<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 31, 1998.
FILE NO. 333-53395
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
PRE-EFFECTIVE
AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
VIALOG CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
MASSACHUSETTS 4813 04-3305282
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (IRS EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
INCORPORATION OR
ORGANIZATION)
----------------
35 NEW ENGLAND BUSINESS CENTER, SUITE 160
ANDOVER, MASSACHUSETTS 01810
(978) 975-3700
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
GLENN D. BOLDUC
PRESIDENT AND CHIEF EXECUTIVE OFFICER
VIALOG CORPORATION
35 NEW ENGLAND BUSINESS CENTER, SUITE 160
ANDOVER, MASSACHUSETTS 01810
(978) 975-3700
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
----------------
COPIES TO:
DAVID L. LOUGEE, ESQ. LAWRENCE A. LAROSE, ESQ.
JEFFREY L. DONALDSON, ESQ. ALAN J. RICE, ESQ.
MIRICK, O'CONNELL, DEMALLIE & LOUGEE, CADWALADER, WICKERSHAM & TAFT
LLP 100 MAIDEN LANE
1700 BANKBOSTON TOWER NEW YORK, NEW YORK 10038
100 FRONT STREET (212) 504-6000
WORCESTER, MASSACHUSETTS 01608-1477
(508) 791-8500
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [X]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED PRICE REGISTRATION FEE
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<S> <C> <C>
Common Stock, $.01 par value............... $67,175,988 $19,816.91(1)
</TABLE>
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- -------------------------------------------------------------------------------
(1) A fee of $16,962.50 was paid with the initial filing of this Registration
Statement with the Commission on May 22, 1998. A supplemental fee of
$1,764.10 was paid in connection with the filing of Pre-Effective
Amendment No. 1 on July 8, 1998 and a second supplemental fee of $1,090.31
was paid in connection with the filing of Pre-Effective Amendment No. 2.
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS SUBJECT TO COMPLETION--DATED DECEMBER 31, 1998
- --------------------------------------------------------------------------------
4,867,826 Shares
Common Stock
- --------------------------------------------------------------------------------
Of the 4,867,826 shares of common stock, $.01 par value per share (the "Common
Stock"), offered hereby (the "Offering"), 4,600,000 shares are being sold by
VIALOG Corporation (the "Company") and 267,826 are being sold by a selling
stockholder (the "Selling Stockholder"). The Company will not receive any of
the proceeds from the sale of shares by the Selling Stockholder. See "Principal
and Selling Stockholders."
Prior to the Offering, there has been no public market for the Common Stock. It
is currently anticipated that the initial public offering price will be between
$10 and $12 per share. See "Underwriting" for a discussion of the factors to be
considered in determining the initial public offering price. The Company has
applied for inclusion of the Common Stock in The Nasdaq Stock Market's National
Market (the "Nasdaq National Market") under the symbol "VLOG."
SEE "RISK FACTORS" ON PAGES 11 TO 18 FOR A DISCUSSION OF CERTAIN MATERIAL
FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE
COMMON STOCK OFFERED HEREBY.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
Underwriting Proceeds to
Price to Discounts and Proceeds to Selling
Public Commissions(1) Company(2) Stockholder
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share...................... $ $ $ $
- --------------------------------------------------------------------------------
Total(3)....................... $ $ $ $
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) The Company, its Operating Centers (as defined in the Prospectus Summary)
and the Selling Stockholder have agreed to indemnify the several
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended (the "Securities Act"). See
"Underwriting."
(2) Before deducting expenses payable by the Company estimated to be
$1,500,000.
(3) The Company has granted the Underwriters a 30-day over-allotment option to
purchase up to 730,173 additional shares of Common Stock on the same terms
and conditions as set forth above. If all such additional shares are
purchased by the Underwriters, the total Price to Public will be $ , the
total Underwriting Discounts and Commissions will be $ , the total
Proceeds to Company will be $ and the total proceeds to the Selling
Stockholder will be $ . See "Underwriting."
- --------------------------------------------------------------------------------
The shares of Common Stock are being offered by the several Underwriters,
subject to delivery by the Company and acceptance by the Underwriters, to prior
sale and to withdrawal, cancellation or modification of the offer without
notice. Delivery of the shares to the Underwriters is expected to be made
through the facilities of The Depository Trust Company, New York, New York, on
or about , 1999.
PRUDENTIAL SECURITIES INCORPORATED
, 1999
<PAGE>
[PHOTO DESCRIPTION: THREE OPERATORS]
GROUP COMMUNICATIONS DEFINED.
[PHOTO DESCRIPTION: SEVERAL PERSONS SEATED AROUND CONFERENCE TABLE]
[PHOTO DESCRIPTION: PERSON AT WORKSTATION]
THE BUSINESS MEETING REDEFINED.
[PHOTO DESCRIPTION: PERSON AT
WORKSTATION; MONITOR DISPLAY SPLIT
SCREEN WITH THREE PERSONS]
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING PURCHASES OF THE COMMON STOCK AND THE EXCHANGE NOTES (AS DEFINED
HEREIN) TO STABILIZE THEIR RESPECTIVE MARKET PRICES, PURCHASES OF THE COMMON
STOCK TO COVER SOME OR ALL OF A SHORT POSITION IN THE COMMON STOCK MAINTAINED
BY THE UNDERWRITERS AND THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF
THESE ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and financial statements and
related notes appearing elsewhere in this Prospectus. Unless otherwise
indicated, (i) all references to "VIALOG Corporation" mean VIALOG Corporation
as a stand alone entity, (ii) all references to "VIALOG" or the "Company" refer
to VIALOG Corporation and include its consolidated subsidiaries and (iii) the
information in this Prospectus assumes that the Underwriters' over-allotment
option will not be exercised.
THE COMPANY
VIALOG is a leading independent provider of teleconferencing and other group
communications services, consisting primarily of operator-attended and
operator-on-demand audio teleconferencing, as well as video and data
conferencing services. The Company believes it is the largest company focused
solely on teleconferencing and other group communications services, with six
operating centers, approximately 9,337 ports of teleconferencing capability
(one "port" is required for each participating telephone line), state-of-the-
art digital conferencing technology and an experienced national sales force.
The Company believes it differentiates itself from its competitors by providing
superior customer service and an extensive range of enhanced and customized
communication services. The Company has capitalized on the growth in the
teleconferencing services market to build a large, stable client base ranging
from Fortune 500 companies to small institutions. Customers also include
certain major long distance telecommunications providers which have outsourced
their teleconferencing services to the Company. The Company provided services
to more than 5,000 customers representing over 30,000 accounts during the
twelve months ended September 30, 1998.
VIALOG has recently executed agreements to acquire three teleconferencing
companies. Such acquisitions, which are scheduled to close contemporaneously
with this Offering, are expected to provide the Company with increased scale, a
larger customer base and a broader geographic scope.
Operator-attended audio teleconferencing is the cornerstone of VIALOG's
business, and the Company believes it to be the principal service which builds
customer loyalty. The Company also offers operator-on-demand audio
teleconferencing as well as enhanced services such as digital replay, broadcast
fax and follow-up mailings. VIALOG also offers customized communications
solutions, which include teleconference event planning and coaching, as well as
customized formats specifically designed for such applications as auctions,
investor relations calls and interactive educational programs. The Company has
designed its service delivery infrastructure to be flexible so that
comprehensive, custom solutions for each customer may be easily designed and
implemented.
The industry in which the Company operates has been experiencing significant
growth. According to 1998 industry studies published by Frost & Sullivan, total
teleconferencing services revenues in North America increased from $437 million
in 1994 to an estimated $780 million in 1997, representing a compound annual
growth rate of 21%, and are projected to continue to grow at a compound annual
growth rate of 24% through 2003. The Company believes it will continue to
benefit from this strong industry growth, as it expands its national marketing,
branding and sales program.
In addition to internal growth generated by strong industry fundamentals and
the Company's enhanced marketing capabilities, the Company intends to continue
to increase its wholesale, or outsourcing, business. Management believes that
the broad trend among the inter-exchange carriers ("IXCs"), local exchange
carriers ("LECs") and the Regional Bell Operating Companies ("RBOCs") to
outsource labor-intensive activities such as teleconferencing will lead to new
outsourcing contracts, particularly as RBOCs become approved to provide long
distance service. Further, the Company intends to augment its internal growth
through selective acquisitions in the teleconferencing industry to leverage the
inherent economies of scale and build upon the Company's position as the
largest company in the industry focused solely on teleconferencing and other
group communications services.
3
<PAGE>
OPERATING STRATEGY
The Company provides a full array of group communications services through
its six operating centers, all of which were acquired by the Company in
November 1997. The basic goals of the Company's operating strategy consist of
the following:
Focus exclusively on teleconferencing and other group communications
services. VIALOG believes that its dedicated focus on teleconferencing enables
it to respond to the needs of its customers better than competitors that do not
focus on teleconferencing as a core business activity. The Company's largest
competitors are long distance service providers for which teleconferencing
represents only a small fraction of their total revenues.
Deliver a broad range of services. VIALOG believes that it offers the most
comprehensive selection of audio, video and data conferencing services among
the independent teleconferencing service providers and believes that it can
leverage the diverse service capabilities and industry expertise of individual
operating centers to provide the features and pricing options to meet a wide
variety of customer needs.
Maximize operational synergies. Since November 1997, VIALOG has centralized
several of its operations, including sales, marketing, and most human resource,
benefits administration and cash management functions. VIALOG's increased size
has enabled it to (i) handle calls involving a larger number of participants,
(ii) improve network efficiency through better allocation of port capacity
among its operating centers and (iii) obtain stronger bargaining power in areas
such as long distance telecommunications, equipment, employee benefits and
marketing. The Company plans to centralize additional support activities within
the next 3 to 9 months in order to improve service and reduce operating
expenses.
Retain customers and stimulate usage. The Company intends to expand sales to
its diverse base of customers, which numbered more than 5,000 during the twelve
months ended September 30, 1998. To achieve this, VIALOG is implementing new
focused selling strategies designed to stimulate use by its existing customer
base and is constructing a comprehensive marketing database in order to assist
the Company in better understanding customer behavior and proactively
addressing customer needs.
GROWTH STRATEGY
The Company's objective is to build upon its position as a leading
independent provider of teleconferencing and other group communications
services. The Company intends to achieve this goal through a strategy focused
on the following:
Maintain strong internal growth. Industry sources project that
teleconferencing services revenues will grow at a compound annual growth rate
of 24% through 2003. VIALOG intends to capitalize on this growth by developing
a national brand identity, pursuing cross-selling opportunities, expanding the
Company's service offerings and leveraging the Company's increased capacity to
handle larger contracts. In addition, the Company has deployed a national sales
force to access new geographic areas and national accounts.
Pursue outsourced services opportunities. The Company has deployed a
wholesale sales organization to sell outsourced services to IXCs, LECs and
RBOCs. VIALOG currently has contracts to provide outsourced services to a
number of facilities-based and non-facilities-based telecommunications service
providers. The Company believes that it is well-positioned to compete for
outsourced teleconferencing business from the IXCs, LECs and RBOCs, because it
(i) does not compete with IXCs, LECs or RBOCs in their core businesses, (ii)
has the capacity and resources to handle significant teleconferencing volume
and (iii) has experience in providing services on an outsourced basis.
4
<PAGE>
Expand through acquisitions. The Company intends to augment its internal
growth through selective acquisitions of complementary businesses. VIALOG's
strategy is to target acquisitions that will allow it to increase market share,
broaden geographic coverage and augment existing service offerings with new
capabilities and industry-specific experience. The Company believes that its
position (following the completion of this Offering) as the largest publicly-
traded company focused solely on the teleconferencing market will make it
attractive to potential acquisition candidates.
THE OPERATING CENTERS
On November 12, 1997, VIALOG Corporation acquired, in separate transactions
(each, an "Acquisition," and collectively, the "Acquisitions"), six private
conference service bureaus (each, an "Operating Center," and collectively, the
"Operating Centers") in exchange for cash and shares of its Common Stock. Each
Operating Center is a wholly-owned subsidiary of the Company. All of the
Company's operations are presently conducted through the Operating Centers,
which are located in Virginia, Georgia, Alabama, Massachusetts, New Jersey and
Connecticut. All primary operating functions are conducted in at least two
different Operating Centers in order to mitigate the impact of events that
could impair operations. The Company intends to build upon the unique
competencies in each Operating Center, enabling it to deliver a full range of
high quality services to its customers. As of September 30, 1998, the Operating
Centers employed a total of 369 persons and had a combined capacity of
approximately 9,337 ports.
The Company has determined that operational efficiencies will be achieved by
consolidating the Operating Centers located in Atlanta, Georgia and Montgomery,
Alabama into a new leased facility in Montgomery. The consolidation plan being
implemented by the Company, which is subject to the receipt of certain
consents, calls for the Atlanta Center to remain staffed through the early part
of the first quarter of 1999, after which time its traffic will be managed by
operators in the Montgomery Center as well as other Operating Centers. The
Company anticipates relocating its Montgomery Center into a new leased facility
by March 1999.
5
<PAGE>
VIALOG AND ITS OPERATING CENTERS
VIALOG Corporation is a Massachusetts corporation founded on January 1, 1996.
The Company's executive offices are located at 35 New England Business Center,
Suite 160, Andover, Massachusetts 01810, and its telephone number is (978) 975-
3700.
<TABLE>
<S> <C>
RESTON, VIRGINIA
Teleconferencing Ports: 2,408 The Reston Center specializes in
Employees: 134 providing services to financial
1997 Revenues (in institutions, government agencies,
millions): $12.6 trade associations and
professional services firms. In
addition, it serves as the primary
center for delivering video, fax
and custom interactive voice
response applications.
ATLANTA, GEORGIA*
Teleconferencing Ports: 2,304 The Atlanta Center is the primary
Employees: 47 center that provides wholesale and
1997 Revenues (in private label teleconferencing
millions): $6.4 services to telecommunications
providers.
MONTGOMERY, ALABAMA*
Teleconferencing Ports: 2,794 The Montgomery Center specializes
Employees: 98 in providing teleconferencing
1997 Revenues (in services to the retail and
millions): $8.5 services industries. It is also
the primary engineering center
responsible for the development
and deployment of advanced bridge
technology.
CAMBRIDGE, MASSACHUSETTS
Teleconferencing Ports: 720 The Cambridge Center provides a
Employees: 39 wide range of high value-added
1997 Revenues (in applications for general business.
millions): $4.1 It is also responsible for the
design and deployment of data
conferencing services that allow
participants to review and modify
documents simultaneously.
ORADELL, NEW JERSEY
Teleconferencing Ports: 456 The Oradell Center specializes in
Employees: 21 providing advanced technology
1997 Revenues (in applications, including automated
millions): $2.2 audio teleconferencing, to a
general business clientele.
DANBURY, CONNECTICUT
Teleconferencing Ports: 655 The Danbury Center specializes in
Employees: 30 delivery of a wide range of
1997 Revenues (in teleconferencing and customized
millions): $2.1 group communications solutions to
the pharmaceutical industry.
</TABLE>
Numbers of teleconferencing ports and employees are as of September 30, 1998.
*See "Business--Facilities" for discussion regarding the consolidation of
these Operating Centers.
6
<PAGE>
RECENT DEVELOPMENTS
VIALOG has recently executed agreements to acquire three teleconferencing
companies--A Business Conference-Call, Inc. ("ABCC"), Conference Pros
International, Inc. ("CPI") and A Better Conference, Inc. ("ABCI").
ABCC. VIALOG Corporation intends to acquire all of the outstanding capital
stock of ABCC by merger for a purchase price of $15.2 million in cash ($400,000
of which has already been paid as a non-refundable deposit) plus (i)
approximately $100,000 related to tax reimbursements discussed below and (ii)
an additional amount, based on ABCC's closing date balance sheet, equal to the
balances of cash plus accounts receivable (net of a bad debt reserve of 5%)
less all liabilities as of the closing date. Based on ABCC's September 30, 1998
balance sheet, such additional amount would be approximately $389,000. In
addition, the Company expects to incur approximately $200,000 of acquisition
costs. ABCC had net revenues of approximately $5.7 million and income from
operations of approximately $2.2 million for the fiscal year ended December 31,
1997 and had net revenues of approximately $5.5 million and income from
operations of approximately $2.5 million for the nine months ended September
30, 1998. ABCC had 576 teleconferencing ports and 45 employees as of September
30, 1998. ABCC services a general corporate clientele with a specialty in the
communications industry.
VIALOG Corporation and ABCC have agreed to make an election to treat the
purchase and sale of the capital stock of ABCC as a purchase and sale of
assets. VIALOG Corporation will reimburse the stockholders of ABCC
approximately $100,000, which is the difference between the taxes incurred by
such stockholders as a result of such election and the taxes which would have
been incurred by such stockholders had no such election been made. ABCC will
make distributions to its stockholders of all cash and income on an accrual
basis prior to or upon consummation of the merger. The two stockholders of ABCC
will each enter into two-year employment contracts and receive incentive stock
options for the purchase of 37,500 shares of Common Stock at an exercise price
equal to the fair value of the Common Stock at the effective date of the
acquisition of ABCC. The options will vest as to 3,125 shares on the effective
date of the merger and an additional 3,125 shares on each April 1, July 1,
October 1 and January 1 thereafter until fully vested. The consummation of the
acquisition is subject to certain customary conditions, including completion of
this Offering.
CPI. VIALOG Corporation intends to acquire all of the outstanding capital
stock of CPI by merger for a purchase price of $6.0 million in cash plus
approximately $50,000 related to tax reimbursements discussed below. In
addition, the Company expects to incur approximately $100,000 of acquisition
costs and to assume approximately $464,000 of indebtedness. CPI had net
revenues of approximately $2.0 million and a loss from operations of
approximately $20,000 for the fiscal year ended December 31, 1997 and had net
revenues of approximately $1.8 million and income from operations of
approximately $149,000 for the nine months ended September 30, 1998. CPI had
920 teleconferencing ports and 28 employees as of September 30, 1998. CPI
services a general corporate clientele.
VIALOG Corporation and CPI have agreed to make an election to treat the
purchase and sale of capital stock of CPI as a purchase and sale of assets.
VIALOG Corporation will reimburse the stockholders of CPI approximately
$50,000, which is the difference (less $100,000) between the taxes incurred by
such stockholders as a result of such election and the taxes which would have
been incurred by such stockholders had no such election been made. The
President of CPI will enter into a two-year employment contract and receive
incentive stock options for the purchase of 75,000 shares of Common Stock at an
exercise price equal to the fair value of the Common Stock at the effective
date of the acquisition of CPI. The options will vest as to 5,700 shares on
March 31, 1999 and an additional 6,300 shares on each June 30, September 30,
December 31 and March 31 thereafter until fully vested. The consummation of the
acquisition is subject to certain customary conditions, including completion of
this Offering and the consent of the lender under the Company's senior credit
facility.
ABCI. VIALOG Corporation intends to acquire all of the outstanding capital
stock of ABCI by merger for a purchase price of $6.2 million in cash. The
Company also expects to incur approximately $100,000 of
7
<PAGE>
acquisition costs and to assume approximately $471,000 of indebtedness. ABCI
had net revenues of approximately $2.0 million and income from operations of
approximately $196,000 for the fiscal year ended December 31, 1997 and had net
revenues of approximately $2.1 million and income from operations of
approximately $388,000 for the nine months ended September 30, 1998. ABCI had
432 teleconferencing ports and 27 employees as of September 30, 1998. ABCI
services a general corporate clientele with a specialty in the software,
financial services and legal services industries.
