable, in whole or in part, as of such termination or
resignation, as the case may be, without regard to any vesting provisions or
condition precedent which may be contained in the Plan or the Stock Option
Agreement applicable thereto, at any time prior to the expiration date of the
Options or within two (2) years after such termination or resignation, as the
case may be, whichever is earlier.
6. Term of Employment
The term (the "Term") of employment shall be from December 21, 1998
through January 31, 2002, 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. In the
event that Employer shall deliver a Renewal Indication which states 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 (without regard to Section 5(e) hereof), 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
-4-
<PAGE>
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.
(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.
(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
-5-
<PAGE>
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 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
-6-
<PAGE>
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.
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 continually fail substantially to perform his duties hereunder with
reasonable diligence, other than by reason of incapacity, or shall violate any
material covenant of his herein contained, (ii) Employee shall engage in an
act of fraud, theft or embezzlement in connection with his employment
hereunder, (iii) Employee shall engage in a material act or omission involving
wilful misconduct or gross negligence in the performance of Employee's duties,
(iv) Employee shall engage in a material act of dishonesty, (v) Employee shall
unreasonably refuse to carry out the lawful order of Employer commensurate
with Employee's duties to be performed hereunder or (vi) Employee shall be
convicted of a felony involving moral turpitude, (which shall include any
felony relating to drugs) or shall 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 (v) 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, except as otherwise set
-7-
<PAGE>
forth herein, 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.
(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 five (5) consecutive months by reason of illness, disability, or other
incapacity, Employer may terminate this Agreement upon one (1) month's notice
after said five (5) 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 four (4) months Base Salary.
(d) Termination Without Cause; Good Reason. If Employee is discharged
and this Agreement is terminated without Cause (Cause being defined as a
reason for termination as set forth in Section 9(a) above) or by reason or
than as set forth in Sections 9(b) or 9(c) hereof, or if Employee resigns for
Good Reason (as hereinafter defined) Employer shall pay to Employee (i) for
the remainder of the Term the Base Salary provided for in Section 4 hereof as
such sums become due (or, at Employer's election, in a lump sum giving effect
to the present value of such payments); (ii) the Bonus in respect only of the
fiscal year of Employer in which such termination occurs (based on the prior
year's bonus, or if in the first year of the Term, the Guaranteed Bonus, as
the case may be); and (iii) for the remainder of the Term, all benefits under
Section 5 hereof. For purposes of this Agreement, "Good Reason" shall mean (i)
a relocation of Employee, without his prior written consent, outside of the
New York City metropolitan area (which shall mean within a fifty (50) mile
radius of Employer's current offices), or (ii) a failure to maintain Employee
as the President and Chief Executive Officer, or failure to be elected to the
Board, or (iii) a material diminution by Employer of Employee's
responsibilities, which change would cause Employee's position with Employer
to become one of significantly less responsibility, or scope from that
contemplated by Section 2 hereof, or (iv) a wilful failure in bad faith to pay
the Base Salary or Bonus to Employee when due or another material breach of
this Agreement by Employer that has a material adverse effect on Employee, or
(v) a Change of Control of Employer (as defined below). For purposes of this
Agreement, a "Change of Control" shall have the meaning given to such term in
the Plan.
-8-
<PAGE>
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 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:
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<PAGE>
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.
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. Indemnification
Subject to the succeeding sentence, Employer shall indemnify, defend
and hold harmless Employee from and against all losses, claims, damages,
liabilities, judgments, fines, penalties, assessments and costs and expenses
incurred (including, without limitation, reasonable attorneys' fees and
disbursements) arising prior to, on or after the date hereof from the
performance by Employee of his services pursuant to this Agreement.
Notwithstanding the foregoing, Employee shall not be entitled to
indemnification pursuant to this Section 15 if a Court of competent
jurisdiction or an administrative body or agency determines that, in
connection with any matter giving rise to indemnification, Employee acted in
bad faith or dishonestly, or committed an act for illegal personal gain,
except as directed by the Board or a superior officer (if any), had reasonable
cause to believe he violated any material law, committed an act of
-10-
<PAGE>
wanton or willful misconduct or gross negligence or that Employee acted in a
manner beyond the authorized scope of his duties to be performed pursuant to
this Agreement.
16. 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.
17. 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.
18. Amendment
This Agreement may not be amended in any respect except by an
instrument in writing signed by the parties hereto.
19. 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.
20. 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.
21. 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.
- -11-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the date first above written.
EMPLOYEE:
/s/ Christopher A. Sinclair
------------------------------
Christopher A. Sinclair
EMPLOYER:
CARIBINER INTERNATIONAL, INC.
By: /s/ Raymond S. Ingleby
---------------------------
Name: Raymond S. Ingleby
Title: Chairman of the Board
<PAGE>
EXECUTION VERSION
FIRST AMENDMENT AND AGREEMENT, dated as of March 31, 1998
(this "First Amendment") to the Credit Agreement dated as of October 28, 1997
(as heretofore amended, supplemented or otherwise modified, the "Credit
Agreement"), among CARIBINER INTERNATIONAL, INC., a Delaware corporation (the
"Parent"), CARIBINER, INC., a New York corporation (the "Company"; together
with the Parent, "Borrowers"), the several banks and other financial
institutions from time to time parties thereto (the "Lenders"), THE CHASE
MANHATTAN BANK, as Administrative Agent for the Lenders (in such capacity, the
"Administrative Agent") and MERRILL LYNCH CAPITAL CORPORATION, as Syndication
Agent (in such capacity, the "Syndication Agent").
