-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, S3MlEUZrCFw+D9LSeYqYtkfjgO5wRjRBtVRr9ad+xswr5pTqT/yhILQzA3TFi9JT ywF2KcpUYlWJjwgL8/o1Cg== 0000930413-01-501501.txt : 20020410 0000930413-01-501501.hdr.sgml : 20020410 ACCESSION NUMBER: 0000930413-01-501501 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AUDIO VISUAL SERVICES CORP CENTRAL INDEX KEY: 0001005015 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-BUSINESS SERVICES, NEC [7389] IRS NUMBER: 133466655 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-14234 FILM NUMBER: 1785850 BUSINESS ADDRESS: STREET 1: 111 WEST OCEAN BLVD STREET 2: SUITE 1110 CITY: LONG BEACH STATE: CA ZIP: 90802 BUSINESS PHONE: 5623660620 MAIL ADDRESS: STREET 1: 111 WEST OCEAN BLVD STREET 2: SUITE 1110 CITY: LONG BEACH STATE: CA ZIP: 90802 10-Q 1 c22246_10q-.txt QUARTERLY REPORT SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2001 COMMISSION FILE NUMBER: 1-14234 AUDIO VISUAL SERVICES CORPORATION ---------------------------------------- (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 13-3466655 -------------------------------------------------------- (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 111 WEST OCEAN BOULEVARD, SUITE 1110, LONG BEACH, CA 90802 --------------------------------------------------- (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (562) 366-0620 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] The registrant had 25,057,346 shares of Common Stock (par value $0.01 per share) outstanding as of November 9, 2001. 2 INDEX PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) Consolidated Balance Sheets as of September 30, 2001 and September 30, 2000............................3 Consolidated Statements of Operations for the twelve months ended September 30, 2001 and 2000..................4 Consolidated Statements of Operations for the three months ended September 30, 2001 and 2000...................5 Consolidated Statements of Cash Flows for the twelve months ended September 30, 2001 and 2000..................6 Consolidated Statement of Changes in Stockholders' Equity for the twelve months ended September 30, 2001 and 2000.............................................................7 Notes to Consolidated Financial Statements...........................8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.......................14 Item 3. Quantitative and Qualitative Disclosures About Market Risk ......................................19 PART II. OTHER INFORMATION Item 1. Legal Proceedings...................................................20 Item 2. Changes in Securities...............................................20 Item 5. Other Information ..................................................20 Item 6. Exhibits and Reports on Form 8-K....................................21 SIGNATURES....................................................................23 3 AUDIO VISUAL SERVICES CORPORATION CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, SEPTEMBER 30, ASSETS 2001 2000 (UNAUDITED) (NOTE 1) --------- --------- (AMOUNTS IN THOUSANDS) Current Assets: Cash and cash equivalents $ 15,147 $ 1,272 Trade accounts receivable - net of allowance for doubtful accounts of $4,692 and $4,310 at September 30, 2001 and 2000, respectively 31,665 47,585 Prepaid expenses and other current assets 3,843 14,782 --------- --------- Total Current Assets 50,655 63,639 Property and equipment - net 67,540 68,103 Goodwill - net 262,933 272,009 Other assets 10,892 10,538 --------- --------- TOTAL ASSETS $ 392,020 $ 414,289 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Current portion of long-term debt $ 378,800 $ -- Trade accounts payable 4,625 13,249 Accrued expenses and other current liabilities 47,307 38,427 Taxes payable 300 830 --------- --------- Total Current Liabilities 431,032 52,506 Long-term debt -- 344,957 Deferred tax liability 7,140 7,350 Other liabilities 1,282 1,922 --------- --------- TOTAL LIABILITIES 439,454 406,735 Stockholders' Equity: Preferred stock, $0.01 par value: 2,000 shares authorized, none issued and outstanding at September 30, 2001and 2000, respectively -- -- Common stock, $0.01 par value: 100,000 voting shares authorized 25,057 and 24,568 shares issued and outstanding at September 30, 2001 and 2000, respectively 251 246 Additional paid-in capital 168,344 168,170 Deferred compensation (217) (250) Accumulated other comprehensive loss (7,444) (7,828) Accumulated deficit (208,368) (152,784) --------- --------- TOTAL STOCKHOLDERS' (DEFICIT) EQUITY (47,434) 7,554 --------- --------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 392,020 $ 414,289 ========= ========= See accompanying notes to the unaudited consolidated financial statements. 4 AUDIO VISUAL SERVICES CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE TWELVE MONTHS ENDED (UNAUDITED) SEPTEMBER 30, 2001 2000 --------- --------- (AMOUNTS IN THOUSANDS) Revenue $ 396,158 $ 420,414 Cost of revenue 343,238 354,375 --------- --------- Gross profit 52,920 66,039 --------- --------- Operating expenses: Selling, general and administrative expenses (note 5) 47,595 59,081 Loss on sale of assets (note 6) -- 3,000 Depreciation and amortization 13,290 12,675 --------- --------- Total operating expenses 60,885 74,756 --------- --------- Operating loss (7,965) (8,717) Interest expense, net 47,344 46,308 --------- --------- Loss from continuing operations before taxes (55,309) (55,025) Provision for taxes 275 340 --------- --------- Loss from continuing operations (55,584) (55,365) Discontinued operations (note 7) Loss from operations (less income taxes of $330) -- (16,458) Loss on disposal of assets (less income taxes of $0) -- (40,313) --------- --------- Loss from discontinued operations -- (56,771) --------- --------- Net loss $ (55,584) $(112,136) ========= ========= Basic and diluted loss per common share: Loss from continuing operations $ (2.23) $ (2.32) Loss from discontinued operations, net of tax -- (2.38) --------- --------- Net loss per common share $ (2.23) $ (4.70) ========= ========= See accompanying notes to the unaudited consolidated financial statements. 5 AUDIO VISUAL SERVICES CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED (UNAUDITED) SEPTEMBER 30, 2001 2000 -------- -------- (AMOUNTS IN THOUSANDS) Revenue $ 68,690 $ 93,386 Cost of revenue 68,634 88,841 -------- -------- Gross profit 56 4,545 -------- -------- Operating expenses: Selling, general and administrative expenses (note 5) 11,704 17,413 Depreciation and amortization 3,561 3,874 -------- -------- Total operating expenses 15,265 21,287 -------- -------- Operating loss (15,209) (16,742) Interest expense, net 10,807 12,622 -------- -------- Loss before taxes (26,016) (29,364) Provision (benefit) for taxes (45) 670 -------- -------- Net loss $(25,971) $(30,034) ======== ======== Basic and diluted net loss per common share $ (1.04) $ (1.24) ======== ======== See accompanying notes to the unaudited consolidated financial statements. 6 AUDIO VISUAL SERVICES CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE TWELVE MONTHS ENDED (UNAUDITED) SEPTEMBER 30, 2001 2000 --------- --------- (AMOUNTS IN THOUSANDS) Cash flows from operating activities: Net loss $ (55,584) $(112,136) Adjustments to reconcile net loss to net cash Provided by operating activities: Depreciation and amortization 39,259 42,660 Fixed asset write-off 180 5,190 Loss on disposition of assets -- 40,313 Change in assets and liabilities: Decrease in trade accounts receivable 15,920 8,276 Increase in deferred charges -- (7,167) Decrease in prepaid expenses and other current assets 8,361 4,112 Decrease in taxes receivable -- 4,981 (Increase) decrease in other assets (354) 2,757 Increase (decrease) in trade accounts payable (8,624) 3,910 Increase in deferred income -- 12,733 Increase (decrease) in accrued expenses and other liabilities 11,421 (1,109) Decrease in taxes payable (741) -- --------- --------- Net cash provided by operating activities 9,838 6,738 --------- --------- Cash flows used in investing activities: Purchase of property and equipment (28,665) (36,815) Proceeds from disposed business, net of transaction costs -- 111,694 Acquisition of intangibles and businesses, net of cash acquired -- (283) --------- --------- Net cash (used in) provided by investing activities (28,665) 74,596 --------- --------- Cash flows provided by financing activities: Repayments of long-term debt (8,000) (177,311) Proceeds from long-term debt 41,843 96,625 Payment of debt issuance fees (1,122) (991) --------- --------- Net cash provided by (used in) financing activities 32,721 (81,677) --------- --------- Translation effect on cash and cash equivalents (19) (60) --------- --------- Net increase (decrease) in cash 13,875 (403) Cash, beginning of period 1,272 1,675 --------- --------- Cash, end of period $ 15,147 $ 1,272 ========= ========= Supplemental disclosure of cash flow information: Interest paid $ 30,510 $ 46,700 ========= ========= Income taxes paid $ 520 $ 300 ========= ========= See accompanying notes to the unaudited consolidated financial statements. 7 AUDIO VISUAL SERVICES CORPORATION CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE TWELVE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000 (UNAUDITED) (AMOUNTS IN THOUSANDS)
COMMON STOCK --------------------- ACCUMULATED OTHER TOTAL ADDITIONAL COMPRE- STOCK- PAID-IN RETAINED HENSIVE DEFERRED HOLDERS SHARES AMOUNT CAPITAL EARNINGS INCOME COMPENSATION EQUITY --------- --------- --------- --------- --------- ------------ --------- For the twelve months ended September 30, 2001: Balance at September 30, 2000 24,568 $ 246 $ 168,170 $(152,784) $ (7,828) $ (250) $ 7,554 Net loss -- -- -- (55,584) -- -- (55,584) Foreign currency translation adjustment -- -- -- -- 384 -- 384 --------- --------- --------- --------- --------- --------- --------- Comprehensive loss -- -- -- -- -- -- (55,200) Restricted Stock Earned -- -- -- -- -- 212 212 Issuance of restricted common stock 489 5 174 -- -- (179) -- --------- --------- --------- --------- --------- --------- --------- Balance at September 30, 2001 25,057 $ 251 $ 168,344 $(208,368) $ (7,444) $ (217) $ (47,434) ========= ========= ========= ========= ========= ========= ========= For the twelve months ended September 30, 2000: Balance at September 30, 1999 23,697 $ 236 $ 167,677 $ (40,648) $ (4,785) -- $ 122,480 Net loss -- -- -- (112,136) -- -- (112,136) Foreign currency translation adjustment -- -- -- -- (3,043) -- (3,043) --------- --------- --------- Comprehensive loss -- -- -- -- -- -- (115,179) Issuance of restricted common stock 666 7 243 -- -- (250) -- Issuance of common stock 205 3 250 -- -- -- 253 --------- --------- --------- --------- --------- --------- --------- Balance at September 30, 2000 24,568 $ 246 $ 168,170 $(152,784) $ (7,828) $ (250) $ 7,554 ========= ========= ========= ========= ========= ========= =========
