<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
/x/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1999
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 -14234
------------------------
CARIBINER INTERNATIONAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 13-3466655
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
16 WEST 61ST STREET, NEW YORK, NY 10023
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
(212) 541-5300
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
<TABLE>
<S> <C>
TITLE OF EACH CLASS NAME OF EXCHANGE ON WHICH REGISTERED
- -------------------------------------------------------- --------------------------------------------------------
Common Stock, par value $0.01 per share New York Stock Exchange
</TABLE>
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 27, 1999, the aggregate market value of voting stock held by
non-affiliates of the registrant was $93,244,026.
As of December 27, 1999, the registrant had 23,696,727 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 2000 Annual Meeting of Stockholders (the
"Proxy Statement") are incorporated by reference into Part III hereof.
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<PAGE>
PART I
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 continue operational improvements in its
businesses, the Company's ability to comply with the terms of its bank credit
agreement, the seasonality and episodic nature of the Company's business, the
resolution of the shareholder class action lawsuit currently pending against the
Company 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.
ITEM 1. BUSINESS
Caribiner International, Inc. is a leading international producer of
meetings, events and training programs, a provider of audiovisual equipment
rentals and sales 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 and audiovisual and staging
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.
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 businesses (the "AV operations"), audiovisual
equipment rentals and sales and related staging services, as well as hotel
audiovisual outsourcing services. In addition, the Company provides, through its
Melville Exhibition Services ("MES") subsidiary, exhibition services,
principally in the United Kingdom, to exhibition organizers, hall owners and
exhibitors.
<PAGE>
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. and in Mexico, Canada, England and
the Caribbean and (ii) 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.
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,
custom (or bespoke) stand fittings, furniture, floor coverings and floral
displays, the provision of electrical contracting and visitor registration
services.
Training centers operated by the Company on behalf of clients who use
such centers to train customers in the use of their products.
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 visitors' 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'
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.
Caribiner Communications' clients include ARAMARK, Ford Motor Co., Home
Depot, IBM, McDonald's Corporation, Parke-Davis (a division of Warner Lambert)
and Pfizer, Inc.
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, Omni, Doubletree, Inter-Continental, 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
2
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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 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 and MES 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' business
units 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 maintains local
offices throughout the United States within those metropolitan areas where there
tend to be a high concentration of the Company's clients. Each office 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.
The Communications division also maintains full service operations in the
United Kingdom, Hong Kong, Australia and New Zealand. Such offices are staffed
in a similar manner to the division's North American offices.
AV Operations. The Company's AV operations are divided into three
principal business units, 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 managements 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 meeting services 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
Company's rental services division, which is based in Atlanta, provides
audiovisual equipment rentals to convention centers and corporate clients,
generally on a "drop-off" basis. Each of the staging and meeting services and
rental services divisions maintains regional inventory support and sales offices
in various locations throughout the U.S.
3
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Melville Exhibition Services. MES, which is based in Birmingham, England,
provides exhibition services, including the rental of stand fittings, furniture,
floor coverings and floral displays and electrical contracting and visitor
registration services to exhibition and trade show organizers and conference and
convention centers.
General. Throughout each of the Company's business 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.
EMPLOYEES
As of October 31, 1999, Caribiner employed approximately 3,675 full-time
employees, of which 3,055 employees were located domestically and 620 were
located internationally.
Except for 34 employees of the Company's hotel audiovisual outsourcing
subdivision 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, audiovisual equipment rental 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 the competitive factors most important in the
business communications, audiovisual equipment rental 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.
4
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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 this space expires on May 31, 2000.
The Company has entered into a lease for new 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 will expire in 2015. The
Company expects to relocate the headquarters of its Communications Division and
the New York office of such division to such new space in early 2000.
Alternatives are presently being considered for the relocation of the Company's
corporate headquarters.
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 believes that, to the extent
required, suitable additional or alternative space necessary for its operations
will be available as needed.
ITEM 3. LEGAL PROCEEDINGS
On March 25, 1999, a purported shareholder class action was filed
in the United States District Court for the Southern District of New York (the
"Southern District") against the Company and certain of its current and former
officers and one of its directors. On May 7, 1999, a purported shareholder class
action substantially identical to the March 25th action was filed in the
Southern District against the Company and the same individuals named in the
March 25th action. Both lawsuits allege, among other things, 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. The lawsuits 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. In November, 1999, the court
issued an order consolidating the lawsuits into a single action and appointing
lead plaintiffs and by the plaintiffs lead counsel. It is anticipated that an
amended consolidated complaint will be filed in early 2000.
In addition to the litigation described above, from time to time the
Company is a party to various legal proceedings incidental to its business.
Although the ultimate disposition of these proceedings is not determinable, in
the opinion of the Company, none of such proceedings 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.
5
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ITEM 4A. EXECUTIVE OFFICERS AND DIRECTORS OF THE COMPANY
<TABLE>
<CAPTION>
NAME AGE POSITION
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<S> <C> <C>
Christopher A. Sinclair............. 49 Chairman of the Board, President and Chief Executive
Officer of Caribiner International, Inc.
Robert F. Burlinson................. 60 Executive Vice President and Chief Financial Officer of
Caribiner International, Inc.
Richard R. Gros..................... 45 Executive Vice President, Human Resources of Caribiner
International, Inc.
Brian Shepherd...................... 42 Executive Vice President of Caribiner International, Inc.
and Chief Executive Officer of Caribiner Communications
John C. Voaden...................... 49 Executive Vice President of Caribiner International, Inc.
and Chief Executive Officer of Hospitality Resources
Division
Raymond S. Ingleby.................. 36 Vice Chairman of the Board of Caribiner International, Inc.
Errol M. Cook....................... 60 Director
Bryan D. Langton.................... 63 Director
Sidney Lapidus...................... 62 Director
David E. Libowitz................... 36 Director
C. Anthony Wainwright............... 66 Director
</TABLE>
Christopher A. Sinclair has been President, Chief Executive Officer and a
director of the Company since December, 1998 and has been Chairman of the Board
of the Company since May, 1999. 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 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.
Richard R. Gros has been Executive Vice President Human Resources of the
Company since February, 1999. Prior to his joining the Company, Mr. Gros served
as Senior Vice President of Human Resources for the Frito Lay International
division of PepsiCo, Inc. from April, 1996 through July, 1998. Prior thereto,
Mr. Gros served as Vice President of Human Resources for PepsiCo Foods &
Beverages International from September, 1992, through March, 1996.
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.
John C. Voaden has been Executive Vice President of the Company and Chief
Executive Officer of the Company's Hospitality Resources (hotel audiovisual
outsourcing) division since May, 1999. Prior to his joining the Company,
Mr. Voaden served as Senior Vice President of Sales and Distribution for Carvel
Corporation, a consumer packaged goods company from 1995 through 1998. Prior
thereto, Mr. Voaden served as Regional Director for Coca Cola Bottling Company
of New York from 1988 through 1995.
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Raymond S. Ingleby has been Vice Chairman of the Board of the Company since
May, 1999. Mr. Ingleby has been a director of the Company since its formation in
1989 and served as Chairman of the Board from June, 1993 through May, 1999.
Mr. Ingleby also served as Chief Executive Officer of the Company from 1989 to
December, 1998.
Errol M. Cook has been a director of the Company since June, 1992.
Mr. Cook presently serves as a Senior Advisor to E.M. Warburg, Pincus & Co., LLC
("EMW LLC"). Mr. Cook served as a Managing Director of EMW LLC or its
predecessor since March, 1991 through his retirement therefrom in December,
1998.
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, Radio Unica Communications Corp., Four Media 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 Managing Director 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. and Four Media Company, 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.
7
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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. The number of stockholders of record of
Common Stock on December 1, 1999 was 142.
<TABLE>
<CAPTION>
PRICE RANGE
-------------
HIGH LOW
---- ---
<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 1999:
First Quarter......................................................................... $10 3/4 $ 5 7/16
Second Quarter........................................................................ 10 9/16 7 1/8
Third Quarter......................................................................... 8 15/16 4 9/16
Fourth Quarter........................................................................ 9 3/8 5 1/8
</TABLE>
The closing price per share of the Common Stock on December 27, 1999 was
$5.9375.
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 restrictions on the Company's ability to pay
dividends.
8
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ITEM 6. SELECTED FINANCIAL DATA
SELECTED FINANCIAL DATA
The historical selected financial data presented below as of and for the
fiscal years ended September 30, 1995, 1996, 1997, 1998 and 1999, 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,
-----------------------------------------------------
1995 1996 1997 1998 1999
--------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Service revenue........................................... $ 81,131 $ 148,330 $ 213,239 $ 296,393 $ 302,087
Rental revenue............................................ -- -- 131,843 414,941 447,567
Intercompany eliminations................................. -- -- (2,824) (14,556) (23,650)
--------- --------- --------- --------- ---------
Total revenue.................................... 81,131 148,330 342,258 696,778 726,004
Cost of service revenue................................... 54,312 99,797 144,980 204,511 211,576
Cost of rental revenue.................................... -- -- 86,885 309,680 357,308
Intercompany eliminations................................. -- -- (2,824) (14,556) (23,650)
--------- --------- --------- --------- ---------
Total cost of revenue............................ 54,312 99,797 229,041 499,635 545,234
--------- --------- --------- --------- ---------
Gross profit.............................................. 26,819 48,533 113,217 197,143 180,770
Selling, general and administrative expenses.............. 19,306 30,442 71,270 143,408 149,147
Restructuring charge(a)................................... -- -- -- 6,953 10,769
Loss on disposal of assets(b)............................. -- -- -- -- 16,500
Non-cash compensation expense(c).......................... -- 1,072 -- -- --
Depreciation and amortization............................. 2,330 3,142 8,905 21,586 27,347
--------- --------- --------- --------- ---------
Total operating expenses......................... 21,636 34,656 80,175 171,947 203,763
Equity in income of affiliated company.................... -- -- -- 688 --
--------- --------- --------- --------- ---------
Operating income (loss)................................... 5,183 13,877 33,042 25,884 (22,993)
Interest expense with related parties..................... 2,234 1,199 -- -- --
Interest expense, other................................... 1,259 387 2,429 24,325 34,950
--------- --------- --------- --------- ---------
Income (loss) before taxes and extraordinary charge....... 1,690 12,291 30,613 1,559 (57,943)
Provision (benefit) for taxes............................. 264 4,302 12,551 624 (5,650)
--------- --------- --------- --------- ---------
Income (loss) before extraordinary charge................. 1,426 7,989 18,062 935 (52,293)
Extraordinary charge on early extinguishment of debt (net
of income taxes of $403)(d)............................. -- -- -- 605 --
--------- --------- --------- --------- ---------
Net income (loss)......................................... 1,426 7,989 18,062 330 (52,293)
Preferred stock dividends(e).............................. (655) (327) -- -- --
--------- --------- --------- --------- ---------
Net income (loss) available to common stockholders........ $ 771 $ 7,662 $ 18,062 $ 330 $ (52,293)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Basic and diluted earnings per common share:
Income (loss) before extraordinary charge............... $ 0.25 $ 0.53 $ 0.83 $ 0.04 $ (2.21)
Extraordinary charge.................................... -- -- -- (0.03) --
--------- --------- --------- --------- ---------
Net income (loss) per common share...................... $ 0.25 $ 0.53 $ 0.83 $ 0.01 $ (2.21)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
BALANCE SHEET DATA:
Working capital........................................... $ 352 $ 7,488 $ 36,151 $ 56,974 $ 34,457
Total assets.............................................. 45,298 126,322 313,877 697,949 659,469
Total debt................................................ 34,175 22,839 61,859 397,240 427,139
Stockholders' equity...................................... (12,434) 53,468 171,434 175,775 122,480
</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. In addition, in connection
with an assessment of its strategic and financial alternatives, during fiscal
1999 the Company continued the reorganization of its businesses. As a result, in
the fiscal quarter ended September 30, 1999 the Company recorded a pre-tax
restructuring charge of $10.8 million. These charges related primarily to
employee termination and severance costs, lease termination costs and certain
other asset write-offs.
(b) In connection with the Company's disposal of its design and
installation business headquartered in Atlanta, a pre-tax loss of $16.5 million
was recorded in the three months ended June 30, 1999.
(c) 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 of shares of common stock in March,
1996.
(d) In connection with the acquisition of Visual Action Holdings, plc, the
Company entered into a new credit facility in October, 1997 (the "Credit
Agreement"). 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 Credit Agreement.
(e) All preferred stock was converted into common stock in connection with
the Company's initial public offering.
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 continue operational improvements in its
businesses, the Company's ability to comply with the terms of its bank credit
agreement (including through the possible sale of one or more of its
businesses), the seasonality and episodic nature of the Company's business, the
resolution of the shareholder class action lawsuit currently pending against the
Company 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
During fiscal 1999, the Company had five reportable operating segments: the
Communications Division, Hotel Services, Staging and Meeting Services, Rental
Services and MES. Prior to fiscal 1999, the Company operated its Hotel Services,
Staging and Meeting Services and Rental Services businesses (collectively, its
audiovisual services businesses) on a combined basis. Disaggregated information
related to the components within the audiovisual services businesses is not
practically determinable for fiscal 1997 and fiscal 1998.
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. Service revenue and cost of service revenue reflects such
amounts for the Company's Communications Division for all periods presented.