W I T N E S S E T H :
WHEREAS, the Borrowers, the Lenders, the Administrative Agent
and the Syndication Agent are parties to the Credit Agreement;
WHEREAS, the Borrowers have advised the Administrative Agent
and the Lenders that, in accordance with Section 7.05 of the Credit Agreement,
the Parent proposes to transfer the Capital Stock of CEL, subject to the
charge on such Capital Stock under the CEL Pledge Agreement, to the Company,
which, in turn, proposes to transfer such Capital Stock, subject to such
charge, to Target Acquisition Corp. (collectively, the "UK Reorganization");
WHEREAS, the Borrowers have further advised the
Administrative Agent and the Lenders that, (a) on or around April 1, 1998,
Target will cease to be an Excluded Foreign Subsidiary and (b) in connection
with the UK Reorganization, Target Acquisition Corp. is required to issue
additional shares of Capital Stock to the Company to reflect a portion of the
Company's investment in Target Acquisition Corp.;
WHEREAS, the Borrowers have requested that the Lenders agree
(a) to amend the Credit Agreement in certain respects to reflect the UK
Reorganization, (b) to amend the Target Acquisition Corp. Pledge Agreement to
permit the issuance of additional shares of its Capital Stock to the Company
(subject to the charge therein under the Target Acquisition Corp. Pledge
Agreement) and (c) to permit the Borrowers until June 15, 1998 to comply with
the Borrowers' obligations under Section 6.10 of the Credit Agreement arising
as a result of Target ceasing to be an Excluded Foreign Subsidiary; and
WHEREAS, the Lenders are willing to so agree, but only upon
the terms and conditions of this First Amendment;
NOW THEREFORE, in consideration of the premises and for
other good and valuable consideration the receipt of which is hereby
acknowledged, the Borrowers, the Lenders and the Administrative Agent hereby
agree as follows:
<PAGE>
2
1. Defined Terms. Capitalized terms used herein and not
otherwise defined shall have their respective meanings set forth in the Credit
Agreement.
2. Consent to UK Reorganization. Upon satisfaction of the
conditions precedent set forth in Section 8 below, the Lenders hereby consent
to the UK Reorganization.
3. Amendment to Subsection 1.01. Subsection 1.01 of the
Credit Agreement is hereby amended by (a) deleting the words "the Parent" from
the definition of the term "CEL Pledge Agreement" and (b) substituting
therefor the words "Target Acquisition Corp.".
4. Amendment to Exhibit D-2. Exhibit D-2 of the Credit
Agreement is hereby amended by (a) deleting said Exhibit in its entirety and
(b) substituting therefor Exhibit 1 to this First Amendment.
5. Agreement Concerning Section 6.10. The Borrowers and the
Lenders hereby agree that, on or before June 15, 1998, the Borrowers shall:
(a) cause Target Acquisition Corp. to (i) execute
and deliver to the Administrative Agent a new pledge agreement,
substantially in the form of the Target Pledge Agreement, or such
amendments to the Target Pledge Agreement as the Administrative Agent
deems necessary or advisable in order to grant to the Administrative
Agent, for the benefit of the Lenders, a perfected first priority
security interest in 100% of the Capital Stock of Target, (ii)
deliver to the Administrative Agent share certificates representing
such Capital Stock, registered in the name of the Administrative
Agent or its nominee and (iii) take all other actions the
Administrative Agent deems necessary or advisable in order to grant
to the Administrative Agent, for the benefit of the Lenders, a
perfected first priority security interest in such Capital Stock;
(b) cause Target (i) to (A) execute and deliver to
the Administrative Agent a new pledge agreement or pledge agreements,
in form and substance satisfactory to the Administrative Agent,
granting to the Administrative Agent, for the benefit of the Lenders,
a perfected first priority security interest in 100% of the Capital
Stock of the Subsidiaries of Target that are Domestic Subsidiaries
and a perfected security interest in the Capital Stock of each
Excluded Foreign Subsidiary which is owned by Target (provided that
in no event shall more than 65% of the Capital Stock of any such
Excluded Foreign Subsidiary be required to be so pledged), (B)
deliver to the Administrative Agent, in the case of each such
Domestic Subsidiary of Target, the certificates representing the
Capital Stock of such Domestic Subsidiaries, together with undated
stock powers, in blank, executed and delivered by a duly authorized
officer of Target and, in the case of each such Excluded Foreign
Subsidiary of Target, share certificates representing the Capital
Stock of such Excluded Foreign Subsidiaries, registered in the name
of the Administrative Agent or its nominee and (C) take all other
actions necessary or advisable to grant to the Administrative Agent,
for the benefit of the Lenders, a perfected first priority security
interest in all such Capital Stock; (ii) to (A) become a party to one
or more security agreements substantially in
<PAGE>
3
the form of Exhibit E to the Credit Agreement and (B) take such actions
necessary or advisable to grant to the Administrative Agent, for the
benefit of the Lenders, a perfected first priority security interest
in the collateral (subject to Liens permitted by Section 7.03) to be
described in such security agreement(s), including, without
limitation, the filing of UCC financing statements in such
jurisdictions as may be required by such security agreement or by law
or as may be requested by the Administrative Agent, (iii) to become a
party to a guarantee substantially in the form of Exhibit F-2 of the
Credit Agreement;
(c) cause each Domestic Subsidiary of Target that
is a Significant Subsidiary (i) to (A) become a party to one or more
security agreements, in form and substance satisfactory to the
Administrative Agent, and (B) take such actions necessary or
advisable to grant to the Administrative Agent, for the benefit of
the Lenders, a perfected first priority security interest in the
collateral (subject to Liens permitted by Section 7.03) to be
described in such security agreement(s), including, without
limitation, the filing of UCC financing statements in such
jurisdictions as may be required by such security agreement or by law
or as may be requested by the Administrative Agent, and (ii) to
become a party to a guarantee substantially in the form of Exhibit
F-1 of the Credit Agreement; and
(d) if requested by the Administrative Agent,
deliver to the Administrative Agent legal opinions relating to the
matters described in the preceding clauses (a), (b) and (c), which
opinions shall be in form and substance, and from counsel, reasonably
satisfactory to the Administrative Agent.
