<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
COMMISSION FILE NUMBER: 1-14234
Caribiner International, Inc.
-----------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3466655
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
16 West 61st Street, New York, NY 10023
--------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 541-5300
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes /X/ No / /
The registrant had 23,696,732 shares of Common Stock (par value $0.01 per
share) outstanding as of May 7, 1999.
<PAGE>
INDEX
<TABLE>
<CAPTION>
PART I. Financial Information
<S> <C> <C>
Item 1. Financial Statements (Unaudited)
Review Report of Independent Accountants...................................................... 2
Consolidated Balance Sheets as of
March 31, 1999 and September 30, 1998......................................................... 3
Consolidated Statements of Operations for
the six months ended March 31, 1999 and 1998.................................................. 4
Consolidated Statements of Operations for
the three months ended March 31, 1999 and 1998................................................ 5
Consolidated Statements of Cash Flows for
the six months ended March 31, 1999 and 1998.................................................. 6
Consolidated Statement of Changes in Stockholders' Equity for the six months
ended March 31, 1999 and 1998................................................................. 7
Notes to Consolidated Financial Statements.................................................... 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.................................................10
PART II. Other Information
Item 1. Legal Proceedings............................................................................ 14
Item 2. Changes in Securities........................................................................ 14
Item 4. Submission of Matters to a Vote of Security Holders.......................................... 14
Item 6. Exhibits and Reports on Form 8-K............................................................. 15
SIGNATURES............................................................................................................. 17
</TABLE>
- 1 -
<PAGE>
Review Report of Independent Accountants
Stockholders and Board of Directors Caribiner International, Inc.
We have reviewed the accompanying consolidated balance sheet of Caribiner
International, Inc. as of March 31, 1999, and the related consolidated
statements of operations for the three and six months ended March 31, 1999 and
1998, the consolidated statement of changes in stockholders' equity for the
six months ended March 31, 1999 and 1998 and the consolidated statements of
cash flows for the six months ended March 31, 1999 and 1998. These financial
statements are the responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data, and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards, which will
be performed for the full year with the objective of expressing an opinion
regarding the financial statements taken as a whole. Accordingly, we do not
express such an opinion.
Based on our reviews, we are not aware of any material modifications that
should be made to the accompanying consolidated financial statements referred to
above for them to be in conformity with generally accepted accounting
principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Caribiner International, Inc. as
of September 30, 1998, and the related consolidated statements of operations,
stockholders' equity, and cash flows for the year then ended, not presented
herein, and in our report dated December 18, 1998, we expressed an unqualified
opinion on those consolidated financial statements. In our opinion, the
information set forth in the accompanying consolidated balance sheet as of
September 30, 1998, is fairly stated, in all material respects, in relation to
the consolidated balance sheet from which it has been derived.
/s/ Ernst & Young LLP
New York, New York
May 11, 1999
- 2 -
<PAGE>
Caribiner International, Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
March 31, September 30,
ASSETS 1999 1998
(unaudited) (audited)
(amounts in thousands)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 8,718 $ 15,117
Trade accounts receivable - net of allowance for doubtful
accounts of $3,157 and $2,150 at March 31, 1999 and
September 30, 1998, respectively 131,158 124,936
Deferred charges 18,219 12,923
Prepaid expenses and other current assets 13,233 11,610
---------- -----------
Total Current Assets 171,328 164,586
Property and equipment - net 110,448 98,070
Goodwill - net 421,279 419,581
Taxes receivable 6,455 4,479
Deferred tax asset 756 362
Other assets 15,932 10,871
---------- -----------
TOTAL ASSETS $ 726,198 $ 697,949
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 382 $ 1,000
Trade accounts payable 37,723 23,739
Accrued expenses and other current liabilities 32,891 42,294
Accrued production costs 18,685 25,331
Deferred income 20,334 18,093
---------- -----------
Total Current Liabilities 110,015 110,457
Long-term debt 422,121 396,240
Deferred income 8,796 8,409
Other liabilities 13,501 7,068
---------- -----------
TOTAL LIABILITIES 554,433 522,174
Stockholders' Equity:
Preferred stock, $0.01 par value:
2,000 shares authorized, none issued and outstanding at
March 31, 1999 and September 30, 1998, respectively -- --
Common stock, $0.01 par value:
40,000 voting shares authorized, 23,694 and 23,689 shares issued and
outstanding at March 31, 1999 and September
30, 1998, respectively 236 236
Additional paid-in capital 167,664 167,608
Accumulated other comprehensive income (5,433) (3,714)
Retained earnings 9,298 11,645
---------- -----------
TOTAL STOCKHOLDERS' EQUITY 171,765 175,775
---------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 726,198 $ 697,949
========== ===========
</TABLE>
See accompanying notes to the unaudited consolidated financial statements.
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<PAGE>
Caribiner International, Inc.
Consolidated Statements of Operations
For the Six Months Ended
(unaudited)
<TABLE>
<CAPTION>
March 31,
1999 1998
---- ----
(amounts in thousands)
<S> <C> <C>
Service revenue $ 139,579 $ 119,119
Rental revenue 238,120 195,409
Intercompany eliminations (14,020) (4,701)
---------- ------------
Total revenue 363,679 309,827
Cost of service revenue 94,858 79,615
Cost of rental revenue 185,341 142,344
Intercompany eliminations (14,020) (4,701)
---------- -----------
Total cost of revenue 266,179 217,258
---------- -----------
Gross profit 97,500 92,569
Operating expenses:
Selling, general and administrative expenses 71,317 63,991
Restructuring charge -- 3,828
Depreciation and amortization 13,988 9,048
---------- -----------
Total operating expenses 85,305 76,867
Equity in income of affiliated company -- 688
---------- -----------
Operating income 12,195 16,390
Interest expense, net 16,108 9,904
---------- -----------
(Loss) income before taxes and extraordinary charge (3,913) 6,486
(Benefit) provision for taxes (1,566) 2,594
---------- -----------
(Loss) income before extraordinary charge (2,347) 3,892
Extraordinary charge on early extinguishment of
debt (net of income taxes of $403) -- 605
---------- -----------
Net (loss) income $ (2,347) $ 3,287
========== ===========
Basic and diluted earnings (loss) per common share:
(Loss) income before extraordinary charge $ (0.10) $ 0.17
Extraordinary charge -- (0.03)
---------- -----------
Net (loss) income per common share $ (0.10) $ 0.14
========== ===========
</TABLE>
See accompanying notes to the unaudited consolidated financial statements.
- 4 -
<PAGE>
Caribiner International, Inc.
Consolidated Statements of Operations
For the Three Months Ended
(unaudited)
<TABLE>
<CAPTION>
March 31,
1999 1998
---- ----
(amounts in thousands)
<S> <C> <C>
Service revenue $ 86,374 $ 62,941
Rental revenue 126,405 126,967
Intercompany eliminations (9,083) (2,530)
---------- -----------
Total revenue 203,696 187,378
Cost of service revenue 59,415 41,741
Cost of rental revenue 96,581 91,348
Intercompany eliminations (9,083) (2,530)
---------- -----------
Total cost of revenue 146,913 130,559
---------- -----------
Gross profit 56,783 56,819
Operating expenses:
Selling, general and administrative expenses 35,224 34,318
Restructuring charge -- 3,828
Depreciation and amortization 6,832 5,417
---------- -----------
Total operating expenses 42,056 43,563
---------- -----------
Operating income 14,727 13,256
Interest expense, net 8,581 6,981
---------- -----------
Income before taxes 6,146 6,275
Provision for taxes 2,458 2,510
---------- -----------
Net income $ 3,688 $ 3,765
========== ===========
Basic and diluted earnings per common share: $ 0.16 $ 0.16
========== ===========
</TABLE>
See accompanying notes to the unaudited consolidated financial statements.