See accompanying notes to the unaudited consolidated financial statements. 8 AUDIO VISUAL SERVICES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. INTERIM FINANCIAL INFORMATION The accompanying consolidated financial statements of Audio Visual Services Corporation (the "Company") have been prepared in accordance with generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, the consolidated financial statements contain all adjustments, consisting of normal recurring adjustments, considered necessary to present fairly the consolidated financial position, results of operations and cash flows of the Company. The results of operations for the three and twelve months ended September 30, 2001 are not necessarily indicative of the results of operations that may be expected for any other interim periods or for the year ending December 31, 2001. The balance sheet at September 30, 2000 has been derived from the Company's audited financial statements at that date, but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. During the three months ended December 31, 2000, the Company changed its fiscal year end from September 30th to December 31st. The Company filed its Transition Report on Form 10-Q for the transition period October 1, 2000 through December 31, 2000 on February 14, 2001. The Company will include audited financial statements covering the transition report period within the Company's Annual Report filed on Form 10-K for the period ending December 31, 2001. 2. FINANCIAL CONDITION As of November 7, 2001, the Company had total debt outstanding of $378.8 million, of which $362.8 million was outstanding under its previously existing credit facility (the "Credit Agreement") and $16.0 million was outstanding under its $16.0 million senior revolving credit facility (the "New Credit Agreement" and together with the Credit Agreement, the "Credit Agreements"). Currently, all principal and accrued interest amounts outstanding under the Credit Agreement and the New Credit Agreement are due on December 14, 2001 and March 31, 2002, respectively (the "Maturity Dates"). Accordingly, all outstanding debt associated with the Credit Agreements has been classified as short-term in the accompanying balance sheets at September 30, 2001. In September, 2001, the Company announced that its lenders extended the term of the Credit Agreement from October 1, 2001, to December 14, 2001. In addition to the extension of the term of the Credit Agreement, the lenders agreed to defer interest payments under the Credit Agreement until December 14, 2001. Certain financial covenant requirements contained in the Credit Agreements, including the requirement to achieve minimum levels of EBITDA (earnings before interest, taxes, depreciation and amortization) for the twelve months ended September 30, 2001, were also waived. The Company recognizes that it will be necessary to refinance or restructure its indebtedness on or before the Maturity Dates. While the Company has not finalized a definitive plan with its lenders to refinance or restructure its outstanding indebtedness, the Company continues to analyze and assess various alternatives in consultation with its financial advisor, The Blackstone Group, L.P. including, among other things, converting a portion of the Company's existing outstanding debt into equity. Since a definitive refinance or restructure plan has not been finalized, the Company cannot predict the likelihood of successfully executing a refinance or restructure plan and the costs associated therewith. Further, there can be no assurance that the Company will be able to refinance or restructure its outstanding indebtedness or that it will be able to take such other action to reduce its indebtedness prior to December 14, 2001. In the event that the Company is unable to refinance or restructure the indebtedness under the Credit Agreements by such date, the lenders would be entitled to exercise all or any of their rights and remedies provided under the Credit Agreements and/or the Company may deem it advisable to exercise its rights and remedies under applicable law, including without limitation, seeking protection under bankruptcy law. Any such exercise of rights and remedies thereunder would likely have a material adverse effect on the Company, raising substantial doubt as to whether the Company would continue as a going concern. No adjustments have been made to the carrying value of assets and liabilities in the accompanying financial statements to reflect this uncertainty. On January 29, 2001, the Company entered into the New Credit Agreement with The Chase Manhattan Bank and Chase Securities, Inc. providing the Company with an additional revolving credit facility to be utilized for the purchase of new audiovisual equipment and other working capital needs of the Company. The New Credit 9 Agreement is secured, on a first priority basis, by the same collateral that secures the Credit Agreement; therefore, in connection with entering into the New Credit Agreement, the Company was required to obtain a further amendment to its Credit Agreement (the "January 2001 Amendment") which permitted the subordination of the collateral in favor of the lenders under the New Credit Agreement. Approximately $1.1 million in debt issuance fees were incurred in connection with the New Credit Agreement. Such fees will be amortized over the term of the New Credit Agreement. Similar to the Credit Agreement, interest on outstanding amounts under the New Credit Agreement is payable monthly 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 New Credit Agreement has substantially the same financial covenants as those required under the Credit Agreement. In May and August, 2001, the Company notified the lenders under the Credit Agreements that it was not in compliance with certain financial covenants set forth in the March 2000 Amendment and the New Credit Agreement; specifically, the financial covenant relating to the minimum required Consolidated Unadjusted EBITDA, as defined in the Credit Agreements, for the four consecutive quarters ended March 31 and June 30, 2001. In both instances, the Company obtained a waiver from its lenders waiving all defaults arising from its failure to achieve the minimum required Unadjusted Consolidated EBITDA for the four consecutive quarters ended March 31 and June 30, 2001. No amendments to the Credit Agreements were made in connection with the waiver. Further, the Company was required to engage a financial advisor in connection with refinancing or restructuring its indebtedness no later than September 1, 2001, pursuant to the terms of the Credit Agreement. The Company obtained a waiver from its lenders extending the date by which the Company was required to engage a financial advisor to October 1, 2001. Notwithstanding the aforementioned waiver, in July, 2001, the Company determined that it was in its best interest to engage a financial advisor to assist it in identifying specific alternatives with respect to refinancing and/or restructuring the Company's indebtedness. As referenced above, the Company engaged The Blackstone Group L.P. as its financial advisor in August 2001. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Certain reclassifications have been made to the Company's statement of operations for the twelve months ended September 30, 2001 and for the three and twelve months ended September 30, 2000 to conform to the presentation of the results of operations for the three months ended September 30, 2001. REVENUE RECOGNITION Revenue is recognized over the period in which audio visual equipment is rented to customers. Revenue for staging services is recognized as the services are provided. COST OF REVENUE Cost of revenue is comprised principally of direct labor costs, commissions, depreciation of equipment rented to clients and customers in the conduct of business, and equipment rentals. GOODWILL Goodwill represents the excess of 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 $36.8 million and $27.7 million as of September 30, 2001and September 30, 2000, respectively. Other long-lived assets represent property and equipment. Goodwill is allocated to the operating segments. The carrying value of goodwill for each operating segment is reviewed if the facts and circumstances, such as significant declines in sales, earnings or cash flows or material adverse changes in the business climate, suggest that it may be impaired. Similarly, the carrying value of other long-lived assets, including any associated goodwill, is reviewed for impairment when events or circumstances indicate that the carrying value of these assets may not be recoverable. If this review indicates that the carrying 10 values will not be recoverable, as determined based on the estimated undiscounted cash flows of the related businesses or assets, impairment is measured by comparing the carrying value to fair value. Fair value is determined based on quoted market values, discounted cash flows or appraisals. Impairment for long-lived assets to be disposed is identified and measured based upon its estimated recovery using quoted market values or appraisals. The Company periodically reviews its goodwill and other long-lived assets to determine potential impairment, if any. In performing such review, the Company uses its most recent available earnings projections and estimated future cash flows expected to result from the use of the assets. The Company uses its projected earnings before interest, depreciation and amortization ("EBITDA") as a measurement of its future cash flows projections. In performing the review using estimated future cash flows (undiscounted and without interest charges), the Company will recognize an impairment loss if the sum of the expected future cash flows is less than the carrying amount of the goodwill and other long-lived assets. In June, 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 141, Business Combinations, and No. 142, Goodwill and Other Intangible Assets, effective for fiscal years beginning after December 15, 2001. Under the new rules, goodwill will no longer be amortized but will be subject to annual impairment tests in accordance with the Statements. The Company will apply the new rules on accounting for goodwill and other intangible assets beginning in the first quarter of 2002. Application of the nonamortization provisions of the Statement is expected to result in an increase in net income of $9.1 million per year. During 2002, the Company will perform the first of the required impairment tests of goodwill as of January 1, 2002 and has not yet determined what the effect of these tests will be on the earnings and financial position of the Company. 4. DISCONTINUED OPERATIONS On April 20, 2000, the Company sold substantially all of the assets of its worldwide Communications Group (the "Communications Group"). On May 9, 2000, the Company sold its U.K.