6. Agreement Concerning Target Acquisition Corp. Pledge
Agreement. The Lenders hereby consent to the execution and delivery by the
Administrative Agent of an amendment to the Target Acquisition Corp. Pledge
Agreement substantially in the form of Exhibit 2 to this First Amendment.
7. Representations and Warranties; No Default. After giving
effect to this First Amendment, the Borrowers hereby represent and warrant
that all representations and warranties contained in the Credit Agreement are
true and correct as of the date hereof (unless stated to relate to a specific
earlier date, in which case, such representations and warranties shall be true
and correct in all material respects as of such earlier date) and that no
Default or Event of Default shall have occurred and be continuing or would
result from the execution and delivery of this First Amendment.
8. Conditions to Effectiveness of this First Amendment. This
First Amendment shall be effective as of the date first set forth above upon
the satisfaction of the following conditions:
(a) receipt by the Administrative Agent of
counterparts hereof duly executed and delivered by the Borrowers and
Majority Lenders and consented to by the Loan Parties (other than the
Borrowers);
<PAGE>
4
(b) receipt by the Administrative Agent of (i) a
Mortgage of Shares duly executed and delivered by Target Acquisition
Corp. and the Administrative Agent, substantially in the form of
Exhibit 1 hereto and otherwise in form and substance satisfactory to
the Administrative Agent, granting to the Administrative Agent, for
the benefit of the Lenders, a perfected first priority security
interest in 100% of the Capital Stock of CEL, (ii) share certificates
representing such Capital Stock, registered in the name of the
Administrative Agent or its nominee and (iii) a legal opinion of
Allen & Overy, special English counsel to the Administrative Agent,
relating to the matters described in the preceding clauses (i) and
(ii), which opinion shall be in form and substance reasonably
satisfactory to the Administrative Agent; and
(c) the payment by the Borrowers of all amounts
owing under the Credit Agreement, the payment of which has been
requested on or prior to the date hereof, including amounts owing in
respect of interest, fees and expenses.
9. Miscellaneous. (a) Except as expressly amended by this
First Amendment, the Credit Agreement is and shall continue to be in full
force and effect in accordance with its terms, and this First Amendment shall
not constitute the Lenders' consent or indicate their willingness to consent
to any other amendment, modification or waiver of the Credit Agreement or the
other Loan Documents.
(b) This First Amendment may be executed by the parties
hereto on one or more counterparts, and all of such counterparts shall be
deemed to constitute one and the same instrument. This First Amendment may be
delivered by facsimile transmission of the relevant signature pages hereof.
(c) This First Amendment shall be governed by, and construed
and interpreted in accordance with, the law of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this
First Amendment to be executed and delivered by their respective duly
authorized officers as of the date first above written.
CARIBINER CARIBINER INTERNATIONAL, INC.
By /s/ Arthur F. Dignam
---------------------------------
Name: Arthur F. Dignam
Title: Exec. V.P. and Chief
Financial and Administrative
Officer
<PAGE>
5
CARIBINER, INC.
By /s/ Arthur F. Dignam
---------------------------------
Name: Arthur F. Dignam
Title: Executive Vice President and
Chief Financial and
Administrative Officer
THE CHASE MANHATTAN BANK, individually
and as Administrative Agent
By /s/ Thomas J. Cox
---------------------------------
Name: Thomas J. Cox
Title: Vice President
MERRILL LYNCH CAPITAL CORPORATION,
individually and as Syndication Agent
By /s/ Christopher Birosak
---------------------------------
Name: Christopher Birosak
Title: Vice President
BANKBOSTON, N.A.
By /s/ Maura Wadlinger
--------------------------------
Name: Maura Wadlinger
Title: Vice President
BANKERS TRUST COMPANY
By /s/ G. Andrew Keith
--------------------------------
Name: G. Andrew Keith
Title: Vice President
<PAGE>
6
THE BANK OF NEW YORK
By /s/ Edward F. Ryan, Jr.
------------------------------------
Name: Edward F. Ryan, Jr.