- 5 -
<PAGE>
Caribiner International, Inc.
Consolidated Statements of Cash Flows
For the Six Months Ended
(unaudited)
<TABLE>
<CAPTION>
March 31,
1999 1998
--------- ------------
(amounts in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $(2,347) $ 3,287
Adjustments to reconcile net (loss) income to net cash (used in)
provided by operating activities:
Depreciation and amortization 21,333 16,949
Extraordinary charge (net of tax) for refinancing debt -- 605
Restructuring charge, net of cash payments -- 2,615
Change in assets and liabilities, net of amounts acquired:
Increase in trade accounts receivable (6,222) (13,096)
Increase in deferred charges (5,296) (7,210)
Increase in prepaid expenses and
other current assets (2,250) (6,734)
Increase in other assets (4,356) (6,502)
Increase (decrease) in trade accounts payable 9,310 (6,502)
Increase in deferred income 2,628 14,009
(Decrease) increase in accrued expenses and
other liabilities (14,324) 5,485
Decrease in taxes payable (2,320) --
---------- -----------
Net cash (used in) provided by operating activities (3,844) 2,906
---------- -----------
Cash flow used in investing activities:
Purchase of property and equipment (21,521) (25,714)
Acquisition of intangibles and businesses, net of
cash acquired (5,571) (291,758)
---------- -----------
Net cash used in investing activities (27,092) (317,472)
---------- -----------
Cash flow provided by financing activities:
Proceeds from exercise of stock options -- 459
Repayments of long-term debt (78,797) (285,243)
Proceeds from long-term debt 104,450 600,002
Payment of debt issuance fees (1,231) --
---------- -----------
Net cash provided by financing activities 24,422 315,218
---------- -----------
Translation effect on cash and cash equivalents 115 367
Net (decrease) increase in cash (6,399) 1,019
Cash, beginning of period 15,117 10,253
---------- -----------
Cash, end of period $ 8,718 $ 11,272
========== ===========
Supplemental disclosure of cash flow information:
Interest paid $ 17,320 $ 7,000
========== ===========
Income taxes paid $ 270 $ 4,276
========== ===========
</TABLE>
See accompanying notes to the unaudited consolidated financial statements.
- 6 -
<PAGE>
Caribiner International, Inc.
Consolidated Statement of Changes in Stockholders' Equity
For the Six Months Ended March 31, 1999 and 1998
(unaudited)
(amounts in thousands)
<TABLE>
<CAPTION>
Accumulated
Additional Other Total
Common Stock Paid-in Retained Comprehensive Stockholders'
Shares Amount Capital Earnings Income Equity
------ ------ ------- -------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
For the six months ended March 31, 1999:
Balance at September 30, 1998 23,689 $ 236 $ 167,608 $ 11,645 $(3,714) $ 175,775
Net (loss) - - - (2,347) - (2,347)
Foreign currency translation adjustment - - - - (1,719) (1,719)
---------
Other comprehensive (loss) - - - - - (4,066)
---------
Issuance of common stock 5 * 56 - - 56
------ ----- ---------- -------- ------- ---------
Balance at March 31, 1999 23,694 $ 236 $ 167,664 $ 9,298 $(5,433) $ 171,765
====== ===== ========== ======== ======= =========
For the six months ended March 31, 1998:
Balance at September 30, 1997 23,417 $ 234 $ 159,874 $ 11,315 $ 11 $ 171,434
Net income - - - 3,287 - 3,287
Foreign currency translation adjustment - - - - (179) (179)
---------
Other comprehensive income - - - - - 3,108
---------
Issuance of common stock 174 2 6,308 - - 6,310
------ ----- ---------- -------- ------- ---------
Balance at March 31, 1998 23,591 $ 236 $ 166,182 $ 14,602 $ (168) $ 180,852
====== ===== ========== ======== ======= =========
</TABLE>
*Amount less than $1 thousand
See accompanying notes to the unaudited consolidated financial statements.
- 7 -
<PAGE>
Caribiner International, Inc.
Notes To Consolidated Financial Statements
(Unaudited)
1. Interim Financial Information
The accompanying unaudited consolidated financial statements of
Caribiner International, Inc. (the "Company") have been prepared in
accordance with generally accepted accounting principles for interim
financial information and the instructions to Form 10-Q and Article 10
of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, the consolidated financial statements contain all
adjustments, consisting of normal recurring adjustments, considered
necessary to present fairly the consolidated financial position,
results of operations and cash flows of the Company. The results of
operations for the three and six months ended March 31, 1999 are not
necessarily indicative of the results of operations that may be
expected for any other interim periods or for the fiscal year ending
September 30, 1999.
The balance sheet at September 30, 1998 has been derived from the
Company's audited financial statements at that date, but does not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements.
As of October 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income"
("Statement 130"). Statement 130 establishes new rules for the
reporting and display of comprehensive income and its components;
however, the adoption of Statement 130 had no impact on the Company's
net income or stockholders' equity. Statement 130 requires foreign
currency translation adjustments, which prior to the adoption of the
new accounting rule were reported separately in stockholders' equity,
to be included in other comprehensive income. Prior year financial
statements have been reclassified to conform to the requirements of
Statement 130.
Certain reclassifications have been made to the consolidated statement
of operations for the three and six months ended March 31, 1998 and
the balance sheet at September 30, 1998 to conform to the current
period's presentation.
2. Business Acquisitions/Dispositions
In fiscal 1996 and 1997, the Company acquired several companies engaged
in providing audio-visual equipment rentals, sales and related staging
services such as Total Audio Visual Services, Video Supply Company, Inc.
d/b/a Projexions Video Supply, Blumberg Communications Inc., D&D
Enterprises, Inc. d/b/a Show Solutions and Bauer Audio Visual, Inc.
These acquisitions were accounted for using the purchase method of
accounting. During the fiscal quarter ended March 31, 1999, in
connection with the Company's consolidation of audio visual outsourcing
operations in Chicago, and as part of the Company's periodic review of
the purchase accounting accruals, approximately $1.7 million of
aggregate liabilities established in connection with the above
acquisitions were identified as excess and reversed. Additionally,
during the fiscal quarter ended March 31, 1999, the Company recorded
additional charges approximating $1.7 million, including an increase in
the allowance for doubtful accounts, associated with consolidating audio
visual operations in Chicago.
In December, 1998, the Company announced that it intends to dispose of
certain non-core assets. The Company expects to use the net proceeds
from any such sales to repay bank debt. The Company does not expect to
incur any significant gain or loss on such transactions.
3. Debt
Due to delays in the sale of certain non-core assets and subject to
future operating results, the Company may be unable to comply with
certain covenants under its senior secured credit agreement, which
become more restrictive as of June 30, 1999, the end of the Company's
third fiscal quarter. Management will be discussing appropriate waivers
or amendments to such credit agreement with its bankers to remain in
compliance for the balance of the fiscal year. Failure to remain in
compliance could result in the debt being classified as a current
liability. Management believes that any necessary amendments to the
covenants can be negotiated. However, there can be no assurance that
such amendments or waivers will be obtained. In addition, the Company
has engaged Salomon Smith Barney as its financial advisor to assist in
assessing strategic alternatives.