Rental revenue and cost of rental revenue includes such amounts for the
Company's Hotel Services, Staging and Meeting Services, Rental Services and MES
segments, in fiscal 1999, and such amounts, as applicable, for the Company's
audiovisual services businesses and for MES in fiscal 1997 and 1998.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------------------------------------------
1997 1998 1999
--------------------- --------------------- ---------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Service revenue.................................... $ 213,239 62.3% $ 296,393 42.5% $ 302,087 41.6%
Rental revenue..................................... 131,843 38.5 414,941 59.6 447,567 61.6
Intercompany eliminations.......................... (2,824) (0.8) (14,556) (2.1) (23,650) (3.2)
---------- --------- ---------- --------- ---------- ---------
Total revenue............................ 342,258 100.0% 696,778 100.0% 726,004 100.0%
Cost of service revenue............................ 144,980 42.4 204,511 29.4 211,576 29.1
Cost of rental revenue............................. 86,885 25.4 309,680 44.4 357,308 49.2
Intercompany eliminations.......................... (2,824) (0.8) (14,556) (2.1) (23,650) (3.2)
---------- --------- ---------- --------- ---------- ---------
Total cost of revenue.................... 229,041 66.9 499,635 71.7 545,234 75.1
---------- --------- ---------- --------- ---------- ---------
Gross profit....................................... 113,217 33.1 197,143 28.3 180,770 24.9
Selling, general and administrative expenses....... 71,270 20.8 143,408 20.6 149,147 20.5
Restructuring charge............................... -- -- 6,953 1.0 10,769 1.5
Loss on disposal of assets......................... -- -- -- -- 16,500 2.3
Depreciation and amortization...................... 8,905 2.6 21,586 3.1 27,347 3.8
---------- --------- ---------- --------- ---------- ---------
Total operating expenses................. 80,175 23.4 171,947 24.7 203,763 28.1
Equity in income of affiliated company............. -- -- 688 -- -- --
---------- --------- ---------- --------- ---------- ---------
Operating income (loss)............................ 33,042 9.6 25,884 3.7 (22,993) (3.2)
Interest expense, net.............................. 2,429 0.7 24,325 3.5 34,950 4.8
---------- --------- ---------- --------- ---------- ---------
Income (loss) before taxes and extraordinary
charge........................................... 30,613 8.9 1,559 0.2 (57,943) (8.0)
Provision (benefit) for taxes...................... 12,551 3.7 624 0.1 (5,650) (0.8)
---------- --------- ---------- --------- ---------- ---------
Income (loss) before extraordinary charge.......... 18,062 5.2 935 0.1 (52,293) (7.2)
Extraordinary charge on early extinguishment of
debt (net of income taxes of $403)............... -- -- 605 0.1 -- --
---------- --------- ---------- --------- ---------- ---------
Net income (loss).................................. $ 18,062 5.2% $ 330 -- $ (52,293) (7.2)%
---------- --------- ---------- --------- ---------- ---------
---------- --------- ---------- --------- ---------- ---------
</TABLE>
FISCAL 1999 COMPARED TO FISCAL 1998
Introduction. During the third quarter of fiscal 1999 the Company
determined that it was necessary to reevaluate its strategic plan and to take
steps to reduce its outstanding long-term indebtedness with the overall
objective of maximizing shareholder value. In connection therewith, in May,
1999, the Company retained Salomon Smith Barney as its financial advisor to
assist it in reviewing its existing operations and assessing strategic and
financial alternatives. As a result of these efforts, during the fourth quarter
of 1999 the Company concluded, among other matters, that it should further
reorganize its audiovisual services operations (the "Restructuring") and pursue
the possible sale of one or more of its business operations. Accordingly,
charges were taken in the fourth quarter of fiscal 1999, which included $10.8
million of restructuring charges for obsolete
11
<PAGE>
systems and software, leases and severance, $6.2 million of additional
provisions for uncollectible accounts receivable and $3.7 million of equipment
write downs. In addition, $8.4 million of administrative expenses related to
the closed Atlanta-based headquarters for the audiovisual services businesses
were incurred in fiscal 1999.
Revenue. Revenue increased $29.2 million, or 4.2%, from $696.8 million in
fiscal 1998 to $726.0 million in fiscal 1999. Rental revenue increased
$32.6 million, or 7.9%, (before intercompany eliminations) primarily due to
growth in the Company's hotel audio visual services segment, increased local
market penetration from the rental services segment and consistent solid results
from the staging and meeting services and MES segments. Service revenue
increased $5.7 million, or 1.9%, in fiscal 1999 from $296.4 million in fiscal
1998 due to increased business activity in the United Kingdom.
Gross Profit. Total gross profit decreased $16.4 million, or 8.3%, from
$197.1 million in fiscal 1998 to $180.8 million in fiscal 1999. As a percentage
of service revenue, the gross profit margin (before intercompany eliminations)
was 31.0% and 30.0% in fiscal 1998 and 1999, respectively. The gross profit
margin was affected by 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 (before intercompany eliminations)
decreased to 20.2% in fiscal 1999 from 25.4% in the prior year due to commission
rate increases, as well as increased costs relating to the rental of audio
visual equipment used in operations. In addition, during Fiscal 1999, the
Company recorded a non-cash charge of $3.7 million for the write-down of audio
visual rental equipment identified during the Comany's reorganization of its
audio visual businesses. In accordance with generally accepted accounting
principles, as such charge does not satisfy the criterion for inclusion in the
restructuring charge, it has been included in cost of rental revenue. Excluding
the effect of this charge, the gross profit as a percentage of rental revenue
decreased to 21.0% in fiscal 1999 from 25.4% in fiscal 1998. Gross profit on
rental revenue for both fiscal 1998 and 1999 was reduced by $16.2 million of
depreciation expense related to rental equipment used in the audio visual
services business. Such depreciation expense is included in cost of rental
revenue.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $5.7 million, or 4.0%, from $143.4 million in
fiscal 1998 to $149.1 million in fiscal 1999. Included in selling, general and
administrative expenses in fiscal 1999 is approximately $8.4 million in costs
incurred during fiscal 1999 related to the Company's former Atlanta-based
headquarters for the AV operations. Such costs primarily consist of rent on
facilities, certain administrative costs and consulting fees associated with the
completion of the Restructuring. In addition, the Company recorded an additional
charge of $6.2 million which represents additional reserves and write-offs
related to the accounts receivable of the former Atlanta-based audio visual
operations. The accounts receivable charge related primarily to disruptions in
collections and changes in certain billing procedures arising from the
Restructuring. Billing and collection efforts were affected because of personnel
turnover and other adverse impacts of the Restructuring. In connection with such
activities, and as part of the Company's periodic review of purchase accounting
accruals, approximately $2.6 million of aggregate liabilities established in
connection with certain acquisitions completed in fiscal 1996 and 1997 were
identified as excess and reversed. Excluding the impact of the accounts
receivable charge of $6.2 million, the reversal of the $2.6 million of excess
purchase accounting accruals and the above-described costs of $8.4 million,
selling, general and administrative expenses, as a percentage of revenue, was
approximately 18.9% in Fiscal 1999 as compared with 20.6% in Fiscal 1998.
Loss of disposition of assets. Effective June 30, 1999, the Company
disposed of its design and installation business headquartered in Atlanta. A
pre-tax loss of $16.5 million was incurred upon the disposition of the related
assets. Total net cash proceeds of approximately $2.0-$3.0 million are expected
upon final accounting of the disposition.
Restructuring Charge. In order to continue to streamline the
organizational structure and improve operational efficiencies, the Company
effectuated the Restructuring and recorded a pre-tax restructuring charge of
$10.8 million in the fiscal quarter ended September 30, 1999. The charge
included $1.5 million of employee termination and severance costs associated
with a further reduction in the workforce of approximately 60 people,
$4.0 million related to lease termination and other facility shut-down costs and
$5.3 million of computer software
12
<PAGE>
and equipment no longer used as a result of the reorganization. The remaining
liability at September 30, 1999 was $2.7 million.
In fiscal 1998, the Company initiated a review of its operations, focusing
on the integration of acquired businesses as well as the overall management and
organizational structure. Accordingly, during the fiscal quarter 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
costs. During the fiscal quarter 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 the severance and termination costs for
approximately 330 people, $0.7 million of lease termination costs, $1.5 million
relating to the write-off of certain assets and other termination and shut down
costs. The total remaining restructuring liability as of September 30, 1998 was
$4.1 million and was fully utilized during fiscal 1999.
Depreciation and amortization. Depreciation and amortization expense for
fiscal 1999 was $27.3 million, an increase of $5.8 million from the prior year.
Purchase of property and equipment and the continued investment in information
technology resulted in increased depreciation expense of $4.1 million.
Amortization expense increased $1.7 million resulting primarily from increased
goodwill.
Equity income of Affiliated Company. In November, 1997, the Company
acquired a minority interest in Visual Action Holdings, Ltd. ("Visual Action")
through open market purchases resulting in the equity in income reflected for
the year ended September 30, 1998. The Company acquired a majority interest and
began consolidating the financial results of Visual Action as of December 1,
1997.
Interest expense, net. Interest expense, net increased by $10.6 million
due to higher average outstanding indebtedness as well as higher borrowing
costs.
Provision for taxes. The effective tax rate for the years ended September
30, 1999 and 1998 was 9.8% and 40%, respectively. The decrease in the effective
tax rate is attributable to the establishment of a valuation allowance for the
deferred tax assets arising from the fiscal 1999 net operating losses.
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 year ended September 30, 1998, the
Company wrote off approximately $0.6 million (net of taxes of $.4 million) of
the remaining unamortized debt issuance costs related to its former bank
facilities.
Net (loss) income. The Company realized a net loss of $52.3 million in the
year ended September 30, 1999 compared to net income of $0.3 million in the year
ended September 30, 1998. The basic and diluted loss per common share for fiscal
1999 was $2.21 as compared with earnings per common share of $0.01 for fiscal
1998. The net loss for the year ended September 30, 1999, excluding the effect
of the loss on the disposition of assets, the restructuring charge and the
charges included in selling, general and administrative expenses associated with
the closure of the Atlanta-based audiovisual facility would have been $5.0
million, or a net loss per common share of $0.21. 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 the year ended
September 30, 1998.
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 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.
13
<PAGE>
Gross Profit. Total gross profit increased $83.9 million, or 74.1%, from
$113.2 million in fiscal 1997 to $197.1 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 25.4% 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.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $72.1 million, or 101.2%, from $71.3 million
in fiscal 1997 to $143.4 million in fiscal 1998, resulting primarily from the
expansion of the Company as a result of its various acquisitions. Salaries and
related costs increased $43.9 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 $21.7 million. Direct selling expenses such as
travel, marketing, postage and other costs related to obtaining business
increased $6.5 million. Selling, general and administrative expenses, as a
percentage of total revenue, were 20.8% and 20.6% 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 and was fully utilized during fiscal 1999.
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.
14
<PAGE>
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.
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.
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,
-----------------------------------
1997 1998 1999
----------- ----------- ---------
<S> <C> <C> <C>
Net cash provided by (used in):
Operating activities............................................ $ 7,884 $ 22,990 $ 14,839
Investing activities............................................ (128,522) (302,973) (55,276)
Financing activities............................................ 122,113 285,499 27,257
</TABLE>
In fiscal 1997, the Company generated $7.9 million from its operating
activities. Net income adjusted for 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.
In fiscal 1999, the Company generated $14.8 million from its operating
activities. Net income adjusted for depreciation and amortization, the
restructuring charges, the loss on disposal of assets, and the fixed asset write
offs provided $21.9 million. The net change in working capital used $7.0
million, with a decrease in accounts receivable, deferred charges and taxes
receivable, which were more than offset by an increase in prepaid expenses and
other current assets and decreases in deferred income, accounts payable and
accrued expenses and other liabilities. Investing activities used $55.3 million
due to acquisition-related expenditures and fixed asset
15
<PAGE>
purchases, primarily audiovisual and computer equipment, as well as information
technology enhancements. Financing activities provided $27.3 million, of which
$174.6 million was provided by drawings under the Company's bank facilities,
offset by repayments of $144.5 million and $2.8 million was used to pay
financing fees in connection with amendments to the Company's credit agreement.
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 "Credit Agreement"),
which was fully utilized in connection with the acquisition of Visual Action.
Amounts outstanding under the Company's former credit facility were repaid with
the proceeds from the Credit Agreement. 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 credit facility. Approximately $4.8 million in
debt issuance fees were incurred in connection with the Credit Agreement. Such
fees are being amortized over the term of the Credit Agreement.
In May, 1998, the Company repaid approximately $26 million under the Term
Facility thereby permanently reducing availability thereunder by such amount. In
December, 1998 and July 1999, 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.
At June 30, 1999, the Company did not achieve certain of the financial
covenants specified in the Credit Agreement. In connection with the amendments
made to the Credit Agreement in July 1999 (the "July 1999 Amendment"), the
lenders waived through March 30, 2000, all defaults that have arisen or may
arise from the failure to satisfy the specified financial covenants for
June 30, 1999, September 30, 1999 and December 31, 1999. As part of such
amendment, the Company agreed, among other things, to revised covenants
regarding minimum consolidated earnings before interest, taxes, depreciation and
amortization ("EBITDA") as defined in the Credit Agreement, for the twelve month
periods ending June 30, September 30 and December 31, 1999, and to restrictions
on the amount of permitted capital expenditures (as described in the Credit
Agreement) for the three month periods ending September 30 and December 31,
1999.
At September 30, 1999, the Company was not in compliance with the covenants
set forth in the July 1999 Amendment. On December 23, 1999, the Company obtained
a further amendment (the "December 1999 Amendment") to the Credit Agreement
that, among other things, extended the waivers under the July 1999 Amendment
until October 1, 2000, and waived through October 1, 2000 all defaults arising
from the failure at September 30, 1999 to satisfy the financial covenants
specified in the July 1999 Amendment. As part of the December 1999 Amendment,
the Company agreed to a minimum consolidated adjusted EBITDA covenant that is
based on post-September 30, 1999 consolidated EBITDA (as defined in the Credit
Agreement), and to restrictions on the amount of capital expenditures that may
be made by the Company during the fiscal year ending September 30, 2000. The
minimum required consolidated adjusted EBITDA, as defined, for fiscal 2000
exceeds levels achieved in fiscal 1999.
In addition to the waivers and revised financial covenants described above,
the December 1999 Amendment provides for the deferral through October 1, 2000 of
the principal payments due under the Term Facility on December 31, 1999 and
March 31, 2000. The December 1999 Amendment also includes a consent by the
lenders that will allow the Company to pursue the possible sale of its
audiovisual businesses, provided that certain timing requirements are met and
minimum net proceeds exceed a specified amount. If such a transaction is
consummated, the Company would be obligated to use the net proceeds, subject to
certain adjustments, to pay down amounts outstanding under the Credit Agreement,
and would be subject to revised financial covenants. There can be no assurance
that any such transaction will be entered into or consummated, or that it will
meet the parameters required by the December 1999 Amendment.
Fees of approximately $1.2 million, $1.4 million and $1.0 million were
incurred in connection with the amendments made to the Credit Agreement in
December, 1998, July, 1999, and December 1999, respectively. Such fees will be
amortized over the remaining term of the Credit Agreement.
16
<PAGE>
The maturity date of each of the Term Facility and the Revolving Facility
is October, 2001. 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 applicable
margins are subject to change based on the occurrence of certain events. The
interest rate on the Credit Agreement is presently LIBOR plus 3.25%. The
applicable interest margin is subject to upward adjustment of 0.75% on March 1,
2000 if the Company has not entered into a definitive agreement to sell its
audiovisual businesses by such date and an additional 0.75% on June 1, 2000 if
such transaction has not been consummated by such date.
Principal on the Term Facility is payable in quarterly installments,
subject to the deferrals described above, with the final scheduled payment due
on October 1, 2001. Subject to reductions in such quarterly installments for any
prepayments made under the Term Facility, at present, the Company will be
required to repay an aggregate of: (i) $17.8 million in fiscal 2000, (ii) $50.4
million in fiscal 2001 and (iii) $132.4 million in fiscal 2002. The Company is
permitted and intends (to the extent available) 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 material subsidiaries, and the Company and its subsidiaries have
pledged the stock of their respective subsidiaries for the ratable benefit of
its lending banks. In addition to the financial covenants described above, the
Credit Agreement contains certain other covenants and restrictions customary for
credit facilities of a similar nature, 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, 1999 (including amounts outstanding under the Term Facility), for
the next three fiscal years, are as follows: 2000--$19.1 million; 2001--$75.9
million; 2002-$332.1 million; totaling $427.1 million.