Title: Vice President
THE BANK OF NOVA SCOTIA
By /s/ Brian S. Allen
------------------------------------
Name: Brian S. Allen
Title: Senior Relationship Manager
CREDIT AGRICOLE INDOSUEZ
By
------------------------------------
Name:
Title:
FIRST UNION NATIONAL BANK
By /s/ Jorge Gonzalez
------------------------------------
Name: Jorge Gonzalez
Title: Senior Vice President
FLEET BANK, N.A.
By /s/ Thomas J. Levy
------------------------------------
Name: Thomas J. Levy
Title: Vice President
<PAGE>
7
THE MITSUBISHI TRUST AND BANKING
CORPORATION
By
------------------------------------
Name:
Title:
NATIONSBANK, N.A.
By /s/ Diana H. Inman
------------------------------------
Name: Diana H. Inman
Title: Vice President
PNC BANK, NATIONAL ASSOCIATION
By
------------------------------------
Name:
Title:
ROYAL BANK OF CANADA
By /s/ James S. Kelly
------------------------------------
Name: James S. Kelly
Title: Manager
BANK POLSKA, KASA OPIEKI S.A.
PEKAO S.A. GROUP, NEW YORK BRANCH
By /s/ William A. Shea
------------------------------------
Name: William A. Shea
Title: Senior Lending Officer
<PAGE>
8
SUMMIT BANK
By /s/ Robert D. Mace
------------------------------------
Name: Robert D. Mace
Title: Assistant Vice President
<PAGE>
EXECUTION VERSION
SECOND AMENDMENT AND WAIVER, dated as of December 18, 1998,
(this "Second Amendment") to the Credit Agreement dated as of October 28, 1997
(as heretofore amended, supplemented or otherwise modified, the "Credit
Agreement"), among CARIBINER INTERNATIONAL, INC., a Delaware corporation (the
"Parent"), CARIBINER, INC., a New York corporation (the "Company"; together with
the Parent, the "Borrowers"), the several banks and other financial institutions
from time to time parties thereto (the "Lenders"), THE CHASE MANHATTAN BANK, as
Administrative Agent for the Lenders (in such capacity, the "Administrative
Agent") and MERRILL LYNCH CAPITAL CORPORATION, as Syndication Agent (in such
capacity, the "Syndication Agent"; collectively with the Administrative Agent,
the "Agents").
W I T N E S S E T H :
WHEREAS, the Borrowers, the Lenders and the Agents are parties
to the Credit Agreement, pursuant to which the Lenders have agreed to make, and
have made, certain loans and other extensions of credit to the Borrowers on the
terms and subject to the conditions thereof; and
WHEREAS, the Borrowers have requested that certain provisions
of the Credit Agreement be amended and waived; and
WHEREAS, the Lenders are willing to agree to such requested
amendments and waivers on the terms and conditions provided for in this Second
Amendment.
NOW THEREFORE, in consideration of the premises and for other
good and valuable consideration, the receipt of which is hereby acknowledged,
the Borrowers, the Lenders and the Administrative Agent hereby agree as follows:
SECTION 1. DEFINITIONS.
Capitalized terms used herein and not otherwise defined shall
have their respective meanings set forth in the Credit Agreement.
SECTION 2. AMENDMENTS.
2.1 Amendments to Section 1.01. The definitions of "Asset
Sale" and "Recovery Event" set forth in Section 1.01 of the Credit Agreement
shall be amended by deleting from each such definition the amount "$10,000,000"
and substituting in lieu thereof the following:
"(i) for the fiscal year ended September 30, 1998, $10,000,000
and (ii) for any fiscal year ended thereafter, $5,000,000."
<PAGE>
2
2.2 Amendments to Section 2.06 (Optional Prepayments;
Mandatory Prepayments; Termination or Mandatory Reduction of Commitments).
(a) Section 2.06 of the Credit Agreement is hereby amended by deleting paragraph
(i) of said Section in its entirety and substituting therefor the following new
paragraph (i):
"(i) Unless the Majority Lenders and the Majority Term Loan
Lenders shall otherwise agree, if on any date the Parent or
any of its Subsidiaries receives Net Cash Proceeds from any
Asset Sale, other Disposition or Recovery Event, then the
Borrowers shall apply an amount equal to 100% of such Net Cash
Proceeds toward the prepayment of the Term Loans on such date.
Such prepayments shall be applied to the remaining scheduled
Term Loan installments pro rata according to the outstanding
amounts of such scheduled installments, provided that, if any
prepayment would have the effect of reducing the outstanding
principal amount of the Term Loans to $150,000,000 or less,
then (A) an aggregate of $25,000,000 of such prepayment and
any subsequent prepayments shall be applied to the scheduled
Term Loan installments in order of maturity and (B) the
balance, if any, of such prepayments shall be applied to the
remaining scheduled Term Loan installments, pro rata according
to the outstanding amounts of such scheduled installments."
(b) Section 2.06 of the Credit Agreement is hereby further
amended by deleting the word "Prepayments" from paragraph (1)
of said Section and substituting therefor the words,
"Except to the extent expressly provided otherwise in
paragraph (i) above, prepayments."