4. Stock Option Re-Pricing
In December, 1998, the Company adopted a stock option re-pricing
program pursuant to which the Company offered all employees, excluding
executive management, the opportunity to re-price all outstanding
options granted prior thereto under the Company's 1996 Stock Option
Plan, as amended. The vesting schedule for all so re-priced stock
options was restarted, with all other terms and conditions of such
stock options remaining the same. The re-priced stock options have an
exercise price equal to the average of the high and low sales price of
the common stock as of the re-pricing date.
- 8 -
<PAGE>
5. Earnings Per Common Share
A reconciliation of the number of shares used for the calculation of
basic and diluted earnings per common share is as follows (in
thousands):
<TABLE>
<CAPTION>
Three Months Ended March 31, Six Months Ended March 31,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Weighted average number of common
shares outstanding 23,694 23,544 23,694 23,508
Effect of stock options 82 157 -- 178
------ ------ ------ ------
Weighted average number of common
shares outstanding, including
effect of dilutive securities 23,776 23,701 23,694 23,686
====== ====== ====== ======
</TABLE>
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<PAGE>
Caribiner International, Inc.
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 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.
Results of Operations
Six months Ended March 31, 1999 Compared to Six months Ended March 31, 1998
Revenue. Revenue increased $53.9 million, or 17.4%, from $309.8 million in the
six months ended March 31, 1998 to $363.7 million in the six months ended
March 31, 1999. The increase in total revenue was in part attributable to the
Company's audio visual services businesses, as a result of the acquisition of
Visual Action Holdings plc ("Visual Action"), in December, 1997. Service
revenue increased $20.5 million, or 17.2%, in the six months ended March 31,
1999 from $119.1 million in the six months ended March 31, 1998 due to
increased business activity, particularly in the United Kingdom.
Gross profit. Total gross profit increased $4.9 million, or 5.3%, from $92.6
million in the six months ended March 31, 1998 to $97.5 million in the
comparable period of 1999. As a percentage of service revenue, the gross
profit margin decreased from 33.2% in the six months ended March 31, 1998 to
32.0% in the six months ended March 31, 1999. The decreased gross profit
margin was due to the specific production requirements of the contracts
completed during the period, as well as to the impact of lower margins achieved
on the increased sales volume in 1999 from the United Kingdom market. Gross
profit as a percentage of rental revenue decreased to 22.2% in the six months
ended March 31, 1999 from 27.2% in the prior year's comparable period due to
higher payments made to participating hotels based on commission rate increases,
as well as increased costs relating to the rental of audio visual equipment used
in operations. Gross profit on rental revenue for the six months ended March 31,
1998 and 1999 was reduced by $7.9 million and $7.3 million, respectively, of
depreciation expense related to rental equipment used in the audio visual
services businesses. Such depreciation expense is included in cost of rental
revenue.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $7.3 million, or 11.4%, from $64.0 million
in the six months ended March 31, 1998 to $71.3 million in the six months
ended March 31, 1999. The increase was due primarily to the Company's growth
resulting from the acquisition of Visual Action, as well as to normal
inflationary increases and expenses relating to the restructuring of the audio
visual businesses. During the fiscal quarter ended March 31, 1999, the Company
recorded additional charges approximating $1.7 million, including an increase in
the allowance for doubtful accounts, associated with the Company's consolidation
of audio visual outsourcing operations in Chicago. In addition, in connection
with such consolidation, and as part of the Company's periodic review of the
purchase accounting accruals, approximately $1.7 million of aggregate
liabilities established in connection with certain acquisitions completed in
fiscal 1996 and 1997 were identified as excess and reversed. Selling, general
and administrative expenses, as a percentage of total revenue, decreased from
20.7% during the six months ended March 31, 1998 to 19.6% in the six months
ended March 31, 1999 due to the continuing impact of the Company's cost
containment efforts.
Restructuring Charge. During the six months ended March 31, 1998, the Company
recorded a pre-tax restructuring charge of $3.8 million in connection with the
integration of various acquisitions, primarily in the audio visual services
businesses. The charge included $2.8 million related to employee termination
and severance costs associated with a reduction in the workforce, and $1.0
million related to lease termination costs and the write off of leasehold
improvements of vacated facilities.
Depreciation and amortization. Depreciation and amortization expense for the
six months ended March 31, 1999 was $14.0 million, an increase of $4.9 million
from the corresponding period in the prior year. Property and equipment
acquired through acquisitions and the continued investment in information
technology resulted in increased depreciation expense of $3.3 million.
Amortization expense increased $1.6 million resulting primarily from increased
goodwill.
Equity in Income of Affiliated Company. In November, 1998, the Company
acquired a minority interest in Visual Action through open market purchases
resulting in the equity in income reflected for the six months ended March 31,
1998. The Company began consolidating the financial results of Visual Action
as of December 1, 1997.
Interest expense, net. Interest expense, net increased by $6.2 million due to
higher average outstanding indebtedness previously incurred to finance
acquisitions as well as higher borrowing costs.
Provision for taxes. Taxes reflect an allocation based on the full year
anticipated effective tax rate. The provision for taxes as a percentage of
income before taxes was 40% for the six months ended March 31, 1998 and 1999.
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 six months ended March 31, 1998, 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.
- 10 -
<PAGE>
Net income (loss). The Company realized a net loss of $2.3 million in the six
months ended March 31, 1999 compared to a net income of $3.3 million in the
six months ended March 31, 1998. The basic and diluted loss per common share
for the six months ended March 31, 1999 was $0.10 as compared with earnings
per common share of $0.14 for the comparable period in fiscal 1998. Earnings
per common share before the extraordinary charge would have been $0.17 for the
six months ended March 31, 1998.
Three months Ended March 31, 1999 Compared to Three months Ended March 31, 1998
Revenue. Revenue increased $16.3 million, or 8.7%, from $187.4 million in the
three months ended March 31, 1998 to $203.7 million in the three months ended
March 31, 1999 primarily due to organic growth. Service revenue from the
Company's Communications division increased approximately $23.4 million, or
37.2%, mainly in the United Kingdom and domestic markets. Rental revenue of
$126.4 million for the three months ended March 31, 1999 was comparable with the
rental revenue reported for the three months ended March 31, 1998, after giving
effect to $4.9 million of revenue generated by the Company's U.K.-based Blitz
Communications staging division during the three months ended March 31, 1998.
Such division was sold as of April, 1998.