Patricia A. Cranford and Matthew Cranford, both stockholders of ABCI, will
enter into two-year and three-year employment contracts, respectively, and will
receive incentive stock options for the purchase of 50,000 and 25,000 shares of
Common Stock, respectively, at an exercise price equal to the fair value of the
Common Stock at the effective date of the acquisition of ABCI. The option for
Patricia Cranford will vest as to 25,000 shares on the first anniversary of the
effective date of the acquisition and as to an additional 6,250 shares on the
last day of each quarter thereafter until fully vested. Matthew Cranford's
option will vest as to 6,250 shares on the second anniversary of the effective
date of the acquisition and as to an additional 6,250 shares on the last day of
each quarter thereafter until fully vested. The consummation of the acquisition
is subject to certain customary conditions, including completion of this
Offering and the consent of the lender under the Company's senior credit
facility.
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered by the Company...... 4,600,000 shares(1)
Common Stock Offered by the Selling
Stockholder............................. 267,826 shares
Common Stock to be Outstanding after the
Offering................................ 8,293,672 shares(2)
Use of Proceeds by the Company........... For the acquisitions of ABCC, CPI
and ABCI, working capital, the
repayment of debt and general
corporate purposes. The Company will
not receive any proceeds from the
sale of shares by the Selling
Stockholder. See "Use of Proceeds."
Proposed Nasdaq National Market Symbol... VLOG
</TABLE>
- --------
(1) Does not include 730,173 shares of Common Stock that may be issued if the
Underwriters' over-allotment option is exercised in full. See
"Underwriting."
(2) Does not include (a) 1,680,062 shares subject to options outstanding under
the Company's 1996 Stock Plan as of January 1, 1999, (b) 756,104 additional
shares reserved for issuance under the Company's 1996 Stock Plan as of
January 1, 1999, (c) 153,378 shares issuable upon exercise of warrants
issued by the Company in connection with a bridge financing, and (d)
1,059,303 shares issuable upon exercise of warrants issued by the Company
in connection with a private placement of notes. See "Management--1996
Stock Plan" and "Description of Capital Stock--Warrants."
RISK FACTORS
Investors should consider the risk factors involved in connection with an
investment in the Common Stock and the impact to investors from various events
which could adversely affect the Company's business. See "Risk Factors."
8
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
The summary consolidated financial data presented below for the years ended
December 31, 1996 and 1997 are derived from the consolidated financial
statements of VIALOG Corporation, which financial statements have been audited
by KPMG Peat Marwick LLP, independent certified public accountants. The summary
consolidated financial data presented below for the nine months ended September
30, 1997 and 1998 and as of September 30, 1998 are derived from the unaudited
consolidated financial statements of VIALOG Corporation. In the opinion of
management, the unaudited consolidated financial statements have been prepared
on the same basis as the audited consolidated financial statements and include
all adjustments (consisting of only normal recurring adjustments) necessary for
a fair presentation of the financial position and results of operations for
such periods. The summary consolidated financial data for the nine month period
ended September 30, 1998 are not necessarily indicative of the results that may
be expected for the year ended December 31, 1998.
In addition, the following summary unaudited pro forma consolidated financial
data presents certain data for the Company for the year ended December 31, 1997
and the nine months ended September 30, 1998 to give effect to (i) the
Acquisitions and the acquisitions of ABCC, CPI and ABCI on an historical basis,
(ii) certain pro forma adjustments to the historical financial statements,
(iii) the consummation of the Unit Offering (as defined in "Risk Factors") and
(iv) the consummation of this Offering. The following summary consolidated
financial data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Consolidated
Financial Statements and the notes thereto included elsewhere in this
Prospectus. See also the Unaudited Pro Forma Consolidated Financial Statements
and the notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
-------------------- ----------------------
PRO FORMA PRO FORMA
CONSOLIDATED CONSOLIDATED
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
1996 1997 1997(1) 1997 1998 1998(1)
--------- --------- ------------ ---------- ---------- -----------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
Net revenues............ $ -- $ 4,816 $ 45,591 $ -- $ 34,770 $ 44,181
Cost of revenues,
excluding
depreciation(2)........ -- 2,492 22,296 -- 17,864 21,293
Selling, general and
administrative
expenses(3)............ 1,308 7,178 17,744 3,888 11,627 13,989
Depreciation expense.... -- 273 2,808 10 1,990 2,336
Amortization of goodwill
and intangible
assets(4).............. -- 306 3,846 -- 1,870 2,885
Non-recurring charge.... -- 8,000 -- -- 1,200 1,200
Operating income
(loss)................. (1,308) (13,433) (1,103) (3,898) 219 2,478
Interest expense, net... 1 (1,866) (12,933) (110) (9,310) (9,422)
Loss before income
taxes.................. (1,307) (15,299) (14,036) (4,008) (9,091) (6,944)
Net loss................ (785) (15,821) (14,558) (4,008) (9,091) (6,944)
Net loss per share -
basic and diluted...... $ (0.38) $ (5.48) $ (1.83) $ (1.44) $ (2.51) $ (0.85)
Weighted average shares
outstanding(5)......... 2,088,146 2,889,005 7,962,284 2,781,967 3,615,362 8,215,362
OTHER FINANCIAL DATA:
EBITDA(6)............... $ (1,308) $ (4,854) $ 5,551 $ (3,888) $ 4,079 $ 7,699
Cash flows provided by
(used in) operating
activities............. (178) (4,148) 6,457 (758) (1,221) 2,063
Cash flows used in
investing activities... (7) (53,762) (85,581) (226) (6,522) (6,581)
Cash flows provided by
(used in) financing
activities............. 522 67,140 105,562 723 (731) (3,182)
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
------------------------------
PRO FORMA
AS
ACTUAL PRO FORMA ADJUSTED(8)
------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents...................... $ 1,093 $ 1,211 $ 18,600
Working capital (deficit)...................... (2,017) (30,082) 15,203
Total assets................................... 69,897 99,857 116,803
Total long-term debt, including current
portion(7).................................... 72,455 73,117 73,117
Stockholders' equity (deficit)................. (13,849) (13,849) 31,709
</TABLE>
- --------
(1) Computed on the basis described in Note 4 to the Unaudited Pro Forma
Consolidated Financial Statements and does not include a non-recurring
charge of $8.0 million for purchased in-process research and development
recorded in the year ended December 31, 1997. Pro forma consolidated
results for the year ended December 31, 1997 and the nine months ended
September 30, 1998 reflect certain reductions of approximately $1.3 million
and $237,000, respectively, in compensation and benefits for the owners and
certain key employees and consultants of the Operating Centers, ABCC, CPI
and ABCI to specified amounts that the individuals agreed to accept as part
of the Acquisitions and the acquisitions of ABCC, CPI and ABCI for the
periods subsequent to the Acquisitions and the acquisitions of ABCC, CPI
and ABCI and royalties under agreements that were terminated.
(2) Certain of the Operating Centers, ABCC and CPI have entered into new
contracts for long distance telephone service. Had these contracts been in
effect as of January 1, 1997, cost of revenues for the year ended December
31, 1997 and the nine months ended September 30, 1998 would have decreased
by $1.8 million and $817,000, respectively.
(3) The pro forma consolidated results for the year ended December 31, 1997
include certain one-time charges, including (i) approximately $2.2 million
(of which approximately $2.0 million was recorded by VIALOG Corporation and
$219,000 was recorded by the Operating Centers) related to an offering of
common stock which was terminated in early 1997, (ii) a $958,000 non-cash
charge related to the modification of certain stock options and (iii) a
$312,000 charge recorded by one of the Operating Centers prior to its
Acquisition, related to the write-off of a consulting agreement and an
agreement not to compete, which were determined by such Operating Center to
have no future value. The results for the nine months ended September 30,
1997 include the approximately $2.0 million one-time charge recorded by
VIALOG Corporation related to an initial public offering which was
terminated in early 1997. The results for the nine months ended September
30, 1998 include a one-time charge of $508,000 for compensation and other
costs related to severance agreements for two former employees.
(4) Reflects amortization of goodwill and intangible assets recorded as a
result of the Acquisitions and the acquisitions of ABCC, CPI and ABCI over
periods ranging from 5 to 25 years.
(5) Pro forma weighted average shares outstanding reflect 559,300 shares issued
in connection with the acquisition of the Operating Centers and the
4,600,000 shares to be issued in connection with this Offering as if they
had been outstanding since January 1, 1997.
(6) EBITDA represents income from continuing operations before income taxes,
depreciation and amortization. EBITDA is not a measurement presented in
accordance with generally accepted accounting principles and should not be
considered as an alternative to net income as a measure of operating
results or as an alternative to cash flows as a better measure of
liquidity. EBITDA does not represent funds available for management's
discretionary use. The Company believes that EBITDA is accepted by the
telecommunications industry as a generally recognized measure of
performance and is used by analysts to report publicly on the performance
of telecommunications companies.
(7) Net of unamortized original issue discount of $3.4 million. Excludes the
Senior Credit Facility signed on October 6, 1998 with Coast Business
Credit. At December 28, 1998, approximately $5.2 million was outstanding on
the Senior Credit Facility.
(8) Adjusted to give effect to the application of the estimated net proceeds to
the Company of this Offering as described under "Use of Proceeds."
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<PAGE>
RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a high
degree of risk. Prospective investors should carefully consider the following
risk factors, in addition to the other information contained in this
Prospectus, in connection with an investment in the shares of Common Stock
offered hereby.
When used in this Prospectus, the words "may," "will," "expect,"
"anticipate," "continue," "estimate," "project," "intend" and similar
expressions are intended to identify forward-looking statements regarding
among other things: (i) trends affecting the Company's financial condition or
results of operations; (ii) the Company's business, operating and growth
strategies; (iii) the use of the net proceeds to the Company from this
Offering; (iv) trends in the teleconferencing and group communications
industry; (v) government regulations; and (vi) the Company's financial plans.
Prospective investors are cautioned that any forward-looking statements are
not assurances or guarantees of future performance and are subject to risks
and uncertainties and that actual results may differ materially from those
included within the forward-looking statements as a result of various factors.
Factors that could cause or contribute to such differences include, but are
not limited to, those described below, under the heading "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
elsewhere in this Prospectus.
ABSENCE OF CONSOLIDATED OPERATING HISTORY. VIALOG Corporation was founded on
January 1, 1996 and has only conducted operations and generated revenues since
November 12, 1997, the effective date of the Acquisitions. Prior to that time
the Operating Centers each operated as separate, independent businesses. In
addition, the Company used the purchase method of accounting to record the
Acquisitions and consequently the pro forma and consolidated financial
information contained in this Prospectus may not be indicative of the
Company's future operating results and financial condition.
DIFFICULTY OF INTEGRATING THE OPERATING CENTERS. The successful and timely
integration of the Operating Centers is critical to the Company's future
financial performance. Prior to the Acquisitions, the Operating Centers used
different operating practices and procedures and management information
systems. Until the Company establishes centralized accounting and other
administration systems, it will rely on the separate systems of the Operating
Centers. The integration of the Operating Centers will require the Company,
among other things, to retain key employees, assimilate diverse corporate
cultures and manage geographically dispersed operations, each of which could
pose significant challenges to the Company and its management. The Company's
success will depend on the ability of its executive officers to establish and
integrate themselves into the Company's daily operations as well as to gain
the confidence of the employees of the Operating Centers. Prior to the
Acquisitions, the Operating Centers had a variety of sales strategies and
methods. The Company has deployed a nationwide sales organization, which is
more costly and may prove to be ineffective at increasing net revenues. There
can be no assurance that the Company will be successful in integrating any of
the operations of the Operating Centers or, if integrated, that such combined
operations will demonstrate significant operating efficiencies. The failure of
the Company to integrate the Operating Centers successfully could have a
material adverse effect on the Company's business, financial condition,
results of operations and prospects which could adversely impact the market
for the Company's Common Stock. See "Business--Operating Strategy" and
"Business--Billing and Management Information Systems."
The Acquisition agreements pursuant to which the Operating Centers were
acquired (except for the Oradell Center) limit until November 12, 1999 the
Company's ability to change the location of an Operating Center's facilities
(except for the Montgomery Center), physically merge the Operating Center's
operations with another operation, change the position of those employees who
received employment agreements pursuant to the applicable Acquisition
agreement, reduce the workforce or terminate employees (except as related to
employee performance, the contemplated reorganization of the combined sales
and marketing staff and the consolidation of certain accounting functions)
without the approval of a majority in interest of the former stockholders of
the affected Operating Center. Such limitations could restrict the Company's
ability to integrate the operations of the Operating Centers successfully and
could limit the Company's ability to respond to competitive pressures on its
labor costs and materially adversely affect the Company's growth plans. The
Company is in the process of
11
<PAGE>
obtaining the approvals of a majority in interest of the former stockholders
of the Atlanta and Montgomery Centers in connection with the consolidation of
the Atlanta and Montgomery Centers. See "Business--Facilities" and "Certain
Transactions-- Organization of the Company."
PRE-TAX LOSSES. The Oradell Center incurred a pretax loss in 1997 of
approximately $423,000 ($330,000 for the period from January 1, 1997 to the
date of the Acquisition and $93,000 from the date of the Acquisition to
December 31, 1997), excluding the non-recurring charge related to the fair
value of purchased in-process research and development. Three of the Operating
Centers--Montgomery, Oradell and Danbury--incurred pretax losses in 1996 of
approximately $311,000, $73,000 and $72,000, respectively. Montgomery and
Danbury incurred pretax losses in 1995 of approximately $371,000 and $28,000,
respectively. There can be no assurance that such Operating Centers will
achieve profitability in 1998 or thereafter. The failure of such Operating
Centers to achieve profitability will have a material adverse effect on the
Company's business, financial condition, results of operations and prospects.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations."
SUBSTANTIAL LEVERAGE AND ABILITY TO SERVICE DEBT. The Company is highly
leveraged, with substantial debt service in addition to operating expenses and
planned capital expenditures. At September 30, 1998, the total indebtedness of
the Company was approximately $72.5 million, net of unamortized original issue
discount of $3.4 million. In October 1998, the Company closed a senior credit
facility for a principal amount of up to $15.0 million (the "Senior Credit
Facility"). As of December 28, 1998, the Company had approximately $5.2
million of borrowings outstanding under the Senior Credit Facility. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
On November 12, 1997, the Company sold $75.0 million in principal amount of
its 12 3/4% Senior Notes due 2001, Series A (the "Old Notes") to Jefferies &
Company, Inc. (the "Initial Purchaser") in a private placement (the "Unit
Offering") of the Old Notes and warrants (the "Warrants") to purchase an
aggregate of 756,645 shares of Common Stock. The Company also issued Warrants
to purchase an aggregate of 302,658 shares to the Initial Purchaser in
connection with the Unit Offering. The Old Notes were thereupon offered and
sold by the Initial Purchaser to certain qualified buyers with the Company
receiving an aggregate of $72.0 million. On March 26, 1998, holders of the Old
Notes exchanged all the Old Notes for $75.0 million in principal amount of the
Company's 12 3/4% Senior Notes due 2001, Series B (the "Exchange Notes")
pursuant to a Registration Statement on Form S-4 filed with the Securities and
Exchange Commission (the "Commission") on January 9, 1998 (the "Exchange
Offer"). The Old Notes and the Exchange Notes (collectively, the "Senior
Notes") were issued pursuant to the indenture (the "Indenture") dated as of
November 12, 1997 by and among VIALOG Corporation, the Operating Centers (as
subsidiary guarantors) and State Street Bank and Trust Company, as Trustee.
The Company's level of indebtedness will have several important effects on
its future operations, including, without limitation, (i) a substantial
portion of the Company's cash flow from operations must be dedicated to the
payment of interest and principal on its indebtedness, (ii) covenants
contained in the Indenture and the Senior Credit Facility require the Company
to meet certain financial tests, and other restrictions contained in the
Indenture and the Senior Credit Facility limit its ability to borrow
additional funds or to dispose of assets, and may affect the Company's
flexibility in planning for, and reacting to, changes in its business,
including possible acquisition activities, (iii) the Company's leveraged
position has substantially increased its vulnerability to adverse changes in
general economic, industry and competitive conditions and (iv) the Company's
ability to obtain additional financing for working capital, capital
expenditures, acquisitions, general corporate and other purposes may be
limited. The Company's ability to meet its debt service obligations and to
reduce its total indebtedness will be dependent upon the Company's future
performance, which will be subject to general economic, industry and
competitive conditions. There can be no assurance that the Company's business
will continue to generate cash flow at or above current levels. If the Company
is unable to generate sufficient cash flow from operations in the future to
service its debt, it may be required, among other things, to seek additional
financing in the debt or equity markets, to refinance or restructure all or a
portion of its indebtedness, to sell selected assets, or to reduce or delay
planned capital expenditures. There can be no assurance that any such
12
<PAGE>
measures would be sufficient to enable the Company to service its debt, or
that any of these measures could be effected on satisfactory terms, if at all.
RESTRICTIONS IMPOSED BY LENDERS. The Indenture and the Senior Credit
Facility contain a number of covenants that restrict the ability of the
Company to dispose of assets, merge or consolidate with another entity, incur
additional indebtedness, create liens, make capital expenditures or other
investments or acquisitions and otherwise restrict corporate activities. The
ability of the Company to comply with such provisions may be affected by
events that are beyond the Company's control. The breach of any of these
covenants could result in a default under the Indenture or the Senior Credit
Facility, which would permit the holders of the Senior Notes and/or the lender
under the Senior Credit Facility to declare all amounts borrowed thereunder to
be due and payable, together with accrued and unpaid interest. If the Company
were unable to repay its indebtedness to the lender under the Senior Credit
Facility, such lender could proceed against any and all collateral securing
such indebtedness. In addition, as a result of these covenants, the ability of
the Company to respond to changing business and economic conditions and to
secure additional financing, if needed, may be significantly restricted, and
the Company may be prevented from engaging in transactions that might
otherwise be considered beneficial to the Company. Any of such events could
adversely impact the market for the Company's Senior Notes and Common Stock.
See "Substantial Leverage and Ability to Service Debt."
COMPETITION. The teleconferencing services industry is highly competitive
and subject to rapid change. The Company currently competes with the following
categories of companies: (i) IXCs, such as AT&T Corporation ("AT&T"), MCI
WorldCom, Inc. ("MCI"), Sprint Corporation ("Sprint"), Frontier Corporation
("Frontier") and Cable & Wireless, Inc. ("Cable & Wireless"), (ii) independent
LECs, such as GTE Corporation ("GTE") and Cincinnati Bell Inc. ("Cincinnati
Bell"), and (iii) other private conference service bureaus ("PCSBs").
According to estimates from industry sources, the IXCs currently serve
approximately 80% of the audio teleconferencing market. Under the
Telecommunications Act of 1996, the RBOCs will also be allowed to provide long
distance services upon the satisfaction of certain conditions, which the
Company believes will lead to their entry into the teleconferencing market. If
the Company is able to expand its video and data conferencing service
offerings, it will encounter additional competition, not only from existing
providers of audio teleconferencing, but also from competitors dedicated to
video and/or data conferencing.
Many of the Company's current and potential competitors have substantially
greater financial, sales, marketing, managerial, operational and other
resources, as well as greater name recognition, than the Company. As a result,
competitors may be able to respond more effectively than the Company to new or
emerging technologies and changes in customer requirements, to initiate or
withstand significant price decreases or to devote substantially greater
resources than the Company in order to develop and promote new services.