2.3 Amendment to Section 5.06 (Conditions Precedent to Each
Loan for Future Material Acquisition). Section 5.06 of the Credit Agreement is
hereby amended by adding the following new paragraph (c) to the end of said
Section:
"(c) Consolidated Leverage Ratio. After giving effect to the
requested Loan, the Consolidated Leverage Ratio shall be less
than 3.50 to 1.00 (it being understood that for purposes of
determining the Consolidated Leverage Ratio for this
condition, Consolidated Funded Debt shall be calculated as of
the date of, and after giving effect to, the incurrence by the
Borrowers and their Subsidiaries of any Indebtedness on the
date of the requested Loan) and, unless the Majority Lenders
consent, the Future Material Acquisition (together with all
other Future Material Acquisitions in any fiscal year of
the Borrowers) does not require cash consideration in
excess of $5,000,000 in such fiscal year."
2.4 Amendments to Section 7.01 (Financial Condition
Covenants). (a) Section 7.01 of the Credit Agreement is hereby amended by
deleting paragraph (a) of said Section in its entirety and substituting therefor
the following new paragraph (a):
"(a) Consolidated Leverage Ratio. Permit the Consolidated
Leverage Ratio on the last day of any fiscal quarter ending
during any period set forth below to be greater than the ratio
set forth below opposite the period in which such fiscal
quarter ends:
<PAGE>
3
Period Ratio
------ -----
9/30/98 - 6/29/99 6.50 to 1.00
6/30/99 - 9/29/99 5.00 to 1.00
9/30/99 - 12/30/99 4.25 to 1.00
12/31/99 - 3/30/00 4.00 to 1.00
3/31/00 - 3/30/01 3.75 to 1.00
3/31/01 - 3/30/02 3.50 to 1.00
3/31/02 - 3/30/03 3.25 to 1.00
3/31/03 - thereafter 3.00 to 1.00
(b) Section 7.01 of the Credit Agreement is hereby further
amended by deleting paragraph (b) of said Section in its entirety and
substituting therefor the following new paragraph (b):
"(b) Ratio of Consolidated EBITDA less Capital Expenditures to
Consolidated Cash Interest Expense. Permit the ratio of (i)
Consolidated EBITDA less Capital Expenditures for any period
of four consecutive fiscal quarters ending during any period
set forth below to (ii) Consolidated Cash Interest Expense for
such period, to be less than the ratio set forth below
opposite such period:
Period Ratio
------ -----
9/30/98 - 3/30/99 0.70 to 1.00
3/31/99 - 6/29/99 0.75 to 1.00
6/30/99 - 9/29/99 1.25 to 1.00
9/30/99 - 3/30/00 1.50 to 1.00
3/31/00 - 3/30/01 1.75 to 1.00
3/31/01 - thereafter 2.00 to 1.00
2.5 Amendment to Section 7.07 (Limitation on Investments,
Loans and Advances). Section 7.07 of the Credit Agreement is hereby amended by
deleting paragraph (e) of said Section in its entirety and substituting therefor
the following new paragraph (e):
"(e) Future Acquisitions by the Parent or any other Loan
Party; provided that (i) no Event of Default has occurred and
is continuing at the time of, or would result from, the
consummation of such Future Acquisition, (ii) the Consolidated
Leverage Ratio is less than 3.50 to 1.00 on the Acquisition
Date related to such Future Acquisition (it being understood
for purposes of determining the Consolidated Leverage Ratio,
Consolidated Funded Debt shall be calculated as of such
Acquisition Date and after giving effect to the incurrence by
the Borrowers and their Subsidiaries of any Indebtedness on
such
<PAGE>
4
Acquisition Date) and (iii) any Future Acquisitions or
Investments which require, individually or in the aggregate,
cash consideration in excess of $5,000,000 in any fiscal year
of the Borrowers shall not be made without the prior written
consent of the Majority Lenders after their satisfactory
review (which they shall promptly undertake after notice by
the Borrower), in their reasonable discretion, of documents
required pursuant to Section 5.06(b).
2.6 Amendment to Annex A to the Credit Agreement. Annex A to
the Credit Agreement is hereby amended by deleting said Annex in its entirety
and substituting therefor the "Annex A" attached hereto as Exhibit 1.
2.7 Amendment to Schedule 1 to the Credit Agreement. Schedule
1 to the Credit Agreement is hereby amended by deleting said Schedule in its
entirety and substituting therefor the "Schedule 1" attached hereto as Exhibit
2.
SECTION 4. WAIVER.
The Lenders hereby waive any Default or Event of Default that
resulted from the Borrowers failure to maintain the Consolidated Leverage Ratio
required by Section 7.01(a) of the Credit Agreement, or the ratio of
Consolidated EBITDA less Capital Expenditures to Consolidated Cash Interest
Expense required by Section 7.01(b) of the Credit Agreement, in each case for
the fiscal quarter ending September 30, 1998.
SECTION 5. MISCELLANEOUS.
5.1. Representations and Warranties; No Default. After giving
effect to this Second Amendment, the Borrowers hereby represent and warrant that
all representations and warranties contained in the Credit Agreement are true
and correct in all material respects as of the date hereof (unless stated to
relate to a specific earlier date, in which case, such representations and
warranties shall be true and correct in all material respects as of such earlier
date) and that no Default or Event of Default shall have occurred and be
continuing or would result from the execution and delivery of this Second
Amendment.