Gross profit. Total gross profit was $56.8 million in the three months ended
March 31, 1998 and 1999. Gross profit of $2.4 million contributed by the
Company's Blitz Communications division, sold as of April, 1998, was offset by
gross margin achieved on increased revenue. As a percentage of service revenue,
the gross profit margin decreased from 33.7% in the three months ended March 31,
1998 to 31.2% in the three months ended March 31, 1999 as the increased revenue
from operations in the United Kingdom generated lower margins, in addition to
the specific production requirements of the contracts completed during the
period. Gross profit as a percentage of rental revenue decreased to 23.6% for
the three months ended March 31, 1999 from 28.1% reported for the prior year's
comparable quarter. The decrease in the gross margin of the audio visual
services group is attributable to higher payments made to participating hotels
based on commission rate increases. Increases in audio visual equipment rental
costs also impacted the gross margin. Gross profit on rental revenue for the
three months ended March 31, 1998 and 1999 was reduced by $5.5 million and $3.7
million, respectively, of depreciation expense related to rental equipment used
in the audio visual services businesses. Such depreciation expense is included
in cost of rental revenue.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $0.9 million, or 2.6%, from $34.3 million in
the three months ended March 31, 1998 to $35.2 million in the three months
ended March 31, 1999. The increase was due primarily to the Company's growth
resulting from the acquisition of Visual Action, as well as to normal
inflationary increases and expenses relating to the restructuring of the
audio visual businesses. During the fiscal quarter ended March 31, 1999, the
Company recorded additional charges approximating $1.7 million, including an
increase in the allowance for doubtful accounts, associated with the
Company's consolidation of audio visual outsourcing operations in Chicago. In
addition, in connection with such consolidation, and as part of the Company's
periodic review of the purchase accounting accruals, approximately $1.7 million
of aggregate liabilities established in connection with certain acquisitions
completed in fiscal 1996 and 1997 were identified as excess and reversed.
Selling, general and administrative expenses, as a percentage of total revenue,
decreased from 18.3% during the three months ended March 31, 1998 to 17.3% in
the three months ended March 31, 1999.
Restructuring Charge. During the three months ended March 31, 1998, the
Company recorded a pre-tax restructuring charge of $3.8 million in connection
with the integration of various acquisitions, primarily in the audio visual
services businesses. The charge included $2.8 million related to employee
termination and severance costs associated with a reduction in the workforce,
and $1.0 million related to lease termination costs and the write off of
leasehold improvements of vacated facilities.
Depreciation and amortization. Depreciation and amortization expense for the
three months ended March 31, 1999 was $6.8 million, an increase of $1.4
million from the corresponding period in the prior year. The impact of owning
property and equipment acquired through acquisitions for the whole period and
the continued investment in information technology resulted in increased
depreciation expense of $1.2 million. Amortization expense increased $0.2
million resulting primarily from increased goodwill.
Interest expense, net. Interest expense, net increased by $1.6 million due to
higher average outstanding indebtedness previously incurred to finance
acquisitions as well as higher borrowing costs.
Provision for taxes. Taxes reflect an allocation based on the full year
anticipated effective tax rate. The provision for taxes as a percentage of
income before taxes was 40% for the three months ended March 31, 1999 and
1998.
Net income. Net income was $3.7 million in the three months ended March 31,
1999 compared to net income of $3.8 million in the three months ended March
31, 1998. Basic and diluted earnings per common share was $0.16 for the three
months ended March 31, 1999 and 1998. Earnings per common share before the
pre-tax restructuring charge would have been $0.26 for the three months ended
March 31, 1998.
- 11 -
<PAGE>
Liquidity and Capital Resources
On October 28, 1997, the Company entered into a loan agreement with a
syndicate of banks pursuant to which the Company increased its aggregate
available bank financing from $100 million to $550 million, consisting of a
$300 million six year revolving line of credit (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 "Credit Agreement")
which was utilized in connection with the acquisition of Visual Action. The
Company recognized an extraordinary loss of $0.6 million, net of taxes of $0.4
million, in the quarter ended December 31, 1997 resulting from the write-off of
the unamortized debt issuance fees relating to the Company's former bank
facilities. The Company incurred approximately $4.8 million of debt issuance
fees in connection with the Credit Agreement. Such fees are being amortized over
the term of the Credit Agreement, 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 Credit Agreement. Fees of
approximately $1.2 million were incurred in connection with the amendments
made to the Credit Agreement in December, 1998. Such fees will be amortized
over the remaining term of the Credit Agreement. As of May 7, 1999, the
Company had approximately $419.5 million outstanding under the Credit
Agreement. Cash on hand as of such date was $4.0 million.
The maturity date of each of the Term Facility and the Revolving Facility is
September 30, 2003. Interest on outstanding amounts under the Credit Agreement
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 Credit Agreement 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 Credit Agreement is 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 Credit Agreement contains certain financial and other
covenants and restrictions, including without limitation restrictions on the
ability of the Company to pay dividends.
Due to delays in the sale of certain non-core assets and subject to future
operating results, the Company may be unable to comply with certain Credit
Agreement covenants which become more restrictive as of June 30, 1999, the end
of the Company's third fiscal quarter. Management will be discussing appropriate
waivers or amendments to the Credit Agreement with its bankers to remain in
compliance for the balance of the fiscal year. Failure to remain in compliance
could result in the debt being classified as a current liability. Management
believes that any necessary amendments to the covenants can be negotiated.
However, there can be no assurance that such amendments or waivers will be
obtained. In addition, the Company has engaged Salomon Smith Barney as its
financial advisor to assist in assessing strategic alternatives.
The following table sets forth certain information from the Company's
Consolidated Statement of Cash Flows for the six months ended March 31, 1999
and 1998:
Six months Ended March 31,
1999 1998
Net cash provided by (used in):
Operating activities $ (3,844) $ 2,906
Investing activities (27,092) (317,472)
Financing activities 24,422 315,218
- 12 -
<PAGE>
For the six months ended March 31, 1999, $3.8 million was used in operating
activities. The net loss adjusted for depreciation and amortization provided
$19.0 million. The net change in working capital used $22.8 million, with
decreases in accrued expenses and other liabilities and taxes payable, an
increase in accounts receivable, deferred charges, prepaid expenses and other
assets, offset by increases in accounts payable and deferred income. Cash used
in investing activities was $27.1 million due to property and equipment
purchases and acquisition-related expenditures. Financing activities provided
$24.4 million, of which was $104.5 million was drawn under the Company's
Credit Agreement, offset by debt repayments of $78.8 million. In addition,
debt issuance fees of $1.2 million were paid in connection with the amendments
made to the Credit Agreement in December, 1998.
For the six months ended March 31, 1998, $2.9 million was provided by
operating activities. The net income adjusted for depreciation and
amortization and the extraordinary and restructuring charges provide $23.5
million. The net change in working capital used $20.6 million, with an
increase in deferred income and accrued expenses and other liabilities, which
was more than offset by increases in accounts receivable, deferred charges,
prepaid expenses and other assets, and a decrease in trade accounts payable.
Investing activities required $317.5 million due to acquisition-related
expenditures and property and equipment additions. Financing activities
provided $315.2 million in the six months ended March 31, 1998, of which
$600.0 million was provided by drawings under the Company's existing credit
facilities, offset by repayments of $285.3 million. In addition, the Company
received $0.5 million from the exercise of employee stock options.
Capital expenditures were $21.5 million and $25.7 million during the six
months ended March 31, 1999 and 1998, respectively. During the six months
ended March 31, 1998, the majority of the capital expenditures related to the
purchase of audio visual equipment needed to support the Company's expanded
audio visual businesses, as well as the continued investment in information
technology. During the six months ended March 31, 1999, the purchase of audio
visual equipment used in operations comprised the major portion of capital
expenditures.
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.
- 13 -
<PAGE>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On March 25, 1999, a purported shareholder class action lawsuit was filed in
the United States District Court for the Southern District of New York against
the Company and certain of its current and former officers and one of its
directors. The Complaint claims that defendants misrepresented the Company's
ability to integrate various companies it was acquiring and alleges violations
of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and various
rules promulgated thereunder. Plaintiffs seek unspecified money damages, plus
costs and expenses, including attorneys' fees and expert fees. The Company
believes it has meritorious defenses to this action and intends to defend the
lawsuit vigorously.