Because Multipoint Control Units ("MCUs"), the equipment commonly used to
provide teleconferencing services, are not prohibitively expensive to purchase
or maintain, companies previously not involved in teleconferencing could
choose to enter the marketplace and compete with the Company. There can be no
assurance that new competitors will not enter the Company's markets or that
consolidations or alliances among current competitors will not create
significant new competition. In order to remain competitive, the Company will
be required to provide superior customer service and to respond effectively to
the introduction of new and improved services offered by its competitors. Any
failure of the Company to accomplish these tasks or otherwise to respond to
competitive threats could have a material adverse effect on the Company's
business, financial condition, results of operations and prospects and could
adversely impact the market for the Company's Common Stock.
The Company derived approximately 14% of its 1997 combined net revenues from
IXCs and LECs which outsource teleconferencing services provided to their
respective customers. These telecommunications companies have the financial
capability and expertise to deliver such services internally. There can be no
assurance that the Company's current IXC and LEC customers will not begin to
provide the teleconferencing services currently provided by the Company and
pursue such market actively and in direct competition with the Company.
Moreover, the Company expects to derive a portion of its future revenues from
RBOCs that enter the long distance market and outsource their teleconferencing
services. There can be no assurance that the RBOCs will be able to enter the
long distance market on a timely basis, if at all; that any RBOC entering the
long distance
13
<PAGE>
market will offer teleconferencing services; or that any IXC, LEC or RBOC
offering such services will outsource services or choose the Company as the
provider of such outsourced teleconferencing services. The failure of any such
event to occur could have a material adverse effect on the Company's business,
financial condition, results of operations and prospects and could adversely
impact the market for the Company's Common Stock.
Two of the Company's largest outsourcing customers have acquired or merged
with competitors of the Company. Collectively, these customers accounted for
approximately 13% of the Company's 1997 combined net revenues. Although one of
these customers, representing approximately 9% of the Company's 1997 combined
net revenues, has verbally informed the Company that it will honor its current
outsourcing contract with the Company, which expires in August 1999, there can
be no assurance that such customer will continue to use the Company's services
going forward. The second customer, representing approximately 4% of the
Company's 1997 combined net revenues, has moved its teleconferencing business
to a teleconferencing company it has recently acquired. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
TELECONFERENCING INSOURCING. Many of the Company's current and prospective
customers have sufficient resources to purchase the equipment and hire the
personnel necessary to establish and maintain teleconferencing capabilities
sufficient to meet their own respective teleconferencing needs. Moreover,
technological improvements will further enhance the ability of these customers
to establish internal teleconferencing facilities. There can be no assurance
that any of the Company's customers will not establish internal
teleconferencing facilities or expand existing facilities, then cease to use
the Company's services. The loss of any one or more of such customers could
cause a significant and immediate decline in net revenues, which could have a
material adverse effect on the Company's business, financial condition,
results of operations and prospects and could adversely impact the market for
the Company's Common Stock. See "Business--Customers" and "Business--
Competition."
POTENTIAL ACQUISITIONS. One element of the Company's business strategy is to
acquire additional group communications service businesses. However, the
Company is aware of only a limited number of potential acquisition candidates.
Certain of the Company's principal competitors have each acquired a PCSB,
which may increase competition for the remaining acquisition opportunities in
the teleconferencing industry. Continued consolidation in the industry, and
the potential entry of RBOCs into the teleconferencing industry, may intensify
such competition and increase the price which the Company would have to pay in
connection with any future acquisitions. The Company currently has three
binding agreements to effect acquisitions and has ceased all discussions with
other potential acquisition candidates pending completion of this Offering.
There can be no assurance that the Company will be able to manage additional
businesses profitably or successfully integrate acquired businesses, if any,
into the Company without substantial costs, delays or other operational or
financial problems. The inability of the Company to implement its acquisition
strategy successfully or the failure to integrate new businesses or operations
into its current operations could have a material adverse effect on the
Company's business, financial condition, results of operations and prospects
and could adversely impact the market for the Company's Common Stock. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources," "Business--Growth Strategy" and
"Recent Developments."
RECENT ENTRY INTO VIDEO AND DATA CONFERENCING MARKETS. The Company
introduced its video conferencing services in 1996, and to date only one of
the Operating Centers has invested in video conferencing MCUs or servers. The
Company's combined net revenues for video conferencing were approximately
$13,000 in 1996, $282,000 in 1997 and approximately $545,000 for the nine
months ended September 30, 1998. Only one of the Operating Centers offered
data conferencing services in 1997, and to date no material revenues have been
generated from data conferencing services, since these services were first
offered on a commercial basis in November 1998. The Company has limited
capacity and experience to handle video and data conferencing. Furthermore,
few sales people, reservationists, operators and technical support people are
trained in video and
14
<PAGE>
data conferencing. There can be no assurance that the Company will be able to
obtain significant business from video and data conferencing services or, if
obtained, that the Company has the ability to service such business. See
"Business--The Company's Group Communications Services."
TECHNOLOGICAL CONSIDERATIONS. The Company currently derives a substantial
portion of its net revenues from the sale of audio teleconferencing services.
If the manufacturers of private branch exchanges ("PBXs"), the equipment used
by most businesses and institutions to handle their internal telephone
requirements, develop improved, cost-effective PBX capabilities for handling
teleconferences with the quality and functionality of existing MCUs used in
the teleconferencing business, the Company's customers could choose to
purchase such equipment and hire the personnel necessary to service their
teleconferencing needs through internal telephone systems. The loss of such
customers could have a material adverse effect on the Company's business,
financial condition, results of operations and prospects. Additionally, if
Internet technology can be modified to accommodate multipoint voice
transmission with audio quality comparable to that of MCUs used in the
teleconferencing business, the availability of such technology could have a
material adverse effect on the Company's business, financial condition,
results of operations and prospects and could adversely impact the market for
the Company's Common Stock. See "Business--Competition."
LONG DISTANCE SERVICES CONTRACTS. A significant portion of the Company's
direct costs are attributable to the purchase of local and long distance
telephone services. It has been management's experience that the costs of long
distance services have been decreasing over the past several years. If,
however, the costs of long distance services increase over time, the Company's
current purchasing strategy, which calls for shorter-term contracts, may place
it at a competitive disadvantage with respect to competitors that have entered
into longer-term contracts for long distance services. There can be no
assurance that competition in the long distance services market will continue
to increase, that any increased competition will reduce the cost of long
distance services or that the Company's purchasing strategy will result in
cost savings. In addition, if the Company experiences a shortfall in projected
volume, it may be required to pay a penalty under one or more of its
contracts. There can be no assurance that the Company's analysis of the future
costs of long distance services will be accurate, and the failure to predict
future cost trends accurately could have a material adverse effect on the
Company's business, financial condition, results of operations and prospects
and could adversely impact the market for the Company's Common Stock. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business--Suppliers."
YEAR 2000. The Company recognizes the need to ensure that its operations
will not be adversely impacted by Year 2000 software failures. Software
failures due to processing errors potentially arising from calculations using
the Year 2000 date are a known risk. The Company has performed a preliminary
review of its existing computer programs to address the Year 2000 issue. Based
on the preliminary review, the Company believes that the Year 2000 issue will
not have a significant impact on the operations or the financial results of
the Company. The internally developed computer programs used in the operations
of the Company that are expected to be used beyond the year 1999 are Year 2000
compliant. However, many of the Company's suppliers and customers may be
impacted by Year 2000 complications. The failure of the Company or its
suppliers and customers to ensure that their systems are Year 2000 compliant
could have a material adverse effect on the Company's business, financial
condition, results of operations and prospects and could adversely impact the
market for the Company's Common Stock. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
REGULATION. In general, the telecommunications industry is subject to
extensive regulation by federal, state and local governments. Although there
is little or no direct regulation in the United States of the core group
communications services offered by the Company, various government agencies,
such as the Federal Communications Commission (the "FCC"), have jurisdiction
over some of the Company's current and potential suppliers of
telecommunications services, and government regulation of those services may
have a direct impact on the cost of the Company's group communications
services. There can be no assurance that the FCC or other government agencies
will not seek in the future to regulate the Company as a common carrier and
regulate the prices, conditions or other aspects of the group communications
services offered by the Company, that the FCC will not impose registration,
certification or other requirements on the provision of those services, or
that the Company would be able to comply with any such requirements. The
Telecommunications Act of 1996 is being
15
<PAGE>
contested both administratively and in the courts, and opinions vary widely as
to the effects and timing of various aspects of the law. There can be no
assurances at this time that the Telecommunications Act of 1996 will create
any opportunities for the Company, that local access services will be provided
by the IXCs, or that the RBOCs will be able to offer long distance services
including teleconferencing. The Telecommunications Act of 1996 has effected
significant changes in the telecommunications industry and the Company is
unable to predict the extent to which such changes or the implementation of
the Telecommunications Act of 1996 by the FCC may ultimately affect its
business. In addition, the Company is subject to laws and regulations that
affect its ability to provide certain of its enhanced services, such as those
relating to privacy and the recording of telephone calls. Changes in the
current federal, state or local legislation or regulation could have a
material adverse effect on the Company's business, financial condition,
results of operations and prospects and could adversely impact the market for
the Company's Common Stock. Moreover, government regulations in countries
other than the United States vary widely and may restrict the Company's
ability to offer its services in those countries. See "Business--Regulation."
CONTROL BY EXISTING MANAGEMENT AND STOCKHOLDERS. Upon completion of this
Offering, the Company's executive officers and directors (each, a "Director,"
and collectively, the "Directors"), former stockholders of the Acquired
Companies, and certain stockholders with a long-standing relationship with the
Company or its management will own (i) 1,904,739 shares of Common Stock,
representing approximately 23.0% (21.1% if the Underwriters' over-allotment
option is exercised in full) of the outstanding shares of Common Stock, (ii)
an aggregate of 481,404 vested options to purchase shares of Common Stock and
(iii) an aggregate of 629,596 unvested options to purchase shares of Common
Stock, based upon beneficial ownership determined as of January 1, 1999.
Accordingly, these individuals, as a group, will have the ability to influence
significantly and may be able to control all matters requiring stockholder
approval, including the election of the Directors and any amendments to the
Company's Articles of Organization and By-Laws, and to control the business of
the Company. This concentration of ownership may enable such persons to cause
or prevent a change in control of the Company without the approval of the
other stockholders of the Company, including purchasers of Common Stock in
this Offering. There can be no assurance that this concentration of ownership
will not have an adverse impact on the market for the Common Stock. See
"Principal and Selling Stockholders" and "Description of Capital Stock."
CHANGE OF CONTROL. In the event of a Change of Control (as defined in the
Indenture and which includes the appointment, selection or election of John J.
Hassett, a principal stockholder of the Company, as a Director or officer of
the Company), the Company may be required to repurchase all of the outstanding
Senior Notes at 101% of the principal amount, as the case may be, of the
Senior Notes plus any accrued and unpaid interest thereon, and Additional
Interest (as defined in the Indenture), if any, to the date of repurchase. The
exercise by the holders of the Senior Notes of their rights to require the
Company to offer to purchase Senior Notes upon a Change of Control could also
cause a default under other indebtedness of the Company, even if the Change of
Control itself does not, because of the financial effect of such repurchase on
the Company. There can be no assurance that in the event of a Change of
Control, the Company will have, or will have access to, sufficient funds, or
will be contractually permitted under the terms of outstanding indebtedness,
to pay the required purchase price for any Senior Notes. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
POTENTIAL FLUCTUATION IN QUARTERLY RESULTS. Quarterly net revenues are
difficult to forecast because the market for the Company's services is
competitive and subject to variation. In addition, the consolidation of the
Operating Centers may result in unanticipated operational difficulties. The
Company's expenses are based, in part, on its expectations as to future net
revenues. If net revenues are below expectations, the Company may be unable or
unwilling to reduce expenses, and the failure to do so may have a material
adverse effect on the Company's business, financial condition, results of
operations and prospects. As a result, the Company believes that period-to-
period comparisons of its results of operations are not necessarily meaningful
and should not be relied upon as indications of future performance and could
adversely impact the market for the Company's Common Stock. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
16
<PAGE>
BROAD DISCRETION IN USE OF PROCEEDS. Of the approximately $45.6 million of
net proceeds to the Company from the sale of the shares of Common Stock
offered hereby (based upon an assumed initial public offering price of $11.00
per share), $17.2 million or 38% of such net proceeds ($24.7 million or 47% if
the Underwriters' over-allotment option is exercised in full) will be applied
by the Company for repayment of debt, working capital and general corporate
purposes, which may include future acquisitions. The Company's management will
have broad discretion in the application of such net proceeds. There can be no
assurance that such net proceeds will be applied in a manner which will
improve the Company's business, financial condition, results of operations and
prospects. Furthermore, pending such application such net proceeds will be
invested in short-term, interest-bearing, investment grade securities or
direct or guaranteed obligations of the U.S. government which may provide a
return on investment which could be less than the return on investment to the
Company if such net proceeds were fully invested in the Company's business.
Any failure to invest such net proceeds in an effective manner could adversely
impact the market for the Company's Common Stock. See "Use of Proceeds."
IMMEDIATE AND SUBSTANTIAL DILUTION TO NEW INVESTORS. The initial public
offering price is substantially higher than the net tangible book value per
share of the Common Stock. Investors purchasing shares of Common Stock in this
Offering will therefore incur immediate and substantial net tangible book
value dilution, in the amount of $16.32 per share (based upon an assumed
initial public offering price of $11.00 per share). To the extent that
outstanding options to purchase shares of Common Stock are exercised, there
will be further dilution. See "Dilution."
NO PRIOR PUBLIC MARKET. Prior to this Offering, there has been no public
market for the Common Stock. Therefore, the initial public offering price of
the Common Stock offered hereby will be determined by negotiations between the
Company and the representatives of the Underwriters and may bear no
relationship to the price at which the Common Stock will trade after the
Offering. The market price of the Common Stock could be subject to wide
fluctuations in response to the announcement of operating results below those
of financial analysts' projections, changes in such projections, quarterly
variations in operating results, the emergence of new competitors,
announcements of technological innovations or new services by the Company or
its competitors, trends or changes in the group communications industry, and
other events or factors. In addition, the stock market has experienced extreme
price and volume fluctuations that have particularly affected the market
prices of many communications companies. This market volatility has had a
substantial effect on the market prices of securities issued by companies for
reasons unrelated to the operating performance of such companies. These broad
market fluctuations may have a material adverse effect on the market price of
the Common Stock. See "Underwriting."
POTENTIAL ADVERSE EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE ON PRICE OF
COMMON STOCK. Upon completion of this Offering, there will be 8,293,672 shares
of Common Stock outstanding (9,023,845 shares if the Underwriters' over-
allotment option is exercised in full) (assuming no exercise of options or
warrants after December 31, 1998), of which the 4,867,826 shares being sold in
this Offering (5,597,999 shares if the Underwriters' over-allotment option is
exercised in full) will be freely tradable in the United States without
restriction under the Securities Act unless acquired by "affiliates" of the
Company (as defined in Rule 144 under the Securities Act). The remaining
3,425,846 shares of Common Stock outstanding are "restricted securities" (as
defined in Rule 144 and Rule 701 under the Securities Act) (the "Restricted
Shares") and may not be sold unless registered under the Securities Act or
sold pursuant to an exemption from registration thereunder, such as the
exemption provided by Rule 144. The Company, its officers, Directors and
certain stockholders (holding an aggregate of 3,283,123 shares of Common Stock
and options and warrants to acquire an aggregate of 1,417,003 shares of Common
Stock) have agreed not to, directly or indirectly, offer, sell, offer to sell,
contract to sell, pledge, grant any option to purchase or otherwise sell or
dispose (or announce any offer, sale, offer of sale, contract of sale, pledge,
grant of any option to purchase or other sale or disposition) of any shares of
Common Stock, or any other securities convertible into or exercisable or
exchangeable for any shares of Common Stock (other than pursuant to the 1996
Stock Plan), for a period of 180 days after the date of this Prospectus
without the prior written consent of Prudential Securities Incorporated, on
behalf of the Underwriters. Prudential Securities Incorporated may, in its
sole discretion, at any time and without notice, release all or any portion of
17
<PAGE>
the shares subject to such lock-up agreements. As of 180 days after the date
of this Prospectus, all of the Restricted Shares will be eligible for sale in
the public market pursuant to Rule 144 and Rule 701. The holders of 238,456
shares issued in connection with the Acquisitions and the principal holders of
other Restricted Shares, including the officers and Directors of the Company,
have certain demand registration rights with respect to such shares, as well
as certain piggyback registration rights with respect to such shares. The
holders of the Warrants issued as a part of the Unit Offering have certain
registration rights with respect to an aggregate of 1,059,303 shares issuable
upon exercise of the Warrants. In addition, the Company intends to file one or
more registration statements on Form S-8 with respect to 3,250,000 shares of
Common Stock issued or issuable under its stock option plan. Shares covered by
any such registration statement will be eligible for sale in the public market
upon the effectiveness of such registration statement. The market price of the
Common Stock and the Company's ability to raise capital through sales of
equity securities may be adversely affected by the sale, or availability for
sale, of substantial amounts of Common Stock in the public market following
this Offering. See "Management--1996 Stock Plan," "Description of Capital
Stock--Warrants," "Description of Capital Stock--Certain Registration Rights"
and "Shares Eligible for Future Sale."
EFFECT OF CERTAIN CHARTER AND BY-LAW PROVISIONS AND ANTI-TAKEOVER
PROVISIONS. The Company's Articles of Organization, its By-Laws and certain
Massachusetts laws contain provisions that may discourage acquisition bids for
the Company and that may reduce temporary fluctuations in the trading price of
the Company's Common Stock which may be caused by accumulations of stock,
thereby depriving stockholders of certain opportunities to sell their stock at
temporarily higher prices. The Company's Articles of Organization provide for
a classified Board of Directors, and that Directors may be removed by the
stockholders only for cause. The Company's Articles of Organization also
permit the issuance of 10,000,000 shares of Preferred Stock without
stockholder approval and upon such terms as the Board of Directors may
determine. The rights of the holders of Common Stock will be subject to, and
may be adversely affected by, the rights of the holders of any Preferred Stock
that may be issued in the future. The issuance of Preferred Stock, while
providing desirable flexibility in connection with possible acquisitions and
other corporate purposes, could have the effect of making it more difficult
for a third party to acquire, or of discouraging a third party from acquiring,
a majority of the outstanding stock of the Company. The Company has no present
plans to issue any shares of Preferred Stock. See "Description of Capital
Stock--Preferred Stock" and "Description of Capital Stock--Provisions of
Massachusetts Law and the Company's Articles of Organization and By-Laws."
ABSENCE OF DIVIDENDS. The Company intends to retain future earnings, if any,
for use in the development of its business and does not anticipate declaring
or paying any cash dividends on the Common Stock in the foreseeable future. In
addition, the Company is restricted from paying dividends except in certain
limited circumstances pursuant to the terms of the Indenture and the Senior
Credit Facility. See "Dividend Policy" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
18
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 4,600,000 shares of
Common Stock offered hereby, after deducting underwriting discounts and
commissions and estimated Offering expenses, are estimated to be approximately
$45.6 million ($53.0 million if the Underwriters' over-allotment option is
exercised in full). Approximately $15.9 million of the net proceeds will be
used for the acquisition of ABCC and related expenses, approximately $6.2
million for the acquisition of CPI and related expenses, $6.3 million for the
acquisition of ABCI and related expenses, and approximately $17.2 million
($24.7 million if the Underwriters' over-allotment option is exercised in
full) for working capital, repayment of debt and general corporate purposes,
which may include future acquisitions. The debt to be repaid, which consists
of approximately $273,000 due to the principal stockholder of CPI, is due on
demand and bears an interest rate of 8.0%. Pending such uses, the net proceeds
will be invested in short-term, interest-bearing, investment grade securities
or direct or guaranteed obligations of the U.S. government. The Company will
not receive any proceeds from the sale of shares by the Selling Stockholder.