-based Melville Exhibition Services subsidiary ("MES"). The Company recorded an aggregate loss on disposal of these operations of $40.3 million at March 31, 2000. Operating results of the Communications Group and MES have been segregated and reported as discontinued operations in the Consolidated Statement of Operations for the three and twelve months ended September 30, 2000. Cash flow impacts of the discontinued operations have not been segregated in the Consolidated Statement of Cash Flows. Components of the income (loss) from discontinued operations reflected in the Consolidated Statements of Operations are presented in the following table. TWELVE MONTHS ENDED SEPTEMBER 30, 2000 Revenue $ 138,946 Cost of Revenue 94,943 Selling, general and administrative expenses 53,378 Depreciation and Amortization 6,671 Operating loss (16,046) Interest expense, net 82 Loss from operations before tax (16,128) --------- Tax provision (330) --------- Loss from discontinued operations (16,458) ========= 11 5. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES During the twelve months ended September 30, 2001, the Company recorded non cash charges aggregating $3.1 million primarily relating to the write-off of old accounts receivables and certain assets related to the Company's former Atlanta-based audio visual services operation. Such charges were made in prior quarters and have been included in the Company's selling, general and administrative expenses in the accompanying statement of operations for the twelve months ended September 30, 2001. During the twelve months ended September 30, 2000, the Company recorded aggregate charges of $10.5 million related to its corporate office and certain divisional reorganization plans. Such charges included, among other things, $3.9 million primarily related to severance payments, which were made in the third fiscal quarter of 2000. In addition, the Company announced that in late June, 2000 it had reached an agreement in principle to settle the class action previously filed against the Company, certain of its former officers and one of its former directors. Under the agreement, all claims against the Company and individuals named as defendants in the action will be dismissed without presumption or admission of any liability or wrongdoing. The principal terms of the agreement call for the payment to the plaintiff class of the sum of $15.0 million. The settlement amount was paid in its entirety by the Company's insurance carrier. In October, 2001, a final settlement hearing was held and the court thereafter approved the settlement and attorneys fees and costs. The final order issued by the court becomes effective on November 26, 2001. During the three months ended September 30, 2000, the Company recorded charges aggregating $6.6 million for the cost of the related insurance coverage. The remaining liability at September 30, 2000 and 2001 is $5.1 million and $2.8 million, respectively. 6. LOSS ON DISPOSAL OF ASSETS During the twelve months ended September 30, 2000, the Company wrote off $3.0 million of assets relating to audio visual sales and installation businesses sold in August, 1999. 7. SEGMENT INFORMATION Set forth below is selected financial information about the Company's continuing operating segments. DESCRIPTION OF SEGMENTS Prior to January 1, 2001, the Company's operations were divided into three reportable segments: Presentation Services, Audio Visual Headquarters ("AVHQ") and Rental Services. On January 1, 2001, the Company merged its Rental Services business segment into the AVHQ business unit and began managing and reporting its operations through two reportable segments: Presentation Services and AVHQ. The segment information for all prior periods has been restated to conform to the current period's presentation. Presentation Services provides audiovisual equipment rental services to hotels via an on-site presence of both equipment and technical support staff. AVHQ 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. In addition, AVHQ is a remote full service provider on an as-needed basis to local and national corporations, convention centers and smaller hotels. 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"). Interdivision sales are recorded at the Company's costs; there is no intercompany profit or loss on interdivision sales. 12 THREE MONTHS ENDED SEPTEMBER 30, 2001 (AMOUNTS IN THOUSANDS) PRESENTATION SERVICES AVHQ TOTAL -------- -------- -------- Revenue $ 52,442 $ 17,706 $ 70,148 Gross profit 1,307 (1,251) 56 EBITDA (1,425) (110) (1,535) Three Months Ended September 30, 2000 (Amounts in Thousands) PRESENTATION SERVICES AVHQ OTHER TOTAL -------- -------- -------- -------- Revenue $ 70,083 $ 24,494 $ -- $ 94,577 Gross profit 3,851 1,539 (845) 4,545 EBITDA 2,538 336 -- 2,874 Reconciliations to Consolidated Statement of Operations (Amounts in Thousands) THREE MONTHS ENDED SEPTEMBER 30, 2001 2000 -------- -------- Total external revenue for reportable segments $ 68,690 $ 93,386 Interdivision revenue for reportable segments 1,458 1,191 Elimination of intradivision revenue (1,458) (1,191) -------- -------- Total consolidated revenue $ 68,690 $ 93,386 ======== ======== Total "EBITDA" for reportable segments $ (1,535) $ 2,874 Corporate expenses and reorganization costs 3,397 7,605 Fixed asset write-offs -- 2,215 -------- -------- Total consolidated operating loss before depreciation and amortization expense and interest expense, net (4,932) (6,946) Depreciation and amortization expenses, including depreciation in cost of revenue 10,277 9,796 -------- -------- Total consolidated operating loss from continuing operations $(15,209) $(16,742) ======== ======== Twelve Months Ended September 30, 2001 (Amounts in Thousands) PRESENTATION SERVICES AVHQ TOTAL -------- -------- -------- Revenue $302,635 $101,402 $404,037 Gross profit 43,107 9,813 52,920 EBITDA 31,987 13,034 45,021 Twelve Months Ended September 30, 2000 (Amounts in Thousands) 13 PRESENTATION SERVICES AVHQ OTHER TOTAL -------- -------- -------- -------- Revenue $314,231 $112,555 $ -- $426,786 Gross profit 56,517 12,584 (3,062) 66,039 EBITDA 43,542 11,415 -- 54,957 Reconciliations to Consolidated Statement of Operations (Amounts in Thousands) TWELVE MONTHS ENDED SEPTEMBER 30, 2001 2000 --------- --------- Total external revenue for reportable segments $ 396,158 $ 420,414 Interdivision revenue for reportable segments 7,879 6,372 Elimination of intradivision revenue (7,879) (6,372) --------- --------- Total consolidated revenue $ 396,158 $ 420,414 ========= ========= Total "EBITDA" for reportable segments $ 45,021 $ 54,957 Corporate expenses and reorganization costs 10,621 20,498 Write off of certain idle assets 3,108 -- Fixed asset write-off -- 4,715 Loss on sale of assets -- 3,000 --------- --------- Total consolidated operating income before depreciation and amortization expense and interest expense, net 31,292 26,744 Depreciation and amortization expenses, including depreciation in cost of revenue 39,257 35,461 --------- --------- Total consolidated operating loss from continuing operations $ (7,965) $ (8,717) ========= ========= 8. EARNINGS PER COMMON SHARE The weighted average number of shares used in the calculation of basic and diluted earnings per common share was 24,904 and 23,857 for the twelve months ended September 30, 2001 and 2000, respectively, and 25,057 and 24,173 for the three months ended September 30, 2001 and 2000, respectively. 14 AUDIO VISUAL SERVICES CORPORATION Management's Discussion and Analysis of Financial Condition and Results of Operations RESULTS OF OPERATIONS Effective April 20, 2000 and May 9, 2000, the Company disposed of substantially all of the assets of its worldwide Communications Group and its U.K.-based Melville Exhibition Services subsidiary, respectively. The operating results of each of the disposed businesses have been segregated and reported as discontinued operations in the consolidated statements of operations for the twelve months ended September 30, 2000. The results of operations below are for the continuing operations of the Company's audiovisual services businesses only (which are comprised of the Presentation Services and Audio Visual Headquarters division) and do not include the results of operations of the disposed businesses. Twelve Months Ended September 30, 2001 Compared to Twelve Months Ended September 30, 2000 Revenue. The Company's total revenue was $396.2 million and $420.4 million for the twelve months ended September 30, 2001 and 2000, respectively, excluding interdivision revenue of $7.9 million and $6.4 million in each year. The total decrease in revenue from the prior year was $24.2 million, of which approximately half of the decline occurred during the month of September as a result of the events of September 11th. The Company's Presentation Services division recognized $302.6 million of revenue during the twelve months ended September 30, 2001 compared with revenue of $314.2 million during the twelve months ended September 30, 2000, a decrease of $11.6 million, or 3.7%. The decrease is primarily attributable to lower revenues being generated from existing properties ("same-store") in the twelve months ended September 30, 2001 as compared with the same period in 2000. The decrease in same-store revenues resulted from the slowing economy, compounded by the events of September 11, which caused the level of business meetings to significantly decline, directly impacting the need for audiovisual equipment rental services. The decrease in revenues from same-store properties was partially offset by the benefit of revenues derived from new hotel properties. Revenue of the Company's Audio Visual Headquarters division also decreased by approximately $11.3 million, or 9.9%, to $101.4 million for the twelve months ended September 30, 2001 from $112.6 million for the twelve months ended September 30, 2000 primarily as a result of the impact of the economic downturn, the events of September 11th and the discontinuance of unprofitable business from the prior year. Gross profit. Consolidated gross profit was $52.9 million for the twelve months ended September 30, 2001, a decrease of $13.1 million from $66.0 million reported for the twelve months ended September 30, 2000. The gross profit of the Presentation Services division decreased by approximately $13.4 million during the twelve months ended September 30, 2001 due to the loss of revenues caused by the current economic conditions as well as higher commission rates paid to hotel properties and salary costs. Gross profit of the Audio Visual Headquarters division for the twelve months ended September 30, 2001 was $9.8 million compared with $12.6 million in the prior year, primarily due to the revenue shortfall described above. The consolidated gross profit on revenue was also impacted by $26.0 million and $22.8 for the twelve months