ITEM 2. CHANGES IN SECURITIES
(a) Not Applicable
(b) Not Applicable
(c) The Company issued and sold the following unregistered securities during
the three months ended March 31, 1999:
In March, 1999, the Company issued to C. Anthony Wainwright, a Director
of the Company, 1,688 shares of Common Stock at a price per share of
$7.40625 pursuant to the Company's Non-Employee Directors' Stock Plan
(the "Plan"). Pursuant to the Plan, the number of shares of Common
Stock issued was determined by dividing $12,500 by $7.40625 (the
average of the high and low sales price per share of the Common Stock
on the anniversary date of Mr. Wainwright's appointment to the Board of
Directors (March 24, 1997)).
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 recipient of securities in such transaction
represented his intention 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 transaction.
(d) Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) Annual Meeting of Stockholders
Date held: March 16, 1999
(b) Directors elected:
Errol M. Cook
Raymond S. Ingleby
Bryan D. Langton
Sidney Lapidus
David E. Libowitz
Christopher A. Sinclair
C. Anthony Wainwright
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<PAGE>
(c) Matters Voted Upon:
1. Election of Directors
Nominee Votes For Votes Withheld
------- --------- --------------
Errol M. Cook 21,306,579 501,551
Raymond S. Ingleby 21,302,679 505,451
Bryan D. Langton 21,305,639 502,491
Sidney Lapidus 21,306,839 501,291
David E. Libowitz 21,306,939 501,191
Christopher A. Sinclair 21,307,189 500,941
C. Anthony Wainwright 21,305,779 502,351
2. Amendment to the Company's 1996 Stock Option Plan to (i) Increase
Number of Shares of Common Stock Available for Grant from 1,928,000
Shares to 2,500,000 Shares and to Increase the Number of Awards that an
Employee Receive in any Fiscal Year from 200,000 to 750,000
Votes for: 17,935,395
Votes against: 3,842,920
Votes abstaining: 29,815
Broker non-votes: 0
3. Ratification and approval of the grant to Christopher A. Sinclair of
options to purchase an aggregate of 600,000 shares of the Company's
Common Stock
Votes for: 17,906,604
Votes against: 3,369,701
Votes abstaining: 531,825
Broker non-votes: 0
4. Approval and Ratification of Appointment of Ernst & Young LLP as
Independent Auditors for the Fiscal Year Ending September 30, 1999
Votes for: 21,759,487
Votes against: 32,093
Votes abstaining: 16,550
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits Required by Item 601 of Regulation S-K:
3.1 Restated Certificate of Incorporation of the
Company, filed March 15, 1996, with the Secretary
of State of the State of Delaware (filed as
Exhibit 3.1 to the Company's Quarterly Report on
Form 10-Q for the three months ended March 31,
1996 and incorporated herein by reference).
3.2 Certificate of Amendment to the Restated
Certificate of Incorporation of the Company, filed
March 30, 1998, with the Secretary of State of the
State of Delaware (filed as Exhibit 3.2 to the
Company's Quarterly Report on Form 10-Q for the
three months ended March 31, 1998 and incorporated
herein by reference).
3.3 Third Amended and Restated By-Laws of the Company.
(filed as Exhibit 3.3 to the Company's Quarterly
Report on Form 10-Q for the three months ended
December 31, 1998 and incorporated herein by
reference).
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<PAGE>
10.1 Caribiner International, Inc. 1996 Stock Option Plan,
as amended.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K:
None.
- 16 -
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CARIBINER INTERNATIONAL, INC.
(Registrant)
Date: May 14, 1999
By: /s/ Robert F. Burlinson
---------------------------
Robert F. Burlinson
Duly authorized officer of the
Registrant and Executive Vice
President and Chief Financial Officer
(Principal Financial and
Accounting Officer)
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<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Page
Number
<S> <C> <C>
3.1 Restated Certificate of Incorporation of the Company, filed March 15,
1996, with the Secretary of State of the State of Delaware (filed as
Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q for the
three months ended March 31, 1996 and incorporated herein by
reference).
3.2 Certificate of Amendment to the Restated Certificate of Incorporation
of the Company, filed March 30, 1998, with the Secretary of State of
the State of Delaware (filed as Exhibit 3.2 to the Company's
Quarterly Report on Form 10-Q for the quarterly period ended March
31, 1998 and incorporated herein by reference).
3.3 Third Amended and Restated By-Laws of the Company. (filed as
Exhibit 3.3 to the Company's Quarterly Report on Form 10-Q for
the three months ended December 31, 1998 and incorporated herein
by reference).
10.1 Caribiner International, Inc. 1996 Stock Option Plan, as amended.
27.1 Financial Data Schedule.
</TABLE>
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<PAGE>
CARIBINER INTERNATIONAL, INC.
(Formerly known as Business Communications Group, Inc.)
1996 STOCK OPTION PLAN
(As amended as of March 16, 1999)
ARTICLE 1
Establishment and Purpose
1.1 Establishment and Effective Date. Caribiner International, Inc.,
a Delaware corporation (the "Corporation"), hereby establishes a stock
incentive plan to be known as the Caribiner International, Inc. 1996 Stock
Option Plan (the "Plan"). The Plan shall become effective as of January 1,
1996, subject to the approval of the Corporation's stockholders. In the event
that such stockholder approval is not obtained, any awards made hereunder
shall be canceled and all rights of employees with respect to such awards
shall thereupon cease. Upon approval by the Board of Directors of the
Corporation (the "Board") and the Board's Compensation Committee (the
"Committee"), awards may be made as provided herein.
1.2 Purpose. The purpose of the Plan is to encourage and enable
employees (subject to such requirements as may be prescribed by the Committee)
of the Corporation and its subsidiaries to acquire a proprietary interest in
the Corporation through the ownership of the Corporation's common stock, par
value $.01 per share ("Common Stock"). Such ownership will provide such
employees with a more direct stake in the future welfare of the Corporation
and encourage them to remain with the Corporation and its subsidiaries. It is
also expected that the Plan will encourage qualified persons to seek and
accept employment with the Corporation and its subsidiaries.
ARTICLE 2
Awards
2.1 Form of Awards. Awards under the Plan may be granted in incentive
stock options ("Incentive Stock Options") meeting the requirements of Section
422 of the Internal Revenue Code of 1986, as amended (the "Code") or
non-qualified stock options ("Non-qualified Stock Options") (unless otherwise
indicated, references in the Plan to "Options" shall include both Incentive
Stock Options and Non-qualified Stock Options).
2.2 Maximum Shares Available. The maximum aggregate number of shares
of Common Stock available for award under the Plan is 2,500,000, subject to
adjustment pursuant to Article 8 hereof. Shares of Common Stock issued
pursuant to the Plan may be either authorized but unissued shares or issued
shares reacquired by the Corporation. In the event that prior to the end of
the period during which Options may be granted under the Plan, any Option
under the Plan expires unexercised or is terminated, surrendered or canceled,
then such shares shall be available for subsequent awards under the Plan, upon
such terms as the Committee may determine.
<PAGE>
2.3 Return of Prior Awards. As a condition to any subsequent award,
the Committee shall have the right at its discretion, to require employees to
return to the Corporation awards previously granted under the Plan. Subject to
the provisions of the Plan, such new award shall be upon such terms and
conditions as are specified by the Committee at the time the new award is
granted.