The Company currently has a binding agreement to acquire ABCC. The purchase
price to be paid pursuant to such agreement, which will be paid out of the
proceeds of this Offering, is $15.2 million in cash ($400,000 of which has
already been paid as a non-refundable deposit) plus (i) approximately $100,000
related to tax reimbursements and (ii) an additional amount, based on ABCC's
closing date balance sheet, equal to the balances of cash plus accounts
receivable (net of a bad debt reserve of 5%) less all liabilities as of the
closing date. Based on ABCC's September 30, 1998 balance sheet, such
additional amount would be approximately $389,000. In addition, the Company
expects to incur approximately $200,000 of acquisition costs. See "Prospectus
Summary--Recent Developments."
The Company currently has a binding agreement to acquire CPI. The purchase
price to be paid pursuant to such agreement, which will be paid out of the
proceeds of this Offering, is $6.0 million in cash plus approximately $50,000
related to tax reimbursements. In addition, the Company expects to incur
approximately $100,000 of acquisition costs and to assume approximately
$464,000 of indebtedness. See "Prospectus Summary--Recent Developments."
The Company currently has a binding agreement to acquire ABCI. The purchase
price to be paid pursuant to such agreement, which will be paid out of the
proceeds of this Offering, is $6.2 million in cash. In addition, the Company
expects to incur approximately $100,000 of acquisition costs and to assume
approximately $471,000 of indebtedness. See "Prospectus Summary--Recent
Developments."
DIVIDEND POLICY
The Company intends to retain all of its earnings, if any, to finance its
business and for general corporate purposes, including possible future
acquisitions, and has no intention of declaring or paying any cash dividends
on its Common Stock for the foreseeable future. Any declaration or payment of
future dividends will be at the discretion of the Board of Directors and will
depend upon, among other factors, the Company's earnings, financial condition,
capital requirements, level of indebtedness, contractual restrictions with
respect to the payment of dividends and other considerations that the
Company's Board of Directors deems relevant. Pursuant to the terms of the
Indenture and the Senior Credit Facility, the Company is prohibited from
declaring or paying any dividends or distributions other than dividends or
distributions payable solely in certain qualified capital stock of the
Company.
19
<PAGE>
CAPITALIZATION
The following table sets forth the cash, current maturities of long-term
obligations and capitalization of the Company at September 30, 1998 and as
adjusted to give effect to this Offering and the application of the estimated
net proceeds to the Company therefrom, including the acquisitions of ABCC, CPI
and ABCI. See "Use of Proceeds." This table should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," the Consolidated Financial Statements and the Unaudited Pro Forma
Consolidated Financial Statements of the Company and the related notes thereto
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
--------------------------
PRO FORMA
ACTUAL AS ADJUSTED
----------- -------------
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
Cash and cash equivalents............................ $ 1,093 $ 18,600
=========== ===========
Current maturities of long-term debt (1)............. $ 362 $ 838
=========== ===========
Long-term debt:
Senior Notes due 2001 (2).......................... $ 71,613 $ 71,613
Other indebtedness (1)............................. 480 666
----------- -----------
Total long term debt (3)......................... 72,093 72,279
----------- -----------
Stockholders' equity (deficit):
Common stock....................................... 37 83
Additional paid-in capital......................... 11,811 57,323
Accumulated deficit................................ (25,697) (25,697)
----------- -----------
Total stockholders' equity (deficit)............. (13,849) 31,709
----------- -----------
Total capitalization............................. $ 58,244 $ 103,988
=========== ===========
</TABLE>
- --------
(1) Primarily represents capitalized lease obligations with varying terms and
conditions.
(2) Net of unamortized original issue discount of $3.4 million.
(3) Excludes the Senior Credit Facility entered into on October 6, 1998 with
Coast Business Credit. At December 28, 1998, approximately $5.2 million
was outstanding on the Senior Credit Facility.
20
<PAGE>
DILUTION
Purchasers of the Common Stock offered hereby will experience an immediate
and substantial dilution in the net tangible book value of the Common Stock
from the initial public offering price. The deficit in net tangible book value
of the Company as of September 30, 1998 was approximately $62.9 million or
approximately $17.07 per share of Common Stock. The deficit in net tangible
book value per share represents the amount by which the Company's total
liabilities exceed the Company's net tangible assets divided by the number of
outstanding shares of Common Stock. After giving effect to the sale of the
4,600,000 shares of Common Stock offered by the Company at an assumed initial
public offering price of $11.00 per share, and after deducting underwriting
discounts and commissions and estimated Offering expenses payable by the
Company as well as the acquisitions of ABCC, CPI and ABCI, the Company's pro
forma deficit in net tangible book value at September 30, 1998 would have been
approximately $44.1 million or approximately $5.32 per share. This represents
an immediate and substantial increase in net tangible book value of
approximately $11.75 per share to existing stockholders and an immediate and
substantial dilution of approximately $16.32 per share to new investors
purchasing the shares in this Offering. The following table illustrates the
per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price..................... $11.00
Deficit in net tangible book value before the Offering.. $(17.07)
Increase in net tangible book value attributable to new
investors.............................................. $ 11.75
-------
Pro forma deficit in net tangible book value after the
Offering................................................. $(5.32)
------
Dilution to new investors................................. $16.32
======
</TABLE>
The following table sets forth as of September 30, 1998 the number of shares
of Common Stock purchased from the Company, the total consideration paid and
the average price per share paid by existing stockholders and the new
investors purchasing shares of Common Stock from the Company in this Offering
(before deducting underwriting discounts and commissions and estimated
Offering expenses):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
----------------- ------------------- PRICE
NUMBER(1) PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders........... 3,686,172 44.5% $ 4,554,000 8.3% $ 1.24
New investors................... 4,600,000 55.5% 50,600,000 91.7% 11.00
--------- ----- ----------- ----- ------
Total........................... 8,286,172 100.0% $55,154,000 100.0% $ 6.66
========= ===== =========== ===== ======
</TABLE>
- --------
(1) The number of shares disclosed for the existing stockholders includes
267,826 shares being sold by the Selling Stockholder in the Offering. The
number of shares disclosed for the new investors does not include the
267,826 shares being purchased by the new investors from the Selling
Stockholder.
21
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data presented below as of December 31, 1996 and 1997
and for the years then ended are derived from the consolidated financial
statements of VIALOG Corporation, which financial statements have been audited
by KPMG Peat Marwick LLP, independent certified public accountants. The
selected financial data presented below for the nine months ended September
30, 1997 and 1998 and as of September 30, 1998 are derived from the unaudited
consolidated financial statements of VIALOG Corporation. In the opinion of
management, the unaudited consolidated financial statements have been prepared
on the same basis as the audited consolidated financial statements and include
all adjustments (consisting of only normal recurring adjustments) necessary
for a fair presentation of the financial position and results of operations
for such periods. The selected financial data for the nine month period ended
September 30, 1998 are not necessarily indicative of the results that may be
expected for the year ended December 31, 1998.
In addition, the following selected unaudited pro forma financial data
presents certain data for the Company for the year ended December 31, 1997 and
the nine months ended September 30, 1998 to give effect to (i) the
Acquisitions and the acquisitions of ABCC, CPI and ABCI on an historical
basis, (ii) certain pro forma adjustments to the historical financial
statements (iii) the consummation of the Unit Offering and (iv) the
consummation of this Offering. The following selected financial data should be
read in conjunction with the "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Consolidated Financial
Statements and the notes thereto included elsewhere in this Prospectus. See
also the Unaudited Pro Forma Consolidated Financial Statements and the notes
thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA CONSOLIDATED
YEAR ENDED CONSOLIDATED NINE MONTHS ENDED NINE MONTHS
DECEMBER 31, YEAR ENDED SEPTEMBER 30, ENDED
-------------------- DECEMBER 31, -------------------- SEPTEMBER 30,
1996 1997 1997(1) 1997 1998 1998(1)
--------- --------- ------------ --------- --------- -------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
Net revenues............ $ -- $ 4,816 $ 45,591 $ -- $ 34,770 $ 44,181
Cost of revenues,
excluding
depreciation(2)........ -- 2,492 22,296 -- 17,864 21,293
Selling, general and
administrative
expenses(3)............ 1,308 7,178 17,744 3,888 11,627 13,989
Depreciation expense.... -- 273 2,808 10 1,990 2,336
Amortization of goodwill
and intangible
assets(4).............. -- 306 3,846 -- 1,870 2,885
Non-recurring charge.... -- 8,000 -- -- 1,200 1,200
--------- --------- --------- --------- --------- ---------
Operating income
(loss)................. (1,308) (13,433) (1,103) (3,898) 219 2,478
Interest expense, net... 1 (1,866) (12,933) (110) (9,310) (9,422)
--------- --------- --------- --------- --------- ---------
Loss before income
taxes.................. (1,307) (15,299) (14,036) (4,008) (9,091) (6,944)
Income tax expense
(benefit).............. (522) 522 522 -- -- --
--------- --------- --------- --------- --------- ---------
Net loss................ $ (785) $ (15,821) $ (14,558) $ (4,008) $ (9,091) $ (6,944)
========= ========= ========= ========= ========= =========
Net loss per share -
basic and diluted...... $ (0.38) $ (5.48) $ (1.83) $ (1.44) $ (2.51) $ (0.85)
========= ========= ========= ========= ========= =========
Weighted average shares
outstanding(5)......... 2,088,146 2,889,005 7,962,284 2,781,967 3,615,362 8,215,362
========= ========= ========= ========= ========= =========
OTHER FINANCIAL DATA:
EBITDA(6)............... $ (1,308) $ (4,854) $ 5,551 $ (3,888) $ 4,079 $ 7,699
Cash flows provided by
(used in)
operating activities... (178) (4,148) 6,457 (758) (1,221) 2,063
Cash flows used in
investing activities... (7) (53,762) (85,581) (226) (6,522) (6,581)
Cash flows provided by
(used in)
financing activities... 522 67,140 105,562 723 (731) (3,182)
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30, 1998
--------------- ------------------------------
PRO FORMA
AS
1996 1997 ACTUAL PRO FORMA ADJUSTED(8)
------ ------- ------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET
DATA:
Cash and cash equivalents..... $ 337 $ 9,567 $ 1,093 $ 1,211 $18,600
Working capital (deficit) .... (249) 7,259 (2,017) (30,082) 15,203
Total assets.................. 1,263 75,083 69,897 99,857 116,803
Total long-term debt,
including current
portion(7)................... -- 71,936 72,455 73,117 73,117
Stockholders' equity
(deficit).................... 287 (4,882) (13,849) (13,849) 31,709
</TABLE>
- --------
(1) Computed on the basis described in Note 4 to the Unaudited Pro Forma
Consolidated Financial Statements and does not include a non-recurring
charge of $8.0 million for purchased in-process research and development
recorded in the year ended December 31, 1997. Pro forma consolidated
results for the year ended December 31, 1997 and the nine months ended
September 30, 1998 reflect certain reductions of approximately $1.3
million and $237,000, respectively, in compensation and benefits for the
owners and certain key employees and consultants of the Operating Centers,
ABCC, CPI and ABCI to specified amounts that the individuals agreed to
accept subsequent to the Acquisitions and the acquisitions of ABCC, CPI
and ABCI and royalties under agreements that were terminated.
(2) Certain of the Operating Centers, ABCC and CPI have entered into new
contracts for long distance telephone service. Had these contracts been in
effect as of January 1, 1997, cost of revenues for the year ended
December 31, 1997 and the nine months ended September 30, 1998 would have
decreased by $1.8 million and $817,000, respectively.
(3) The pro forma consolidated results for the year ended December 31, 1997
include certain one-time charges, including (i) approximately $2.2 million
(of which approximately $2.0 million was recorded by VIALOG Corporation
and $219,000 was recorded by the Operating Centers) related to an offering
of common stock which was terminated in early 1997, (ii) a $958,000 non-
cash charge related to the modification of certain stock options and (iii)
a $312,000 charge recorded by one of the Operating Centers prior to the
Acquisition, related to the write-off of a consulting agreement and an
agreement not to compete, which were determined by such Operating Center
to have no future value. The results for the nine months ended September
30, 1997 include the approximately $2.0 million one-time charge recorded
by VIALOG Corporation related to an initial public offering which was
terminated in early 1997. The results for the nine months ended September
30, 1998 include a one-time charge of $508,000 for compensation and other
costs related to severance agreements for two former employees.
(4) Reflects amortization of goodwill and intangible assets recorded as a
result of the Acquisitions and the acquisitions of ABCC, CPI and ABCI over
periods ranging from 5 to 25 years.
(5) Pro forma weighted average shares outstanding reflect 559,300 shares
issued in connection with the acquisition of the Operating Centers and the
4,600,000 shares to be issued in connection with this Offering as if they
had been outstanding since January 1, 1997.
(6) EBITDA represents income from continuing operations before income taxes,
depreciation and amortization. EBITDA is not a measurement presented in
accordance with generally accepted accounting principles and should not be
considered as an alternative to net income as a measure of operating
results or as an alternative to cash flows as a better measure of
liquidity. EBITDA does not represent funds available for management's
discretionary use. The Company believes that EBITDA is accepted by the
telecommunications industry as a generally recognized measure of
performance and is used by analysts to report publicly on the performance
of telecommunications companies.
(7) Net of unamortized original issue discount of $4.2 million and $3.4
million at December 31, 1997 and September 30, 1998, respectively.
Excludes the Senior Credit Facility signed on October 6, 1998 with Coast
Business Credit. At December 28, 1998, approximately $5.2 million was
outstanding on the Senior Credit Facility.
(8) Adjusted to give effect to the application of the estimated net proceeds
to the Company of this Offering as described under "Use of Proceeds."
23
<PAGE>
ACCESS AND CSI SELECTED FINANCIAL DATA
VIALOG reports operating results commencing with its inception on January 1,
1996. For the purpose of providing five full years of selected historical
financial data, as required under the Securities Act, the following historical
selected financial data is presented for the two largest Operating Centers,
the Reston Center (known as Telephone Business Meetings, Inc., or "Access,"
prior to its Acquisition) and the Atlanta Center (known as Conference Source
International, Inc., or "CSI," prior to its Acquisition). The selected data as
of December 31, 1995 and 1996 and for the years ended December 31, 1994, 1995
and 1996 and the period January 1, 1997 to November 12, 1997, the date of
their respective Acquisitions, are derived from, and should be read in
conjunction with, Access' and CSI's respective audited financial statements
and the notes thereto appearing elsewhere in this Prospectus. The selected
data as of December 31, 1994 are derived from Access' and CSI's respective
audited financial statements. The selected data as of December 31, 1993 and
for the year then ended are derived from Access' and CSI's respective
unaudited financial statements for that year. The data presented below is
neither comparable to nor indicative of the Company's post-Acquisition
financial position or results of operations.
<TABLE>
<CAPTION>
JANUARY 1,
YEAR ENDED DECEMBER 31, 1997 TO
------------------------------------ NOVEMBER 12,
1993 1994 1995 1996 1997
------- ------- ------- --------- ------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE
DATA)
<S> <C> <C> <C> <C> <C>
ACCESS STATEMENT OF OPERATIONS DATA:
Net revenues................................. $ 3,814 $ 5,114 $ 6,508 $ 9,073 $ 10,945
Cost of revenues, excluding depreciation..... 1,831 2,608 3,021 3,564 4,791
Selling, general and administrative ex-
penses...................................... 1,217 1,691 2,484 3,332 4,124
Depreciation and amortization expense........ 198 269 496 630 823
------- ------- ------- --------- ---------
Operating income............................. 568 546 507 1,547 1,207
Interest expense, net........................ 37 49 152 174 132
------- ------- ------- --------- ---------
Earnings before income taxes................. 531 497 355 1,373 1,075
Income tax expense (benefit)................. 54 52 (48) -- --
------- ------- ------- --------- ---------
Net income................................... $ 477 $ 445 $ 403 $ 1,373 $ 1,075
======= ======= ======= ========= =========
Net income per share - basic and diluted..... $477.00 $445.00 $644.80 $2,746.00 $2,150.00
======= ======= ======= ========= =========
Weighted average shares outstanding.......... 1,000 1,000 625 500 500
======= ======= ======= ========= =========
ACCESS OTHER FINANCIAL DATA:
EBITDA(1).................................... $ 766 $ 815 $ 1,003 $ 2,177 $ 2,030
Cash flows provided by operating activities.. 525 592 821 2,048 2,932
Cash flows used in investing activities...... (497) (557) (1,432) (795) (1,704)
Cash flows provided by (used in) financing
activities.................................. 146 22 771 (839) (1,549)
<CAPTION>
DECEMBER 31,
------------------------------------
1993 1994 1995 1996
------- ------- ------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ACCESS BALANCE SHEET DATA:
Cash and cash equivalents.................... $ 172 $ 230 $ 390 $ 804
Working capital.............................. 351 475 141 759
Total assets................................. 1,516 1,991 3,672 4,605
Total long-term debt, including current por-
tion........................................ 565 626 2,416 2,052
Stockholders' equity......................... 750 1,156 872 1,770
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
JANUARY 1,
YEAR ENDED DECEMBER 31, 1997 TO
------------------------------------ NOVEMBER 12,
1993 1994 1995 1996 1997
-------- ------ ------- --------- -------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CSI STATEMENT OF OPERA-
TIONS DATA:
Net revenues.............. $ 1,228 $2,331 $ 3,808 $ 5,868 $ 5,579
Cost of revenues, exclud-
ing depreciation......... 892 1,256 1,617 2,438 2,052
Selling, general and ad-
ministrative expenses.... 640 707 905 998 831
Depreciation expense...... 122 235 292 393 356
-------- ------ ------- --------- ---------
Operating income (loss)... (426) 133 994 2,039 2,340
Interest expense, net..... 19 124 160 165 120
-------- ------ ------- --------- ---------
Net income (loss)......... $ (445) $ 9 $ 834 $ 1,874 $ 2,220
======== ====== ======= ========= =========
Net income (loss) per
share - basic and dilut-
ed....................... $(445.00) $ 9.00 $834.00 $1,874.00 $2,220.00
======== ====== ======= ========= =========
Weighted average shares
outstanding.............. 1,000 1,000 1,000 1,000 1,000
======== ====== ======= ========= =========
CSI OTHER FINANCIAL DATA:
EBITDA(1)................. $ (304) $ 368 $ 1,286 $ 2,432 $ 2,696
Cash flows provided by op-
erating activities....... (241) 53 721 2,128 2,897
Cash flows used in invest-
ing activities........... (163) (476) (225) (41) (311)
Cash flows provided by
(used in) financing ac-
tivities................. 395 426 (144) (2,144) (2,801)
<CAPTION>
DECEMBER 31,
------------------------------------
1993 1994 1995 1996
-------- ------ ------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CSI BALANCE SHEET DATA:
Cash and cash equiva-
lents.................... $ 20 $ 23 $ 375 $ 318
Working capital (defi-
cit)..................... (681) (805) (322) 445
Total assets.............. 591 1,378 2,037 2,293
Total long-term debt, in-
cluding current portion.. 867 1,590 1,446 1,405
Stockholders' equity (def-
icit).................... (483) (474) 360 676
</TABLE>
- --------
(1) EBITDA represents income from continuing operations before income taxes,
depreciation and amortization. EBITDA is not a measurement presented in
accordance with generally accepted accounting principles and should not be
considered as an alternative to net income as a measure of operating
results or as an alternative to cash flows as a better measure of
liquidity. EBITDA does not represent funds available for management's
discretionary use. The Company believes that EBITDA is accepted by the
telecommunications industry as a generally recognized measure of
performance and is used by analysts to report publicly on the performance
of telecommunications companies.