ended September 30, 2001 and 2000, respectively, of depreciation expense related to rental equipment used in the audio visual services businesses. Such depreciation expense is included in cost of revenue. In addition, $4.7 million related to fixed asset write-offs was included in cost of revenue during the twelve months ended September 30, 2000. To date, the Company has continued to monitor and reduce its overall cost structure; however, the benefit of such efforts is not evident in the results of operations for the twelve months ended September 30, 2001 due to the revenue shortfall. Selling, general and administrative expenses. Total selling, general and administrative expenses decreased $11.5 million, or 19.5%, to $47.6 million in the twelve months ended September 30, 2001 from $59.1 million in the twelve months ended September 30, 2000. The selling, general and administrative expenses of the Presentation Services and AVHQ business segments decreased by approximately $0.6 million and $4.4 million, respectively, from the prior year's comparable period. The selling, general and administrative expenses for the twelve months ended September 30, 2000 include $5.4 million write-offs of old accounts receivables and certain nonrecurring costs of the Company's former Atlanta-based audio visual operations, as well as a total of $10.5 million of other nonrecurring charges, including corporate office reorganization charges of $3.9 million, as well as $6.6 million related to insurance coverage for the Company's recently-settled securities class action lawsuit. During the twelve months ended September 30, 2001, the Company recorded non cash charges aggregating $3.1 million primarily 15 relating to the write-off of certain assets related to the Company's former Atlanta-based audio visual services operations. Depreciation and amortization. Depreciation and amortization expense for the twelve months ended September 30, 2001 was $13.3 million, an increase of $0.6 million from $12.7 million in the corresponding period in the prior year, primarily due to increased depreciation from additional computer software and hardware purchases. Interest expense, net. Interest expense, net increased by $1.0 million due to higher average outstanding indebtedness. Provision for taxes. The income tax provision for the twelve months ended September 30, 2001 and 2000 relates to the Company's foreign operations. Net loss. The Company realized a net loss from continuing operations of $55.6 million in the twelve months ended September 30, 2001 compared to a net loss from continuing operations of $55.4 million in the twelve months ended September 30, 2000. The loss per common share from continuing operations for the twelve months ended September 30, 2001 was $2.23 as compared with a loss per common share from continuing operations of $2.32 for the comparable period in the prior year. The loss per common share from discontinued operations was $ 2.38 for the twelve months ended September 30, 2000. Three Months Ended September 30, 2001 Compared to Three Months Ended September 30, 2000 Revenue. The Company's total revenue decreased $24.7 million from $93.4 million in the three months ended September 30, 2000 to $68.7 million in the three months ended September 30, 2001, after excluding interdivision revenues. The Company's Presentation Services division recognized total revenue of $52.4 million during the three months ended September 30, 2001 compared with revenue of $70.1 million during the three months ended September 30, 2000, a decrease of $17.6 million, or 25.2%. The decrease in renvenue during the three months ended September 30, 2001 is primarily attributable to the impact of the September 11th disaster as well as the continuing effects of the economic slowdown. Revenue of the Company's Audio Visual Headquarters division decreased by approximately $6.8 million, or 27.8%, to $17.7 million for the three months ended September 30, 2001 from $24.5 million for the three months ended September 30, 2000 primarily as a result of the general economic dowturn and the immediate cancellation of several significant events following the events of September 11th. Gross profit. Consolidated gross profit was $56 thousand for the three months ended September 30, 2001 as compared with $4.5 million for the three months ended September 30, 2000. Gross profit of the Audio Visual Headquarters division decreased by approximately $2.8 million during the three months ended September 30, 2001 as a result of lower revenues and slightly higher costs of revenue, primarily depreciation and other miscellaneous expenses. The gross profit of the Presentation Services division decreased by approximately $2.5 million during the three months ended September 30, 2001 in comparison to 2000 due to the revenue shortfall. The gross profit on revenue for the three months ended September 30, 2001 and 2000 was also impacted by approximately $6.7 million and $5.9 million, respectively, of depreciation expense related to rental equipment used in the audio visual services businesses. Such depreciation expense is included in cost of revenue. Selling, general and administrative expenses. Total selling, general and administrative expenses were $11.7 million and $17.4 million in the three months ended September 30, 2001 and 2000, respectively. The selling, general and administrative costs of the Presentation Services and Audio Visual Headquarters divisions decreased by $0.8 million and $2.6 million, respectively. The selling, general and administrative expenses for the three months ended September 30, 2000 include the write-off of old accounts receivables and certain nonrecurring costs of $5.4 million relating to the Company's former Atlanta-based audio visual operations totaling $5.4 million, as well as a total of $6.6 million related to insurance coverage for the Company's recently-settled securities class action lawsuit. Depreciation and amortization. Depreciation and amortization expense for the three months ended September 30, 2001 was $3.6 million, an increase of $0.3 million from the corresponding period in the prior year, primarily due to increased depreciation from additional computer software and hardware purchases. 16 Interest expense, net. Interest expense, net decreased by $1.8 million due to lower interest rates in effect during the three months ended September 30, 2001 as compared with 2000. Benefit for taxes. The income tax benefit for the three months ended September 30, 2001 relates to the Company's foreign operations. Net loss. The Company realized a net loss of $26.0 million in the three months ended September 30, 2001 compared to a net loss of $30.0 million in the three months ended September 30, 2000. The loss per common share from operations for the three months ended September 30, 2001 was $1.04 as compared with a loss per common share of $1.24 for the comparable period in the prior year. LIQUIDITY AND CAPITAL RESOURCES The following section provides certain historical information concerning the Company's existing credit facilities: 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 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 Holdings plc in late 1997. 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 September 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 had arisen or might 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 six 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. In December, 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 was based on post-September 30, 1999 consolidated EBITDA (as defined in the Credit Agreement), and to restrictions on the amount of capital expenditures that could be made by the Company during the fiscal year ending September 30, 2000. The minimum required consolidated adjusted EBITDA, as defined, for fiscal 2000 exceeded levels achieved in fiscal 1999. 17 In addition to the waivers and revised financial covenants described above, the December 1999 Amendment provided 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 included a consent by the lenders that would have allowed the Company to pursue the possible sale of its audiovisual businesses, provided that certain timing requirements were met and minimum net proceeds exceeded a specified amount. In March, 2000, the Company entered into a further amendment (the "March 2000 Amendment") to the Credit Agreement, that, among other things, (i) amended the maturity date of the Term Facility to October 1, 2001, (ii) reduced the amounts available to the Company under the Credit Agreement for letters of credit, (iii) eliminated altogether those financial covenants that the July 1999 Amendment and December 1999 Amendments previously had waived through October 1, 2000, (iv) amended the covenant relating to minimum Unadjusted Consolidated EBITDA, as defined in the Credit Agreements, for the three month period ended December 31, 1999, the six month period ended March 31, 2000, the nine month period ending June 30, 2000, the twelve month periods ending September 30 and December 31, 2000, and any period of four consecutive fiscal quarters ending on or after March 31, 2001, (v) amended the covenant relating to restrictions on the amount of permitted capital expenditures (as described in the Credit Agreement) such that the Company may not permit capital expenditures to exceed $25 million in any two consecutive fiscal quarters or $40 million in any four consecutive fiscal quarters commencing with the fiscal quarter beginning January 1, 2000 and (vi) required the Company to provide certain additional reports to the lenders. In addition, pursuant to the terms of the March 2000 Amendment, the lenders withdrew the consent granted to the Company in the December 1999 Amendment to pursue the possible sale of the Company's audiovisual businesses. In addition to the amendments and revised financial covenants described above, the March 2000 Amendment also included a consent by the lenders to allow the Company to proceed with its previously announced sale of its Communications Division (the "Communications Sale") and to pursue the sale of MES (the "MES Sale"), provided that, in each case, certain timing requirements were met, minimum net proceeds exceeded a specific amount and 75% of the net proceeds of each such disposition would be applied to the prepayment of the Term Facility and the reduction of the commitment under the Revolving Facility. The Company consummated the Communications Sale on April 20, 2000, and consummated the MES Sale on May 9, 2000, and in connection therewith (i) repaid an aggregate of $38.0 million under the Term Facility thereby permanently reducing availability and outstanding amounts thereunder from $199.6 million to $161.6 million and (ii) repaid an aggregate of $47.5 million under the Revolving Facility, which resulted in a permanent reduction of the availability thereunder from $250.0 million to $202.5 million. Pursuant to the terms of the March 2000 Amendment, the Company also agreed to retain not later than September 1, 2001, an investment banking firm for the purposes of evaluating strategic and debt reduction alternatives. 