ARTICLE 3
Administration
3.1 Committee. Awards shall be determined, and the Plan shall be
administered, by the Committee as appointed from time to time by the Board,
which Committee shall consist of not less than two (2) members of the Board.
Except as permitted by Rule 16b-3 of the Securities Exchange Age of 1934, as
amended (the "Act"), and by Section 162(m) of the Code (or Regulations
promulgated thereunder), no member of the Board may serve on the Committee if
such member: (i) is or has been granted or awarded stock options, pursuant to
the Plan or any other plan of the Corporation or its affiliates either while
serving on the Committee or during the one year period prior to being
appointed to the Committee; (ii) is an employee or former employee of the
Corporation; or (iii) receives remuneration from the Corporation, either
directly or indirectly, in any capacity other than as a director.
3.2 Powers of Committee. Subject to the express provisions of the
Plan, the Committee shall have the power and authority (i) to grant Options
and to determine the purchase price of the Common Stock covered by each
Option, the term of each Option, the number of shares of Common Stock to be
covered by each Option and any performance objectives or vesting standards
applicable to each Option; (ii) to designate Options as Incentive Stock
Options or Non-qualified Stock Options; and (iii) to determine the employees
to whom and the time or times at which Options shall be granted.
3.3. Delegation. The Committee may delegate to one or more of its
members or to any other person or persons such ministerial duties as it may
deem advisable; provided, however, that the Committee may not delegate any of
its responsibilities hereunder if such delegation would cause the Plan to fail
to comply with the "disinterested administration" rules under Section 16 of
the Act. The Committee may also employ attorneys, consultants, accountants or
other professional advisors and shall be entitled to rely upon the advice,
opinions or valuations of any such advisors.
3.4 Interpretations. The Committee shall have sole discretionary
authority to interpret the terms of the Plan, to adopt and revise rules,
regulations and policies to administer the Plan and to make any other factual
determinations which it believes to be necessary or advisable for the
administration of the Plan. All actions taken and interpretations and
determinations made by the Committee in good faith shall be final and binding
upon the Corporation, all employees who have received awards under the Plan
and all other interested persons.
- 2 -
<PAGE>
3.5 Liability; Indemnification. No member of the Committee, nor any
person to whom ministerial duties have been delegated, shall be personally
liable for any action, interpretation or determination made with respect to
the Plan or awards made thereunder, and each member of the Committee shall be
fully indemnified and protected by the Corporation with respect to any
liability he or she may incur with respect to any such action, interpretation
or determination, to the extent permitted by applicable law and to the extent
provided in the Corporation's Certificate of Incorporation and Bylaws, as
amended from time to time, or under any agreement between any such member and
the Corporation.
ARTICLE 4
Eligibility
Awards may be made to employees of the Corporation or any of its
subsidiaries (subject to such requirements as may be prescribed by the
Committee); provided, however, that no employee may receive awards of or
relating to more than 750,000 shares of Common Stock in the aggregate in any
fiscal year of the Corporation. Awards may be made to a director of the
Corporation who is not also a member of the Committee, provided that the
director is also an employee. In determining the employees to whom awards
shall be granted and the number of shares to be covered by each award, the
Committee shall take into account the nature of the services rendered by such
employees, their present and potential contributions to the success of the
Corporation and its subsidiaries and such other factors as the Committee in
its sole discretion shall deem relevant.
As used herein, the term "subsidiary" shall mean any present or
future corporation, partnership or joint venture in which the Corporation
owns, directly or indirectly, 50% or more of the economic interests.
Notwithstanding the foregoing, only employees of the Corporation and any
present or future corporation which is or may be a "subsidiary corporation" of
the Corporation (as such term is defined in Section 424(f) of the Code) shall
be eligible to receive Incentive Stock Options.
ARTICLE 5
Option Terms
5.1 Grant of Options. Options may be granted under the Plan for the
purchase of shares of Common Stock. Options shall be granted in such form and
upon such terms and conditions, including the satisfaction of corporate or
individual performance objectives and other vesting standards, as the
Committee shall from time to time determine.
5.2 Designation as Non-qualified Stock Option or Incentive Stock
Option. In connection with any grant of Options, the Committee shall designate
in the written agreement required pursuant to Article 10 hereof whether the
Options granted shall be Incentive Stock Options or Non-qualified Stock
Options, or in the case both are granted, the number of shares of each.
- 3 -
<PAGE>
5.3 Option Price. The purchase price per share under each Incentive
Stock Option or Non-qualified Stock Option, shall be the Market Price (as
hereinafter defined) (the "Exercise Price"), of the Common Stock on the date
the Option is granted. In the case of an Incentive Stock Option granted to an
employee owning (actually or constructively under Section 424(d) of the Code)
more than 10% of the total combined voting power of all classes of stock of
the Corporation or of a subsidiary (a "10% Stockholder"), the Exercise Price
shall not be less than 110% of the Market Price of the Common Stock on the
date of grant.
The "Market Price" of the Common Stock on any day shall be determined
as follows (i) if the Common Stock is listed on a national securities exchange
or quoted through the Nasdaq Stock Market/Nasdaq National Market, the Market
Price on any day shall be the average of the high and low reported
consolidated trading sales prices, or if no such sale is made on such day, the
average of the closing bid and asked prices reported on the consolidated
trading listing for such day; (ii) if the Common Stock is quoted through the
Nasdaq inter-dealer quotation system, the Market Price on any day shall be the
average of the representative bid and asked prices at the close of business
for such day; or (iii) if the Common Stock is not listed on a national stock
exchange or quoted through Nasdaq, the Market Price on any day shall be the
average of the high bid and low asked prices reported by the National
Quotation Bureau, Inc. for such day. In no event shall the Market Price of a
share of Common Stock subject to an Incentive Stock Option be less than the
fair market value as determined for purposes of Section 422(b)(4) of the Code.
5.4 Limitation on Amount of Incentive Stock Options. In the case of
an Incentive Stock Option, the aggregate Market Price (determined at the time
the Incentive Stock Option is granted) of the Common Stock with respect to
which Incentive Stock Options are exercisable for the first time by any
optionee during any calendar year (under all plans of the Corporation and any
subsidiary) shall not exceed $100,000.
5.5 Limitation on Time of Grant. No grant of an Incentive Stock
Option shall be made under the Plan more than ten (10) years after the date
the Plan is approved by stockholders of the Corporation.
5.6 Exercise and Payment. Options may be exercised in whole or in
part. Common Stock purchased upon the exercise of Options shall be paid for in
full at the time of purchase. Such payment shall be made in cash or, in the
discretion of the Committee, through delivery of shares of Common Stock or a
combination of cash and Common Stock, in accordance with procedures to be
established by the Committee. Any shares so delivered shall be valued at their
Market Price on the date of exercise. Upon receipt of notice of exercise and
payment in accordance with procedures to be established by the Committee, the
Corporation or its agent shall deliver to the person exercising the Option (or
his or her designee) a certificate for such shares.
5.7 Term. The term of each Option granted hereunder shall be
determined by the Committee; provided, however, that, notwithstanding any
other provision of the Plan, in no event shall an Incentive Stock Option be
exercisable after ten (10) years from the date it is granted, or
- 4 -
<PAGE>
in the case of an Incentive Stock Option granted to a 10% Stockholder, five (5)
years from the date it is granted.
5.8 Rights as a Stockholder. A recipient of Options shall have no
rights as a stockholder with respect to any shares issuable or transferable
upon exercise thereof until the date a stock certificate is issued to such
recipient representing such shares.