25
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF
OPERATIONS
This Prospectus contains forward-looking statements. The words "anticipate,"
"believe," "expect," "plan," "intend," "estimate," "project," "will," "could,"
"may" and similar expressions are intended to identify forward-looking
statements. These statements include information regarding future net cash
flows. Such statements reflect the Company's current views with respect to
future events and financial performance and involves certain risks and
uncertainties, including without limitation the risks described in "Risk
Factors." Should one or more of these risks or uncertainties occur, or should
underlying assumptions prove incorrect, actual results may vary materially and
adversely from those anticipated, believed, estimated or otherwise indicated.
VIALOG Corporation was founded on January 1, 1996. On November 12, 1997,
VIALOG Corporation consummated the Acquisitions, and the Operating Centers
became wholly-owned subsidiaries of VIALOG Corporation. Contemporaneously with
the closing of the Acquisitions, VIALOG Corporation closed the Unit Offering.
Simultaneously with the closing of this Offering, VIALOG Corporation will
acquire all of the outstanding capital stock of ABCC, CPI and ABCI. The
following discussion should be read in conjunction with the consolidated
financial statements and related notes thereto for the years ended December
31, 1996 and 1997, the financial statements and related notes thereto of the
Operating Centers prior to the Acquisitions for the years ended December 31,
1994, 1995 and 1996, the financial statements and related notes thereto of
ABCC for the years ended December 31, 1996 and 1997 and "Selected Financial
Data" appearing elsewhere in this Prospectus.
INTRODUCTION
The Company's net revenues are derived primarily from fees charged to
customers for audio teleconferencing services as well as video conferencing
and enhanced and customized communication services. Cost of revenues,
excluding depreciation consists primarily of long distance telephone and
network charges, salaries and benefits for operators, and maintenance of
telephone bridging equipment. Selling, general and administrative expenses
consist primarily of compensation and benefits to sales and marketing
personnel, executive officers and general and administrative employees,
marketing expenses, occupancy costs and professional fees.
Prior to the Acquisitions, the Operating Centers were managed as independent
private companies, and as such, their results of operations reflect different
tax structures (S corporations and C corporations) which have influenced,
among other things, their levels of historical compensation. Certain officers
and employees of the Operating Centers agreed to reductions in their
compensation and benefits in connection with the Acquisitions. The difference
between the historical compensation and benefits of such individuals and the
compensation and benefits they agreed to accept subsequent to the Acquisitions
is referred to as "Compensation Differential." This Compensation Differential
and the related income tax effect have been reflected as pro forma adjustments
in the Company's Unaudited Pro Forma Consolidated Statement of Operations.
The Company, which has only conducted operations since November 12, 1997
(other than in connection with certain financing transactions, the Unit
Offering and the Acquisitions), has integrated several of its operations,
including sales, marketing, and most human resource, benefits administration
and cash management functions, and intends to continue to integrate certain
operations and administrative functions of the Operating Centers over a period
of time. Specifically, over the next 3 to 9 months, the Company plans to
integrate the reservations, billing, purchasing, management information
systems and accounting functions. The Company estimates that the cost to
integrate these activities will be between $1.0 million and $1.5 million. This
integration process is expected to present opportunities to reduce costs
through the elimination of duplicative functions and through economies of
scale, particularly from reductions in long distance telephone charges as a
result of new agreements recently entered into by the Operating Centers. It is
anticipated that these savings will be partially offset by the costs related
to the Company's new management. In addition, it is anticipated that increased
marketing costs will initially be required to establish the Company's brand
name in the marketplace. As a result
26
<PAGE>
of these various costs and possible cost-savings, comparisons of historical
operating results may not be meaningful, and such results may not be
indicative of future performance.
VIALOG CORPORATION
RESULTS OF OPERATIONS
Nine Months Ended September 30, 1998 Compared to Nine Months Ended September
30, 1997
VIALOG Corporation was incorporated on January 1, 1996. Prior to the
Acquisitions of the Operating Centers, VIALOG Corporation did not conduct any
operations, and all activities conducted by it were related to the
Acquisitions and the completion of financing transactions to fund the
Acquisitions.
Net revenues and cost of revenues, excluding depreciation. As VIALOG
Corporation did not conduct any operations prior to November 12, 1997, there
were no revenues and cost of revenues, excluding depreciation for the nine
months ended September 30, 1997. Net revenues and cost of revenues, excluding
depreciation for the nine months ended September 30, 1998 represent the
consolidated results of the Company, including the Operating Centers.
Two of the Company's largest outsourcing customers have acquired or merged
with competitors of the Company. Collectively, these customers accounted for
approximately 13% of the Company's 1997 combined net revenues. One of these
customers, representing approximately 9% of the Company's 1997 combined net
revenues, has verbally informed the Company that it will honor its current
oursourcing contract with the Company, which expires in August 1999. The
second customer, representing approximately 4% of the Company's 1997 combined
net revenues, has moved its teleconferencing business to a teleconferencing
company it has recently acquired. Although a significant reduction in or loss
of net revenues from these customers could reduce the Company's expected net
revenues and operating results in the near term, the Company believes that the
long-term impact to net revenues and results of operations will not be
significant.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $7.7 million, or 199%, from $3.9 million to
$11.6 million for the nine months ended September 30, 1997 and 1998,
respectively. The increase was primarily due to the fact that selling, general
and administrative expenses for the nine months ended September 30, 1997
represented only general and administrative expenses related to the
organization of VIALOG Corporation and the consummation of business
combination agreements with the Operating Centers, while the expenses for the
nine months ended September 30, 1998 represent consolidated selling, general
and administrative expenses of the Company, including the Operating Centers.
Selling, general and administrative expenses for the nine months ended
September 30, 1997 and 1998 consisted primarily of the following: (i)
compensation, benefits and travel expenses of $1.0 million and $7.7 million,
respectively, (ii) certain marketing expenses, including advertising,
promotions, trade shows and consulting, of $240,000 and $1.3 million,
respectively, (iii) professional services expenses of $2.5 million and
$691,000 respectively, (iv) occupancy costs of $116,000 and $610,000,
respectively, (v) materials, supplies and equipment related costs of $31,000
and $573,000, respectively, (vi) taxes and insurance costs of $1,000 and
$318,000, respectively, and (vii) all other costs of $13,000 and $454,000,
respectively. Included in professional services expenses for the nine months
ended September 30, 1997 is approximately $2.0 million related to an initial
public offering which was terminated in early 1997. Included in selling,
general and administrative expenses for the nine months ended September 30,
1998 is approximately $508,000 for compensation and legal expenses related to
severance agreements for two former employees.
Depreciation and amortization expense. Depreciation expense increased $1.4
million from $7,000 to $1.4 million for the nine months ended September 30,
1997 and 1998, respectively. The increase was primarily due to the fact that
VIALOG Corporation did not conduct operations during the nine months ended
September 30, 1997, while depreciation expense for the nine months ended
September 30, 1998 represents consolidated depreciation expense of the
Company, including the Operating Centers.
27
<PAGE>
Non-recurring charge. The results for the nine months ended September 30,
1998 include a non-recurring charge of $1.2 million related to the
consolidation of the Atlanta and Montgomery Operating Centers. The combined
Operating Center will operate in a new facility in Montgomery, Alabama. The
charge includes $908,000 associated with personnel reductions of approximately
45 positions in the Atlanta Center and closing of the Atlanta facility, and
includes $292,000 associated with the disposal and impairment of assets in
both the Atlanta and Montgomery Centers. No amounts have been paid as of
September 30, 1998.
Interest expense, net. Interest expense, net increased $9.2 million for the
nine months ended September 30, 1998 compared to the nine months ended
September 30, 1997. The increase was primarily due to (i) approximately $7.2
million of interest expense on the $75.0 million of Senior Notes and (ii)
approximately $2.2 million of non-cash interest expense related to the
amortization of deferred debt issuance costs and original issue discount on
the Senior Notes, both of which were partially offset by increased interest
income of approximately $186,000 due to increased cash balances.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
VIALOG Corporation incurred a net loss of $785,000 and $15.8 million for the
years ended December 31, 1996 and 1997, respectively. The 1996 net loss
represented general and administrative expenses, which consisted primarily of
legal costs of $93,000, travel costs of $133,000, salaries of $583,000,
consulting fees of $301,000, occupancy costs of $71,000 and all other costs of
$126,000, which were offset by an income tax benefit of $522,000, all related
to the organization of VIALOG Corporation and the consummation of business
combination agreements with the Operating Centers. The 1997 net loss included
expenses incurred prior to the Acquisitions, as well as consolidated net
revenues and expenses of the Operating Centers from the date of the
Acquisitions through December 31, 1997. The $15.8 million net loss included
$4.8 million of consolidated net revenues and $2.5 million of consolidated
cost of revenues, excluding depreciation from the date of the Acquisitions
through December 31, 1997, $7.2 million of selling, general and administrative
expenses (which included approximately $2.0 million related to an offering of
Common Stock which was terminated in early 1997 and a $958,000 non-cash charge
relating to the modification of certain stock options), $306,000 of
amortization of goodwill and intangibles related to the Acquisitions, $273,000
of depreciation expense, an $8.0 million non-recurring charge relating to the
write-off of purchased in-process research and development, $1.8 million of
interest expense relating primarily to the Senior Notes and $522,000 of income
tax expense. Selling, general and administrative expenses of $7.2 million for
the year ended December 31, 1997 consisted primarily of the following:
compensation, benefits and travel expenses of $3.0 million (including the
$958,000 non-cash charge discussed above), certain marketing expenses,
including advertising, promotions, and consulting, of $490,000, professional
services expenses of $3.4 million (including the approximate $2.0 million
charge discussed above), occupancy costs of $216,000 and all other costs of
$92,000.
The $8.0 million write-off of purchased in-process research and development
noted above represents the amount of the purchase price of the Acquisitions
allocated to incomplete research and development projects. This allocation
represents the estimated fair value based on risk-adjusted cash flows related
to the incomplete products. The acquired in-process research and development
represents engineering and test activities associated with the introduction of
new enhanced services and information systems. The Operating Centers are
working on projects that are essential to offering high quality, secure and
reliable products including unattended audio conferencing, video and data
teleconferencing, integrated voice response and broadcast fax services. Since
these projects had not yet reached technological feasibility and have no
alternative future uses, there can be no guarantee as to the achievability of
the projects or the ascribed values. Accordingly, these costs were expensed as
of November 12, 1997, the date VIALOG Corporation acquired the Operating
Centers. These projects are expected to be completed within 18 months at a
cost of approximately $2.0 million in 1998 and $300,000 in 1999. The Company
expects to begin realizing incremental benefits as the projects are completed.
The failure of the Company to successfully complete the research and
development projects could have a material adverse effect on the Company's
future results of operations and financial condition.
VIALOG had net operating loss carryforwards of $0 and $3.9 million at
December 31, 1996 and 1997, respectively, which expire in 2012. Utilization of
the net operating losses may be subject to an annual limitation
28
<PAGE>
provided by change in ownership provisions of Section 382 of the Internal
Revenue Code of 1986, as amended (the "Code") and similar state provisions. In
assessing the realizability of deferred tax assets, VIALOG considers whether
it is more likely than not that some portion or all of the deferred tax assets
will not be realized. Based on management's projections for future taxable
income, a valuation allowance has been established for the deferred tax
assets. See Note 9 to VIALOG's Consolidated Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
VIALOG Corporation generated negative cash flows from operating activities
of $178,000, $4.1 million and $1.2 million for the years ended December 31,
1996 and 1997 and the nine months ended September 30, 1998, respectively. Cash
flows used in investing activities of $7,000, $53.8 million and $6.5 million
for the years ended December 31, 1996 and 1997 and the nine months ended
September 30, 1998, respectively, represent cash paid in connection with the
Acquisitions of $0, $53.3 million and $0, respectively, purchases of property
and equipment of $7,000, $454,000 and $6.1 million, respectively, and $381,000
related to deferred acquisition costs for the nine months ended September 30,
1998. Cash provided by financing activities of $522,000 and $67.1 million for
the years ended December 31, 1996 and 1997, respectively, represents issuance
of long-term debt and common stock, offset by payments of previously issued
debt and payments of indebtedness of the Operating Centers. Cash used in
financing activities of $731,000 for the nine months ended September 30, 1998
represents payments of indebtedness of the Operating Centers and deferred
costs relating to this Offering, offset by proceeds from the exercise of stock
options.
On November 12, 1997, VIALOG completed a Private Placement of $75.0 million
of Senior Notes, Series A. The Senior Notes bear interest at 12 3/4% per
annum, payable semi-annually on May 15 and November 15 of each year,
commencing May 15, 1998. The Senior Notes are guaranteed by the Operating
Centers (and will be guaranteed by ABCC, CPI and ABCI after each is acquired
by VIALOG Corporation) and mature on November 15, 2001. The Senior Notes are
redeemable in whole or in part at the option of VIALOG on or after November
15, 1999 at 110% of the principal amount thereof, and on or after November 15,
2000 at 105% of the principal amount thereof until maturity, in each case
together with accrued interest to the date of redemption. In addition, there
are certain other early redemption options available to VIALOG at any time on
or prior to November 15, 1999 at certain premiums, as specified in the
Indenture. In the event of a change in control, as defined in the Indenture,
the Company may be required to repurchase all of the outstanding Senior Notes
at 101% of the principal amount plus accrued interest and additional interest,
if any. The Indenture contains restrictive covenants with respect to the
Company that among other things, create limitations (subject to certain
exceptions) on (i) the incurrence of additional indebtedness, (ii) the ability
of the Company to purchase, redeem or otherwise acquire or retire any Common
Stock or warrants, rights or options to acquire Common Stock, to retire any
subordinated indebtedness prior to final maturity or to make investments in
any person, (iii) certain transactions with affiliates, (iv) the ability to
materially change the present method of conducting business, (v) the granting
of liens on property or assets, (vi) mergers, consolidations and the
disposition of assets, (vii) declaring and paying any dividends or making any
distribution on shares of Common Stock, and (viii) the issuance or sale of any
capital stock of the Company's subsidiaries. The Indenture does not require
VIALOG to maintain compliance with any financial ratios or tests, except with
respect to certain restrictive covenants noted above. The Company is in
compliance with all covenants contained in the Indenture.
On October 6, 1998, the Company closed a two year, $15.0 million credit
facility (the "Senior Credit Facility") with Coast Business Credit, a division
of Southern Pacific Bank. Subject to the meeting of certain conditions, the
Senior Credit Facility provides for (i) a term loan in the principal amount of
$1.5 million, (ii) a term loan of up to 80% of the purchase price of new and
used equipment, not to exceed $4.0 million, and (iii) a revolving loan based
on a percentage of eligible accounts receivable. Loans under the Senior Credit
Facility will bear interest at the higher of 7% or the Prime Rate plus 1 1/2%,
and interest will be based on a minimum outstanding principal balance of the
greater of $5.0 million or 33% of the available Senior Credit Facility. The
Senior Credit Facility includes certain early termination fees. The Senior
Credit Facility is secured by the assets of each of the Operating Centers and
the assets of VIALOG Corporation, excluding the ownership interest in each of
the Operating Centers. The Company is required to maintain compliance with
certain financial ratios and
29
<PAGE>
tests, including a debt service coverage ratio and minimum net worth level. As
of December 28, 1998, the Company had borrowed $1.4 million on the term loan,
$1.7 million on the equipment term loan, and $2.1 million on the revolving
loan.
The Company anticipates that its cash flows from operations, supplemented by
borrowings under the Senior Credit Facility, will meet or exceed its working
capital needs, debt service requirements and planned capital expenditures for
property and equipment for the next twelve months. The Company expects to meet
its longer term liquidity requirements including repayment of the Senior
Notes, through a combination of working capital, cash flow from operations,
borrowings, net proceeds from this Offering, and future issuances of debt
and/or equity securities. However, no assurances can be given that such funds
will be available when required or on terms favorable to the Company.
In May 1998, the Company signed a definitive merger agreement to acquire all
of the outstanding capital stock of ABCC, simultaneously with and contingent
upon the closing of this Offering. The acquisition will be accounted for using
the purchase method of accounting. The total purchase price is $15.2 million
in cash ($400,000 of which has already been paid as a non-refundable deposit)
plus (i) approximately $100,000 related to tax reimbursements and (ii) an
additional amount, based on ABCC's closing date balance sheet, equal to the
balances of cash plus accounts receivable (net of a bad debt reserve of 5%)
less all liabilities as of the closing date. Based on ABCC's September 30,
1998 balance sheet, such additional amount would be approximately $389,000. In
addition, the Company expects to incur approximately $200,000 of acquisition
costs.
In December 1998, the Company signed a definitive merger agreement to
acquire all of the outstanding capital stock of CPI, simultaneously with and
contingent upon the closing of a financing arrangement. The acquisition will
be accounted for using the purchase method of accounting. The total purchase
price is $6.0 million in cash plus approximately $50,000 related to tax
reimbursements. In addition, the Company expects to incur approximately
$100,000 of acquisition costs and to assume approximately $464,000 of
indebtedness. The Company is in the process of obtaining the consent of Coast
Business Credit to such acquisition.
In December 1998, the Company signed a definitive merger agreement to
acquire all of the outstanding capital stock of ABCI, simultaneously with and
contingent upon the closing of a financing arrangement. The acquisition will
be accounted for using the purchase method of accounting. The total purchase
price is $6.2 million in cash. In addition, the Company expects to incur
approximately $100,000 of acquisition costs and to assume approximately
$471,000 of indebtedness. The Company is in the process of obtaining the
consent of Coast Business Credit to such acquisition.
The Company intends to continue pursuing attractive acquisition
opportunities. The timing, size or success of any acquisition and the
associated potential capital commitments are unpredictable. The Company plans
to fund future acquisitions primarily through a combination of working
capital, including the proceeds from this Offering, cash flow from operations
and borrowings, as well as issuances of debt and/or equity securities.
However, no assurances can be given that such funds will be available when
required or on terms favorable to the Company.
The Acquisition agreements pursuant to which the Operating Centers were
acquired (except for the Oradell Center) limit through November 12, 1999 the
Company's ability to change the location of an Operating Center's facilities
(except for the Montgomery Center), physically merge the Operating Center's
operations with another operation, change the position of those employees who
received employment agreements pursuant to the applicable Acquisition
agreement, reduce the workforce or terminate employees (except as related to
employee performance, the contemplated reorganization of the combined sales
and marketing staff and the consolidation of certain accounting functions)
without the approval of a majority in interest of the former stockholders of
the affected Operating Center. Based on the term of these limitations and the
fact that the Company has been growing and adding additional employees, the
Company does not believe that these limitations will have a significant impact
on the future results of operations and liquidity. In connection with the
consolidation of the
30
<PAGE>
Atlanta and Montgomery Centers, the Company is in the process of obtaining the
approvals of a majority in interest of the former stockholders of the Atlanta
and Montgomery Centers.