Capital expenditures were $17.7 million in fiscal 1997, $46.5 million in
fiscal 1998 and $45.4 million in fiscal 1999. During fiscal 1997, the purchase
of additional personal computers and expanded capabilities for the computer
system accounted for the largest areas of expenditure. During fiscal 1998 and
fiscal 1999, the purchase of audiovisual rental equipment and the continued
investment in information technology comprised the major portion of capital
expenditures.
The Company believes it will be able to satisfy the financial and other
covenants included in the Credit Agreement, as amended by the December 1999
Amendment. Further, the Company continues to believe it necessary to take
actions to reduce its indebtedness under the Credit Agreement, including the
possible sale of one or more of its operations. In connection therewith, the
Company's financial advisor, Salomon Smith Barney, is assisting the Company in
assessing strategic and financial alternatives. There can be no assurance that
the Company will be able to take such actions or that it will be able to remain
in compliance with the financial covenants specified in the Credit Agreement
during the twelve months ending September 30, 2000. Unless further amendments or
waivers were to be obtained from the lenders, the failure to satisfy the
specified financial covenants or the occurrence of any other event of default
under the Credit Agreement, as amended, would entitle the lenders to, among
other things, accelerate the maturity of the outstanding borrowings under the
Credit Agreement, and exercise all or any of their other rights or remedies. Any
such acceleration or other exercise of rights and remedies would likely have a
material adverse effect on the Company.
As of December 29, 1999, the Company had approximately $437.2 million
outstanding under the Credit Agreement, of which $237.6 million was outstanding
under the Revolving Facility. Cash on hand as of such date was $5.0 million. The
Company believes that cash flow from operations and available credit under the
Revolving Facility will be sufficient to meet operating needs through the end of
fiscal 2000.
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, 1998
and 1999. 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.
17
<PAGE>
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 1998(A) FISCAL 1999(A)(B)(C)
-------------------------------------------- --------------------------------------------
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.................... $122,449 $187,378 $202,898 $184,053 $159,983 $203,696 $192,361 $169,964
Gross profit............... 35,749 56,819 58,331 46,244 40,717 56,783 50,732 32,538
Operating income (loss).... 3,135 13,256 16,802 (7,309) (2,532) 14,727 (8,295) (26,893)
Net income (loss).......... (477) 3,765 5,836 (8,794) (6,035) 3,688 (11,859) (38,087)
</TABLE>
NOTES TO QUARTERLY RESULTS
(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. In addition, in connection
with an assessment of its strategic and financial alternatives, during fiscal
1999, the Company continued the reorganization of its business. As a result, in
the fiscal quarter ended September 30, 1999, the Company recorded a pre-tax
restructuring charge of $10.8 million. These charges related primarily to asset
write-offs, lease termination costs and employee severance.
(b) The net loss incurred during the first quarter of fiscal 1998 includes
the write-off of 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.
(c) Operating losses for the three and twelve months ended September 30,
1999 include approximately $11.4 million and $18.3 million, respectively, of
costs relating to the Company's former Atlanta-based headquarters for its
audiovisual services businesses.
(d) Results of operations for the year ended September 30, 1999 include
operating losses of $2.9 million from the Company's design and installation
business, which was disposed effective June 30, 1999. A pre-tax loss of
$16.5 million in respect of such disposition was recorded at June 30, 1999.
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 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. 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.
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.
18
<PAGE>
The Company's Computer Applications consist of both internal systems and
systems provided by third parties. The Company has completed a comprehensive
Year 2000 readiness program, which has included completing an inventory of all
computer related systems that might have a Year 2000 exposure, testing of those
systems, and remedying the systems to be Year 2000 compliant. The Company
believes that it has substantially achieved Year 2000 readines.
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 developed contingency
plans that it believes can address any disruptions that may be caused by Year
2000-related occurrences.
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 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.
19
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT AUDITORS
To the Stockholders and Board of Directors of
Caribiner International, Inc.
We have audited the accompanying consolidated balance sheets of Caribiner
International, Inc. (the "Company") as of September 30, 1998 and 1999, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended September 30, 1999. 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, 1998 and 1999 and the consolidated results of its operations and
its cash flows for each of the three years in the period ended September 30,
1999, in conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
New York, New York
December 28, 1999
20
<PAGE>
CARIBINER INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------
1998 1999
-------- --------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents............................................................... $ 15,117 $ 1,675
Trade accounts receivable, net of allowance for doubtful accounts of $2,150 in 1998 and
$4,693 in 1999....................................................................... 124,936 100,446
Deferred charges........................................................................ 12,923 8,301
Prepaid expenses and other current assets............................................... 11,610 20,173
-------- --------
Total Current Assets................................................................. 164,586 130,595
Property and equipment, net............................................................. 98,070 100,438
Goodwill, net........................................................................... 419,581 409,204
Taxes receivable........................................................................ 4,479 4,548
Deferred tax asset...................................................................... 362 --
Other assets............................................................................ 10,871 14,684
-------- --------
Total Assets.............................................................................. $697,949 $659,469
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt....................................................... $ 1,000 $ 1,299
Trade accounts payable.................................................................. 23,739 22,527
Accrued expenses and other current liabilities.......................................... 39,449 40,436
Accrued production costs................................................................ 25,331 20,259
Deferred income......................................................................... 18,093 11,617
-------- --------
Total Current Liabilities............................................................ 107,612 96,138
Long-term debt.......................................................................... 396,240 425,840
Deferred income......................................................................... 8,409 4,975
Deferred tax liability.................................................................. -- 7,892
Other liabilities....................................................................... 9,913 2,144
-------- --------
Total Liabilities......................................................................... 522,174 536,989
Stockholders' Equity:
Preferred stock, $.01 par value:
2,000 shares authorized, none issued and outstanding at 1998 and 1999................ -- --
Common stock, $.01 par value:
40,000 voting shares authorized, and 23,689 and 23,697 shares issued and outstanding
at 1998 and 1999, respectively...................................................... 236 236
Additional paid-in capital.............................................................. 167,608 167,677
Accumulated other comprehensive income (loss)........................................... (3,714) (4,785)
Retained earnings (deficit)............................................................. 11,645 (40,648)
-------- --------
Total Stockholders' Equity........................................................... 175,775 122,480
-------- --------
Total Liabilities and Stockholders' Equity................................................ $697,949 $659,469
-------- --------
-------- --------
</TABLE>
See accompanying notes to the consolidated financial statements.
21
<PAGE>
CARIBINER INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------------
1997 1998 1999
-------- -------- --------
(AMOUNTS IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Service revenue.............................................................. $213,239 $296,393 $302,087
Rental revenue............................................................... 131,843 414,941 447,567
Intercompany eliminations.................................................... (2,824) (14,556) (23,650)
-------- -------- --------
Total revenue........................................................... 342,258 696,778 726,004
-------- -------- --------
Cost of service revenue...................................................... 144,980 204,511 211,576
Cost of rental revenue (note 4).............................................. 86,885 309,680 357,308
Intercompany eliminations.................................................... (2,824) (14,556) (23,650)
-------- -------- --------
Total cost of revenue................................................... 229,041 499,635 545,234
-------- -------- --------
Gross profit................................................................. 113,217 197,143 180,770
Operating expenses:
Selling, general and administrative expenses (note 4)...................... 71,270 143,408 149,147
Restructuring charge (note 3).............................................. -- 6,953 10,769
Loss on disposal of assets (note 5)........................................ -- -- 16,500
Depreciation and amortization.............................................. 8,905 21,586 27,347
-------- -------- --------
Total operating expenses................................................ 80,175 171,947 203,763
Equity in income of affiliated company (note 5).............................. -- 688 --
-------- -------- --------
Operating income (loss)...................................................... 33,042 25,884 (22,993)
Interest expense, net........................................................ 2,429 24,325 34,950
-------- -------- --------
Income (loss) before taxes and extraordinary charge.......................... 30,613 1,559 (57,943)
Provision (benefit) for taxes................................................ 12,551 624 (5,650)
-------- -------- --------
Income (loss) before extraordinary charge.................................... 18,062 935 (52,293)
Extraordinary charge on early extinguishment of debt (net of income taxes of
$403) (note 7)............................................................. -- 605 --
-------- -------- --------
Net income (loss)............................................................ $ 18,062 $ 330 $(52,293)
-------- -------- --------
-------- -------- --------
Basic and diluted earnings per common share:
Income (loss) before extraordinary charge.................................. $ 0.83 $ 0.04 $ (2.21)
Extraordinary charge....................................................... -- (0.03) --
-------- -------- --------
Net income (loss) per common share........................................... $ 0.83 $ 0.01 $ (2.21)
-------- -------- --------
-------- -------- --------
</TABLE>
See accompanying notes to the consolidated financial statements.
22
<PAGE>
CARIBINER INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-----------------------------------
1997 1998 1999
--------- --------- ---------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)........................................................ $ 18,062 $ 330 $ (52,293)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Restructuring charge, net of cash payments............................ -- 4,125 9,669
Loss on disposal of assets............................................ -- -- 16,500
Fixed asset write-offs................................................ -- -- 4,439
Extraordinary charge on early extinguishment of debt, net of tax...... -- 605 --
Depreciation and amortization......................................... 13,082 37,801 43,563
Change in assets and liabilities, net of amounts acquired:
(Increase) decrease in accounts receivable............................ (19,547) (11,158) 18,206
(Increase) decrease in deferred charges............................... 1,469 (1,880) 2,235
(Increase) decrease in prepaid expenses and other current assets...... (3,714) 1,280 (9,030)
(Increase) decrease in taxes receivable............................... 2,867 (11,935) 185
(Decrease) in other assets............................................ (1,646) (3,866) (1,503)
(Decrease) in accounts payable........................................ (450) (3,851) (290)
Increase (decrease) in deferred income................................ (5,165) 6,428 (9,582)
Increase (decrease) in accrued expenses and other liabilities......... 2,926 5,111 (7,260)
--------- --------- ---------
Net cash provided by operating activities............................. 7,884 22,990 14,839
--------- --------- ---------
Cash flows from investing activities:
Purchase of property and equipment.................................... (17,725) (46,454) (45,410)
Net proceeds from disposition of businesses........................... -- 48,892 --
Acquisition of intangibles and businesses, net of cash acquired....... (110,797) (305,411) (9,866)
--------- --------- ---------
Net cash used in investing activities................................. (128,522) (302,973) (55,276)
--------- --------- ---------
Cash flows from financing activities:
Net proceeds from issuance of common stock............................... 85,792 -- --
Proceeds from exercise of stock options.................................. -- 667 --
Net repayments of bank line of credit.................................... (6,000) -- --
Proceeds from long-term debt............................................. 135,870 759,122 174,550
Repayments of long-term debt............................................. (92,517) (470,478) (144,457)
Deferred financing fees.................................................. (1,032) (3,812) (2,836)
--------- --------- ---------
Net cash provided by financing activities............................. 122,113 285,499 27,257
--------- --------- ---------
Effect of exchange rate changes on cash and cash equivalents............... 346 (652) (262)
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents....................... 1,821 4,864 (13,442)
Cash and cash equivalents beginning of year................................ 8,432 10,253 15,117
--------- --------- ---------
Cash and cash equivalents end of year...................................... $ 10,253 $ 15,117 $ 1,675
--------- --------- ---------
--------- --------- ---------
</TABLE>
See accompanying notes to the consolidated financial statements.
23
<PAGE>
CARIBINER INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE YEARS ENDED SEPTEMBER 30, 1999
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK ADDITIONAL RETAINED OTHER TOTAL
---------------- PAID-IN EARNINGS COMPREHENSIVE STOCKHOLDERS'
SHARES AMOUNT CAPITAL (DEFICIT) INCOME (LOSS) EQUITY
------- ------ ---------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at September 30,
1996...................................... $19,197 $192 $ 59,937 $ (6,747) $ 86 $ 53,468
Net income.................................. -- -- -- 18,062 -- 18,062
Foreign currency translation adjustment..... -- -- -- -- (75) (75)
---------
Other comprehensive income.................. 17,987
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
------- ---- -------- -------- ------- ---------
Balance at September 30,
1997...................................... 23,417 234 159,874 11,315 11 171,434
Net income.................................. -- -- -- 330 -- 330
Foreign currency translation adjustment..... -- -- -- -- (3,725) (3,725)
---------
Other comprehensive (loss).................. (3,395)
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
------- ---- -------- -------- ------- ---------
Balance at September 30,
1998...................................... 23,689 236 167,608 11,645 (3,714) 175,775
Net loss.................................... -- -- -- (52,293) -- (52,293)
Foreign currency translation adjustment..... -- -- -- -- (1,071) (1,071)
---------
Other comprehensive (loss).................. (53,364)
Issuance of common stock.................... 8 * 69 -- 69
------- ---- -------- -------- ------- ---------
Balance at September 30,
1999...................................... 23,697 $236 $167,677 $(40,648) $(4,785) $ 122,480
------- ---- -------- -------- ------- ---------
------- ---- -------- -------- ------- ---------
</TABLE>
* Less than $1 thousand
See accompanying notes to the consolidated financial statements.
24
<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. 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.
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 fiscal 1997 and fiscal 1998
consolidated 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.
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.
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.
25
<PAGE>
CARIBINER INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
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 $20.0 million and $33.4 million at September 30, 1998 and 1999,
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, 1997, 1998 and 1999 were $0.3 million,
$0.9 million and $1.2 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
component of accumulated other comprehensive income (loss) 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, 1997, 1998 and 1999 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.
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.
3. RESTRUCTURING CHARGE
During the third quarter of fiscal 1999 the Company determined that it was
necessary to reevaluate its strategic plan and to take steps to reduce its
outstanding long-term indebtedness with the overall objective of maximizing
shareholder value. In connection therewith, in May, 1999, the Company retained
Salomon Smith Barney as its financial advisor to assist it in reviewing its
existing operations and assessing strategic and financial alternatives. As a
result of these efforts, during the fourth quarter of 1999 the Company
concluded, among other matters, that it should further reorganize its
audiovisual services operations (the "Restructuring") and pursue the possible
sale of one or more of its business operations.
As a result, in the fiscal quarter ended September 30, 1999, the Company
recorded a pre-tax restructuring charge of $10.8 million. The charge included
$1.5 million of employee termination and severance costs associated with a
further reduction in the workforce of approximately 60 people, $4.0 million
related to lease
26
<PAGE>
CARIBINER INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. RESTRUCTURING CHARGE--(CONTINUED)
termination and other facility shut-down costs and $5.3 million of computer
software and equipment no longer usable as a result of the reorganization. The
remaining liability at September 30, 1999 was $2.7 million.