5.9 General Restrictions. Each Option granted under the Plan shall be
subject to the requirement that, if at any time the Board shall determine, in
its discretion, that the listing, registration or qualification of the shares
issuable or transferable upon exercise thereof upon any securities exchange or
under any state or federal law, or the consent or approval of any governmental
regulatory body, is necessary or desirable as a condition of, or in connection
with, the granting of such Option or the issue, transfer, or purchase of
shares thereunder, such Option may not be exercised in whole or in part unless
such listing, registration, qualification, consent, or approval shall have
been effected or obtained free of any conditions not acceptable to the Board.
The Board or the Committee may, in connection with the granting of
any Option, require the individual to whom the Option is to be granted to
enter into an agreement with the Corporation stating that as a condition
precedent to each exercise of the Option, in whole or in part, such individual
shall if then required by the Corporation represent to the Corporation in
writing that such exercise is for investment only and not with a view to
distribution, and also setting forth such other terms and conditions as the
Board or the Committee may prescribe.
ARTICLE 6
Nontransferability of Options
No Option may be transferred, assigned, pledged or hypothecated
(whether by operation of law or otherwise), except as provided by will or the
applicable laws of descent and distribution, and no Option shall be subject to
execution, attachment or similar process. Any attempted assignment, transfer,
pledge, hypothecation or other disposition of an Option not specifically
permitted herein shall be null and void and without effect. An Option may be
exercised by the recipient only during his or her lifetime, or following his
or her death pursuant to Section 7.3 hereof.
Notwithstanding anything to the contrary in the preceding paragraph,
the Committee may, in its sole discretion, cause the written agreement
relating to any Non-qualified Stock Options granted hereunder to provide that
the recipient of such Non-qualified Stock Options may transfer any of such
Non-qualified Stock Options other than by will or the laws of descent and
distribution in any manner authorized under applicable law; provided, however,
that in no event may the Committee permit any transfers which would cause this
Plan to fail to satisfy the applicable requirements of Rule 16b-3 under the
Act, or would cause any recipient of awards hereunder to fail to be entitled
to the benefits of Rule 16b-3 or other exemptive rules under Section 16 of the
Act or be subject to liability thereunder.
- 5 -
<PAGE>
ARTICLE 7
Effect of Termination of Employment, Disability,
Retirement or Death
7.1 General Rule. If the services of an employee of the Corporation
(the "Employee") who holds an unexercised Option are terminated for any reason
other than death, Disability, Retirement or Cause (each as defined below), an
Option shall be exercisable by the Employee at any time prior to the
expiration date of the Option or within 30 days after the date of such
termination, whichever is earlier, but only to the extent the Employee had the
right to exercise such Option on the date of termination. The Option shall not
be affected by any change of employment as long as the Employee continues to
be employed by either the Corporation or a subsidiary.
7.2 Disability or Retirement. Except as otherwise expressly provided
in the written agreement relating to any Option granted under the Plan, in the
event of the Disability or Retirement of a recipient of Options, the Options
which are held by such recipient on the date of such Disability or Retirement,
whether or not otherwise exercisable on such date, shall be exercisable one
(1) year from the date of Disability or Retirement; provided, however, that
any Incentive Stock Option of such recipient shall no longer be treated as an
Incentive Stock Option unless exercised within three (3) months of the date of
such Disability or Retirement (or within one (1) year in the case of an
employee who is "disabled" within the meaning of Section 22(e)(3) of the
Code).
"Disability" shall mean any termination of employment with the
Corporation or a subsidiary because of a long-term or total disability, as
determined by the Committee in its sole discretion. "Retirement" shall mean a
termination of employment with the Corporation or a subsidiary either (i) on a
voluntary basis by a recipient who is at least 65 years of age or (ii)
otherwise with the written consent of the Committee in its sole discretion.
The decision of the Committee shall be final and conclusive.
7.3 Death. In the event of the death of a recipient of Options while
an employee of the Corporation or any subsidiary, Options which are held by
such employee at the date of death, whether or not otherwise exercisable on
the date of death, shall be exercisable by the beneficiary designated by the
employee for such purpose (the "Designated Beneficiary") or if no Designated
Beneficiary shall be appointed or if the Designated Beneficiary shall
predecease the employee, by the employee's personal representatives, heirs or
legatees at any time within one (1) year from the date of death (subject to
the limitation in Section 5.7 hereof), at which time such Options shall
terminate; provided, however, that any Incentive Stock Option of such
recipient shall no longer be treated as an Incentive Stock Option unless
exercised within three (3) months of the date of the recipient's death.
In the event of the death of a recipient of Options following a
termination of employment due to Retirement or Disability, if such death
occurs before the Options are exercised, the
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<PAGE>
Options which are held by such recipient on the date of termination of
employment, whether or not otherwise exercisable on such date, shall be
exercisable by such recipient's Designated Beneficiary, or if no Designated
Beneficiary shall be appointed or if the Designated Beneficiary shall predecease
such recipient, by such recipient's personal representatives, heirs or legatees
to the same extent such Options were exercisable by the recipient following such
termination of employment.
7.4. Cause. The Committee may, in its sole discretion, cause any
Option to be forfeited upon an employee's termination of employment if the
employee was terminated for one (or more) of the following reasons ("Cause"):
(i) the employee's conviction, or plea of guilty or nolo contendere to the
commission of a felony, (ii) the employee's commission of any fraud,
misappropriation or misconduct which causes demonstrable injury to the
Corporation or a subsidiary, (iii) an act of dishonesty by the employee
resulting or intended to result, directly or indirectly, in gain or personal
enrichment at the expense of the Corporation or a subsidiary, (iv) any breach
of the employee's fiduciary duties to the Corporation as an employee or
officer or (v) any other serious violation of a Corporation policy. It shall
be within the sole discretion of the Committee to determine whether the
employee's termination was for one of the foregoing reasons, and the decision
of the Committee shall be final and conclusive.
7.5 Change of Control. If there should be a Change of Control of the
Corporation (as defined below), the Corporation shall give the employee
written notice of such Change of Control as promptly as practicable and the
Option, whether or not currently exercisable, shall become immediately
exercisable as of the effective date of such Change of Control.
Notwithstanding the foregoing, in the case that the Corporation is
merged or consolidated with another corporation, or the assets or stock of the
Corporation is acquired by another corporation, or a separation, reorganization
or liquidation of the Corporation occurs, the Board of Directors of the
Corporation, or the Board of Directors of any corporation assuming the
obligations of the Corporation hereunder, shall make appropriate provisions for
the protection of the Option by substitution on an equitable basis of
appropriate stock of the Corporation, or appropriate stock of the merged,
consolidated, or otherwise reorganized corporation, provided only that the
excess of the aggregate Market Price of the shares subject to the Option
immediately after such substitution over the Exercise Price thereof is not less
than the excess of the aggregate Market Price of the shares subject to the
Option immediately before such substitution over the Exercise Price thereof.
For purposes of this Section 7.5, a "Change of Control" shall be
deemed to have occurred if, at any time following the effective date of the
Plan, (i) any person or "group" (other than Warburg, Pincus Investors, L.P. or
any affiliate thereof) acquires, in a single transaction or series of related
transactions 50% or more of the outstanding Common Stock of the Corporation;
(ii) during any period of two consecutive years, individuals that at the
beginning of such period constitute the Board of Directors of the Corporation
cease for any reason to constitute a majority thereof, unless the election, or
the nomination for election by the shareholders, of each such new director was
approved by a vote of at least two-thirds of the directors then still in office
which
- 7 -
<PAGE>
were directors at the beginning of the period; or (iii) the sale of all or
substantially all of the assets of the Corporation (other than a wholly-owned
subsidiary of the Company).