The Company is highly leveraged and had a stockholders' deficit at September
30, 1998. This indebtedness requires the Company to dedicate a significant
portion of its cash flow from operations to service its indebtedness and makes
the Company more vulnerable to unfavorable changes in general economic
conditions.
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software programs were
designed to use only a two digit date field. These date fields will need to
accept four digit entries to distinguish 21st century dates from 20th century
dates. Until the date fields are revised, the systems and programs could fail
or give erroneous results when referencing dates following December 31, 1999.
Such failure or errors could occur prior to the actual change in century.
The Company relies on computer applications to manage and monitor its
operations, accounting, sales and administrative functions. In addition, the
Company's suppliers and service providers (particularly telecommunications
companies) are reliant upon computer applications, some of which may contain
software that may fail as a result of the upcoming change in century. Failure
of the Company's systems or those of its suppliers or service providers could
have a material adverse impact on the Company's business, financial condition
and results of operations.
State of readiness. The Company is in the process of assessing its Year 2000
readiness. The Company's current Year 2000 readiness project will cover the
following phases: (i) identification of internal systems and components that
will be in service in the 21st century, (ii) assessment of internal system
repair or replacement requirements, (iii) assessment of supplier and service
provider Year 2000 readiness, (iv) repair or replacement of both internal and
external systems or components, (v) testing, (vi) implementation, and (vii)
development of a contingency plan in the event of Year 2000 failures.
The Company has completed a comprehensive inventory of all systems and
system components in use, and has identified which systems and system
components will be in use beyond the year 1999. Additionally, in connection
with its plans to integrate the Operating Centers, the Company is in the
process of implementing certain common systems in both the operations and
financial management areas. Such common systems are Year 2000 compliant, a
criteria of the systems integration plan. Based on the initial analysis of its
internal systems, the Company does not believe its computer systems or
applications expected to be in use beyond the year 1999 will be adversely
affected by the upcoming change in century. The Company expects all of its
internal systems and system components to be Year 2000 compliant by June 1999.
However, the Company has not yet completed an assessment as to whether any of
its suppliers or service providers will be adversely affected. This assessment
is expected to be completed by March 1999. There is no assurance that the
Company's suppliers or service providers will not suffer a Year 2000 business
disruption which could have a material adverse impact on the Company's
business, financial condition and results of operations.
Costs. To date, the Company has not incurred any material expenditures in
connection with its Year 2000 assessment and remediation efforts. Most of its
expenses have related to the opportunity cost of time spent by employees of
the Company evaluating Year 2000 compliance matters. The Company intends to
retain outside consultants to assist with the assessment and testing phases of
the Year 2000 readiness project. Management estimates that the cost of such
outside consultants will approximate $220,000. As the Company continues with
the deployment of new systems related to its planned efforts to integrate the
Operating Centers, such new systems will be Year 2000 compliant. The cost of
purchasing, or developing, and deploying these new systems are not considered
Year 2000 costs as they were included in the Company's integration plan and
were not accelerated due to Year 2000 issues.
Risks. The Company relies heavily on the use of telecommunications systems
and services--both internally deployed and from multiple third party service
providers. Thus, the Company believes that
31
<PAGE>
telecommunications is the area most sensitive to problems with Year 2000
readiness. Failure of one or more of the Company's telecommunications service
providers to become Year 2000 compliant on a timely basis could, in a worst
case scenario, render the Company unable to schedule or conduct conference
calls and other group communication services, and could have a material
adverse impact on the Company's business, financial condition and results of
operations. However, the Company believes that its ability to redistribute
certain of its telecommunications services among its multiple third party
service providers could lessen any potential adverse impact.
Contingency plan. The Company has not yet developed a Year 2000-specific
contingency plan as the Company expects its systems and system components to
be Year 2000 compliant by June 1999. The Company intends to prepare a
contingency plan as it becomes aware of Year 2000 problems or risks.
COMBINED OPERATING CENTERS, ABCC, CPI, ABCI AND VIALOG CORPORATION
The combined Operating Centers', ABCC's, CPI's, ABCI's and VIALOG
Corporation's Statements of Operations data for the years ended December 31,
1995, 1996 and 1997 and the nine months ended September 30, 1997 and 1998 do
not purport to present the financial results or the financial condition of the
combined Operating Centers, ABCC, CPI, ABCI and VIALOG Corporation in
accordance with generally accepted accounting principles. Such data represents
merely a summation of the net revenues and cost of revenues, excluding
depreciation of the individual Operating Centers, ABCC, CPI, ABCI and VIALOG
Corporation on an historical basis, and excludes the effects of pro forma
adjustments. This combined data prior to the Acquisitions will not be
comparable to and may not be indicative of the Company's post-combination
results of operations because the Operating Centers, ABCC, CPI and ABCI were
not under common control or management.
RESULTS OF OPERATIONS--COMBINED OPERATING CENTERS, ABCC, CPI, ABCI AND VIALOG
CORPORATION
The following unaudited combined data for the years ended December 31, 1995,
1996 and 1997 and for the nine months ended September 30, 1997 and 1998 of the
Operating Centers, ABCC, CPI, ABCI and VIALOG Corporation on an historical
basis are derived from the respective audited and unaudited financial
statements. Such data excludes the effects of pro forma adjustments and is set
forth as a percentage of net revenues for the periods presented:
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER
YEAR ENDED DECEMBER 31, 30,
-------------------------------------------- -----------------------------
1995 1996 1997 1997 1998
-------------- -------------- -------------- -------------- --------------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues............ $29,228 100.0% $37,558 100.0% $45,583 100.0% $33,494 100.0% $44,181 100.0%
Cost of revenues,
excluding
depreciation........... 14,694 50.3% 17,979 47.9% 22,296 48.9% 16,125 48.1% 21,293 48.2%
</TABLE>
Nine Months Ended September 30, 1998 Compared to Nine Months Ended September
30, 1997
Net revenues. All Operating Centers, ABCC, CPI and ABCI reflected an
increase in net revenues for the nine months ended September 30, 1998 compared
to the nine months ended September 30, 1997. Net revenues increased $10.7
million, or 31.9%, from net revenues of $33.5 million in 1997 to net revenues
of $44.2 million in 1998. Overall, the increase was primarily due to increased
call volumes for audio and video conferencing services. The major components
of this increase were (i) an increase in the Reston Center's net revenues of
$4.1 million, or 44.1%, from $9.2 million for the nine months ended September
30, 1997 to $13.3 million for the nine months ended September 30, 1998, which
consisted of increased sales of teleconferencing services of approximately
$2.1 million and $2.0 million to existing and new customers, respectively,
including the introduction of video equipment sales in the first quarter of
1998, (ii) an increase in the Cambridge Center's net revenues of $1.4 million,
or 45.5%, which was primarily attributable to increased audio teleconferencing
services to existing customers and new customers, (iii) an increase in the
Atlanta Center's net revenues of $1.2 million, or 25.9%, which was primarily
due to increased revenues from two significant customers, which represented
32
<PAGE>
71.8% and 73.0% of the Atlanta Center's net revenues for the nine months ended
September 30, 1997 and 1998, respectively, and (iv) an increase in the
Montgomery Center's net revenues of $1.2 million, or 18.9%, which was
primarily due to increased revenues for audio teleconferencing services to
existing retail and financial services customers.
Cost of revenues, excluding depreciation. Cost of revenues, excluding
depreciation for the nine months ended September 30, 1998 increased $5.2
million, or 32.1%, from $16.1 million for the nine months ended September 30,
1997 to $21.3 million for the nine months ended September 30, 1998, and
remained flat as a percentage of revenue. The dollar increase was primarily
attributable to (i) an increase in the Reston Center's cost of revenues,
excluding depreciation of $2.0 million, or 48.8%, resulting from increased
telecommunications costs and personnel and related costs associated with
increased call volumes, and equipment costs related to the introduction of
video equipment sales in the first quarter of 1998 (which generate a lower
gross margin than teleconferencing services), (ii) an increase in the Atlanta
Center's cost of revenues, excluding depreciation of $815,000, or 47.7%,
resulting from increased telecommunications costs associated with increased
call volumes as well as increased operating costs due to increased staffing to
support current and projected revenue growth, (iii) an increase in the
Montgomery Center's cost of revenues, excluding depreciation of $601,000, or
14.0%, resulting primarily from increased telecommunications costs associated
with increased call volumes and (iv) an increase in the Cambridge Center's
cost of revenues, excluding depreciation of $801,000, or 53.4%, resulting from
increased telecommunications costs associated with increased call volumes as
well as increased operating costs due to increased staffing to support current
and projected revenue growth.
Certain of the Operating Centers, ABCC and CPI have entered into new
contracts for long distance telephone service. Had these contracts been in
effect as of January 1, 1998, cost of revenues, excluding depreciation for the
nine months ended September 30, 1998 would have decreased by approximately
$817,000.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Net revenues. All Operating Centers, ABCC, CPI and ABCI reflected an
increase in net revenues during the year ended December 31, 1997 compared to
the year ended December 31, 1996. Net revenues increased $8.0 million, or
21.4%, from $37.6 million in 1996 to $45.6 million in 1997. Overall, the
increase was primarily due to increased call volumes for audio conferencing
services. The major components of this increase were (i) an increase in the
Reston's Center's net revenues of $3.5 million, or 38.5%, from $9.1 million in
1996 to $12.6 million in 1997, which consisted of increased sales of
teleconferencing services of $2.2 million and $1.3 million to existing and new
customers, respectively, (ii) an increase in the Montgomery Center's net
revenues of $1.0 million, or 12.9%, from $7.5 million in 1996 to $8.5 million
in 1997, which was primarily attributable to sales of teleconferencing
services to existing customers and new customers and (iii) an increase in the
Cambridge Center's net revenues of $725,000, or 21.3%, from $3.4 million in
1996 to $4.1 million in 1997, which was primarily attributable to sales to
existing customers and new customers. This growth was achieved despite the
fact that the Cambridge Center's net revenues for 1996 included $707,000 of
net revenues from a portion of the Cambridge Center's business that was
divested in December 1996.
Cost of revenues, excluding depreciation. Cost of revenues, excluding
depreciation increased $4.3 million, or 24.0%, from $18.0 million in 1996 to
$22.3 million in 1997 and increased slightly as a percentage of net revenues
from 47.9% in 1996 to 48.9% in 1997. The dollar increase was primarily
attributable to (i) an increase in the Reston Center's cost of revenues,
excluding depreciation of $1.9 million, or 54.3%, from $3.6 million in 1996 to
$5.5 million in 1997 related to the substantial investment made in personnel
and related costs associated with video conferencing and increased
telecommunications and personnel expense associated with the growth in
revenues, (ii) an increase in the Oradell Center's cost of revenues, excluding
depreciation of $609,000, or 74.4%, from $818,000 in 1996 to $1.4 million in
1997 primarily due to telecommunications costs and personnel expenses to
support the current and expected call volume and (iii) an increase in the
Montgomery Center's cost of revenues, excluding depreciation of $626,000, or
11.9%, from $5.3 million in 1996 to $5.9 million in 1997, which was primarily
attributable to increased telecommunications costs and personnel expenses to
support the increased call volume.
33
<PAGE>
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Net revenues. All Operating Centers, ABCC, CPI and ABCI reflected an
increase in net revenues during 1996. Net revenues increased by $8.3 million,
or 28.5%, from $29.2 million in 1995 to $37.6 million in 1996. Overall, the
increase was primarily due to increased call volume for audio conferencing
service experienced by all Operating Centers. The major components of this
increase were (i) an increase in the Reston Center's net revenues of $2.6
million, or 39.4%, from $6.5 million in 1995 to $9.1 million in 1996 resulting
from increased sales of $1.4 million and $1.2 million to existing and new
customers, respectively, (ii) an increase in the Atlanta Center's revenues of
$2.1 million, or 54.1%, from $3.8 million in 1995 to $5.9 million in 1996
resulting from a $2.2 million increase in net revenues from two significant
customers and (iii) an increase in the Cambridge Center's net revenues of $1.1
million, or 45.8%, from $2.3 million in 1995 to $3.4 million in 1996 resulting
from additional sales of audio teleconferencing services to existing customers
and new customers.
Cost of revenues, excluding depreciation. Cost of revenues, excluding
depreciation increased by $3.3 million, or 22.4%, from $14.7 million in 1995
to $18.0 million in 1996 and decreased as a percentage of net revenues from
50.3% in 1995 to 47.9% in 1996. The dollar increase in cost of revenues,
excluding depreciation was primarily attributable to (i) an increase in the
Atlanta Center's cost of revenues, excluding depreciation of $821,000, or
50.8%, from $1.6 million in 1995 to $2.4 million in 1996 resulting from
increased telecommunications costs associated with increased call volumes and
costs associated with the addition of nine operators, (ii) an increase in the
Reston Center's cost of revenues, excluding depreciation of $543,000, or
18.0%, from $3.0 million in 1995 to $3.6 million in 1996 resulting from
increased telecommunications, personnel and occupancy costs and the salaries
and benefits for 16 additional operators associated with increased call
volumes and (iii) an increase in the Cambridge Center's cost of revenues,
excluding depreciation of $618,000, or 58.2%, from $1.1 million in 1995 to
$1.7 million in 1996 resulting from increased telecommunications and personnel
costs associated with increased call volumes.
NEW ACCOUNTING PRONOUNCEMENTS
In 1997, the Company adopted Statement of Financial Accounting Standards
("SFAS") No. 128, "Earnings per Share." SFAS 128 establishes a different
method of computing net income (loss) per share than was required under the
provisions of Accounting Principles Board Opinion No. 15. Under SFAS 128, the
Company presents both basic net income (loss) per share and diluted net income
(loss) per share. The impact on diluted net income (loss) per share was not
material. Prior periods presented have been restated to comply with the
provisions of SFAS 128.
In 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive Income,"
which establishes standards for reporting and display of comprehensive income
and its components in a full set of general-purpose financial statements.
Under this concept, all revenues, expenses, gains and losses recognized during
the period are included in income, regardless of whether they are considered
to be the results of operations of the period. The adoption of SFAS 130 did
not have a material impact on the Company's consolidated financial statements.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information," which
establishes standards for the way that public business enterprises report
selected information about operating segments in annual financial statements
and requires that those enterprises report selected information about
operating segments in interim financial reports to shareholders. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. SFAS 131, which becomes effective for
the Company in its year ending December 31, 1998, is currently not expected to
have a material impact on the Company's consolidated financial statements and
disclosures, as the Company does not have multiple reportable operating
segments.
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position ("SOP") 98-1, "Accounting for Costs of Computer Software
Developed or Obtained for Internal Use." SOP
34
<PAGE>
98-1 provides guidance on accounting for the costs of computer software
developed or obtained for internal use, and is effective for fiscal years
beginning after December 31, 1998, with earlier application encouraged. The
adoption of SOP 98-1 is not expected to have a material impact on the
Company's consolidated financial statements.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS 133
standardizes the accounting for derivative instruments, including certain
derivative instruments embedded in other contracts, by requiring that an
entity recognize those items as assets or liabilities in the statement of
financial position and measure them at fair value. SFAS 133 is effective for
all fiscal quarters of all fiscal years beginning after June 15, 1999. The
Company does not anticipate the adoption of this standard will have a material
impact on the Company's consolidated financial statements.
ACCESS AND CSI
The selected historical financial information presented in the tables below
for the selected Operating Centers is derived from, and should be read in
conjunction with, the respective audited financial statements and related
notes thereto of the individual Operating Centers included elsewhere herein
and "Access and CSI Selected Financial Data." The individual selected
financial information for Access and CSI is presented because Access and CSI
are the Operating Centers that are considered to represent a significant
percentage of the operating results of the Company. Specifically, Access and
CSI represented 29% and 57%, respectively, of the operating income of the
Operating Centers on a combined basis for the period from January 1, 1997 to
November 12, 1997. The selected historical financial information for all
Operating Centers on a combined basis, ABCC and VIALOG Corporation is included
elsewhere herein.
ACCESS
Founded in 1987, Access specializes in providing group communications
services to numerous organizations, including financial institutions,
government agencies, trade associations and professional service companies.
Access is headquartered and maintains its operations center in Reston,
Virginia.
RESULTS OF OPERATIONS--ACCESS
The following table sets forth certain historical financial data of Access
and such data as a percentage of net revenues for the periods presented:
<TABLE>
<CAPTION>
JANUARY 1, NOVEMBER 13,
YEAR ENDED DECEMBER 31, 1997 TO 1997 TO
----------------------------------------- NOVEMBER 12, DECEMBER 31,
1994 1995 1996 1997 1997
------------- ------------- ------------- ------------- ---------------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues............ $5,114 100.0% $6,508 100.0% $9,073 100.0% $10,945 100.0% $ 1,620 100.0 %
Cost of revenues,
excluding
depreciation........... 2,608 51.0% 3,021 46.4% 3,564 39.3% 4,791 43.8% 709 43.8 %
Selling, general and
administrative
expenses............... 1,691 33.1% 2,484 38.2% 3,332 36.7% 4,124 37.7% 2,603 160.6 %
Depreciation and
amortization expense... 269 5.2% 496 7.6% 630 6.9% 823 7.5% 183 11.3 %
------ ------ ------ ------ ------ ------ ------- ----- ------- ------
Operating income
(loss)................. $ 546 10.7% $ 507 7.8% $1,547 17.1% $ 1,207 11.0% $(1,875) (115.7)%
====== ====== ====== ====== ====== ====== ======= ===== ======= ======
</TABLE>
Periods January 1 to November 12, 1997 and November 13 to December 31, 1997
compared to Year Ended December 31, 1996
Net revenues. Net revenues increased from $9.1 million for the year ended
December 31, 1996 to $10.9 million and $1.6 million for the periods January 1
to November 12, 1997 and November 13 to December 31, 1997, respectively. The
increase in net revenues consisted of additional sales of teleconferencing
services, due to increased call volumes, to existing and new customers. Sales
to new customers were approximately $1.1 million and $167,000 for the periods
January 1 to November 12, 1997 and November 13 to December 31, 1997,
35
<PAGE>
respectively. These increases reflect a substantial increase in net revenues
from audio and enhanced teleconferencing services, as well as revenues of
$228,000, $53,000 and $13,000 for video conferencing services for the periods
January 1 to November 12, 1997 and November 13 to December 31, 1997 and the
year ended December 31, 1996, respectively.
Cost of revenues, excluding depreciation. Cost of revenues, excluding
depreciation increased from $3.6 million for the year ended December 31, 1996
to $4.8 million and $709,000 for the periods January 1 to November 12, 1997
and November 13 to December 31, 1997, respectively. As a percentage of net
revenues, cost of revenues, excluding depreciation increased 4.5 percentage
points, from 39.3% for the year ended December 31, 1996 to 43.8% for each of
the periods January 1 to November 12, 1997 and November 13 to December 31,
1997. The percentage increase is primarily the result of the substantial
investment in personnel and related costs made in video conferencing during
the periods January 1 to November 12, 1997 and November 13 to December 31,
1997.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased from $3.3 million for the year ended
December 31, 1996 to $4.1 million and $2.6 million for the periods January 1
to November 12, 1997 and November 13 to December 31, 1997, respectively. The
dollar increase was primarily the result of (i) a $2.2 million write-off of
in-process research and development costs during the period November 13 to
December 31, 1997, relating to the acquisition of Access by VIALOG
Corporation, (ii) a $481,000 charge related to acquisition consulting services
provided to the former stockholders of Access in connection with the sale of
Access to VIALOG Corporation and the write-off of a consulting agreement and
an agreement not to compete which were determined by Access to have no future
value as of November 12, 1997 and (iii) additional operating expenses
consistent with the increase in net revenues experienced by Access.