In fiscal 1998, the Company initiated a review of its operations, focusing
on the integration of its businesses as well as the overall management and
organizational structure, which resulted in the initiation of the Restructuring.
Accordingly, during the fiscal quarter 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 costs. During the fiscal quarter 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 the
severance and termination costs for approximately 330 people, $0.7 million of
lease termination costs, $1.5 million relating to the write-off of certain
assets and other termination and shut down costs to be incurred during the
Restructuring. The total remaining restructuring liability as of September 30,
1998 was $4.1 million and was fully utilized during fiscal 1999.
4. OTHER COSTS ASSOCIATED WITH REALIGNMENT OF BUSINESS
During fiscal 1999, the Company recorded additional charges of
$9.9 million related to the Restructuring described in Note 3 but which did not
satisfy the accounting criteria for inclusion in the restructuring charge. These
charges included $6.2 million of additional reserves and write-offs related to
the accounts receivable of the former Atlanta-based audio visual operations. The
accounts receivable charge related primarily to disruptions in certain billing
procedures which the Company believes arose from the Restructuring. Such
accounts receivable related charge is included in selling, general and
administrative expenses in the accompanying financial statements.
In addition, during fiscal 1999, the Company recorded a non-cash charge of
$3.7 million for audio visual rental equipment losses. The charge was identified
during the Company's reorganization of its audio visual businesses from its
former Atlanta-based audio visual headquarters to the respective business unit
facilities. In accordance with generally accepted accounting principles, as such
charge does not satisfy the criterion for inclusion in the restructuring charge,
it has been included in cost of rental revenue.
5. BUSINESS ACQUISITIONS/DISPOSITIONS
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.
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
27
<PAGE>
CARIBINER INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. BUSINESS ACQUISITIONS/DISPOSITIONS--(CONTINUED)
consideration 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 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 7). 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 Right Source, Inc. ("Right Source")
for an initial consideration of $17.0 million in cash, plus the repayment of
approximately $2.4 million in outstanding indebtedness. Right Source, 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.
28
<PAGE>
CARIBINER INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. BUSINESS ACQUISITIONS/DISPOSITIONS--(CONTINUED)
Fiscal 1999 Dispositions
During fiscal 1999, in connection with the Company's consolidation of hotel
audio visual outsourcing operations in Chicago, and as part of the Company's
periodic review of the purchase accounting accruals, approximately $2.6 million
of liabilities established in connection with certain of the acquisitions
completed in fiscal 1996 and 1997 were identified as excess and reversed.
Effective June 30, 1999, the Company disposed of its design and
installation business headquartered in Atlanta. A pre-tax loss of $16.5 million
was incurred upon the disposition of the related assets. Total net cash proceeds
of approximately $2.0-$3.0 million are expected upon final accounting of the
disposition.
The Company accounted for its acquisitions 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, 1997 and 1999, $2.1 million and $4.5 million was paid and/or
accrued as additional consideration with respect to these acquisitions. There
were no such payments made in fiscal 1998.
The following unaudited consolidated pro forma results of operations of the
Company for the years ended September 30, 1998 and 1999 give effect to the
acquisitions of Visual Action and Right Source, as well as the dispositions of
the Company's broadcast video services unit, its U.K. staging and equipment
rental services unit, and its Atlanta-based design and installation business and
reflect the extraordinary charge resulting from the write-off of unamortized
fees relating to the Company's former bank facilities (see Note 7), as if such
transactions had occurred in each case on October 1, 1997. 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, 1998 and 1999.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------------
1998
-------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C>
Revenue................................................. $ 695,290
Income before taxes and extraordinary charge............ (18,527)
Net income.............................................. (19,942)
Pro forma basic and diluted earnings per common share... $ (0.84)
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------------
1999
-------------------------------------
<S> <C>
Revenue................................................. $ 703,685
Income before taxes and extraordinary charge............ (38,447)
Net income.............................................. (39,231)
Pro forma basic and diluted earnings per common share... $ (1.65)
</TABLE>
The above calculation of pro forma basic and diluted net income per common
share assumes that approximately 23,616,398 and 23,695,126 shares were
outstanding during 1998 and 1999, 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 1998
or of results which may occur in the future.
29
<PAGE>
CARIBINER INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. PROPERTY AND EQUIPMENT
At September 30, 1998 and 1999 property and equipment consisted of:
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
------------------------------------
1998 1999
---------------- ----------------
(IN THOUSANDS)
<S> <C> <C>
Audiovisual rental and production equipment........................... $ 85,254 $ 97,274
Furniture and fixtures................................................ 13,280 9,363
Information systems................................................... 25,438 24,718
Leasehold improvements................................................ 11,670 12,293
Other................................................................. 2,065 10,349
-------- --------
137,707 153,997
Less--accumulated depreciation and amortization....................... 39,637 53,559
-------- --------
$ 98,070 $100,438
-------- --------
-------- --------
</TABLE>
The related depreciation and amortization expense for the years ended
September 30, 1998 and 1999 was $25.7 million and $28.9 million, respectively.
7. DEBT
At September 30, 1998 and 1999, long-term debt consisted of:
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
------------------------------------
1998 1999
---------------- ----------------
(IN THOUSANDS)
<S> <C> <C>
Credit Agreement...................................................... $394,500 $425,280
Notes payable......................................................... 1,825 1,415
Other................................................................. 915 444
-------- --------
397,240 427,139
Less--current portion of long-term debt............................... 1,000 1,299
-------- --------
$396,240 $425,840
-------- --------
-------- --------
</TABLE>
At September 30, 1999, 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 "Credit Agreement") to
be utilized in connection with the acquisition of Visual Action. (See Note 5,
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 Credit Agreement. Such fees are being amortized over the
term of the Credit Agreement.
In May, 1998, the Company repaid approximately $26 million under the Term
Facility thereby permanently reducing availability thereunder by such amount. In
December, 1998, and July 1999 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 and $1.4 million were incurred in connection with the
amendments made to the Credit Agreement in December, 1998 and July 1999,
respectively. Such fees will be amortized over the remaining term of the Credit
Agreement. As of December 21, 1999, the Company had
30
<PAGE>
CARIBINER INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. DEBT--(CONTINUED)
approximately $447.2 million outstanding under the Credit Agreement. Cash on
hand as of such date was $11.8 million.
At June 30, 1999, the Company did not achieve certain of the financial
covenants specified in the Credit Agreement. In connection with the amendments
made to the Credit Agreement in July 1999 (the "July 1999 Amendment"), the
lenders waived through March 30, 2000 all defaults that have arisen or may arise
from the failure to satisfy the specified financial covenants for June 30, 1999,
September 30, 1999 and December 31, 1999. As part of such amendment, the Company
agreed, among other things, to revised covenants regarding minimum consolidated
earnings before interest, taxes, depreciation and amortization ("EBITDA"), as
defined in the Credit Agreement for the twelve month periods ending June 30,
September 30 and December 31, 1999, and to restrictions on the amount of
permitted capital expenditures (as defined in the Credit Agreement), for the
three month periods ending September 30 and December 31, 1999.
At September 30, 1999, the Company was not in compliance with the covenants
set forth in the July 1999 Amendment. On December 23, 1999, the Company obtained
a further amendment (the "December 1999 Amendment") to the Credit Agreement
that, among other things, extended the waivers under the July 1999 Amendment to
October 1, 2000, and waived through October 1, 2000 all defaults arising from
the failure at September 30, 1999 to satisfy the financial covenants specified
in the July 1999 Amendment. As part of the December 1999 Amendment, the Company
agreed to a minimum consolidated adjusted EBITDA covenant that is based on
post-September 30, 1999 consolidated EBITDA (as defined in the Credit
Agreement), and to restrictions on the amount of capital expenditures that may
be made by the Company during the fiscal year ending September 30, 2000. The
minimum required consolidated adjusted EBITDA, as defined, for fiscal 2000
exceeds levels achieved in fiscal 1999.
In addition to the waivers and revised financial covenants described above,
the December 1999 Amendment provides for the deferral through October 1, 2000 of
the principal payments due under the Term Facility on December 31, 1999 and
March 31, 2000. The December 1999 Amendment also includes a consent by the
lenders that will allow the Company to pursue the possible sale of its
audiovisual businesses, provided that certain timing requirements are met and
minimum net proceeds exceed a specified amount. If such a transaction is
consummated, the Company would be obligated to use the net proceeds, subject to
certain adjustments, to pay down amounts outstanding under the Credit Agreement
and would be subject to revised financial covenants. There can be no assurance
that any such transaction will be entered into or consummated, or that it will
meet the parameters required by the December 1999 Amendment.
The Company believes it will be able to satisfy the financial and other
covenants included in the Credit Agreement, as amended. Further, the Company
continues to believe it necessary to take actions to reduce its indebtedness
under the Credit Agreement, including the possible sale of one or more of its
operations. In connection therewith, the Company's financial advisor, Salomon
Smith Barney, is assisting the Company in assessing strategic and financial
alternatives. There can be no assurance that the Company will be able to take
such actions or that it will be able to remain in compliance with the financial
covenants specified in the Credit Agreement during the twelve months ending
September 30, 2000. Unless further amendments or waivers were to be obtained
from the lenders, the failure to satisfy the specified financial covenants or
the occurrence of any other event of default under the Credit Agreement, as
amended, would entitle the lenders to, among other things, accelerate the
maturity of the outstanding borrowings under the Credit Agreement, and exercise
all or any of their other rights or remedies. Any such acceleration or other
exercise of rights and remedies would likely have a material adverse effect on
the Company.
As of December 29, 1999, the Company had approximately $437.2 million
outstanding under the Credit Agreement, of which $237.6 million was outstanding
under the Revolving Facility. Cash on hand at such date was $5.0 million.
31
<PAGE>
CARIBINER INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. DEBT--(CONTINUED)
Fees of approximately $1.2 million, $1.4 million and $1.0 million were
incurred in connection with the amendments made to the Credit Agreement in
December, 1998, July, 1999, and December 1999, respectively. Such fees will be
amortized over the remaining term of the Credit Agreement.
The maturity date of each of the Term Facility and the Revolving Facility
is October, 2001. 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 applicable
margins are subject to change based on the occurrence of certain events. The
interest rate on the Credit Agreement is presently LIBOR plus 3.25%. The
applicable interst margin is subject to upward adjustment of 0.75% on March 1,
2000 if the Company has not entered into a definitive agreement to sell its
audiovisual businesses by such date and an additional 0.75% on June 1, 2000 if
such transaction has not been consummated by such date.
Principal on the Term Facility is payable in quarterly installments,
subject to the deferrals described above, with the final scheduled payment due
on October 1, 2001. Subject to reductions in such quarterly installments for any
prepayments made under the Term Facility, at present, the Company will be
required to repay an aggregate of: (i) $17.8 million in fiscal 2000,
(ii) $50.4 million in fiscal 2001 and (iii) 132.4 million in fiscal 2002. The
Company is permitted and intends (to the extent available) 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 material subsidiaries, and the Company and its subsidiaries have
pledged the stock of their respective subsidiaries for the ratable benefit of
its lending banks. In addition to the financial covenants described above, the
Credit Agreement contains certain other covenants and restrictions customary for
credit facilities of a similar nature, 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, 1999 (including amounts outstanding under the Term Facility), for
the next three fiscal years, are as follows: 2000--$19.1 million;
2001--$75.9 million; 2002--$332.1 million; totaling $427.1 million.
8. CAPITAL STOCK
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
2,500,000 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.
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.
The Sinclair Options
In connection with an employment agreement, dated as of December 21, 1998,
between Christopher A. Sinclair and the Company, the Board of Directors approved
the grant to Mr. Sinclair of options to purchase an
32
<PAGE>
CARIBINER INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. CAPITAL STOCK--(CONTINUED)
aggregate of 600,000 shares of common stock (the "Sinclair Options"), subject to
the approval of the stockholders of the Company.
The stockholders of the Company approved the grant of the Sinclair Options
at the Annual Meeting of Stockholders held on March 16, 1999. Of the Sinclair
Options, (i) 350,000 options have an exercise price per share of $8.5625, which
was the average of the high and the low reported sale prices of the common stock
on December 21, 1998 ("Option Grants A"), and (ii) 250,000 options have an
exercise price per share of the $15.00 ("Option Grant B"). The market price of
the Company's Common Stock on March 16, 1999, was less than the exercise price
of each of Option Grant A and Option Grant B.
The Board of Directors granted the Sinclair Options to Mr. Sinclair to
induce him to join the Company as its President and Chief Executive Officer and
to provide additional motivation and incentive for Mr. Sinclair in the
performance of his duties on behalf of the Company beyond the cash compensation
paid pursuant to the terms of his employment agreement with the Company.
Except for their respective exercise prices, the terms and conditions of
Option Grant A and Option Grant B are identical in all respects. In addition,
although the Sinclair Options were not granted under the 1996 Option Plan,
except for certain terms relating to the vesting and exercise of options upon
resignation or termination from employment, the terms and conditions of the
stock options granted under the 1996 Option Plan have been substantially
incorporated into the terms and conditions of the Sinclair Options.
As of September 30, 1999, stock options to purchase an aggregate of
1,989,406 shares of Common Stock were outstanding, of which options to purchase
67,426 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 5%, 4% and 6% in 1997, 1998 and 1999, respectively; a
dividend yield of 0% in 1997, 1998 and 1999; volatility of 32.7% in 1997, 67.4%
in 1998 and 77.4% in 1999, respectively, and an expected life of 5 years in
1997, 1998 and 1999.
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 $675,000, or $0.03 per share, $823,000, or
$0.03, and $1,372,000, or $.06 per share, for fiscal years 1997, 1998 and 1999,
respectively.