5.2. Conditions to Effectiveness of this Second Amendment.
This Second Amendment shall be effective as of the date first set forth above
upon the satisfaction of the following conditions:
(a) receipt by the Administrative Agent of counterparts hereof
duly executed and delivered by the Borrowers and Majority Lenders and consented
to by the Loan Parties (other than the Borrowers);
(b) the payment by the Borrowers to the Administrative Agent,
for the benefit of each Lender delivering its duly executed counterpart hereof
on or prior to December 18, 1998, of a fee equal to .20% of the aggregate
principal amount of the Revolving Credit
<PAGE>
5
Commitment and outstanding Term Loans of such Lender, after giving effect to the
amendments effected hereby; and
(c) the payment by the Borrowers of the costs and expenses of
the Administrative Agent owing under Section 10.05 of the Credit Agreement and
for which invoices have been submitted.
5.3. Limited Effect. Except as expressly amended by this
Second Amendment, the Credit Agreement is and shall continue to be in full force
and effect in accordance with its terms, and this Second Amendment shall not
constitute the Lenders' consent or indicate their willingness to consent to any
other amendment, modification or waiver of the Credit Agreement or the other
Loan Documents.
5.4 Counterparts. This Second Amendment may be executed by the
parties hereto on one or more counterparts, and all of such counterparts shall
be deemed to constitute one and the same instrument. This Second Amendment may
be delivered by facsimile transmission of the relevant signature pages hereof.
5.5 GOVERNING LAW. THIS SECOND AMENDMENT SHALL BE GOVERNED BY,
AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW
YORK.
[remainder of page intentionally left blank]
<PAGE>
6
IN WITNESS WHEREOF, the parties hereto have caused this Second
Amendment to be executed and delivered by their respective duly authorized
officers as of the date first above written.
CARIBINER INTERNATIONAL, INC.
By: /s/ Robert F. Burlinson
-----------------------------------
Name: Robert F. Burlinson
Title: Executive Vice President and
Chief Financial Officer
CARIBINER, INC.
By: /s/ Robert F. Burlinson
-----------------------------------
Name: Robert F. Burlinson
Title: Executive Vice President and
Chief Financial Officer and
Treasurer
<PAGE>
7
THE CHASE MANHATTAN BANK, individually
and as Administrative Agent
By: /s/ Wendy Weinsier
-----------------------------------
Name: Wendy Weinsier
Title: Vice President
MERRILL LYNCH CAPITAL CORPORATION,
individually and as Syndication Agent
By: /s/ Julie Hallowell
-----------------------------------
Name: Julie Hallowell
Title: Vice President
BANKBOSTON, N.A.
By: /s/ Maura Wadlinger
-----------------------------------
Name: Maura Wadlinger
Title: Vice President
BANKERS TRUST COMPANY
By: /s/ Anthony LoGrippo
-----------------------------------
Name: Anthony LoGrippo
Title: Vice President
<PAGE>
8
THE BANK OF NEW YORK
By: /s/ Edward F. Ryan, Jr.
-----------------------------------
Name: Edward F. Ryan, Jr.
Title: Senior Vice President
THE BANK OF NOVA SCOTIA
By: /s/ Stephen E. Lockhart
-----------------------------------
Name: Stephen E. Lockhart
Title: Senior Relationship Manager
CREDIT AGRICOLE INDOSUEZ
By: /s/ Craig Welch
-----------------------------------
Name: Craig Welch
Title: First Vice President
FIRST UNION NATIONAL BANK
By: /s/ Jorge Gonzalez
-----------------------------------
Name: Jorge Gonzalez
Title: Senior Vice President
<PAGE>
9
FLEET BANK, N.A.
By: /s/ Thomas J. Levy
-----------------------------------
Name: Thomas J. Levy
Title: Vice President
THE MITSUBISHI TRUST AND BANKING
CORPORATION
By: /s/ Beatrice E. Kossodo
-----------------------------------
Name: Beatrice E. Kossodo
Title: Senior Vice President
NATIONSBANK, N.A.
By: /s/ Daniel Rencricca
-----------------------------------
Name: Daniel Rencricca
Title: Vice President
BANK OF AMERICA NATIONAL TRUST &
SAVINGS ASSOCIATION
By: /s/ Daniel Rencricca
-----------------------------------
Name: Daniel Rencricca
Title: Vice President
<PAGE>
10
PNC BANK, NATIONAL ASSOCIATION
By: /s/ Michael Richards
-----------------------------------
Name: Michael Richards
Title: Vice President
ROYAL BANK OF CANADA
By: /s/ Kristin Condon
-----------------------------------
Name: Kristin Condon
Title: Manager, Global Syndications
SUMMIT BANK
By:
-----------------------------------
Name:
Title:
BANK OF HAWAII
By: /s/ Donna R. Parker
-----------------------------------
Name: Donna R. Parker
Title: Vice President
<PAGE>
11
BANK POLSKA KASA OPIEKI S.A.