Depreciation and amortization expense. Depreciation and amortization expense
increased from $630,000 for the year ended December 31, 1996 to $823,000 and
$183,000 for the periods January 1 to November 12, 1997 and November 13 to
December 31, 1997, respectively. The dollar increase is the result of
additional property and equipment of $1.7 million and $380,000 acquired during
the periods January 1 to November 12, 1997 and November 13 to December 31,
1997, respectively, to support the growth in net revenues and the amortization
of goodwill and intangible assets since November 12, 1997, related to the
acquisition of Access by VIALOG Corporation.
Year Ended December 31, 1996 compared to Year Ended December 31, 1995
Net revenues. Net revenues increased $2.6 million, or 39.4%, from $6.5
million for the year ended December 31, 1995 to $9.1 million for the year
ended December 31, 1996. The increase in net revenues consisted of additional
sales of audio teleconferencing services, due to increased call volumes, of
$1.4 million and $1.2 million to existing and new customers, respectively.
Cost of revenues, excluding depreciation. Cost of revenues, excluding
depreciation increased $543,000, or 18.0%, from $3.0 million for the year
ended December 31, 1995 to $3.6 million for the year ended December 31, 1996.
The dollar increase was primarily attributable to increased telecommunications
costs related to increased call volume and occupancy costs and the salaries
and benefits for 16 additional operators. As a percentage of net revenues,
cost of revenues, excluding depreciation decreased 7.1 percentage points, from
46.4% for the year ended December 31, 1995 to 39.3% for the year ended
December 31, 1996.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $848,000, or 34.1%, from $2.5 million for
the year ended December 31, 1995 to $3.3 million for the year ended December
31, 1996. The dollar increase was primarily the result of increased occupancy
costs, non-recurring executive compensation and bad debt expense. As a
percentage of net revenues, selling, general and administrative expenses
decreased 1.5 percentage points from 38.2% for the year ended December 31,
1995 to 36.7% for the year ended December 31, 1996.
36
<PAGE>
Depreciation and amortization expense. Depreciation and amortization expense
increased $134,000, or 27.0% from $496,000 for the year ended December 31,
1995 to $630,000 for the year ended December 31, 1996. The dollar increase is
the result of additional property and equipment of $783,000 acquired during
1996 to support the growth experienced in net revenues. As a percentage of net
revenues, depreciation expense decreased 0.7 percentage points from 7.6% for
the year ended December 31, 1995 to 6.9% for the year ended December 31, 1996.
Year Ended December 31, 1995 compared to Year Ended December 31, 1994
Net revenues. Net revenues increased $1.4 million, or 27.3%, from $5.1
million for the year ended December 31, 1994 to $6.5 million for the year
ended December 31, 1995. The increase in net revenues consisted primarily of
additional sales of teleconferencing services, due to increased call volumes,
of $730,000 and $664,000 to existing and new customers, respectively.
Cost of revenues, excluding depreciation. Cost of revenues, excluding
depreciation increased $413,000, or 15.8%, from $2.6 million for the year
ended December 31, 1994 to $3.0 million for the year ended December 31, 1995.
The dollar increase was primarily attributable to salaries and benefits for 10
additional operators. As a percentage of net revenues, cost of revenues,
excluding depreciation decreased 4.6 percentage points, from 51.0% for the
year ended December 31, 1994 to 46.4% for the year ended December 31, 1995.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $793,000, or 46.9%, from $1.7 million for
the year ended December 31, 1994 to $2.5 million for the year ended December
31, 1995. The dollar increase was primarily the result of moving expenses and
additional occupancy costs associated with relocating to a larger facility. As
a percentage of net revenues, selling, general and administrative expenses
increased 5.1 percentage points from 33.1% for the year ended December 31,
1994 to 38.2% for the year ended December 31, 1995.
Depreciation and amortization expense. Depreciation and amortization expense
increased $227,000, or 84.4% from $269,000 for the year ended December 31,
1994 to $496,000 for the year ended December 31, 1995. The dollar increase is
the result of $1.4 million in purchases of additional property and equipment
during the year ended December 31, 1995 to support the growth experienced in
net revenues and the relocation to a larger facility. As a percentage of net
revenues, depreciation expense increased 2.4 percentage points from 5.2% for
the year ended December 31, 1994 to 7.6% for the year ended December 31, 1995.
LIQUIDITY AND CAPITAL RESOURCES--ACCESS
The following table sets forth selected financial information from Access'
statements of cash flows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
----------------------
JANUARY 1, 1997 TO
1994 1995 1996 NOVEMBER 12, 1997
----- ------- ------ ------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net cash provided by (used in):
Operating activities............. $ 592 $ 821 $2,048 $ 2,932
Investing activities............. (557) (1,432) (795) (1,704)
Financing activities............. 22 771 (839) (1,549)
----- ------- ------ -------
Net increase (decrease) in cash and
cash equivalents.................. $ 57 $ 160 $ 414 $ (321)
===== ======= ====== =======
</TABLE>
Access had positive cash flow from operations in each year ended December
31, 1994, 1995 and 1996 and the period January 1, 1997 to November 12, 1997.
Cash used in investing activities related primarily to the acquisition of
property and equipment. Net cash provided by financing activities was
primarily the result of borrowings on notes payable to finance the acquisition
of property and equipment. Net cash used in financing
37
<PAGE>
activities consisted of the repayment of notes payable, principal payments
under capital lease obligations, payments to a former stockholder and
distributions to stockholders. Distributions to stockholders totaled $39,000,
$0, $475,000 and $1,284,000 for the years ended December 31, 1994, 1995, and
1996 and the period January 1, 1997 to November 12, 1997, respectively.
CSI
Founded in 1992, CSI specializes in providing audio teleconferencing
services and enhanced services to certain facilities-based and non-facilities-
based telecommunications providers. CSI is headquartered and maintains its
operations center in Atlanta, Georgia.
RESULTS OF OPERATIONS--CSI
The following table sets forth certain historical financial data of CSI and
such data as a percentage of net revenues for the periods presented:
<TABLE>
<CAPTION>
JANUARY 1, NOVEMBER 13,
YEAR ENDED DECEMBER 31, 1997 TO 1997 TO
---------------------------------------- NOVEMBER 12, DECEMBER 31,
1994 1995 1996 1997 1997
------------ ------------ ------------ ------------ ---------------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenue............. $2,331 100.0% $3,808 100.0% $5,868 100.0% $5,579 100.0% $ 854 100.0 %
Cost of revenues,
excluding
depreciation........... 1,256 53.9% 1,617 42.5% 2,438 41.6% 2,052 36.8% 322 37.7 %
Selling, general and
administrative
expenses............... 707 30.3% 905 23.8% 998 17.0% 831 14.9% 3,493 409.0 %
Depreciation and amorti-
zation
expense................ 235 10.1% 292 7.6% 393 6.7% 356 6.4% 168 19.7 %
------ ----- ------ ----- ------ ----- ------ ----- ------- ------
Operating income
(loss)................. $ 133 5.7% $ 994 26.1% $2,039 34.7% $2,340 41.9% $(3,129) (366.4)%
====== ===== ====== ===== ====== ===== ====== ===== ======= ======
</TABLE>
Periods January 1 to November 12, 1997 and November 13 to December 31, 1997
Compared to Year Ended December 31, 1996
Net Revenues. Net revenues increased from $5.9 million in 1996 to $5.6
million and $854,000 for the periods January 1 to November 12, 1997 and
November 13 to December 31, 1997, respectively. The increase is primarily due
to increased revenues from CSI's two significant customers. Net revenues from
such customers represented 70.0 % of CSI's net revenues for the year ended
December 31, 1996 and approximately 71.6% and 71.4% of CSI's net revenues for
the periods January 1 to November 12, 1997 and November 13 to December 31,
1997, respectively. See discussion regarding these two customers under "VIALOG
Corporation--Results of Operations--Nine Months Ended September 30, 1998
Compared to Nine Months Ended September 30, 1997" above.
Cost of revenues, excluding depreciation. Cost of revenues, excluding
depreciation decreased slightly from $2.4 million in 1996 to $2.1 million and
$322,000 for the periods January 1 to November 12, 1997 and November 13 to
December 31, 1997, respectively. The decrease in cost of revenues, excluding
depreciation on increased call volumes was primarily the result of lower
telecommunications rates included in a contract which became effective in
November 1996.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased from $998,000 in 1996 to $831,000 and $3.5
million for the periods January 1 to November 12, 1997 and November 13 to
December 31, 1997, respectively. The increase was primarily the result of a
$3.4 million write-off of in-process research and development costs relating
to the acquisition of CSI by VIALOG Corporation.
Depreciation and amortization expense. Depreciation expense increased from
$393,000 for the year ended December 31, 1996 to $356,000 and $168,000 for the
periods January 1 to November 12, 1997 and November
38
<PAGE>
13 to December 31, 1997, respectively. The increase was the result of
additional property and equipment acquired to support the growth in net
revenues and the amortization of goodwill and intangible assets since November
12, 1997, related to the acquisition of CSI by VIALOG Corporation.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Net revenues. Net revenues increased $2.1 million, or 54.1%, from $3.8
million in 1995 to $5.9 million in 1996. Virtually all of this increase was
the result of a $2.2 million increase in net revenues from two significant
customers of CSI. Net revenues from such customers represented 54.0% and 70.0%
of CSI's net revenues for the years ended December 31, 1995 and 1996,
respectively.
Cost of revenues, excluding depreciation. Cost of revenues, excluding
depreciation increased $821,000, or 50.8%, from $1.6 million in 1995 to $2.4
million in 1996. As a percentage of net revenues, cost of revenues, excluding
depreciation decreased 0.9 percentage point from 42.5% in 1995 to 41.6% in
1996. The dollar increase was primarily attributable to increased
telecommunications expenses associated with increased call volumes and costs
associated with the addition of nine operators.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $93,000, or 10.3%, from $905,000 in 1995 to
$998,000 in 1996. As a percentage of net revenues, selling, general and
administrative expenses decreased 6.8 percentage points from 23.8% in 1995 to
17.0% in 1996. This percentage decrease was primarily attributable to
spreading fixed costs over a larger revenue base.
Depreciation and amortization expense. Depreciation expense increased
$101,000, or 34.6%, from $292,000 for the year ended December 31, 1995 to
$393,000 for the year ended December 31, 1996. The increase was the result of
additional property and equipment acquired to support the growth in net
revenues.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Net revenues. Net revenues increased $1.5 million, or 63.4%, from $2.3
million in 1994 to $3.8 million in 1995. Virtually all of this increase was
the result of a $1.4 million increase in net revenues from two significant
customers of CSI. Net revenues from such customers represented 28.0% and 54.0%
of total net revenues for the years ended December 31, 1994 and 1995,
respectively.
Cost of revenues, excluding depreciation. Cost of revenues, excluding
depreciation increased $361,000, or 28.7%, from $1.3 million in 1994 to $1.6
million in 1995. As a percentage of net revenues, cost of revenues, excluding
depreciation decreased 11.4 percentage points from 53.9% in 1994 to 42.5% in
1995. This percentage decrease was primarily attributable to a reduction in
local access charges, telecommunications expenses and the termination of a
lease for network access.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $198,000, or 28.0%, from $707,000 in 1994 to
$905,000 in 1995. As a percentage of net revenues, selling, general and
administrative expenses decreased 6.5 percentage points from 30.3% in 1994 to
23.8% in 1995. This percentage decrease was primarily attributable to
spreading such costs over a larger revenue base.
Depreciation and amortization expense. Depreciation expense increased
$57,000, or 24.3%, from $235,000 for the year ended December 31, 1994 to
$292,000 for the year ended December 31, 1995. The increase was the result of
additional property and equipment acquired to support the growth in net
revenues.
39
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES--CSI
The following table sets forth selected financial information from CSI's
statements of cash flows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
--------------------- JANUARY 1, 1997
1994 1995 1996 TO NOVEMBER 12, 1997
----- ----- ------- --------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net cash provided by (used in):
Operating activities............ $ 53 $ 721 $ 2,128 $ 2,897
Investing activities............ (476) (225) (41) (311)
Financing activities............ 426 (144) (2,144) (2,801)
----- ----- ------- -------
Net increase (decrease) in cash
and cash equivalents............. $ 3 $ 352 $ (57) $ (215)
===== ===== ======= =======
</TABLE>
CSI had a positive cash flow from operations in each year ended December 31,
1994, 1995, 1996 and the period January 1, 1997 to November 12, 1997. Cash
used in investing activities in 1994, 1995, 1996 and the period January 1,
1997 to November 12, 1997 related solely to the acquisition of property and
equipment. Cash provided by financing activities consisted of the proceeds of
borrowings on long-term debt and from the refinancing of capital lease
obligations. Cash used in financing activities consisted of repayments of
long-term debt and capital lease obligations and distributions to
stockholders. Stockholder distributions totaled $1.6 million and $2.6 million
for the year ended December 31, 1996 and the period January 1, 1997 through
November 12, 1997, respectively. There were no stockholder distributions in
1994 and 1995. As of November 12, 1997, CSI had a working capital deficit of
$23,000.
40
<PAGE>
INDUSTRY OVERVIEW
SERVICES
The teleconferencing industry, which includes audio, video and data
conferencing, provides a range of services to facilitate multiparty
communications with participants in different locations. Through
teleconferencing services, customers conduct routine meetings, run training
sessions and share information when face-to-face meetings would be too costly,
impractical or inconvenient. Industry studies published by Frost & Sullivan
estimate that total teleconferencing services revenues in North America
increased from $437 million in 1994 to an estimated $780 million in 1997,
representing a compound annual growth rate of 21%. Frost & Sullivan estimates
that the teleconferencing services sector will grow at a compound annual rate
of approximately 24% between 1998 and 2003.
Audio teleconferencing.
Audio teleconferencing connects multiple parties on a single telephone call
through specialized telephone equipment known as a "bridge." Multipoint
Control Units ("MCUs") offer the most advanced bridge technology, although
calls involving a small number of parties can be established through a PBX or
on the network switch of an IXC. Using MCU technology, the maximum number of
participants is only limited by the number of conference "ports" available to
the teleconferencing service provider. Calls may be established manually by an
operator who places the calls to or receives calls from conference
participants, with each access line occupying a single port. Advances in MCU
technology have not only eliminated many of the problems associated with early
audio teleconferencing, such as "clipping" (the loss of initial or ending
syllables of words) and loss of quality as lines were added, but also have
increased the number of available enhanced features. The Company believes that
these technological advances, combined with the greater overall awareness and
acceptance of audio teleconferencing as a business tool, have contributed to
the increased usage of teleconferencing over the last five years.
The Company believes that the demand for audio teleconferencing services has
also increased as a result of a wide range of trends, including globalization
of operations, increased workforce training requirements, the advent of
geographically dispersed work teams, shared decision-making and the growing
role of strategic partnerships. Users of audio teleconferencing are able to
replace travel to existing meetings, with attendant savings of actual and
opportunity cost, and increase communication with parties with whom they would
otherwise not meet, thereby yielding greater organizational productivity. The
Company believes that the facilities, network and labor costs associated with
audio teleconferencing services, combined with a lack of expertise and a
desire to focus on their core businesses, have caused most organizations to
outsource audio teleconferencing. Industry sources project compound annual
growth in audio teleconferencing services revenues of 23% between 1998 and
2003, from $723 million to $2 billion.
Video Conferencing.
Video conferencing is similar to audio teleconferencing except that one or
more callers may be viewed on a video monitor by the other participants. The
Company believes that the broad adoption of video conferencing as a meeting
tool has historically been constrained by several factors, including limited
access to video sites, expensive and proprietary equipment, limited and costly
network facilities, incompatibility of systems and poor video quality. Video
conferencing was also generally limited to small or broadcast meetings at
fixed locations, except when implemented using expensive two-way satellite
technology.
The adoption of industry standards, technological advances (which have
brought down the cost of equipment and required bandwidth) and increased
processing speed (which has improved quality) have all contributed to the
development of desktop video conferencing applications. Interactive multipoint
video conferencing also became feasible in 1995 with the introduction of more
cost-effective video MCU technology and low-cost, PC-based video cameras and
sound cards. The rapid deployment of compatible hardware, reductions in cost,
increases in available bandwidth and improvements in quality are all expected
to accelerate
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the growth of the market for multipoint video conferencing. Industry sources
estimate that video conferencing services revenues will grow at a compound
rate of 27% between 1998 and 2003, from $240 million to $779 million.
Data conferencing.
Data conferencing, which enables multiple users to collaborate using both
data and voice is the most recent advance in teleconferencing. The adoption of
industry standards for multimedia conferencing and new Internet "groupware"
services and software are expected to facilitate greater adoption of data
conferencing. Such standards allow data to travel over data networks on an
interactive basis so that multiple remote computers can manipulate the same
program, and enable participants to share computer data during a conference
call. For instance, Intel's ProShare and Microsoft's NetMeeting allow remotely
located personal computers and/or work stations to share video and data
interactively over the Internet. The Company believes that the Internet data
conferencing programs will likely be used in conjunction with audio
teleconferencing to allow simultaneous group discussions during editing and
display of documents. In addition, several manufacturers have introduced
specialized application servers that provide mixed media conferencing.
Industry sources estimate that revenues from data conferencing services will
grow at a compound annual rate of 82% between 1998 and 2003, from $3 million
to $59 million.
SERVICE PROVIDERS
There are three categories of service providers in the North American group
communications industry: (i) IXCs, such as AT&T, MCI, Sprint, Frontier and
Cable & Wireless, (ii) PCSBs, a group of over 25 companies (excluding the
Company), and (iii) independent LECs, such as GTE and Cincinnati Bell. In
addition, under the terms of the Telecommunications Act of 1996, the RBOCs may
be allowed to provide long distance services, which the Company believes may
lead to their entry into the teleconferencing market. See "Business--
Regulation."
According to industry sources, the IXCs are currently the largest providers
of teleconferencing services, constituting approximately 80% of audio
teleconferencing services revenue. The Company believes that the IXCs generate
most of their business through their position as the customer's long distance
carrier. The IXCs generally do not market teleconferencing services
separately, but rather offer such services as part of a "bundled"
telecommunications offering. The Company believes that the IXCs have generally
not emphasized enhanced services and customized communications solutions to
meet individual customer needs, preferring instead to implement automated
systems and technology as a substitute for traditional operator-intensive
services in order to reduce labor costs.
The second category of providers of group communications services are the
PCSBs. There are approximately 25 PCSBs, excluding the Company. PCSBs emerged
in the teleconferencing market in the mid-1980s when businesses were beginning
to find applications for teleconferencing due to significant technological
improvements in teleconferencing equipment. The number of PCSBs increased in
the late 1980s, taking advantage of a niche opportunity to provide customized,
high quality service and specialized applications. As a result of their scale
and limited access to capital, PCSBs tended to develop as regional or
industry-specific businesses. Due to technological changes facing the
teleconferencing industry, such as the introduction of video and data
conferencing services, the Company believes that the ability to secure
necessary capital has become more critical for PCSBs. Additionally, the
Company believes that many PCSBs do not currently have the marketing expertise
or teleconferencing capacity to reach the critical mass which will allow them
to develop a national brand name and compete for and service large, national
accounts.