33
<PAGE>
CARIBINER INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. CAPITAL STOCK--(CONTINUED)
A summary of the status of the Company's option plans at September 30, 1999
and activity during the years ended September 30, 1999 is as follows:
<TABLE>
<CAPTION>
1997 1998 1999
------------------------ ------------------------ ------------------------
WEIGHTED AVERAGE WEIGHTED AVERAGE WEIGHTED AVERAGE
------------------------ ------------------------ ------------------------
SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE
------ -------------- ------ -------------- ------ --------------
(IN THOUSANDS OF SHARES)
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year.......... 303 $14.75 737 $23.22 1,048 $21.75
Options granted........................... 461 28.38 561 20.25 2,024 8.68
Options exercised......................... -- -- (30) 23.38 -- --
Options forfeited/expired................. (27) 16.14 (220) 23.10 (1,083) 16.06
---- ------ ------ ------ ------ ------
Options outstanding at end of year........ 737 23.22 1,048 21.75 1,989 9.23
---- ------ ------ ------ ------ ------
Exercisable at end of year................ 110 15.84 275 20.69 67 16.52
---- ------ ------ ------ ------ ------
Weighted average fair value of options
granted during the year................. 10.67 12.00 5.80
------ ------ ------
</TABLE>
A summary of information about stock options outstanding and options
exercisable at September 30, 1999 is as follows (In thousands of shares):
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------------- --------------------------
WEIGHTED AVERAGE WEIGHTED AVERAGE WEIGHTED AVERAGE
RANGE OF EXERCISE PRICES SHARES REMAINING TERM EXERCISE PRICE SHARES EXERCISE PRICE
- ---------------------------------------- ------ ---------------- ---------------- ------ ----------------
<S> <C> <C> <C> <C> <C>
$6.66 to $8.56.......................... 1,600 9.25 $ 7.81 -- --
$14.44 to $20.63........................ 384 8.90 $15.71 64 $16.24
$21.875 to $32.78....................... 5 7.48 $21.98 3 $21.94
------ ----
$6.66 to $32.78......................... 1,989 9.18 $ 9.23 67 $16.52
</TABLE>
9. 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,
1997, 1998 and 1999, the Company paid such vendors approximately $0.6 million,
$1.4 million and $2.1 million, respectively.
Rent paid to related parties during the years ending September 30, 1997,
1998 and 1999 was $0.6 million, $0.6 million and $0.4 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.
10. 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 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
34
<PAGE>
CARIBINER INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. EMPLOYEE BENEFIT PLANS--(CONTINUED)
employee to such plan up to a maximum of 4% of base salary. Company matching
contributions during the years ended September 30, 1998 and 1999 totaled
$1.0 million and $1.6 million, respectively.
11. 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, 1998 and September 30, 1999 are as follows:
<TABLE>
<CAPTION>
1998 1999
------ --------
(IN THOUSANDS)
<S> <C> <C>
DEFERRED TAX ASSETS:
NOL and tax credit carryforwards......................................... $1,776 $ 23,900
Accrued interest......................................................... 247 247
Allowance for doubtful accounts.......................................... 733 691
Restructuring and other reserves......................................... 4,351 1,791
------ --------
Total deferred tax assets................................................ 7,107 26,629
Valuation allowance...................................................... (653) (14,640)
------ --------
Net deferred tax assets.................................................. 6,454 11,989
DEFERRED TAX LIABILITIES:
Tax over book depreciation and amortization.............................. 5,293 8,003
Adjustments for differences in basis of acquired assets.................. -- 8,000
Amortization of intangibles.............................................. 389 3,653
Other.................................................................... 410 225
------ --------
Total deferred tax liabilities........................................... 6,092 19,881
------ --------
Net deferred tax liability/(asset)....................................... $ (362) $ 7,892
------ --------
------ --------
</TABLE>
At September 30, 1999, the Company had net operating loss ("NOL")
carryforwards for federal income tax purposes of approximately $54.3 million, of
which, $1.6 million expire in the years 2001 through 2007 and $52.7 million
expire in the year 2019. The Company also has tax loss carryforwards for state
and local tax purposes. A valuation allowance has been recorded to the extent
the Company believes the benefit from the tax loss carryforwards will not be
realized. In addition, approximately $1.6 million of the NOL carryforwards may
be subject to limitations under the change in ownership provisions of the
Internal Revenue Code and 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.
35
<PAGE>
CARIBINER INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. INCOME TAXES--(CONTINUED)
Significant components of the provision for income taxes attributable to
continuing operations are as follows:
<TABLE>
<CAPTION>
1997 1998 1999
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal............................................................... $ 7,224 $(2,041) $(6,052)
State................................................................. 2,150 831 (58)
Foreign............................................................... 1,112 280 206
------- ------- -------
Total current tax............................................. 10,486 (930) (5,904)
Deferred:
Federal............................................................... 1,758 1,345 (1,879)
State................................................................. 352 (992) 858
Foreign............................................................... (45) 1,201 1,275
------- ------- -------
Total deferred tax............................................ 2,065 1,554 254
------- ------- -------
Total provision for taxes............................................... $12,551 $ 624 $(5,650)
------- ------- -------
------- ------- -------
</TABLE>
For fiscal 1999, tax benefit has been recorded to the extent the current
year tax loss can be carried back and for a portion of the tax loss carried
forward.
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>
1997 1998 1999
------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Tax expense at statutory rate.......................................... $10,714 $ 546 $(20,280)
State income tax expense/(benefit) (net of federal tax)................ 1,626 (104) 521
Non-deductible goodwill amortization................................... 483 1,236 5,745
Non-deductible expenses................................................ 113 181 587
Losses without benefit................................................. (645) (19) 10,478
Rate differential related to foreign operations........................ -- (1,205) (2,760)
Other.................................................................. 260 (11) 59
------- ------- --------
$12,551 $ 624 $ (5,650)
------- ------- --------
------- ------- --------
</TABLE>
12. SEGMENT INFORMATION
In accordance with Financial Accounting Standards Board Statement No. 131,
Disclosures about Segments of an Enterprise and Related Information, set forth
below is selected financial information about the Company's reportable operating
segments.
Description of Segments
During fiscal 1999, the Company had five reportable segments: the
Communications Division, Hotel Services, Staging and Meeting Services, Rental
Services and Melville Exhibition Services, Ltd. ("MES"). The Communications
Division produces meetings, events and training programs that enable businesses
to inform, sell to and train their sales forces, dealers, stockholders and
employees. Hotel Services provides audiovisual equipment rental services to
hotels via an on-site presence of both equipment and technical support staff.
The Staging and Meeting Services Division is a provider of audiovisual
equipment, technical labor and related staging services to production companies
and other corporations for use during meetings, trade shows, conventions and
presentations. Rental Services is a remote full service provider on an as-needed
basis to local and national
36
<PAGE>
CARIBINER INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. SEGMENT INFORMATION--(CONTINUED)
corporations, convention centers and smaller hotels. MES provides exhibition
services in the United Kingdom, offering fully integrated services to exhibition
organizers, hall owners, exhibitors and other exhibition contractors.
During fiscal 1999, the Company reorganized its audiovisual services
businesses into separate operating units: Hotels Services, Staging and Meeting
Services and Rental Services. Prior to fiscal 1999, the Company operated the
audiovisual services businesses on a combined basis. It is impracticable to
furnish separate financial data relating to the fiscal years ended
September 30, 1997 and 1998 in conformity with the current reporting segments
within the audiovisual services group.
Measurement of Segment Profit or Loss
The Company evaluates performance based upon revenues, gross profit and
profit or loss from operations before interest, income taxes, depreciation and
amortization ("EBITDA"). The accounting policies of the reportable segments are
the same as those described in Note 2, Summary of Significant Accounting
Policies. Interdivision sales are recorded at the Company's costs; there is no
intercompany profit or loss on interdivision sales.
YEAR ENDED SEPTEMBER 30, 1999 (AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
STAGING & TOTAL
HOTEL MEETING RENTALS AUDIO
SERVICES SERVICES SERVICES OTHER(B) VISUAL MES COMMUNICATIONS TOTAL
-------- --------- -------- -------- -------- ------- -------------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue............ $261,597 $89,390 $ 22,212 22,319 $395,518 $52,049 $302,087 $749,654
Gross Profit....... 52,894 8,149 6,480 8,834 76,357 17,602 90,511 184,470
EBITDA............. 37,142 11,416 4,176 (2,607) 50,127(a) 5,856 23,522 79,505
Segment assets..... 91,089 32,161 13,471 -- 136,721 17,329 86,756 240,806
Capital
expenditures...... 21,347 8,962 2,583 196 33,088 1,732 10,591 45,411
</TABLE>
(a) Excludes $8.4 million in costs incurred during fiscal 1999 related to the
Company's former Atlanta-based audio visual headquarters.
(b) Represents results of operations of the Company's design and installation
business which was disposed in June, 1999.
YEAR ENDED SEPTEMBER 30, 1998 (AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
AUDIO
VISUAL MES COMMUNICATIONS TOTAL
-------- ------- -------------- --------
<S> <C> <C> <C> <C>
Revenue...................................................... $366,697 $48,243 $296,393 $711,333
Gross Profit................................................. 86,960 18,301 91,882 197,143
EBITDA....................................................... 38,398 7,706 26,240 72,344
Segment assets............................................... 142,154 22,430 107,213 271,797
Capital expenditures......................................... 30,791 1,545 14,118 46,454
</TABLE>
YEAR ENDED SEPTEMBER 30, 1997 (AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
AUDIO
VISUAL MES COMMUNICATIONS TOTAL
-------- -------- -------------- --------
<S> <C> <C> <C> <C>
Revenue..................................................... $131,844 $ -- $213,238 $345,082
Gross Profit................................................ 44,959 -- 68,258 113,217
EBITDA...................................................... 23,237 -- 24,065 47,302
Segment assets.............................................. 80,386 -- 71,859 152,245
Capital expenditures........................................ 13,780 -- 3,945 17,725
</TABLE>
37
<PAGE>
CARIBINER INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. SEGMENT INFORMATION--(CONTINUED)
RECONCILIATIONS TO CONSOLIDATED STATEMENT OF OPERATIONS (amounts in thousands)
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Total external revenue for reportable segments............................... $726,004 $696,777 $342,258
Interdivision revenue for reportable segments................................ 23,650 14,556 2,825
Elimination of interdivision revenue......................................... (23,650) (14,556) (2,825)
-------- -------- --------
Total consolidated revenue................................................. $726,004 $696,777 $342,258
-------- -------- --------
-------- -------- --------
Total "EBITDA" for reportable segments....................................... $ 79,505 $ 72,344 $ 47,302
Rental equipment write-downs included in cost of rental revenue.............. (3,700) -- --
Restructuring charge......................................................... (10,769) (6,953) --
Loss on disposal of assets................................................... (16,500) -- --
Reserves/write-offs relating to accounts receivable.......................... (6,167) -- --
Costs related to the former Atlanta-based audiovisual headquarters........... (8,407) -- --
Corporate expenses........................................................... (13,392) (1,705) (1,178)
-------- -------- --------
Total consolidated operating income before depreciation and amortization
expense.................................................................... 20,570 63,686 46,124
Depreciation and amortization expense,
including depreciation in cost of revenue.................................. (43,563) (37,802) (13,082)
-------- -------- --------
Total consolidated operating income (loss)................................. $(22,993) $ 25,884 $ 33,042
-------- -------- --------
-------- -------- --------
</TABLE>
RECONCILIATIONS TO CONSOLIDATED BALANCE SHEETS (amounts in thousands)
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Total assets for reportable segments....................................... $240,806 $271,797 $152,245
Goodwill, net.............................................................. 409,204 419,581 157,154
Corporate assets........................................................... 9,459 6,571 4,478
-------- -------- --------
Total consolidated assets............................................... $659,469 $697,949 $313,877
-------- -------- --------
-------- -------- --------
</TABLE>
Foreign Operations
The Company's foreign operations, principally located in the United
Kingdom, had identifiable assets, including goodwill, of $55.4 million,
$99.4 million and $105.1 million at September 30, 1997, 1998 and 1999,
respectively. Revenues of $52.8 million, $143.9 million and $153.9 million, and
operating profits of $1.5 million, $12.1 million and $10.7 million, related to
the Company's foreign operations are included in the results of operations for
the years ended September 30, 1997, 1998 and 1999, respectively.
13. 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, 2000--$16.1 million; 2001--$13.8
million; 2002--$12.4 million; 2003--$11.2 million; 2004--$9.8 million;
thereafter--$19.7 million; totaling $83.0 million.
Rent expense charged to operations in fiscal 1997, fiscal 1998 and fiscal
1999 was $6.6 million, $9.4 million and $11.0 million, respectively.
On March 25, 1999, a purported shareholder class action was filed
in the United States District Court for the Southern District of New York (the
"Southern District") against the Company and certain of its current and former
officers and one of its directors. On May 7, 1999, a purported shareholder class
action substantially identical to the March 25th action was filed in the
Southern District against the Company and the same individuals named in the
March 25th action. Both lawsuits allege, among other things, 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. The lawsuits 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. In November, 1999, the Court
issued an order consolidating the lawsuits into a single action and appointing
lead plaintiffs and lead counsel. It is anticipated that an amended consolidated
complaint will be filed by the plaintiffs in early 2000.
In addition to the litigation described above, from time to time, the
Company is a party to various in legal proceedings incidental to its business.
Although the ultimate disposition of these proceedings is not determinable, in
the opinion of the Company, none of such proceedings has had or is likely to
have a material adverse effect on the Company's results of operations, financial
condition or liquidity.
38
<PAGE>
CARIBINER INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
14. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid was $2.0 million, $21.9 million and $33.5 million during the
years ended September 30, 1997, 1998 and 1999, respectively. Taxes paid were
$8.1 million and $12.2 million during the years ended September 30, 1997 and
1998 respectively. No taxes were paid during the year ended September 30, 1999.
15. 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>
1997 1998 1999
-------- ------- --------
(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....................... $ 30,613 $ 1,559 $(57,943)
Tax provision...................................................... (12,551) (624) (5,650)
-------- ------- --------
Net income before extraordinary charge............................. 18,062 935 (52,293)
Extraordinary charge............................................... -- (605) --
-------- ------- --------
Net income......................................................... $ 18,062 $ 330 $(52,293)
-------- ------- --------
-------- ------- --------
Weighted average shares of common stock outstanding:
Weighted average shares of common stock outstanding for basic
earnings per share.............................................. 21,719 23,616 23,695
Effect of stock options............................................ -- -- --
-------- ------- --------
Weighted average shares of common stock outstanding for diluted
earnings per share.............................................. 21,719 23,616 23,695
-------- ------- --------
-------- ------- --------
Basic and diluted earnings per share:
Net income before extraordinary charge............................. $ 0.83 $ 0.04 $ (2.21)
Extraordinary charge............................................... -- (0.03) --
-------- ------- --------
Net income......................................................... $ 0.83 $ 0.01 $ (2.21)
-------- ------- --------
-------- ------- --------
</TABLE>
39
<PAGE>
ITEM 9. CHANGES 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 herby 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.
40
<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 29, 1999.
CARIBINER INTERNATIONAL, INC.