PEKAO S.A. GROUP, NEW YORK BRANCH
By: /s/ B.W. Henry
-----------------------------------
Name: B.W. Henry
Title: Vice President
VAN KAMPEN PRIME RATE INCOME TRUST
By: /s/ Jeffrey W. Maillet
-----------------------------------
Name: Jeffrey W. Maillet
Title: Senior Vice President& Director
VAN KAMPEN SENIOR INCOME TRUST
By: /s/ Jeffrey W. Maillet
-----------------------------------
Name: Jeffrey W. Maillet
Title: Senior Vice President & Director
<PAGE>
12
Each of the undersigned hereby consents to the foregoing
Second Amendment and Waiver and hereby confirms, reaffirms and restates that its
obligations under or in respect of the Credit Agreement and the documents
related thereto to which it is a party are and shall remain in full force and
effect after giving effect to the foregoing Second Amendment and Waiver.
CARIBINER INTELLECTUAL
PROPERTY MANAGEMENT, INC.
By: /s/ Robert F. Burlinson
-----------------------------------
Name: Robert F. Burlinson
Title: Executive Vice President and
Treasurer
CARIBINER AUDIO VISUAL SERVICES, INC.
By: /s/ Robert F. Burlinson
-----------------------------------
Name: Robert F. Burlinson
Title: Executive Vice President, Chief
Financial Officer and Treasurer
HRI, V.I., INC.
By: /s/ Robert F. Burlinson
-----------------------------------
Name: Robert F. Burlinson
Title: Executive Vice President and
Treasurer
<PAGE>
13
VISUAL ACTION HOLDINGS, INC.
By: /s/ Robert F. Burlinson
-----------------------------------
Name: Robert F. Burlinson
Title: Executive Vice President and
Treasurer
CARIBINER SERVICES LIMITED
By: /s/ Raymond S. Ingleby
-----------------------------------
Name: Raymond S. Ingleby
Title: Director
CARIBINER EUROPE LIMITED
By: /s/ Raymond S. Ingleby
-----------------------------------
Name: Raymond S. Ingleby
Title: Director
VISUAL ACTION HOLDINGS LIMITED
By: /s/ Raymond S. Ingleby
-----------------------------------
Name: Raymond S. Ingleby
Title: Director
<PAGE>
<TABLE>
<CAPTION>
Annex A
Leverage Grid
- -----------------------------------------------------------------------------------------------------------------------------------
If the If the If the If the If the If the
Consolidated Consolidated Consolidated Consolidated Consolidated Consolidated
Leverage Ratio Leverage Leverage Ratio Leverage Ratio Leverage Ratio Leveraee Ratio
is less than Ratio is less is less than 3.0 is less than 3.5 is less than 4.0 is greater than
2.0 to 1.0 than 2.5 to 1.0 to 1.0 but to 1.0 but to 1.0 but or equal to 4.0
but greater greater greater greater than or to 1.0
than or equal than or equal than or equal equal to
to 2.0 to 1.0 to 2.5 to 1.0 to 3.0 to 1.0 3.5 to 1.0
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Commitment 37.5 bps 37.5 bps 50.0 bps 50.0 bps 50.0 bps 50.0 bps
Fee
- -----------------------------------------------------------------------------------------------------------------------------------
Eurodollar 125.0 bps 150.0 bps 175.0 bps 200.0 bps 250.0 bps 275.0 bps
Applicable
Margin
- -----------------------------------------------------------------------------------------------------------------------------------
ABR 25.0 bps 50.0 bps 75.0 bps 100.0 bps 150.0 bps 175.0 bps
Applicable
Margin
- -----------------------------------------------------------------------------------------------------------------------------------
<FN>
; provided, that beginning June 30, 1999, if the outstanding principal amount of the Term Loans has not been reduced to $150,000,000
or less from the application of the Net Cash Proceeds of Asset Sales, Recovery Events, other Dispositions or refinancings on terms
acceptable to the Majority Lenders or otherwise (but in no event from the proceeds of Revolving Credit Loans) (the date of such
reduction, the "Term Loan Reduction Date"), then (i) from and after June 30, 1999 until the earlier to occur of (x) the first
Adjustment Date (as defined below) to occur thereafter and (y) the Term Loan Reduction Date, the Applicable Margin for each Type of
Loan shall be increased to .50% above the rate which is in effect on June 30, 1999 pursuant to the pricing grid set forth above, and
the Commitment Fee Rate shall be .50% and (ii) from and after the first Adjustment Date to occur after June 30, 1999 and until the
Term Loan Reduction Date the following Pricing Grid shall apply:
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
If the If the If the If the If the If the
Consolidated Consolidated Consolidated Consolidated Consolidated Consolidated
Leverage Ratio Leverage Leverage Leverage Ratio Leverage Ratio Leverage Ratio
is less than 2.0 Ratio is less Ratio is less is less than 3.5 is less than 4.0 is greater than
to 1.0 than 2.5 to 1.0 than 3.0 to 1.0 to 1.0 but to 1.0 but or equal to 4.0
but greater than but greater than greater than or greater than or to 1.0
or equal to 2.0 or equal to 2.5 equal to 3.0 to equal to
to 1.0 to 1.0 1.0 3.5 to 1.0
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Commitment 50.0 bps 50.0 bps 50.0 bps 50.0 bps 50.0 bps 50.0 bps
Fee
- -----------------------------------------------------------------------------------------------------------------------------------
Eurodollar 175.0 bps 200.0 bps 225.0 bps 250.0 bps 300.0 bps 325.0 bps
Applicable
Margin
- -----------------------------------------------------------------------------------------------------------------------------------
ABR 75.0 bps 100.0 bps 125.0 bps 150.0 bps 200.0 bps 225.O bps
Applicable
Margin
- -----------------------------------------------------------------------------------------------------------------------------------
<FN>
On the effective date of the Second Amendment, the Commitment Fee Rate shall be 50.0 bps, the Applicable Margin for Eurodollar
Loans shall be 275.0 bps and the Applicable Margin for ABR Loans shall be 175.0 bps.