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 are being amortized over the remaining term of the Credit Agreement. No fees were paid to the Company's lenders in connection with the March 2000 Amendment; however, pursuant to a deferred amendment fee letter entered into in connection with the March 2000 Amendment, the Company will be required to pay a fee equal to the greater of (A) not less than $2.5 million nor more than $12.5 million or (B) not less than 2.5% nor more than 12.5% of the net equity value (as defined in the deferred amendment fee letter) of the Company upon the occurrence of the earlier of (i) the maturity date of the Revolving Facility, (ii) an event of default (as defined in the Credit Agreement), (iii) a sale of all or substantially all of the Company's assets, (iv) a sale of substantially all of the capital stock of the Company, or (v) the repayment of all amounts outstanding under the Credit Agreement (such events being referred to as a "Triggering Event"). The actual amount of such fee will be determined on the date that a Triggering Event shall occur. Interest on outstanding amounts under the Credit Agreement is payable monthly in arrears and at the option of the Company accrues at either (i) LIBOR plus 3.00% or (ii) an alternate base rate based upon the greatest of (a) the agent bank's prime rate, (b) the six-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. Pursuant to the terms of the March 2000 Amendment, outstanding amounts under each of the Term Facility and Revolving Facility also accrue additional interest at the rate of 1% per annum payable in arrears upon the termination of the Credit Agreement. On January 29, 2001, the Company entered into an agreement with The Chase Manhattan Bank and Chase Securities, Inc. for a $16.0 million senior revolving credit facility (the "New Credit Agreement") to be utilized for 18 investment in audio visual equipment and other working capital needs of the Company. The New Credit Agreement provided the Company with additional liquidity to accelerate and increase its investment in new audio visual rental equipment. The New Credit Agreement is secured, on a first priority basis, by the same collateral that secures the Credit Agreement; therefore, in connection with entering into the New Credit Agreement, the Company was required to obtain a further amendment to the Credit Agreement (the "January 2001 Amendment") which permitted the subordination of the collateral in favor of the lenders under the New Credit Agreement. The maturity date of the New Credit Agreement is March 31, 2002. Approximately $1.1 million in debt issuance fees were incurred inconnection with the New Credit Agreement. Such fees will be amortized over the term of the New Credit Agreement. Similar to the Credit Agreement, interest on outstanding amounts under the New Credit Agreement is payable monthly 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 New Credit Agreement has substantially the same financial covenants as those required under the Credit Agreement. The securitized collateral under the Credit Agreement and the New Credit Agreement consists of substantially all of the assets of the Company and its material subsidiaries, and the Company and its material 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 Agreements contain 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. In May and August, 2001, the Company notified the lenders under the Credit Agreements that it was not in compliance with certain financial covenants set forth in the March 2000 Amendment and the New Credit Agreement; specifically, the financial covenant relating to the minimum required Consolidated Unadjusted EBITDA, as defined in the Credit Agreements, for the four consecutive quarters ended March 31 and June 30, 2001. The Company obtained a waiver from its lenders waiving all defaults arising from its failure to achieve the minimum required Unadjusted Consolidated EBITDA for the four consecutive quarters ended March 31 and June 30, 2001. No amendments to the Credit Agreements were made in connection with the waiver. The Company was also required to engage a financial advisor in connection with refinancing or restructuring its indebtedness no later than September 1, 2001, pursuant to the terms of the Credit Agreement. The Company obtained a waiver from its lenders extending the date by which the Company was required to engage financial advisor until October 1, 2001. Notwithstanding the aforementioned waiver, in July, 2001, the Company determined that it was in its best interest to engage a financial advisor to assist it in identifying specific alternatives with respect to refinancing and/or restructuring the Company's indebtedness. As referenced above, the Company engaged The Blackstone Group L.P. as its financial advisor in August 2001. All principal and accrued interest amounts outstanding under the Credit Agreement and the New Credit Agreement are due on December 14, 2001 and March 31, 2002, respectively (the "Maturity Dates"). Accordingly, all outstanding debt associated with the Credit Agreements has been classified as short-term in the accompanying balance sheets at September 30, 2001. In September, 2001, the Company announced that its lenders extended the term of the Credit Agreement from October 1, 2001, to December 14, 2001. In addition to the extension of the term of the Credit Agreement, the lenders agreed to defer interest payments under the Credit Agreement until December 14, 2001. Certain financial covenant requirements contained in the Credit Agreements, including the requirement to achieve minimum levels of EBITDA (earnings before interest, taxes, depreciation and amortization) for the twelve months ended September 30, 2001, were also waived. The Company recognizes that it will be necessary to refinance or restructure its indebtedness on or before the Maturity Dates. While the Company has not finalized a definitive plan with its lenders to refinance or restructure its outstanding indebtedness, the Company continues to analyze and assess various alternatives in consultation with its financial advisor, The Blackstone Group, L.P. including, among other things, converting a portion of the Company's existing outstanding debt into equity. Since a definitive refinance or restructure plan has not been finalized, the Company cannot predict the likelihood of successfully executing a refinance or restructure plan and the costs associated therewith. Further, there can be no assurance that the Company will be able to refinance or restructure its outstanding indebtedness or that it will be able to take such other action to reduce its indebtedness prior to December 14, 2001. In the event that the Company is unable to refinance or restructure the indebtedness under the Credit Agreements by such date, the lenders would be entitled to exercise all or any of their rights and remedies provided under the Credit Agreements and/or the Company may deem it advisable to exercise its rights and remedies under applicable law, including without limitation, seeking protection under bankruptcy law. 19 Any such exercise of rights and remedies thereunder would likely have a material adverse effect on the Company, raising substantial doubt as to whether the Company would continue as a going concern. No adjustments have been made to the carrying value of assets and liabilities in the accompanying financial statements to reflect this uncertainty. As of November 9, 2001, the Company had a total of $378.8 million outstanding under the Credit Agreement and the New Credit Agreement. A total of $362.8 million was outstanding under the Credit Agreement, of which $201.2 million was outstanding under the Revolving Facility, and $16.0 million was outstanding under the New Credit Agreement. Cash on hand as of such date was $13.4 million. The weighted average interest rate on outstanding indebtedness was 6.7% as of September 30, 2001. As previously disclosed, the Company disposed of its Communications Division and MES subsidiary in April and May, 2000, respectively. The following table sets forth certain cash flow information for the Company's continuing operations for the twelve months ended September 30, 2001 and for the Company's combined continuing and discontinuing operations for the twelve months ended September 30, 2000. TWELVE MONTHS ENDED SEPTEMBER 30, 2001 2000 -------- -------- Net cash provided by (used in): Operating activities $ 9,838 $ 6,738 Investing activities (28,665) 74,596 Financing activities 32,721 (81,677) For the twelve months ended September 30, 2001, $9.8 million was provided by operating activities. The net loss adjusted for depreciation and amortization and fixed asset write-offs required $16.1 million. The net change in working capital provided $25.6 million, with decreases in accounts receivable, prepaid expenses and other assets and increases in accrued expenses and other liabilities, offset by decreases in accounts payable, taxes payable and increases in other assets. Investing activities used $28.7 million as a result of audiovisual rental equipment purchases and additional investments in computer software applications for new accounting systems. Financing activities provided a net $32.7 million primarily from drawing and repayment activities under the Company's credit facilities. In addition, a total of $1.1 million of debt issuance fees was paid during the twelve months ended September 30, 2001. For the twelve months ended September 30, 2000, the Company generated $6.7 million from its operating activities. The net change in working capital provided $30.7 million, with decreases in accounts receivable, prepaid expenses and other assets and taxes receivable. Increases in deferred income, accrued expenses and accounts payable also provided cash flow for the year ended September 30, 2000. Investing activities provided $74.6 million, with $111.7 million generated from the disposition of the Company's communications business in April 2000 and the disposition of its Melville Exhibition Services subsidiary in May 2000. Approximately $36.8 million was used for the purchase of audio visual rental equipment and the continued investment in information technology. Financing activities used a net of $81.7 million in the twelve months ended September 30, 2000. Approximately $96.6 million was drawn under the Company's Credit Facility during the twelve months ended September 30, 2000 and $177.3 million was used to repay outstanding amounts thereunder. Capital expenditures were $28.7 million and $36.8 million during the twelve months ended September 30, 2001 and 2000, respectively. The purchase of audiovisual equipment used in operations comprised the major portion of capital expenditures. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK In the normal course of business, the Company's foreign operations are exposed to fluctuations in currency values. However, management does not consider the impact of currency fluctuations to represent a significant risk, as its foreign operations are a minimal component to its consolidated operations. 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 20 interest paid on a portion of its debt. The Company does not enter into derivative financial instruments in the normal course of business, nor are such instruments used for speculative purposes. PART II OTHER INFORMATION ITEM 1. 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 former officers and one of its former 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. In November, 1999, the court issued an order consolidating the lawsuits into a single action and appointing lead plaintiffs and lead counsel. The plaintiffs filed a consolidated amended complaint in January 2000. In February, 2000, the Company filed a motion to dismiss the consolidated amended complaint. Although the Company believes it has meritorious defenses to this action, in light of the inherent uncertainties and the burden and expense of lengthy litigation, the Company reached an agreement in principal in late June, 2000, to settle the class action, which was announced on July 20, 2000. Under the agreement, all claims against the Company and the individuals named as defendants in the action will be dismissed without presumption or admission of any liability or wrongdoing. The principal terms of the settlement call for the payment to the plaintiff class of the sum of $15.0 million. The settlement amount was paid entirely by the Company's insurance carrier and was paid into an account to be administered by counsel for the plaintiffs. The terms of the settlement are subject to, among other things, court approval and execution of definitive settlement documentation. In July, 2001, definitive settlement documentation was executed between the parties and submitted to the court for approval. The court thereafter signed a preliminary order in connection with settlement proceedings and established a schedule for the court approval process in connection with the approval of the settlement. In October, 2001, the final settlement hearing was held and the court thereafter approved the settlement and attorneys fees and costs. The final order issued by the court becomes effective on November 26, 2001. In the event that the action is not finally settled, the Company believes it has meritorious defenses to this action and intends to defend the lawsuit vigorously. 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 2. CHANGES IN SECURITIES (a) Not applicable. (b) Not Applicable (c) Not Applicable (d) Not applicable. ITEM 5. OTHER INFORMATION None 21 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBITS REQUIRED BY ITEM 601 OF REGULATION S-K: EXHIBIT NUMBER DESCRIPTION OF DOCUMENT 3.1 Restated Certificate of Incorporation of the Company, filed March 15, 1996, with the Secretary of State of the State of Delaware (filed as Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 1996 and incorporated herein by reference). 3.2 Certificate of Amendment to the Restated Certificate of Incorporation of the Company, filed March 30, 1998, with the Secretary of State of the State of Delaware (filed as Exhibit 3.2 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 1998 and, incorporated herein by reference). 3.3 Certificate of Amendment to the Restated Certificate of Incorporation of the Company, filed September 29, 2000, with the Secretary of State of the State of Delaware (filed as Exhibit to the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2000 and incorporated herein by reference). 3.4 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). 10.1 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). 10.2 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). 10.3 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). 10.4 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). 22 10.5 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) (filed as Exhibit 10.17 to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1999 and incorporated herein by reference). 10.6 Fifth Amendment, Consent and Agreement, dated as of March 31, 2000, 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 10.6 to the Company's Quarterly Report on Form 10-Q for the Quarterly Period ended March 31, 2000 and incorporated herein by reference). 10.7 Sixth Amendment, Consent and Agreement, dated as of January 29, 2001, 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 10.7 to the Company's Transition Report on Form 10-Q for the three months ended December 31, 2000.) 10.8 Waiver, dated May 4, 2001, to the Credit Agreement (filed as Exhibit 10.8 to the Company's Quarterly Report on Form 10-Q for the three months ended March 31, 2001.) 10.9 Waiver, dated June 30, 2001, to the Credit Agreement (filed as Exhibit 10.9 to the Company's Quarterly Report on Form 10-Q for the three months ended June 30, 2001.) 10.10 Waiver, dated August 10, 2001, to the Credit Agreement (filed as Exhibit 10.10 to the Company's Quarterly Report on Form 10-Q for the three months ended June30, 2001.) 10.11 Seventh Amendment and Waiver, dated September 10, 2001, to the Credit Agreement. 10.12 Senior Secured Revolving Credit Agreement, dated as of January 29, 2001, among the Company, Audio Visual Services (NY) Corporation, the several lenders named therein, The Chase Manhattan Bank, as Administrative Agent, and Chase Securities, Inc., as Arranger (`Senior 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 10.8 to the Company's Transition Report on Form 10-Q for the three months ended December 31, 2000.) 10.13 Waiver, dated May 4, 2001, to the Senior Credit Agreement (filed as Exhibit 10.10 to the Company's Quarterly Report on Form 10-Q for the three months ended March 31, 2001). 10.14 Waiver, dated August 10, 2001, to the Senior Credit Agreement (filed as Exhibit 10.13 to the Company's Quarterly Report on Form 10-Q for the three months ended June 30, 2001). 10.15 Waiver, dated September 10, 2001, to the Senior Credit Agreement. (b) REPORTS ON FORM 8-K: The Company filed the following report on Form 8-K during the three months ended September 30, 2001: DATE OF FILING ITEMS REPORTED SUBJECT OF REPORT - -------------- -------------- ----------------- September 21, 2001 5, 7 Reporting that the Company's lenders extended the term of its main credit facility to and deferred interest through December 14, 2001. The Company also reported that certain financial covenants contained in the credit facility were waived. 23 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. AUDIO VISUAL SERVICES CORPORATION Registrant Date: November 13, 2001 By: /s/ Digby J. Davies ---------------------------------- Digby J. Davies President and Chief Operating Officer and Acting Chief Financial Officer (Principal Financial and Accounting Officer) 24 EXHIBIT INDEX EXHIBIT NUMBER DESCRIPTION OF DOCUMENT 3.2 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 Certificate of Amendment to the Restated Certificate of Incorporation of the Company, filed September 29, 2000, with the Secretary of State of the State of Delaware (filed as Exhibit to the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2000 and incorporated herein by reference). 3.5 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). 10.1 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). 10.2 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). 10.3 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). 10.4 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). 25 10.5 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) (filed as Exhibit 10.17 to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1999 and incorporated herein by reference). 10.6 Fifth Amendment, Consent and Agreement, dated as of March 31, 2000, 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 10.6 to the Company's Quarterly Report on Form 10-Q for the Quarterly Period ended March 31, 2000 and incorporated herein by reference). 10.7 Sixth Amendment, Consent and Agreement, dated as of January 29, 2001, 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 10.7 to the Company's Transition Report on Form 10-Q for the three months ended December 31, 2000.) 10.8 Waiver, dated May 4, 2001, to the Credit Agreement (filed as Exhibit 10.8 to the Company's Quarterly Report on Form 10-Q for the three months ended March 31, 2001.) 10.9 Waiver, dated June 30, 2001, to the Credit Agreement (filed as Exhibit 10.9 to the Company's Quarterly Report on Form 10-Q for the three months ended June 30, 2001.) 10.10 Waiver, dated August 10, 2001, to the Credit Agreement (filed as Exhibit 10.10 to the Company's Quarterly Report on Form 10-Q for the three months ended June30, 2001.) 10.11 Seventh Amendment and Waiver, dated September 10, 2001, to the Credit Agreement. 10.12 Senior Secured Revolving Credit Agreement, dated as of January 29, 2001, among the Company, Audio Visual Services (NY) Corporation, the several lenders named therein, The Chase Manhattan Bank, as Administrative Agent, and Chase Securities, Inc., as Arranger (`Senior 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 10.8 to the Company's Transition Report on Form 10-Q for the three months ended December 31, 2000.) 10.13 Waiver, dated May 4, 2001, to the Senior Credit Agreement (filed as Exhibit 10.10 to the Company's Quarterly Report on Form 10-Q for the three months ended March 31, 2001). 10.14 Waiver, dated August 10, 2001, to the Senior Credit Agreement (filed as Exhibit 10.13 to the Company's Quarterly Report on Form 10-Q for the three months ended June 30, 2001). 10.15 Waiver, dated September 10, 2001, to the Senior Credit Agreement. EX-10.11 3 c22246_ex10-11.txt SEVENTH AMENDMENT AND WAIVER TO CREDIT AGREEMENT EXHIBIT 10.11 SEVENTH AMENDMENT AND WAIVER, dated as of September 10, 2001 (this "SEVENTH AMENDMENT"), to the Credit Agreement dated as of October 28, 1997 (as heretofore amended, supplemented or otherwise modified, the "CREDIT AGREEMENT"), among AUDIO VISUAL SERVICES CORPORATION, a Delaware corporation (the "PARENT"), AUDIO VISUAL SERVICES (NY) CORPORATION, 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, the Revolving Credit Termination Date and the Term Loan Maturity Date is October 1, 2001; WHEREAS, the Company, the Lenders and the Administrative Agent are requesting the implementation of a restructuring of the Company's Indebtedness and equity structure; WHEREAS, the Company has requested an extension of each of the Revolving Credit Termination Date and the Term Loan Maturity Date to, in each case, December 14, 2001 to enable the consummation of such restructuring; WHEREAS, in order to assist with the implementation of the restructuring, the Company has requested a waiver of any Default or Event of Default arising from any failure by the Borrowers to achieve the minimum Consolidated Unadjusted EBITDA required by Section 7.01(c) of the Credit Agreement for the 12 month period ending September 30, 2001; and WHEREAS, the Lenders are willing to agree to the foregoing requests, but only on the terms and subject to the conditions of this Seventh Amendment 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 Agents 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. 