(Registrant)
By: /s/ ROBERT F. BURLINSON
----------------------------------
Robert F. Burlinson
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/ CHRISTOPHER A. SINCLAIR Chairman of the Board, President and Chief December 29, 1999
- ------------------------------------------ Executive Officer (Principal Executive
Christopher A. Sinclair Officer)
/s/ ROBERT F. BURLINSON Executive Vice President and Chief Financial December 29, 1999
- ------------------------------------------ Officer (Principal Financial and Accounting
Robert F. Burlinson Officer)
/s/ RAYMOND S. INGLEBY Director December 29, 1999
- ------------------------------------------
Raymond S. Ingleby
/s/ ERROL M. COOK Director December 29, 1999
- ------------------------------------------
Errol M. Cook
/s/ BRYAN D. LANGTON Director December 29, 1999
- ------------------------------------------
Bryan D. Langton
/s/ SIDNEY LAPIDUS Director December 29, 1999
- ------------------------------------------
Sidney Lapidus
/s/ DAVID E. LIBOWITZ Director December 29, 1999
- ------------------------------------------
David E. Libowitz
/s/ C. ANTHONY WAINWRIGHT Director December 29, 1999
- ------------------------------------------
C. Anthony Wainwright
</TABLE>
41
<PAGE>
[This page intentionally left blank]
<PAGE>
INDEX TO EXHIBITS
The following is a list of all exhibits filed as part of this report
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------ ---------------------------------------------------------------------------------------------------------
<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 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 -- 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 quarterly period ended December 31, 1998 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, 1999 and incorporated herein by
reference).
+10.2 -- 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).
+10.3 -- 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).
+10.4 -- 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).
+10.5 -- Amendment No.1, dated as of October 1, 1998, to the Ingleby Employment Agreement.
+10.6 -- Amendment No. 2, dated as of May 13, 1999, to the Ingleby Employment Agreement.
+10.7 -- Employment Agreement, dated as of December 21, 1998, by and between the Company and Christopher A.
Sinclair (filed as Exhibit 10.7 to the Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 1998 and incorporated herein by reference).
+10.8(a) -- Stock Option Agreement, dated as of December 21, 1998, between the Company and Christopher A.
Sinclair in respect of the grant to Mr. Sinclair of options to purchase an aggregate of 350,000
shares of common stock of the Company (filed as Exhibit 10.2(a) to the Company's Quarterly Report
on Form 10-Q for the quarterly period ended December 31, 1998 and incorporated herein by
reference).
+10.8(b) -- Stock Option Agreement, dated as of December 21, 1998, between the Company and Christopher A.
Sinclair in respect of the grant to Mr. Sinclair of options to purchase an aggregate of 250,000
shares of common stock of the Company (filed as Exhibit 10.2(a) to the Company's Quarterly Report
on Form 10-Q for the quarterly period ended December 31, 1998 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 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).
+10.11 -- Letter Agreement, dated April 1, 1999, by and between the Company and Richard R. Gros.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------ ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
+10.12 -- Letter Agreement, dated April 29, 1999, by and between the Company and John C. Voaden.
10.13 -- 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) (filed as Exhibit 10.10 to the Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 1997 and incorporated herein by reference).
10.14 -- 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) (filed as Exhibit 10.13 to the Company's Annual Report on Form 10-K for the fiscal
year ended September 30, 1998 and incorporated herein by reference).
10.15 -- 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) (filed as Exhibit 10.14 to the Company's Annual Report on Form 10-K for the fiscal
year ended September 30, 1998 and incorporated herein by reference).
10.16 -- Third Amendment and Waiver, dated as of July 30, 1999, 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) (filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 1999 and incorporated herein by reference).
10.17 -- Fourth Amendment, Consent and Waiver, dated as of December 23, 1999, 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.)
10.18 -- 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.
</TABLE>
- ------------------
+ 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) of the
requirements to Form 10-K.
<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 Stock Option Plan, as amended (the "Plan"),
commensurate with Employee's title and
<PAGE>
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
<PAGE>
AMENDMENT NO. 2 TO EMPLOYMENT AGREEMENT
AMENDMENT NO. 2 dated as of May 13, 1999 (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 Employment Agreement was amended by that certain Amendment
No. 1 to Employment Agreement dated as of October 1, 1998 ("Amendment No. 1");
WHEREAS, as of December 21, 1998 Employee ceased serving as the
Company's Chief Executive Officer and since that time has been serving as the
Company's Chairman;
WHEREAS, the parties hereto desire to amend and supplement the
Employment Agreement subject to the terms and conditions hereof;
1. Employment; Duties and Responsibilities. (a) Sections 1, 2 and 3 of
the Employment Agreement shall be amended to provide that Employee shall,
subject to the terms of this Amendment and the applicable terms and conditions
of the Employment Agreement and Amendment No. 1, hereafter be employed as a
non-executive employee and serve as Vice-Chairman of the Company. Employee
hereby resigns as Chairman of the Company as of the date hereof and confirms his
resignation as Chief Executive Officer of the Company as of December 21, 1998.
Notwithstanding anything to the contrary contained in Sections 1 and 2 of the
Employment Agreement, Employee shall hereafter be required to devote such of his
business time, efforts and attention to the business of the Company as, and from
such location, as the Company shall require, subject to Employee's prior
approval. Subject to the foregoing, Employee shall use his experience in the
industries and geographic locations in which the Company operates to develop new
client relationships on behalf of the Company and strengthen the Company's
existing client relationships. In addition, and also subject to the foregoing,
Employee shall at the reasonable request of the Board advise the Company's Chief
Executive Officer with respect to matters relating to the strategic direction of
the Company, and Employee shall also make reports to the Board on matters within
the scope of his responsibilities and experience.
(b) The first three (3) sentences and the sixth (6th) sentence of
Section 2 of the Employment Agreement shall be deleted therefrom.
<PAGE>
(c) Section 3 shall be deleted from the Employment Agreement.
2. Compensation; Bonuses. Section 4(b) of the Employment Agreement and
Section 1(b) of the Amendment No. 1 shall each be deleted from the Employment
Agreement and Amendment No. 1. Section 4(c) of the Employment Agreement shall be
deleted therefrom. Employee acknowledges and agrees that no bonus compensation
is due him in respect of any past, current or future fiscal year of the Company.
3. Benefits. Sections 5(b) and 5(c) of the Employment Agreement shall
be deleted therefrom except that Employee shall be entitled to continue to
participate in any employee benefit plan in which he currently participates, or
any new benefit plan that the Company adopts in replacement of any such existing
plan, except vacation or bonus plans.
4. Term. The last two (2) sentences of Section 6 of the Employment
Agreement shall be deleted therefrom.
5. Termination. Section 8(a)(i) and 8(d) of the Employment Agreement
shall be deleted therefrom. Section 8 (b) of the Employment Agreement shall be
amended to provide that upon Employee's incapacity or disability, the Company
may terminate the Employment Agreement upon three (3) months' prior notice and
pay to Employee his Base Salary through September 30, 2001, payable in bi-weekly
installments. Section 8 (c) of the Employment Agreement shall be amended to
provide that upon Employee's death his legal representatives shall be entitled
to receive payments equal to his Base Salary through September 30, 2001, payable
in bi-weekly installments. In the event of a Change of Control of the Company,
Employee shall have the right to resign his employment with the Company
whereupon Employee's Base Salary through September 30, 2001 shall be paid to him
in a single lump sum (without discount for early payment but net of all
applicable withholding taxes) within fifteen (15) days of the date of Employee's
resignation and, subject to Section 3 of this Amendment, all benefits under
Section 5 of the Employment Agreement shall be provided to Employee through
September 30, 2001. In the event that Employee's employment is terminated other
than pursuant to Sections 8(a), 8(b) or 8(c) of the Employment Agreement
Employee's Base Salary through September 30, 2001 shall be paid to him, payable
in bi-weekly installments, and, subject to Section 3 of this Amendment, all
benefits under Section 5 of the Employment Agreement shall be provided to
Employee through September 30, 2001.
6. Ratification. As amended and supplemented by this Amendment, the
terms and conditions of the Employment Agreement, as amended (including, without
limitation, Sections 7 and 9 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 or otherwise in accordance with their
terms.
7. Capitalized Terms. Unless otherwise defined herein, the defined
terms utilized herein shall have the same meaning as set forth in the Employment
Agreement.
2
<PAGE>
8. 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/ Christopher A. Sinclair
------------------------------
Name: Christopher A. Sinclair
Title: President and Chief
Executive Officer
3
<PAGE>
April 1, 1999
Mr. Richard R. Gros
3613 Euclid Avenue
Dallas, TX 75205
Dear Rich:
We are pleased to extend a formal offer of employment to you. This
letter, when signed by you, shall constitute our agreement (this "Agreement")
with respect to the terms and conditions of your employment with Caribiner
International, Inc. (the "Company").
1. Position: You shall be hired to fill the position of
Executive Vice President - Human Resources of the Company. In the
performance of your duties, you will report to the Chief Executive
Officer of the Company. Your duties and responsibilities shall be
designated to you, from time to time, by the Chief Executive Officer or
the Board of Directors of the Company (the "Board"). You will be based
in the Company's New York City offices.
2. Compensation:
(a) You will receive a base salary of $250,000.00 per
annum, which will be payable in bi-weekly
installments or otherwise in accordance with the
Company's policies. Your performance and base salary
will be reviewed annually, and may, in the discretion
of senior management and the Board, be increased
following such review.
(b) In addition to your base salary, you will be
eligible to receive an annual bonus (the "Bonus"),
payable on or about December 15 of each year
(commencing December 15, 1999) at the Group A level
bonus pursuant the Company's Annual Performance Plan
(or such equivalent level pursuant to any other bonus
compensation plan then in effect by the Company in
replacement of such plan) as in effect for the fiscal
year ended immediately prior to the fiscal year in
which such Bonus is actually paid. Your guaranteed
Bonus in respect of the Company's fiscal year ended
September 30, 1999 (payable on approximately December
15, 1999) shall be no less than $125,000.
3. Benefits: (a) You will be entitled to participate in the
Company's hospitalization, medical, dental and vision insurance plans,
as well as long-term and short-term disability and life insurance
plans, on the same basis as other senior executive employees of the
Company in accordance with Company practices and subject in each case
to the terms and conditions of the applicable plan, which shall govern
your participation therein. You will also be entitled to participate in
the Company's 401(k) plan and any other similar plan or plans adopted
by the Company for similar employees and subject in each case to the
terms and conditions of the applicable plan, which shall govern your
participation therein.
(b) You willl be entitled to reimbursement for all
reasonable travel, entertainment and other reasonable
expenses incurred in connection with the Company's
business, provided that such expenses are adequately
documented and vouchered in accordance with the
Company's policies.
(c) You will be entitled to an automobile allowance
in the amount of $500 per month, payable in equal
installments during each payroll
<PAGE>
Mr. Richard R. Gros
April 1, 1999
Page 2
period, to defray all costs incurred by you in
connection with your use of your automobile in
connection with the business of the Company (except
for those which you are entitled to reimbursement
pursuant to Paragraph 3(b) hereof). In addition to
the foregoing, you will be entitled to reimbursement
for the reasonable parking charges incurred by you
for parking your automobile at or near the Company's
offices, provided such charges are adequately
documented and vouchered in accordance with the
Company's policies.
(d) You will be entitled to reimbursement for all
reasonable expenses incurred by you in connection
with the preparation of your 1999 income tax returns,
provided such expenses are adequately documented and
vouchered in accordance with the Company's policies.
4. Vacation: You will be entitled to four (4) weeks paid
vacation per year in accordance with the Company's policies, which
shall be in addition to all other holidays established as part of the
Company's standard practices.
5. Non-Competition. You hereby agree and covenant that
commencing as of the date hereof and for a period of two (2) years
following the termination of your employment with the Company (the
"Restricted Period") you 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 the Company during the period of your employment
with the Company (except that ownership of not more than 1% of the
outstanding securities of any class of any entity that are listed on a
national securities exchange or traded in the over-the-counter market
shall not be considered a breach of this Paragraph 5).
6. Non-Solicitation: You hereby agree and covenant that for
the Restricted Period you shall not (without first obtaining the
written permission of the Company), directly or indirectly, (i)
participate in the solicitation of any business of any type conducted
by the Company during the period of your employment with the Company
from any person or entity which was a client or customer of the Company
during the period of your employment with the Company, or was a
prospective customer of the Company from which you (or employees under
your supervision) solicited business or for which a proposal for
submission was prepared during the period of your employment with the
Company or (ii) recruit for employment, or induce or seek to cause such
person to terminate his or her employment with the Company, any person
who then is an employee of the Company.
7. Confidential Matters: During and after the Restricted
Period, you shall keep secret all confidential matters of the Company
and its affiliates, including but not to limited to trade "know-how,"
secrets, consultant contracts, customer lists, operational methods,
marketing plans or strategies, business acquisition plans, new
personnel and other business affairs of the Company and its affiliates
learned by you heretofore or hereafter, and shall not disclose them to
anyone outside of the Company during and after the Restricted Period
except (i) with the Company's written consent, (ii) as required by law
or (iii) as required to enforce or construe this
<PAGE>
Mr. Richard R. Gros
April 1, 1999
Page 3
Agreement to the extent reasonable and necessary. You shall deliver
promptly to the Company upon termination of your employment, or any
time the Company may request, all confidential memoranda, notes,
records, reports and other documents (and all copies thereof) relating
to the business of the Company which you may then possess or have under
your control; provided, that, you may retain copies of documents to the
extent reasonably needed to protect or enforce your rights hereunder.
8. Specific Performance; Damages: In the event of a breach or
threatened breach of the provisions of Paragraphs 5, 6 or 7 hereof, you
agree that the injury which would be suffered by the Company would be
of a character which could not be fully compensated for solely by a
recovery of monetary damages. Accordingly, you agree that in the event
of a breach or threatened breach of Paragraphs 5, 6 or 7 hereof, in
addition to and not in lieu of any damages sustained by the Company and
any other remedies which the Company may pursue hereunder or under any
applicable law, the Company 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, you understand and
confirm that, in the event of a breach or threatened breach of
Paragraphs 5, 6 or 7 hereof, you may be held financially liable to the
Company for any loss suffered by the Company as a result.
9. Severance. If you are discharged within three (3) years
from the date hereof without Cause (as hereinafter defined) or by
reason other than because of your death, or if you resign because of a
Change of Control (as hereinafter defined) of the Company or for Good
Reason (as hereinafter defined), the Company shall pay to you (i) for a
period of one (1) year, the Base Salary provided for in Paragraph 2
hereof as such sums become due (or, at the Company's election, in a
lump sum giving effect to the present value of such payments); and (ii)
the Bonus in respect only of the fiscal year of the Company in which
such termination occurs (prorated by reference to the number of days in
such fiscal year actually worked by you and by reference to the Bonus
target). For purposes of this Agreement, the terms "Cause" and "Change
of Control" shall have the meanings given to such terms in the
Company's 1996 Stock Option Plan, as amended. For purposes of this
Agreement, the term "Good Reason" shall mean that Christopher A.
Sinclair shall cease for any reason to be the most senior executive
officer of the Company.