7.6 Leave of Absence. In the case of an employee on an approved leave
of absence, the Options of such employee shall not be affected unless such
leave is longer than 13 weeks. The date of exercisability of any Options of an
employee which are unexercisable at the beginning of an approved leave of
absence lasting longer than 13 weeks shall be postponed for a period equal to
the length of such leave of absence. Notwithstanding the foregoing, the
Committee may, in its sole discretion, waive in writing any such postponement
of the date of exercisability of any Options due to a leave of absence.
ARTICLE 8
Adjustments Upon Changes In Capitalization
Notwithstanding any other provision of the Plan, the Committee may,
(i) at any time, make or provide for such adjustments to the Plan or to the
number and class of shares available thereunder or (ii) at the time of grant
of any Options, provide for such adjustments to such Options as the Committee
shall deem appropriate to prevent dilution or enlargement of rights, including
without limitation, adjustments in the event of stock dividends, stock splits,
recapitalizations, restructurings, mergers, consolidations, combinations or
exchanges of shares, separations, spin-offs, reorganizations, liquidation's
and the like.
ARTICLE 9
Amendment and Termination
The Board may suspend, terminate, modify or amend the Plan, provided
that any amendment that would (i) materially increase the aggregate number of
shares which may be issued under the Plan, (ii) materially increase the
benefits accruing to employees under the Plan, or (iii) materially modify the
requirements as to eligibility for participation in the Plan, shall be subject
to the approval of the Corporation's stockholders, except that any such
increase or modification that may result from adjustments authorized by
Article 8 hereof shall not require such stockholder approval. If the Plan is
terminated, the terms of the Plan shall, notwithstanding such termination,
continue to apply to awards granted prior to such termination. No suspension,
termination, modification or amendment of the Plan may, without the consent of
the employee to whom an award shall theretofore have been granted, adversely
affect the rights of such employee under such award.
- 8 -
<PAGE>
ARTICLE 10
Written Agreement
Each award of Options shall be evidenced by a written agreement
containing such restrictions, terms and conditions, if any, as the Committee
may require. In the event of any conflict between a written agreement and the
Plan, the terms of the Plan shall govern.
ARTICLE 11
Miscellaneous Provisions
11.1 Tax Withholding. The Corporation shall have the right to require
employees or their beneficiaries or legal representatives to remit to the
Corporation an amount sufficient to satisfy Federal, state and local
withholding tax requirements. The Committee may, in its sole discretion,
permit an employee to satisfy his or her tax withholding obligation either by
(i) surrendering shares owned by the employee or (ii) having the Corporation
withhold from shares otherwise deliverable to the employee. Shares surrendered
or withheld shall be valued at their Market Price as of the date on which
income is required to be recognized for income tax purposes.
11.2 Compliance with Section 16(b). In the case of employees who are
or may be subject to Section 16 of the Act, it is the intent of the
Corporation that the Plan and each award granted hereunder satisfy and be
interpreted in a manner that satisfies the applicable requirements of Rule
16b-3, so that such persons will be entitled to the benefits of Rule 16b-3 or
other exemptive rules under Section 16 of the Act and will not be subjected to
liability thereunder. If any provision of the Plan or any award would
otherwise conflict with the intent expressed herein, that provision, to the
extent possible, shall be interpreted and deemed amended so as to avoid such
conflict. To the extent of any remaining irreconcilable conflict with such
intent, such provision shall be deemed void as applicable to employees who are
or may be subject to Section 16 of the Act.
11.3 Successors. The obligations of the Corporation under the Plan
shall be binding upon any successor corporation or organization resulting from
the merger, consolidation or other reorganization of the assets and business
of the Corporation. In the event of any of the foregoing, the Committee may,
at its discretion prior to the consummation of the transaction and subject to
Article 9 hereof, cancel, offer to purchase, exchange, adjust or modify any
outstanding awards, at such time and in such manner as the Committee deems
appropriate and in accordance with applicable law.
11.4 General Creditor Status. Employees shall have no right, title,
or interest whatsoever in or to any investments which the Corporation may make
to aid it in meeting its obligations under the Plan. Nothing contained in the
Plan, and no action taken pursuant to its provisions, shall create or be
construed to create a trust of any kind, or a fiduciary relationship
- 9 -
<PAGE>
between the Corporation and any employee or beneficiary or legal representative
of such employee. To the extent that any person acquires a right to receive
payments from the Corporation under the Plan, such right shall be no greater
than the right of an unsecured general creditor of the Corporation. All payments
to be made hereunder shall be paid from the general funds of the Corporation and
no special or separate fund shall be established and no segregation of assets
shall be made to assure payment of such amounts except as expressly set forth in
the Plan.
11.5 No Right of Employment. Nothing in the Plan or in any written
agreement entered into pursuant to Article 10 hereof, nor the grant of any
award, shall confer upon any employee any right to continue in the employ of
the Corporation or a subsidiary or to be entitled to any remuneration or
benefits not set forth in the Plan or such written agreement or interfere with
or limit the right of the Corporation or a subsidiary to modify the terms of
or terminate such employee's employment at any time.
11.6 Notices. Notices required or permitted to be made under the
Plan shall be sufficiently made if personally delivered to the employee or
sent by regular mail addressed (a) to the employee at the employee's address
as set forth in the books and records of the Corporation or its subsidiary, or
(b) to the Corporation or the Committee at the principal office of the
Corporation clearly marked "Attention: Compensation Committee."
11.7 Severability. In the event that any provision of the Plan shall
be held illegal or invalid for any reason, such illegality or invalidity shall
not affect the remaining parts of the Plan, and the Plan shall be construed
and enforced as if the illegal or invalid provision shad not been included.
11.8 Governing Law. To the extent not preempted by Federal law, the
Plan, and all agreement hereunder, shall be construed in accordance with and
governed by the laws of the State of New York.
- 10 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONSOLIDATED BALANCE SHEET AS OF MARCH 31,1999 AND THE CONSOLIDATED
STATEMENT OF INCOME FOR THE THREE MONTHS ENDED MARCH 31, 1999 OF CARIBINER
INTERNATIONAL, INC. AS SET FOURTH IN THIS FORUM 10-Q AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> MAR-31-1999
<CASH> 8,718
<SECURITIES> 0
<RECEIVABLES> 134,315
<ALLOWANCES> 3,157
<INVENTORY> 0
<CURRENT-ASSETS> 171,328
<PP&E> 207,265
<DEPRECIATION> (96,817)
<TOTAL-ASSETS> 726,198
<CURRENT-LIABILITIES> 110,015
<BONDS> 0
0
0
<COMMON> 236
<OTHER-SE> 171,529
<TOTAL-LIABILITY-AND-EQUITY> 726,198
<SALES> 203,696
<TOTAL-REVENUES> 203,696
<CGS> 146,913
<TOTAL-COSTS> 146,913
<OTHER-EXPENSES> 35,224
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,581
<INCOME-PRETAX> 6,146
<INCOME-TAX> (2,458)
<INCOME-CONTINUING> 6,146
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,688
<EPS-PRIMARY> 0.16
<EPS-DILUTED> 0.16
</TABLE>