Beginning with the fiscal quarter ending December 31, 1998 changes in the Applicable Margin or in the Commitment Fee Rate resulting
from changes in the Consolidated Leverage Ratio shall become effective on the date (the "Adiustment Date") on which financial
statements are delivered to the Lenders pursuant to Section 6.01 (but in any event not later than the 50th day after the end of each
of the first three quarterly periods of each fiscal year or the 120th day after the end of each fiscal year, as the case may be) and
shall remain in effect until the next change to be effected pursuant to this paragraph. If any financial statements referred to
above are not delivered within the time periods specified above, then, until such financial statements are delivered, the
Consolidated Leverage Ratio as at the end of the fiscal period that would have been covered thereby shall for the purposes of this
definition be deemed to be greater than 4.0 to 1. Each determination of the Consolidated Leverage Ratio pursuant to this definition
shall be made with respect to the period of four consecutive fiscal quarters of the Parent and its Subsidiaries ending at the end of
the period covered by the relevant financial statements.
</FN>
</TABLE>
<PAGE>
SCHEDULE 1
<TABLE>
<CAPTION>
Revolving Credit Term Loan Total
Lender Commitment Commitment Commitment
- -------------------------- ---------------- ---------------- --------------
<S> <C> <C> <C>
Bank Polska $2,272,727.28 $2,036,363.63 $4,309,090.91
Bank of America Illinois $4,770,992.45 $4,274,809.16 $9,045,801.61
Bank of Hawaii $4,770,992.37 $4,274,809.16 $9,045,801.53
Bank of New York $21,478,140.18 $14,244,413.60 $35,722,553.78
Bank of Nova Scotia $19,318,181.82 $17,309,090.91 $36,627,272.73
BankBoston, N.A. $19,318,181.82 $17,309,090.91 $36,627,272.73
Bankers Trust Company $23,863,636.37 $21,381,818.18 $45,245,454.55
Chase Manhattan Bank $30,681,818.18 $27,490,909.10 $58,172,727.28
Credit Agricole Indosuez $9,090,090.09 $8,145,454.94 $17,236,364.03
First Union National Bank $11,476,405.28 $15,282,859.12 $26,759,264.40
N.C.
Fleet Bank $15,909,090.91 $14,254,545.46 $30,163,636.37
Merrill Lynch, Pierce, $30,681,818.18 $27,490,909.09 $58,172,727.27
Fenner & Smith
Incorporated
Mitsubishi Trust & Banking
Corporation $9,090,909.09 $8,145,454.54 $17,236,363.63
NationsBank, NA $21,816,446.92 $19,547,536.43 $41,363,983.35
PNC Bank, N.A. $19,318,181.82 $8,349,090.91 $27,667,272.73
Royal Bank of Canada $1,596,113.73 $1,430,117.98 $3,026,231.71
Summit Bank $4,545,454.54 $4,072,727.28 $8,618,181.82
Van Kampen American $0.00 $3,960,000.00 $3,960,000.00
Capital PRIT
Van Kampen Amer. Capital $0.00 $5,000,000.00 $5,000,000.00
Sr. Inc. Trust
Total $250,000,000.00 $224,000,000.40 $474,000,000.40
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the Registration Statement on
Form S-8 (Registration No. 333-37923) pertaining to the 1996 Stock Option Plan
of Caribiner International, Inc. of our report, dated December 18, 1998, with
respect to the consolidated financial statements of Caribiner International,
Inc., which are included in the Annual Report on Form 10-K for the year ended
September 30, 1998.
/s/ Ernst & Young LLP
New York, New York
December 29, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the audited
consolidated balance sheet as of September 30, 1998 and the audited consolidated
statement of income for the year ended September 30, 1998 of Caribiner
International, Inc. As set forth in this form 10-K and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<CASH> 15,117
<SECURITIES> 0
<RECEIVABLES> 124,936
<ALLOWANCES> 2,150
<INVENTORY> 0
<CURRENT-ASSETS> 164,586
<PP&E> 137,707
<DEPRECIATION> 39,637
<TOTAL-ASSETS> 697,949
<CURRENT-LIABILITIES> 107,612
<BONDS> 0
0
0
<COMMON> 236
<OTHER-SE> 175,739
<TOTAL-LIABILITY-AND-EQUITY> 697,949
<SALES> 696,778
<TOTAL-REVENUES> 696,778
<CGS> 489,475
<TOTAL-COSTS> 182,107
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24,325
<INCOME-PRETAX> 1,559
<INCOME-TAX> 624
<INCOME-CONTINUING> 935
<DISCONTINUED> 0
<EXTRAORDINARY> 605
<CHANGES> 0
<NET-INCOME> 330
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
</TABLE>