10. Indemnification. Subject to the succeeding sentence, the
Company shall indemnify, defend and hold you harmless 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 your performance of your services
pursuant to this Agreement. Notwithstanding the foregoing, you shall
not be entitled to indemnification pursuant to this Paragraph 10 if a
Court of competent jurisdiction or an administrative body or agency
determines that, in connection with any matter giving rise to
indemnification, you 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), and you did not have any reasonable cause to
believe that you violated any material law, committed an act of wanton
or willful misconduct or gross negligence or that you acted in a manner
beyond the authorized
<PAGE>
Mr. Richard R. Gros
April 1, 1999
Page 4
scope of your duties to be performed pursuant to this Agreement. You
will be afforded the same coverage under any director's and officer's
liability insurance policy maintained by the Company, from time to
time, as the other senior executive officers of the Company are
provided.
11. 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, you and the Company agree that such
provision shall be modified to the extent legally possible so that the
intent of this Agreement may be legally carried out and such provision
shall be enforced to the maximum extent.
12. 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, correspondence, commitments and
representations in respect thereof among them.
13. Governing Law. This Agreement shall be governed by,
construed and enforced in accordance with the internal laws of the
State of New York.
14. Employment: Notwithstanding anything contained herein to
the contrary and, subject to the Company's obligations contained
herein, you acknowledge that you shall be hired as an "employee
at-will" and that as such, your employment with the Company may be
terminated at any time for any reason or no reason whatsoever, and this
Agreement does not constitute a commitment of the Company with respect
to your employment, express or implied.
If the foregoing correctly sets forth our understanding,
please sign and return the duplicate copy of this letter which is
enclosed herewith.
Very truly yours,
CARIBINER INTERNATIONAL, INC.
By: /s/ Christopher A. Sinclair
------------------------------------
Christopher A. Sinclair
President and Chief Executive Officer
AGREED AND ACCEPTED AS OF
THE 1st DAY OF APRIL, 1999.
/s/ Richard R. Gros
- --------------------------------
Richard R. Gros
<PAGE>
April 29, 1999
Mr. John C. Voaden
12 Willow Lane
Avon, CT 06001
Dear John:
We are pleased to extend a formal offer of employment to you. This
letter, when signed by you, shall constitute our agreement (this "Agreement")
with respect to the terms and conditions of your employment with Caribiner
International, Inc. (the "Company").
1. Position: You shall be hired to fill the position of Chief
Executive Officer of the Hospitality Resources
International/Presentation Services ("HRI/PS") division of Caribiner
Audio Visual Services, Inc., a subsidiary of the Company. In the
performance of your duties, you will report to the Chief Executive
Officer of the Company. You will perform the duties of Chief Executive
Officer of HRI/PS and such other duties and responsibilities as shall
be designated to you, from time to time, by the Chief Executive Officer
of the Company or the Board of Directors of the Company (the "Board").
You will be based in the Company's Chicago offices.
2. Compensation:
(a) You will receive a base salary of $250,000.00 per
annum, which will be payable in bi-weekly
installments or otherwise in accordance with the
Company's policies. Your performance and base salary
will be reviewed annually, and may, in the discretion
of senior management and the Board, be increased
following such review.
(b) In addition to your base salary, provided that
you are employed by the Company on the last day of
its fiscal year, you will be eligible to receive an
annual bonus payable on or about December 15 of each
year. Your bonus shall be subject to the discretion
of the Board, and is not guaranteed (except as set
forth below), and shall be dependent upon your and
the Company's performance. Your target bonus shall be
at forty (40%) percent of your annual base salary.
Provided you are employed by the Company on September
30, 1999, your guaranteed Bonus in respect of the
Company's fiscal year ended September 30, 1999
(payable on approximately December 15, 1999) shall be
no less than $50,000.
3. Benefits: (a) You will be entitled to participate in the
Company's hospitalization, medical, dental and vision insurance plans,
as well as long-term and short-term disability and life insurance
plans, on the same basis as other senior executive employees of the
Company in accordance with Company practices and subject in each case
to the terms and conditions of the applicable plan, which shall govern
your participation therein. You will also be entitled to participate in
the Company's 401(k) plan and any other similar plan or plans adopted
by the Company for similar employees and subject in each case to the
terms and condtions of the applicable plan, which shall govern your
participation therein.
(b) You willl be entitled to reimbursement for all
reasonable travel, entertainment and other reasonable
expenses incurred in connection with the Company's
business, provided that such expenses are
<PAGE>
Mr. John C. Voaden
April 29, 1999
Page 2
adequately documented and vouchered in accordance
with the Company's policies.
(c) You will 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 you in connection with your use
of your automobile in connection with the business of
the Company (except for those which you are entitled
to reimbursement pursuant to Paragraph 3(b) hereof).
(d) You will be entitled to reimbursement for weekly
airfare from Hartford, Connecticut to Chicago,
Illinois in accordance with, and subject to, the
Company's policies.
4. Vacation: You will be entitled to four (4) weeks paid
vacation per year in accordance with the Company's policies, which
shall be in addition to all other holidays established as part of the
Company's standard practices.
5. Non-Competition. You hereby agree and covenant that
commencing as of the date hereof and for a period of two (2) years
following the termination of your employment with the Company (the
"Restricted Period") you 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 HRI/PS during the period of your employment with
the Company (except that ownership of not more than 1% of the
outstanding securities of any class of any entity that are listed on a
national securities exchange or traded in the over-the-counter market
shall not be considered a breach of this Paragraph 5).
6. Non-Solicitation: You hereby agree and covenant that for
the Restricted Period you shall not (without first obtaining the
written permission of the Company), directly or indirectly, (i)
participate in the solicitation of any business of any type conducted
by the Company during the period of your employment with the Company
from any person or entity which was a client or customer of the Company
during the period of your employment with the Company, or was a
prospective customer of the Company from which you (or employees under
your supervision) solicited business or for which a proposal for
submission was prepared during the period of your employment with the
Company or (ii) recruit for employment, or induce or seek to cause such
person to terminate his or her employment with the Company, any person
who then is an employee of the Company.
7. Confidential Matters: During and after the Restricted
Period, you shall keep secret all confidential matters of the Company
and its affiliates, including but not to limited to trade "know-how,"
secrets, consultant contracts, customer lists, operational methods,
marketing plans or strategies, business acquisition plans, new
personnel and other business affairs of the Company and its affiliates
learned by you heretofore or hereafter, and shall not disclose them to
anyone outside of the Company during and after the Restricted Period
except (i) with the Company's written consent, (ii) as required by law
or (iii) as required to enforce or construe this Agreement to the
extent
<PAGE>
Mr. John C. Voaden
April 29, 1999
Page 3
reasonable and necessary. You shall deliver promptly to the Company
upon termination of your employment, or any time the Company may
request, all confidential memoranda, notes, records, reports and other
documents (and all copies thereof) relating to the business of the
Company which you may then possess or have under your control;
provided, that, you may retain copies of documents to the extent
reasonably needed to protect or enforce your rights hereunder.
8. Specific Performance; Damages: In the event of a breach or
threatened breach of the provisions of Paragraphs 5, 6 or 7 hereof, you
agree that the injury which would be suffered by the Company would be
of a character which could not be fully compensated for solely by a
recovery of monetary damages. Accordingly, you agree that in the event
of a breach or threatened breach of Paragraphs 5, 6 or 7 hereof, in
addition to and not in lieu of any damages sustained by the Company and
any other remedies which the Company may pursue hereunder or under any
applicable law, the Company 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, you understand and
confirm that, in the event of a breach or threatened breach of
Paragraphs 5, 6 or 7 hereof, you may be held financially liable to the
Company for any loss suffered by the Company as a result.
9. Severance. If you are discharged within three (3) years
from the date hereof without Cause (as hereinafter defined) or by
reason other than because of your death or incapacity, the Company
shall pay to you (i) for a period of one (1) year, the Base Salary
provided for in Paragraph 2 hereof as such sums become due (or, at the
Company's election, in a lump sum giving effect to the present value of
such payments); and (ii) the bonus (which you understand is entirely
discretionary) in respect only of the fiscal year of the Company in
which such termination occurs (prorated by reference to the number of
days in such fiscal year actually worked by you). For purposes of this
Agreement, the term "Cause" shall have the meaning given to such term
in CII's 1996 Stock Option Plan, as amended.
10. Indemnification. Subject to the succeeding sentence, the
Company shall indemnify, defend and hold you harmless 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 your performance of your services
pursuant to this Agreement. Notwithstanding the foregoing, you shall
not be entitled to indemnification pursuant to this Paragraph 10 if a
Court of competent jurisdiction or an administrative body or agency
determines that, in connection with any matter giving rise to
indemnification, you 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), and you did not have any reasonable cause to
believe that you violated any material law, committed an act of wanton
or willful misconduct or gross negligence or that you acted in a manner
beyond the authorized scope of your duties to be performed pursuant to
this Agreement.
11. 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, you and the Company agree that such
provision shall be modified to the extent legally possible so that the
<PAGE>
Mr. John C. Voaden
April 29, 1999
Page 4
intent of this Agreement may be legally carried out and such provision
shall be enforced to the maximum extent.
12. 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, correspondence, commitments and
representations in respect thereof among them.
13. Governing Law. This Agreement shall be governed by,
construed and enforced in accordance with the internal laws of the
State of New York.
14. Employment: Notwithstanding anything contained herein to
the contrary, but subject to the terms and conditions of this
Agreement, you acknowledge that the Company reserves the right to end
its employment relationship with you at any time and for any legal
reason upon thirty (30) days notice to you and, as an "employee
at-will", you may terminate your employment with the Company at any
time and for any legal reason upon thirty (30) days notice to the
Company.
If the foregoing correctly sets forth our understanding,
please sign and return the duplicate copy of this letter which is
enclosed herewith.
Very truly yours,
CARIBINER INTERNATIONAL, INC.
By: /s/ Christopher A. Sinclair
-----------------------------------
Name: Christopher A. Sinclair
Title: President
and Chief Executive Officer
AGREED AND ACCEPTED AS OF
THE 29th DAY OF APRIL, 1999.
/s/ John C. Voaden
- --------------------------------
John C. Voaden
<PAGE>
1
EXECUTION COPY
FOURTH AMENDMENT, CONSENT AND WAIVER, dated as of December 23, 1999
(this "Fourth 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;
WHEREAS, pursuant to the Third Amendment to the Credit Agreement dated
as of July 30, 1999, the Lenders agreed to waivers of compliance with certain
financial covenants contained in the Credit Agreement (the "Existing Waivers")
to permit the Borrowers an opportunity to pursue the sale of all or parts of its
businesses;
WHEREAS, the Parent (a) proposes to sell the Capital Stock of its
Subsidiaries that operate the audio visual businesses of the Parent and its
Subsidiaries (the "AV Business") in a transaction (the "AV Sale"), and (b) has
requested that the Lenders (i) consent to such AV Sale under Sections 7.05, 7.06
and 7.13 of the Credit Agreement, (ii) amend certain provisions of the Credit
Agreement to facilitate and reflect the disposition of the AV Business and (iii)
extend the Existing Waivers; and
WHEREAS, the Lenders are willing to agree to the requested waivers,
consent and amendments, but only on the terms and subject to the conditions
contained herein.
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.
<PAGE>
2
SECTION 2. AMENDMENTS.
2.1 Amendments to Section 1.01 of the Credit Agreement. (a) Section
1.01 of the Credit Agreement is hereby amended by (i) deleting in their entirety
the definitions of the terms "Applicable Margin", "Financial Consultant" and
"Pricing Grid" and (ii) adding the following new definitions in their proper
alphabetical order:
"`Applicable Margin": means with respect to (a) Eurodollar
Loans, 3.25% and (b) with respect to ABR Loans, 2.25%; provided, that
(i) if the Borrowers have not delivered to the Administrative Agent by
March 1, 2000 a fully executed definitive agreement to consummate the
AV Sale on or before June 1, 2000, each of the foregoing margins shall
be increased on March 1, 2000 by .75% and (ii) if on or before June 1,
2000 the AV Sale has not been consummated on terms that generate not
less than $320,000,000 of Net Cash Proceeds, each of the foregoing
margins (as theretofore adjusted pursuant to the foregoing clause (i)
of this proviso, if applicable) shall be increased on June 1, 2000 by
.75% until such time as the AV Sale has been consummated and the Term
Loans and the Revolving Credit Commitments have been prepaid and
reduced (as applicable) by an aggregate amount of not less than
$320,000,000.
"AV Sale": means the sale of the AV Business in accordance
with the consent of the Lenders granted under the Fourth Amendment to
the Credit Agreement dated as of December 23, 1999.
"AV Business": means the audio visual businesses of the Parent
and its Subsidiaries.
"Consultant": means a firm or individual specializing in
providing financial consulting and advisory services that is reasonably
satisfactory to the Borrowers and the Administrative Agent.
"Fourth Amendment Effective Date": December 23, 1999.".
(b) Section 1.01 of the Credit Agreement is hereby further amended by
deleting the date "September 30, 2003" from the definitions of "Revolving Credit
Termination Date" and "Term Loan Maturity Date" and inserting in lieu thereof
the date "October 1, 2001".
(c) The definition of "Consolidated Unadjusted EBITDA" set forth in
Section 1.01 of the Credit Agreement shall be amended by adding the following
sentence to the end of such definition:
For purposes of calculating Consolidated Unadjusted EBITDA for
any period in which there are expenditures by the Borrowers in
respect of the Consultant required by Section 6.15(a) of the Credit
Agreement, the amount of such expenditures during such periods shall
be added to Consolidated Net Income in determining Consolidated
Unadjusted EBITDA for such period.
2.2 Amendment to Section 2.04(b) of the Credit Agreement. Section
2.04(b) of the Credit Agreement is hereby amended by deleting the Installment
amounts and dates after
<PAGE>
3
June 30, 2001 and inserting in lieu thereof the following information under the
relevant columns:
"Installment Principal Amount
------------ ----------------
October 1, 2001 Remaining Outstanding Principal Amount".
2.3 Amendment to Section 2.06 (i) of the Credit Agreement. Section 2.06
of the Credit Agreement is hereby amended by adding the following proviso to the
end of paragraph (i) of said Section:
"provided that the Revolving Credit Commitments shall not be
permanently reduced by an amount (the "Retained Commitment") equal to
50% of the Net Cash Proceeds of the AV Sale in excess of $320,000,000
applied to the prepayment of the Term Loans and reduction of the
Revolving Credit Commitments (but up to a maximum Retained Commitment
of $10,000,000), which Retained Commitment shall be available for
reborrowing in accordance with, and subject to, the terms and
conditions contained in this Agreement.".
2.4. Amendment to Section 6.15 of the Credit Agreement. Section 6.15 of
the Credit Agreement is hereby amended by deleting said section in its entirety
and inserting in lieu thereof the following:
"SECTION 6.15. Consultant; Investment Banker; Management Reports. (a)
Not later than January 31, 2000, the Borrowers shall retain, and
thereafter continue the employment of, a Consultant on terms and with a
scope of retention reasonably satisfactory to the Borrowers and the
Administrative Agent.