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 adding the following new definitions in their proper alphabetical order: ""SEVENTH AMENDMENT" shall mean the Seventh Amendment and Waiver, dated as of September 5, 2001, to this Agreement. "SEVENTH AMENDMENT EFFECTIVE DATE" has the meaning assigned thereto in the Seventh Amendment.". (b) Section 1.01 of the Credit Agreement is hereby amended by deleting the phrase "Revolving Credit Termination Date" where it appears in the definition of "Revolving Credit Commitment Period" and inserting in lieu thereof, "Seventh Amendment Effective Date". (c) Section 1.01 of the Credit Agreement is hereby amended by deleting the phrase "October 1, 2001" where it appears in the definition of "Revolving Credit Termination Date" and inserting in lieu thereof, "December 14, 2001". (d) Section 1.01 of the Credit Agreement is hereby amended by deleting the phrase "October 1, 2001" where it appears in the definition of "Term Loan Maturity Date" and inserting in lieu thereof, "December 14, 2001". 2.2 AMENDMENT TO SECTION 2.04 (REPAYMENT OF LOANS; EVIDENCE OF DEBT). Section 2.04(b) is hereby amended by deleting the phrase "October 1, 2001" where it appears therein and inserting in lieu thereof, "December 14, 2001". 2.3 AMENDMENT TO SECTION 2.09 (INTEREST). (a) Section 2.09(d) is hereby amended by deleting the phrase "Section 2.09(f)," where it appears therein and inserting in lieu thereof the phrase "Sections 2.09(f) and (g),". (b) Section 2.09 is hereby amended by inserting a new section 2.09(g) as set forth below: "(g) On and from the Seventh Amendment Effective Date, accrued interest payable on each Interest Payment Date shall be capitalized and added to the principal amount of the Loans and shall be payable in arrears (together with additional interest accrued thereon) on the earliest to occur of (i) the Revolving Credit Termination Date, (ii) December 14, 2001, (iii) the date the Loans become due and payable in accordance with Article VIII hereof and (iv) the date on which all of the Obligations shall have been paid in full and the Commitments shall have been terminated.". 3 SECTION 3. WAIVER. 3.1 WAIVER. The Lenders hereby waive: (i) any Default or Event of Default under Article VIII(c) of the Credit Agreement resulting from the Borrowers failure to achieve the minimum Consolidated Unadjusted EBITDA required by Section 7.01(c) of the Credit Agreement for the period of four consecutive fiscal quarters ending on September 30, 2001; and (ii) any Default or Event of Default under Article VIII(e) of the Credit Agreement resulting from the occurrence of an event of default under the New Credit Agreement arising on account of the Borrowers failure to achieve the minimum "Consolidated Unadjusted EBITDA" (as defined in the New Credit Agreement) required by Section 6.01(a) of the New Credit Agreement for the period of four consecutive fiscal quarters ending on September 30, 2001. SECTION 4. ACKNOWLEDGMENT/RELEASE. 4.1 COLLATERAL. Each Loan Party ratifies and reaffirms the validity and enforceability (without defense, counterclaim or offset of any kind) of the liens and security interests granted to secure any of the Obligations by such Loan Party to the Administrative Agent, for the benefit of the Lenders, pursuant to the Security Documents to which such Loan Party is a party. Each Loan Party acknowledges and agrees that all such liens and security interests granted by such Loan Party shall continue to secure the Obligations from and after the Seventh Amendment Effective Date. 4.2 RELEASE. Each Loan Party acknowledges and agrees that such Loan Party has no claim, right or cause of action of any kind against any Lender, the Administrative Agent or any of such Lender's or the Administrative Agent's present or former subsidiaries, Affiliates, officers, directors, employees, attorneys or other representatives or agents (collectively with their respective successors and assigns, the "LENDER PARTIES") in connection with the Obligations, the Credit Agreement and the other Loan Documents, or the transactions contemplated hereby or thereby. Each Loan Party unconditionally, freely, voluntarily and, after consultation with counsel and becoming fully and adequately informed as to the relevant facts, circumstances and consequences, releases, waives and forever discharges (and further agrees not to allege, claim or pursue) any and all claims, rights, liabilities, causes of action, counterclaims or defenses of any kind whatsoever, in contract or in tort, in law or in equity, whether known or unknown, direct or derivative, which such Loan Party or any predecessor might otherwise have or may have against any Lender Party on account of any conduct, condition, act, omission, event, contract, liability, obligation, demand, covenant, promise, indebtedness, claim, right, cause of action, suit, damage, defense, circumstance or matter of any kind whatsoever which existed, arose or occurred at any time prior to the Seventh Amendment Effective Date in connection with the Obligations, the Credit Agreement and the other Loan Documents. SECTION 5. MISCELLANEOUS. 5.1 REPRESENTATIONS AND WARRANTIES; NO DEFAULT. (a) After giving effect to this Seventh 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 as of such earlier date) and that no 4 Default or Event of Default shall have occurred and be continuing or would result from the execution and delivery of this Seventh Amendment. (b) The Borrowers further represent and warrant that as of the Seventh Amendment Effective Date, the Borrowers and the other Loan Parties are truly and justly indebted (including contingent liabilities in respect of Letters of Credit) to the Agents and the Lenders pursuant to the Loan Documents, in the principal amount of $364,039,638.14 plus accrued interest, fees, including without limitation, all amounts payable pursuant to the Deferred Amendment Fee Letters, and other amounts payable pursuant to the Loan Documents, without defense, counterclaim or offset of any kind. 5.2 CONDITIONS TO EFFECTIVENESS OF THIS SEVENTH AMENDMENT. (a) This Seventh Amendment shall be effective as of the date first set forth above (the "SEVENTH AMENDMENT EFFECTIVE DATE") upon the satisfaction of the following conditions: (b) receipt by the Administrative Agent of counterparts hereof duly executed and delivered by the Borrowers and each Lender and consented to by the Loan Parties (other than the Borrowers); 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 Seventh Amendment, the Credit Agreement is and shall continue to be in full force and effect in accordance with its terms, and this Seventh 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, including without limitation, any amendment, modification or waiver of any section amended or waived pursuant to this Seventh Amendment for any other date or time period. 5.4 GOVERNING LAW. THIS SEVENTH AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. 5.5 COUNTERPARTS. This Seventh 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 Seventh Amendment may be delivered by facsimile transmission of the relevant signature pages hereof. 5 IN WITNESS WHEREOF, the parties hereto have caused this Seventh Amendment to be executed and delivered by their respective duly authorized officers as of the date first above written. AUDIO VISUAL SERVICES CORPORATION By: /s/ DIGBY J. DAVIES -------------------------------------- Name: Digby J. Davies Title: President & COO AUDIO VISUAL SERVICES (NY) CORPORATION By: /s/ DIGBY J. DAVIES -------------------------------------- Name: Digby J. Davies Title: Executive Vice President and Chief Financial Officer THE CHASE MANHATTAN BANK By: /s/ THOMAS A. DINNEEN -------------------------------------- Name: Thomas A. Dinneen Title: Managing Director BANK OF AMERICA, N.A. By: /s/ F.A. ZAGAR -------------------------------------- Name: F.A. Zagar Title: Managing Director BANK POLSKA KASA OPIEKI S.A. PEKAO S.A. GROUP, NEW YORK BRANCH By: /s/ HARVEY WINTER -------------------------------------- Name: Harvey Winter Title: Vice President 6 BBT FUND, L.P. By: BBT GENPAR, L.P., Its General Partner By: BBT-FW, INC., Its General Partner By: /s/ WILLIAM O. REIMANN -------------------------------------- Name: William O. Reimann Title: Vice President CONTRARIAN FUNDS, LLC By: Contrarian Capital Management, L.L.C. By: /s/ JANICE M. STANTON -------------------------------------- Name: Janice M. Stanton Title: Member CREDIT AGRICOLE INDOSUEZ By: /s/ GARY KANIA -------------------------------------- Name: Gary Kania Title: Vice President By: /s/ LEO VON REISSIG -------------------------------------- Name: Leo Von Reissig Title: Vice President BANKERS TRUST COMPANY By: /s/ DAVID J. BELL -------------------------------------- Name: David J. Bell Title: Director HALCYON RESTRUCTURING FUND, L.P. By: /s/ ROBERT F. DAVIS -------------------------------------- Name: Robert F. Davis Title: Principal 7 ING BARING (US) CAPITAL LLC, Acting as Agent for MIDDENBANK CURACAO N.V. By: /s/ NEIL DE LA CRUZ -------------------------------------- Name: Neil De La Cruz Title: Vice President ML CBO IV (CAYMAN) LTD. By: Highland Capital Management, L.P. as Collateral Manager By: /s/ JAMES DONDERO -------------------------------------- Name: James Dondero, CFA, CPA Title: President Highland Capital Management ML CLO X1X STERLING (CAYMAN) LTD. By: Highland Capital Management, L.P. (as successor in interest to Sterling Asset Manager LLC) By: /s/ TODD TRAVERS -------------------------------------- Name: Todd Travers Title: Senior Portfolio Manager Highland Capital Management, L.P. PAM CAPITAL FUNDING LP By: Highland Capital Management, L.P. as Collateral Manager By: /s/ TODD TRAVERS -------------------------------------- Name: Todd Travers Title: Senior Portfolio Manager Highland Capital Management, L.P. 8 PAMCO CAYMAN LTD. By: Highland Capital Management, L.P. as Collateral Manager By: /s/ TODD TRAVERS -------------------------------------- Name: Todd Travers Title: Senior Portfolio Manager Highland Capital Management, L.P. RCG CARPATHIA MASTER FUND, LTD. By: /s/ HOWARD GOLDEN -------------------------------------- Name: Howard Golden Title: Managing Director SCOGGIN CAPITAL MANAGEMENT L.P. By: /s/ A. DEV CHODRY -------------------------------------- Name: A. Dev Chodry Title: Partner NOMURA SPECIAL SITUATIONS INVESTMENT TRUST by: Wilmington Trust Company as Trustee By: /s/ DAVID A. VANASKEY, JR. -------------------------------------- Name: David A. Vanaskey, Jr Title: Vice President T. ROWE PRICE RECOVERY FUND II, L.P. By: /s/ KIM Z. GOLDEN -------------------------------------- Name: Kim Z. Golden Title: Managing Director VAN KAMPEN SENIOR FLOATING RATE FUND By: Van Kampen Investment Advisory Corp. By: /s/ DARVIN D. PIERCE -------------------------------------- Name: Darvin D. Pierce Title: Executive Director VAN KAMPEN PRIME RATE INCOME TRUST By: Van Kampen Investment Advisory Corp. By: /s/ DARVIN D. PIERCE -------------------------------------- Name: Darvin D. Pierce Title: Executive Director VAN KAMPEN SENIOR INCOME TRUST By: Van Kampen Investment Advisory Corp. By: /s/ DARVIN D. PIERCE -------------------------------------- Name: Darvin D. Pierce Title: Executive Director Each of the undersigned hereby consents to the foregoing Seventh 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 Seventh Amendment. AVSC INTELLECTUAL PROPERTY MANAGEMENT, INC. By: /s/ DIGBY J. DAVIES -------------------------------------- Name: Digby J. Davies Title: Executive Vice President & COO AUDIO VISUAL SERVICES GROUP, INC. By: /s/ DIGBY J. DAVIES -------------------------------------- Name: Digby J. Davies Title: Executive Vice President & COO VISUAL ACTION HOLDINGS INC. By: /s/ DIGBY J. DAVIES -------------------------------------- Name: Digby J. Davies Title: Executive Vice President HRI, V.I., INC. By: /s/ DIGBY J. DAVIES -------------------------------------- Name: Digby J. Davies Title: Executive Vice President EX-10.15 4 c22246_ex10-15.txt WAIVER TO NEW CREDIT AGREEMENT EXHIBIT 10.15 WAIVER, dated as of September 10, 2001 (this "WAIVER"), under the Credit Agreement dated as of January 29, 2001 (as heretofore amended, supplemented or otherwise modified, the "CREDIT AGREEMENT"), among AUDIO VISUAL SERVICES CORPORATION, a Delaware corporation (the "PARENT"), AUDIO VISUAL SERVICES (NY) CORPORATION, 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 CHASE SECURITIES INC. as Arranger. W I T N E S S E T H : - - - - - - - - - - WHEREAS, the Borrowers, the Lenders and the Administrative Agent 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, the Company, the Lenders and the Administrative Agent are requesting the implementation of a restructuring of the Company's Indebtedness and equity structure; WHEREAS, in order to assist with the implementation of the restructuring, the Company has requested a waiver of any Default or Event of Default arising from any failure of the Borrowers to achieve the minimum Consolidated Unadjusted EBITDA required by Section 6.01(a) of the Credit Agreement for the 12 month period ending September 30, 2001; and WHEREAS, the Lenders are willing to agree to the foregoing requests, but only on the terms and subject to the conditions of this Waiver 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 Agents hereby agree as follows: SECTION 1. DEFINITIONS. Capitalized terms used herein and not otherwise defined shall have their respective meanings set forth in the Credit Agreement. SECTION 2. WAIVER. 2.1 WAIVER. The Lenders hereby waive: (i) any Default or Event of Default under Article VII(c) of the Credit Agreement resulting from the Borrowers failure to achieve the minimum Consolidated Unadjusted EBITDA required by Section 6.01(a) of the Credit Agreement for the period of four consecutive fiscal quarters ending on September 30, 2001; and (ii) any Default or Event of Default under Article VII(e) of the Credit Agreement resulting from the occurrence of an event of default under the Existing Credit Agreement arising on account of 2 the Borrowers' failure to achieve the minimum "Consolidated Unadjusted EBITDA" (as defined in the Existing Credit Agreement) required by Section 7.01(c) of the Existing Credit Agreement for the period of four consecutive fiscal quarters ending on September 30, 2001. SECTION 3. ACKNOWLEDGMENT/RELEASE. 3.1 COLLATERAL. Each Loan Party ratifies and reaffirms the validity and enforceability (without defense, counterclaim or offset of any kind) of the liens and security interests granted to secure any of the Obligations by such Loan Party to the Administrative Agent, for the benefit of the Lenders, pursuant to the Security Documents to which such Loan Party is a party. Each Loan Party acknowledges and agrees that all such liens and security interests granted by such Loan Party shall continue to secure the Obligations from and after the date hereof. 3.2 RELEASE. Each Loan Party acknowledges and agrees that such Loan Party has no claim, right or cause of action of any kind against any Lender, the Administrative Agent or any of such Lender's or the Administrative Agent's present or former subsidiaries, Affiliates, officers, directors, employees, attorneys or other representatives or agents (collectively with their respective successors and assigns, the "LENDER PARTIES") in connection with the Obligations, the Credit Agreement and the other Loan Documents, or the transactions contemplated hereby or thereby. Each Loan Party unconditionally, freely, voluntarily and, after consultation with counsel and becoming fully and adequately informed as to the relevant facts, circumstances and consequences, releases, waives and forever discharges (and further agrees not to allege, claim or pursue) any and all claims, rights, liabilities, causes of action, counterclaims or defenses of any kind whatsoever, in contract or in tort, in law or in equity, whether known or unknown, direct or derivative, which such Loan Party or any predecessor, might otherwise have or may have against any Lender Party on account of any conduct, condition, act, omission, event, contract, liability, obligation, demand, covenant, promise, indebtedness, claim, right, cause of action, suit, damage, defense, circumstance or matter of any kind whatsoever which existed, arose or occurred at any time prior to the date hereof in connection with the Obligations, the Credit Agreement and the other Loan Documents. SECTION 4. MISCELLANEOUS. 4.1 REPRESENTATIONS AND WARRANTIES; NO DEFAULT. (a) After giving effect to this Waiver, 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 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 Waiver. (b) The Borrowers further represent and warrant that as of the date hereof, the Borrowers and the other Loan Parties are truly and justly indebted (including contingent liabilities in respect of Letters of Credit) to the Agents and the Lenders pursuant to the Loan Documents, in the principal amount of $16,000,000.00 plus accrued interest, fees and other amounts payable pursuant to the Loan Documents, without defense, counterclaim or offset of any kind. 3 4.2 CONDITIONS TO EFFECTIVENESS OF THIS WAIVER. This Waiver shall be effective as of the date first set forth above upon the satisfaction of the following conditions: (a) receipt by the Administrative Agent of counterparts hereof duly executed and delivered by the Borrowers and each Lender and consented to by the Loan Parties (other than the Borrowers); (b) receipt by the Administrative Agent of the Seventh Amendment and Waiver to the Existing Credit Agreement, duly executed and delivered by the Borrowers, each Lender and consented to by the Loan Parties (as such capitalized terms are defined in the Existing Credit Agreement); and (c) the payment by the Borrowers of the costs and expenses of the Administrative Agent owing under Section 9.05 of the Credit Agreement and for which invoices have been submitted. 4.3 LIMITED EFFECT. Except as expressly waived by this Waiver, the Credit Agreement is and shall continue to be in full force and effect in accordance with its terms, and this Waiver 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, including without limitation, any amendment, modification or waiver of any section amended or waived pursuant to this Waiver for any other date or time period. 4.4 GOVERNING LAW. THIS WAIVER SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. 4.5 COUNTERPARTS. This Waiver 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 Waiver may be delivered by facsimile transmission of the relevant signature pages hereof. 4 IN WITNESS WHEREOF, the parties hereto have caused this Waiver to be executed and delivered by their respective duly authorized officers as of the date first above written. AUDIO VISUAL SERVICES CORPORATION By: /s/ DIGBY J. DAVIES ---------------------------------------- Name: Digby J. Davies Title: President & COO AUDIO VISUAL SERVICES (NY) CORPORATION By: /s/ DIGBY J. DAVIES ---------------------------------------- Name: Digby J. Davies Title: Executive Vice President and Chief Financial Officer THE CHASE MANHATTAN BANK, Individually and as Administrative Agent By: /s/ THOMAS A. DINNEEN ---------------------------------------- Name: Thomas A. Dinneen Title: Managing Director BBT FUND, L.P. By: BBT GENPAR, L.P., Its General Partner By: BBT-FW, INC., Its General Partner By: /s/ WILLIAM O. REIMANN ---------------------------------------- Name: William O. Reimann Title: Vice President HALCYON RESTRUCTURING FUND, L.P. By: /s/ ROBERT F. DAVIS ---------------------------------------- Name: Robert F. Davis Title: Principal 5 HIGHLAND LEGACY LIMITED By: /s/ TODD TRAVERS ---------------------------------------- Name: Todd Travers Title: Senior Portfolio Manager Highland Capital Management, L.P. NOMURA SPECIAL SITUATIONS INVESTMENT TRUST By: /s/ DAVID A. VANASKY, JR. ---------------------------------------- Name: David A. Vanasky, Jr. Title: Vice President Wilmington Trust Company not in its individual capacity but solely as Owner Trustee VAN-KAMPEN SENIOR INCOME TRUST By: /s/ DOUGLAS L. WINCHELL ---------------------------------------- Name: Douglas L. Winchell Title: Vice President Each of the undersigned hereby consents to the foregoing Waiver and hereby confirms, reaffirms and restates that its obligations under or in respect of the Credit Agreement and the documents related thereto to which it is a party are and shall remain in full force and effect after giving effect to the foregoing Waiver. AVSC INTELLECTUAL PROPERTY MANAGEMENT, INC. By: /s/ DIGBY J. DAVIES ------------------------------------- Name: Digby J. Davies Title: Executive Vice President & COO AUDIO VISUAL SERVICES GROUP, INC. By: /s/ DIGBY J. DAVIES ------------------------------------- Name: Digby J. Davies Title: Executive Vice President & COO VISUAL ACTION HOLDINGS INC. By: /s/ DIGBY J. DAVIES ------------------------------------- Name: Digby J. Davies Title: Executive Vice President HRI, V.I., INC. By: /s/ DIGBY J. DAVIES ------------------------------------- Name: Digby J. Davies Title: Executive Vice President -----END PRIVACY-ENHANCED MESSAGE-----