(b) Unless the Required Lenders otherwise consent, the
Borrowers shall, following the Fourth Amendment Effective Date,
continue retention of its investment banker in connection with the
Asset Sale program as originally described to the Lenders at the July
8, 1999 Lender meeting, and as updated at the December 13, 1999 Lender
meeting, which investment banker shall (x) confirm that such Asset Sale
program remains active and ongoing at the time of the delivery of each
report referred to in Section 6.01(j) and (y) provide other information
in respect of the Asset Sale program as may reasonably be requested by
the Lenders, subject to the customary restrictions governing the
confidentiality of the sales process.
(c) Promptly following the delivery of the financial statements
referred to in Section 6.01(c), the Borrowers shall make their Chief
Financial Officer available to the Lenders on a mutually convenient
basis to provide a report on and to discuss such financial statements.
2.5. Amendments to Article VI of the Credit Agreement. Article VI of
the Credit Agreement is hereby amended by adding the following new Section 6.16
to said Article:
<PAGE>
4
SECTION 6.16. Litigation Settlement. Without the consent of the
Required Lenders (which consent shall not be unreasonably withheld or
delayed), the Parent will not settle or otherwise compromise its
alleged liability in respect of any shareholder litigation in a manner
requiring the payment of money (not paid by insurance carriers or other
third parties).
2.6. Amendments to Section 7.01 of the Credit Agreement. (a) Section
7.01 of the Credit Agreement is hereby amended by deleting paragraph (c) in its
entirety and inserting in lieu thereof the following new paragraph (c):
"(c) Consolidated Unadjusted EBITDA. Permit Consolidated Unadjusted
EBITDA for any period set forth below to be less than the amount set forth
opposite such period:
Period Amount
------ ------
10/01/99 - 12/31/99 $7,000,000
10/01/99 - 3/31/00 $35,000,000
10/01/99 - 6/30/00 $15,000,000
10/01/99 - 9/30/00 $23,000,000;
provided that for purposes of determining compliance with this covenant
(i) for any period prior to the AV Sale in which the results of the AV
Business would not be included in Consolidated Unadjusted EBITDA
(because the AV Business is classified as assets held for sale,
discontinued operations or similar classification) the results of the
AV Business shall be included in Consolidated Unadjusted EBITDA and
(ii) for any period following the consummation of the AV Sale,
Consolidated Unadjusted EBITDA shall be calculated without regard (at
any time during the applicable period) to operations and businesses
sold or discontinued prior to such date; and provided, further, that,
in the event that the AV Sale is not consummated (x) prior to June 30,
2000, then the Consolidated Unadjusted EBITDA for the period 10/01/99 -
6/30/00 shall not be permitted to be less than $57 million, or (y)
prior to September 30, 2000, then the Consolidated Unadjusted EBITDA
for the period 10/01/99 - 9/30/00 shall not be permitted to be less
than $75 million."
(b) Section 7.01 of the Credit Agreement is hereby further amended by
deleting paragraph (d) of said section thereof in its entirety and inserting in
lieu thereof the following new paragraph (d):
"(d) Capital Expenditures. Permit Capital Expenditures for any period
set forth below to exceed the amount set forth opposite such period:
Period Amount
------ ------
7/1/99 - 9/30/99 $10,000,000
10/1/99 - 3/31/00 $20,000,000
4/1/00 - 6/30/00 $1,500,000
7/1/00 - 9/30/00 $1,500,000;
provided, that (i) in the event that the AV Sale is not consummated (x)
prior to June 30, 2000, then the maximum capital expenditures for the
three month period ending on such date shall not exceed $10,000,000 or
(y) prior to
<PAGE>
5
September 30, 2000, then maximum capital expenditures for the three
month period ending on such date shall not exceed $10,000,000 and (ii)
Capital Expenditures made during the period of 7/01/99 through 9/30/99
in excess of the amount permitted by this Section 7.01(d) (such excess
to be in an amount not exceeding $3,500,000) shall be deemed to have
been made during the period from 10/01/99 through 3/31/00 and shall
reduce the amount otherwise permitted by this Section 7.01(d) for such
period on a dollar-for-dollar basis.
2.7. Amendments to Section 8 of the Credit Agreement. Section 8 of the
Credit Agreement is hereby amended by inserting "6.16," after the reference to
"6.15," in paragraph (c) of said Section.
2.8. Amendment to Annex A. Annex A to the Credit Agreement is hereby
deleted in its entirety.
SECTION 3. CONSENTS.
3.1 Consent Regarding Delivery of Financial Statements. The Lenders
hereby consent under Section 6.01(a) that the Borrowers shall have until the
business day following the filing of form 10-K of the Parent and its
Consolidated Subsidiaries with the Securities and Exchange Commission but in
event no later than 1/31/00 to deliver the financial statements of the Parent
and its Consolidated Subsidiaries for the fiscal year ending on September 30,
1999.
3.2 Consent to AV Sale. The Lenders hereby consent under Sections 7.05,
7.06 and 7.13 of the Credit Agreement to the AV Sale; provided that (a) such
consent shall automatically terminate and be of no force or effect on October 1,
2000, unless on or prior to such date the Borrowers (or their applicable
Subsidiaries) shall have consummated the AV Sale on terms that generate not less
than $320,000,000 of Net Cash Proceeds and (b) the Net Cash Proceeds of the AV
Sale are applied to the prepayment of the Term Loans and the reduction of the
Revolving Credit Commitments in accordance with Section 2.06(i) of the Credit
Agreement.
SECTION 4. WAIVERS.
4.1 Term Loan Payments. The Term Loan Lenders hereby waive any Event of
Default under Section 8(a) of the Credit Agreement resulting from the Borrowers'
failure to make the Term Loan principal payments due on December 31, 1999 and
March 31, 2000, provided that such waiver shall automatically terminate and be
of no force or effect (and such principal payments shall thereupon become
automatically due and payable) on the earlier of (x) the business day on which
the AV Sale is consummated or (y) October 1, 2000.
4.2 Continuation of Existing Waivers; Section 7.01(c). The Lenders
hereby waive until October 1, 2000, any Default or Event of Default under
Section 8(c) of the Credit Agreement resulting from (a) the Borrowers' failure
to maintain (i) the Consolidated Leverage Ratio required by Section 7.01(a) of
the Credit Agreement, (ii) 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 periods of four fiscal quarters
ending June
<PAGE>
6
30, 1999, September 30, 1999, December 31, 1999, March 31, 2000, June 30, 2000
and September 30, 2000, or (iii) the Consolidated Unadjusted EBITDA required by
Section 7.01(c) of the Credit Agreement for the period of four fiscal quarters
ending September 30, 1999 and (b) the violation of Section 7.01(d) of the Credit
Agreement for the period ending 9/30/99 as a result of making Capital
Expenditures during such period in an amount exceeding, by up to $3,500,000, the
amount of Capital Expenditures permitted by such Section 7.01(d) for such
period.
SECTION 5. MISCELLANEOUS.
5.1. Representations and Warranties; No Default. After giving effect to
this Fourth 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 Fourth Amendment.
5.2 Conditions to Effectiveness of this Fourth Amendment. This Fourth
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, each Term Loan Lender 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
ratable benefit of the Lenders, a fee equal to .125% of the aggregate Revolving
Credit Commitments and outstanding Term Loans of all of the Lenders; 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 Fourth
Amendment, the Credit Agreement is and shall continue to be in full force and
effect in accordance with its terms, and this Fourth 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 GOVERNING LAW. THIS FOURTH AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
5.5 Counterparts. This Fourth 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 Fourth Amendment may be
delivered by facsimile transmission of the relevant signature pages hereof.
<PAGE>
7
[remainder of page intentionally left blank]
<PAGE>
8
IN WITNESS WHEREOF, the parties hereto have caused this Fourth
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: Exec. VP and Chief Financial Officer
CARIBINER, INC.
By:/s/ Robert F. Burlinson
-------------------------------
Name: Robert F. Burlinson
Title: Exec. VP and Chief Financial Officer
<PAGE>
9
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/ Carol Seeley
---------------------------------
Name: Carol Seeley
Title: Vice President
BANKBOSTON, N.A.
By:/s/ Peter Haley
---------------------------------
Name: Peter Haley
Title: Vice President
BANKERS TRUST COMPANY
By:/s/ Gregory Shefrin
---------------------------------
Name: Gregory Shefrin
Title: Principal
BANK OF AMERICA, N.A.
<PAGE>
10
By:/s/ Heidi-Anne Sandquist
-------------------------------
Name: Heidi-Anne Sandquist
Title: Vice President
BANK OF HAWAII
By:/s/ Donna R. Parker
-------------------------------
Name: Donna R. Parker
Title: Vice President
THE BANK OF NEW YORK
By:/s/ John R. Ciulla
-------------------------------
Name: John R. Ciulla
Title: Vice President
THE BANK OF NOVA SCOTIA
By:/s/ Brian S. Allen
-------------------------------
Name: Brian S. Allen
Title: Managing Director
BANK POLSKA KASA OPIEKI S.A.
PEKAO S.A. GROUP, NEW YORK BRANCH
By:/s/ Barry W. Henry
-------------------------------
Name: Barry W. Henry
Title: Vice President- Senior Lending Officer
<PAGE>
11
CREDIT AGRICOLE INDOSUEZ
By:/s/ Sarah McClintock
---------------------------------
Name: Sarah McClintock
Title: Vice President
By:/s/ Michael Haggerty
---------------------------------
Name: Michael Haggerty
Title: Vice President
FLEET BANK, N.A.
By:/s/ Fred N. Manning
---------------------------------
Name: Fred N. Manning
Title: Banking Officer
FIRST UNION NATIONAL BANK
By:/s/ Thomas C. Laver
---------------------------------
Name: Thomas C. Laver
Title: Vice President
FIR TREE INSTITUTIONAL VALUE FUND
By:/s/ Jeff Tannenbaum
---------------------------------
Name: Jeff Tannenbaum
Title:
FIR TREE VALUE PARTNERS, LLC
By:/s/ Jeff Tannenbaum
---------------------------------
Name: Jeff Tannenbaum
Title:
FIR TREE VALUE FUND
<PAGE>
12
By:/s/ Jeff Tannenbaum
-------------------------------
Name: Jeff Tannenbaum
Title:
PNC BANK, NATIONAL ASSOCIATION
By:/s/ Joseph Dempsey, Jr.
-------------------------------
Name: Joseph Dempsey, Jr.
Title: Executive Vice President
THE CHASE MANHATTAN BANK
By: CHASE SECURITIES, INC., as Agent
By:/s/ Howard J. Golden
-------------------------------
Name: Howard J. Golden
Title: Authorized Signatory
MORGENS WATERFALL HOLDING L.L.C.
By:/s/ Joann McNiff
-------------------------------
Name: Joann McNiff
Title: Authorized Agent
VAN KAMPEN PRIME RATE INCOME TRUST
By: Van Kampen Investment Advisory Corp.
By:/s/ Darvin D. Price
-------------------------------
Name: Darvin D. Price
Title: Vice President
<PAGE>
13
VAN KAMPEN SENIOR INCOME TRUST
By: Van Kampen Investment Advisory Corp.
By:/s/ Darvin D. Price
-------------------------------
Name: Darvin D. Price
Title: Vice Prsident
<PAGE>
14
Each of the undersigned hereby consents to the foregoing Fourth
Amendment 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 Fourth Amendment.
CARIBINER INTELLECTUAL PROPERTY
MANAGEMENT, INC.
By:/s/ Robert F. Burlinson
----------------------------
Name: Robert F. Burlinson
Title: Executive VP and
Treasurer
CARIBINER AUDIO VISUAL SERVICES, INC.
By:/s/ Robert F. Burlinson
----------------------------
Name: Robert F. Burlinson
Title: Executive VP and
Tresurer
HRI, V.I., INC.
By:/s/ Robert F. Burlinson
----------------------------
Name: Robert F. Burlinson
Title: Executive VP and
Treasurer
VISUAL ACTION HOLDINGS, INC.
By:/s/ Robert F. Burlinson
----------------------------
Name: Robert F. Burlinson
Title: Executive VP and
Treasurer
CARIBINER SERVICES LIMITED
By:/s/ John M. Jureller
----------------------------
Name: John M. Jureller
Title: Director
CARIBINER EUROPE LIMITED
By:/s/ Brian Shepherd
----------------------------
Name: Brian Shepherd
<PAGE>
15
Title: Director
VISUAL ACTION HOLDINGS LIMITED
By:/s/ John M. Jureller
----------------------------
Name: John M. Jureller
Title: Director
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
Jurisdiction of Trade Name(s)
Name Incorporation (if any)
---- ------------- --------
Caribiner, Inc. New York Caribiner International
Caribiner Communications
Right Source
Caribiner Intellectual
Property Management, Inc. Delaware
Caribiner Audio Visual
Services, Inc. Delaware Hospitality Resources
Presentation Services
Executive Express
Audio Visual Headquarters
Caribiner Services Limited England and Wales
Caribiner Europe Limited England and Wales
Caribiner Holdings UK
No. 2 Limited England and Wales
Caribiner Holdings UK
Limited England Wales Caribiner International
Spectrum
MWA
WCT Live Communication
Visual Action Holdings
Limited England and Wales
Visual Action Holdings Inc. Delaware
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-8 Nos. 333-37923 and 333-11264) pertaining to the 1996 Stock Option Plan
and the Registration Statement (Form S-8 No. 333-90757) pertaining to the
Sinclair Option Agreements of Caribiner International, Inc. of our report dated
December 28, 1999, with respect to the consolidated financial statements of
Caribiner International, Inc. included in the Annual Report (Form 10-K) for the
year ended September 30, 1999.
/s/ Ernst & Young LLP
Ernst & Young LLP
New York, NY
December 28, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the audited
consolidated balance sheet as of September 30, 1999 and the audited consolidated
statement of income for the year ended September 30, 1999 of Caribiner
Internactional, Inc. As set forth in this form 10-K and is qualified in its
entirety by reference to such financials statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> SEP-30-1999
<CASH> 1,675
<SECURITIES> 0
<RECEIVABLES> 100,446
<ALLOWANCES> 4,693
<INVENTORY> 0
<CURRENT-ASSETS> 130,595
<PP&E> 153,997
<DEPRECIATION> 53,559
<TOTAL-ASSETS> 659,469
<CURRENT-LIABILITIES> 96,138
<BONDS> 0
0
0
<COMMON> 236
<OTHER-SE> 122,480
<TOTAL-LIABILITY-AND-EQUITY> 659,469
<SALES> 726,004
<TOTAL-REVENUES> 726,004
<CGS> 545,234
<TOTAL-COSTS> 203,763
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 34,950
<INCOME-PRETAX> (57,943)
<INCOME-TAX> (5,650)
<INCOME-CONTINUING> (52,293)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (52,293)
<EPS-BASIC> (2.21)
<EPS-DILUTED> (2.21)
</TABLE>