The third category of providers of teleconferencing services are the
independent LECs. Similar to the IXCs, the Company believes the LECs have
generally not included teleconferencing, enhanced services or customized
communications solutions in their core service offerings.
A potential new category of providers is the RBOCs. As a result of the
Consent Decree entered into by AT&T and the United States Department of
Justice in 1982, the RBOCs could not offer long distance services,
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which drastically limited their teleconferencing potential. Under the
Telecommunications Act of 1996, the RBOCs may be allowed to provide in-region
long distance services upon the satisfaction of certain conditions. The
Company believes that the ability of an RBOC to gain immediate and significant
teleconferencing market share upon entrance into the long distance market
could be enhanced by such RBOC's status as the incumbent provider of local
services to its customers. While each RBOC will determine whether to create a
separate teleconferencing business unit or to outsource this service, the
Company believes that some of the potential new entrants will elect to
outsource teleconferencing services and focus on entering the long distance
market, based primarily on requests for proposals to provide teleconferencing
services it has received from three RBOCs to date, as well as the amount of
outsourcing of teleconferencing by certain of the LECs in the long distance
market.
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BUSINESS
GENERAL
VIALOG is a leading independent provider of teleconferencing and other group
communications services, consisting primarily of operator-attended and
operator-on-demand audio teleconferencing, as well as video and data
conferencing services. The Company believes it is the largest company focused
solely on teleconferencing and other group communications services, with six
Operating Centers, approximately 9,337 ports of teleconferencing capability
(one "port" is required for each participating telephone line), state-of-the-
art digital conferencing technology and an experienced national sales force.
The Company believes it differentiates itself from its competitors by
providing superior customer service and an extensive range of enhanced and
customized communication solutions. The Company has capitalized on the growth
in the teleconferencing services market to build a large, stable client base
ranging from Fortune 500 companies to small institutions. Customers also
include certain major long distance telecommunications providers which have
outsourced their teleconferencing services to the Company. The Company
provided services to more than 5,000 customers representing over 30,000
accounts during the twelve months ended September 30, 1998.
Operator-attended audio teleconferencing is the cornerstone of VIALOG's
business, and the Company believes it to be the principal service which builds
customer loyalty. The Company also offers operator-on-demand audio
teleconferencing as well as enhanced services such as digital replay,
broadcast fax and follow-up mailings. VIALOG also offers customized
communications solutions, which include teleconference event planning and
coaching, as well as customized formats specifically designed for such
applications as auctions, investor relations calls and interactive educational
programs. The Company has designed its service delivery infrastructure to be
flexible so that comprehensive, custom solutions for each customer may be
easily designed and implemented.
The industry in which the Company operates has been experiencing significant
growth. See "Industry Overview." The Company intends to capitalize on this
strong industry growth, as it expands its national marketing, branding and
sales program. In addition to internal growth generated by strong industry
fundamentals and the Company's enhanced marketing capabilities, the Company
intends to continue to increase its wholesale, or outsourcing, business.
Management believes that the broad trend among the IXCs, LECs and RBOCs to
outsource labor-intensive activities such as teleconferencing will lead to new
outsourcing contracts, particularly as RBOCs become approved to provide long
distance service. Further, the Company intends to augment its internal growth
through selective acquisitions in the teleconferencing industry to leverage
the inherent economies of scale and build upon the Company's position as the
largest company in the industry focused solely on teleconferencing and other
group communications services.
OPERATING STRATEGY
The Company provides a full array of group communications services through
its six Operating Centers, all of which were acquired by the Company in
November 1997. The basic goals of the Company's operating strategy consist of
the following:
Focus exclusively on teleconferencing and other group communications
services. VIALOG believes that it is the largest and most geographically
diverse company focused solely on teleconferencing and other group
communications services. The Company's largest competitors are long distance
service providers for which teleconferencing represents only a small fraction
of their total revenues. The Company believes that its dedicated focus on
teleconferencing enables it to respond to the needs of its customers better
than competitors which do not focus on teleconferencing as a core business
activity.
Deliver a broad range of services. VIALOG believes that it offers the most
comprehensive selection of audio, video and data conferencing services among
the independent teleconferencing service providers, providing the Company with
significant marketing advantages. The Company believes that it can leverage
the diverse
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service capabilities and industry expertise of individual operating centers to
provide the features and pricing options to meet a wide variety of customer
needs. The Company intends to remain at the forefront of the group
communications industry by continuing to augment its existing service
offerings through the development and introduction of additional enhanced
services and customized communications solutions.
Maximize operational synergies. VIALOG is capitalizing on the benefits of
increased size, product range and diverse customer base afforded to it by the
acquisition of the six Operating Centers. Since November 1997, VIALOG has
centralized several of its operations, including sales, marketing, and most
human resource, benefits administration and cash management functions. The
combination of the Operating Centers has enabled the Company to improve
operations by (i) allowing it to handle calls involving a larger number of
participants than any of its Operating Centers had been able to handle
individually and (ii) increasing network efficiency by allocating port
capacity among the Operating Centers according to need, time of day,
personnel, type of service and other factors. The Company plans to centralize
additional support activities, including reservations, billing, purchasing,
management information systems and accounting, within the next 3 to 9 months
in order to standardize its services, improve customer service and reduce
operating expenses. Furthermore, the Company believes that its increased size
has resulted in stronger bargaining power in areas such as long distance
telecommunications, equipment, employee benefits and marketing.
Retain customers and stimulate usage. Through the implementation of new
focused selling strategies and cross-selling programs designed to stimulate
use by its existing customer base, the Company intends to expand sales to its
diverse base of customers, which numbered more than 5,000 during the twelve
months ended September 30, 1998. The Company believes that customer loyalty
for its services is fostered by its emphasis on customer service and ability
to design custom solutions. In addition, VIALOG is developing a comprehensive
marketing database to monitor account behavior and, based on changes in
behavior, trigger appropriate marketing and sales responses to increase
customer satisfaction, increase customer usage and maintain customer
relationships.
GROWTH STRATEGY
The Company's objective is to build upon its position as a leading
independent provider of teleconferencing and other group communications
services. The Company intends to achieve this goal through a strategy focused
on the following:
Maintain strong internal growth. The Company intends to capitalize on the
strong growth in the teleconferencing services industry. Industry sources
project that the teleconferencing services revenues will grow at a compound
annual growth rate of 24% through 2003. The Company believes that the
acquisition of the Operating Centers created significant opportunities to
enhance internal growth by enabling it to develop a national brand identity,
pursue cross-selling opportunities, expand the Company's service offerings and
leverage the Company's increased capacity to handle larger contracts. In
addition, the Company has undertaken several marketing and sales initiatives,
including deployment of a national sales force to access new geographic areas
and national accounts, establishment of a coordinated calling effort and
implementation of database marketing programs.
Pursue outsourced services opportunities. The Company has deployed a
wholesale sales organization which intends to capitalize on what the Company
believes to be significant opportunities to provide outsourced services to
IXCs, LECs and RBOCs as these providers continue to reduce their dependence
upon labor-intensive activities. VIALOG currently has contracts to provide
outsourced services to a number of facilities-based and non-facilities-based
telecommunications service providers. As RBOCs obtain regulatory approval to
provide long distance service, the Company believes that some will desire to
enter the market quickly with complete packages of high quality
telecommunications services, including teleconferencing. As a result, some
RBOCs and LECs may seek to outsource their group communications requirements
in order to speed up their time to market. The Company believes that it is
well-positioned to compete for outsourced teleconferencing business from the
IXCs,
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LECs and RBOCs, because it (i) does not compete with IXCs, LECs or RBOCs in
their core businesses, (ii) has the capacity and resources to handle
significant teleconferencing volume and (iii) has experience in providing
services on an outsourced basis.
Expand through acquisitions. The Company intends to augment its internal
growth through selective acquisitions of complementary businesses in order to
capitalize on the significant potential economies of scale and synergies
available in its business. The Company's strategy is to target acquisitions
that will allow it to increase market share, broaden geographic coverage and
augment existing service offerings with new capabilities and industry-specific
experience, while maintaining the Company's high standards for customer
service. The Company believes its experience in acquiring and integrating the
Operating Centers and in negotiating the pending acquisitions of ABCC, CPI and
ABCI and its knowledge of the industry will be instrumental in successfully
identifying and negotiating additional acquisitions. The Company further
believes that its position (following the completion of this Offering) as the
largest publicly-traded company focused solely on the teleconferencing market
will make it attractive to potential acquisition candidates.
THE COMPANY'S GROUP COMMUNICATIONS SERVICES
Audio teleconferencing. The Company offers a broad range of audio
teleconferencing services and related services, primarily to businesses in the
financial, retail, professional services and pharmaceutical industries, as
well as to government agencies and trade associations. The Company generates
revenues from these services by charging on a per-line, per-minute basis,
similar to standard telephone pricing practices. The Company's audio
teleconferencing services are divided into two major service categories:
operator-attended and operator-on-demand. Each category offers standard
services such as dialing out to late participants and conducting a roll call
at no additional cost as well as enhanced services at additional cost.
There are three different types of operator-attended service: Meet-Me, Dial
Out and a combination of the two. Meet-Me audio teleconferences allow
participants to join a teleconference either by dialing a toll free number
provided by the Company or by using their own local or long distance service
providers. Dial Out audio teleconferences consist of having the Company's
operators call participants and join them together in a teleconference. A
combination of the two service types is also available.
Participants may join an operator-on-demand teleconference either by dialing
a toll free number provided by the Company or by using their own local or long
distance service providers, then entering a passcode on their touchtone
keypad. For additional security and to verify attendance, participants may be
required to enter a Personal Identification Number (PIN) after they enter the
conference passcode. While Company operators are not necessary for an
operator-on-demand audio teleconference, they can be reached for assistance by
pressing "*0."
In addition to the many standard services offered by the Company, the
following enhanced services are offered for an extra charge to increase the
productivity of an audio teleconference.
. Communication line. During a teleconference, the Company can keep a
separate line open with the teleconference host to verify participant
attendance, provide updates on the number of participants which have
joined, and have other discussions relative to the teleconference that
may be inappropriate to conduct in the teleconference.
. Digital replay. The Company can digitally record a teleconference and
make it available for playback over the telephone or otherwise by parties
who were unable to attend the teleconference.
. Electronic Q&A. Participants can join a queue to ask questions or speak
with the moderator by pressing codes on their touchtone keypads.
. Participant list. The Company can send a list of participants via fax or
email, either during or at the conclusion of the teleconference.
. Participant notification. The Company can call or fax reminders to
participants in advance of the teleconference.
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. Polling/voting. Participants can respond to questions by pressing codes
on their touchtone keypads. Tabulations and results are available
immediately or at the conclusion of the teleconference.
. Recording. The Company can record the teleconference on audiocassette
tape or compact disc, and send recordings via regular, overnight or
second-day mail.
. Transcription. The teleconference can be transcribed in its entirety and
provided in written format, on a 3 1/2p diskette, via e-mail, or all
three.
Video conferencing. In 1996, the Company began to offer video conferencing
services, which enable remote sites equipped with industry standard compliant
video equipment to conduct interactive multipoint sharing of video images and
audio among three or more sites. Similar to audio teleconferencing, this
service is charged on a per-line, per-minute basis, with enhanced services
charged on a fee basis. Video conferencing requires the use of a video MCU and
telecommunications facilities of greater bandwidth than that required for a
standard audio teleconference. The Company has three MCUs dedicated to video
conferencing. Video conferencing services accounted for approximately $13,000
and $282,000 of the Company's combined net revenues in 1996 and 1997,
respectively, and approximately $545,000 of the Company's consolidated net
revenues for the nine months ended September 30, 1998.
Video conferences can be assembled in two ways: Meet-Me and Dial Out. Meet-
Me video conferences are those in which participating sites dial in to the
Company's video MCU at a scheduled date and time, using an assigned telephone
number. Each site may be greeted by an operator or be connected directly,
without the operator's presence. Dial Out video conferences are those in which
a Company operator dials out to participating sites prior to a video
conference and connects them to the conference. The Company tests the
standards of all participating sites to assure quality standards.
The Company offers "continuous presence" service, which allows participating
sites to view each other simultaneously. Continuous presence has two display
options. The first divides each participant's monitor into quadrants that
display up to four selected sites throughout the entire conference. The second
is broadcast mode, in which the speaker or lecturer can view up to four other
sites, but all of the sites view only the speaker.
The Company also offers "voice activated switching" which allows the
Company's MCU to automatically select the site whose video image is broadcast
at any given point in the video conference, based on audio level. When one
person speaks, all other sites in the video conference see that site until
another site replies and replaces the picture with its own. Whoever is
currently speaking will continue to see the site whose participant spoke last.
The Company believes that the use of multipoint video conferencing services
will grow in relationship to the installed base of compatible video equipment.
The Company estimates that over 230,000 video conferencing units had been sold
by the end of 1996, and that over 330,000 units had been sold by the end of
1997.
Data conferencing. In 1997, the Company began to offer data conferencing
services to its customers on a developmental, non-commercial basis. In the
fourth quarter of 1998, the Company launched commercial data conferencing
services, and the Company now offers PC-based application sharing via the
Company's videoconferencing MCUs. Multiple users can view and edit the same
document on their own PCs while participating in an audio or video conference,
enabling them to present, discuss and/or modify documents in real-time. VIALOG
fully supports the International Telecommunications Union (ITU) T.120 data
conferencing series standards.
In 1997, the Company also began to offer web-based data conferencing
services to its customers on a developmental, non-commercial basis. In the
fourth quarter of 1998, the Company launched a commercial web conferencing
service. Web conferences connect multiple computer users over the Internet,
enabling them to present documents and presentations in real-time. Internet-
based data conferencing programs are used in conjunction with audio
teleconferencing to enable simultaneous group discussions and presentations.
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Other teleservices. To complement its audio, video and data conferencing
services, the Company offers other teleservices, such as Interactive Voice
Solutions (an interactive voice response "IVR" service), broadcast fax and fax
on demand. Interactive Voice Solutions incorporates IVR technology and digital
replay, enabling parties to phone in and retrieve or deposit information. This
service can also be used for testing, interview screening, registering and
survey-taking. With its broadcast fax service, the Company can send faxes to
multiple recipients simultaneously. The Company's fax on demand service
includes toll free reply mailboxes and document faxing, which allow parties to
request that information be sent directly to their fax machine.
Client education services. The Company offers client education services to
help clients run a successful teleconference. Coaching sessions are conducted
via audio teleconference or video conference, giving moderators and speakers
the ability to practice in the same environment in which the teleconference
will take place. After the teleconference, the Company can provide a detailed
evaluation of conference effectiveness and the speaker's performance.
SALES AND MARKETING
VIALOG believes it is the first independent teleconferencing company to
employ a comprehensive marketing program to establish a national brand for
teleconferencing services. The Company's retail national sales organization
offers a full range of audio teleconferencing and other group communications
services to its customers. The Company's wholesale account executives offer
these same services to facilities-based carriers and non-facilities-based
telecommunications service providers who desire to offer outsourced
teleconferencing services to their customers under their own brands.
Establishing a national brand. The Company's marketing and sales strategy
centers on establishing VIALOG as the brand identified with high value, expert
delivery of teleconferencing services. The Company is implementing a corporate
marketing program focused on customers who have the potential for high use.
This marketing program will employ targeted database marketing techniques
based on the combined customer data of the Operating Centers, emerging trends
and other market segment information.
Retail sales. The Company has implemented a national retail sales strategy
utilizing both an outside and inside sales group. This new strategy has
consolidated the Company's existing sales force and at the same time provided
new national account coverage and presence in additional geographic markets.
The sales force leverages VIALOG's increased network capacity by cross-selling
existing accounts with new and enhanced services, expanding the Company's
penetration of key industries (for example, pharmaceutical companies) and
targeting key vertical industries and accounts. An outside sales group of
approximately 35 professionals operate from six regional offices, and are
primarily responsible for origination of new business. An inside sales group
of approximately 25 professionals responds to inbound requests, assists
customers in implementing VIALOG's service offerings and supports the outside
sales force.
Wholesale sales. The Company has deployed a wholesale sales organization
which intends to capitalize on what the Company believes to be significant
opportunities for revenue growth by providing outsourced services to IXCs,
LECs, and RBOCs. The Company currently has contracts to provide outsourced
services to a number of facilities-based and non-facilities-based
telecommunications service providers. An important element of the Company's
marketing strategy will be to secure additional outsourcing contracts and to
expand net revenues from its existing customer base. In order to capitalize on
this market the Company has hired a vice president of wholesale sales and
three senior telecom sales professionals who have extensive experience in the
industry. The Company believes its wholesale sales initiative is justified by
an increasing trend among telecommunications companies to outsource non-core,
labor intensive services. The Company believes that this trend has been
evidenced by existing outsourcing of services, such as billing and
telemarketing and downsizing of personnel as these companies move away from
labor-intensive activities. In addition, potential opportunities exist as a
result of the Telecommunications Act of 1996 to provide services in new
markets.
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CUSTOMER SERVICE
The Company believes that it has successfully obtained and retained
customers due to quality customer service provided by a highly skilled staff.
Reservationists and operators become the Company's primary contacts with its
customers after the initial sales effort, thereby providing opportunities to
support the sales effort with personalized service. The Company uses a team
approach, whereby a customer can work with the same small group of customer
service personnel. In some cases, customers have become accustomed to working
with a particular reservationist or operator and insist upon continued
assistance from these specific individuals.
Reservationists assist the Company's customers in scheduling their
teleconferences. Reservationists access the conferencing system to determine
time and ports available and to confirm the teleconferences. Operators monitor
calls and provide the services requested in the reservation. Operators are
also trained to provide assistance to the moderator (usually the person
initiating the teleconference) to ensure a successful teleconference.
Supervisors are available to assist in the setup and execution of a
teleconference. The Company's staff is trained to facilitate effective
teleconferences through a combination of classroom, mentoring, teaming, and
on-the-job supervision.
CUSTOMERS
The Company provided services to over 5,000 customers during the twelve
months ended September 30, 1998. The customers ranged in size from major
multinational corporations and Fortune 500 companies to small businesses,
professional organizations, public institutions and individuals. A breakdown
of the Company's top 20 customers (based on 1997 combined net revenues),
including both wholesale and retail customers, by industry is as follows:
health and pharmaceutical (two), financial services (five), retail (five),
telecommunications (four), industrial (three) and high technology (one). No
single customer represented more than 10% of the Company's combined net
revenues in 1997. The top 10 customers of the Company represented
approximately 23% of the Company's combined net revenues in 1997.
BILLING AND MANAGEMENT INFORMATION SYSTEMS
The Operating Centers presently perform the entire billing and collection
process for their respective customer bases. The data needed to develop an
invoice is captured by and stored on each MCU and entered into the billing
system automatically or by the staff. This data includes the account number,
which identifies the entity paying for the call and the moderator number,
which identifies the person who organized the call. The MCU software creates a
call detail record which is augmented by the operator to capture any
additional services. Billing is on a one minute increment basis for the
duration of each connected line. A billing database is maintained by each of
the Operating Centers, and can be used to customize billing formats to respond
to individual customer preferences. The frequency with which invoices are
delivered to the customer for payment varies by Operating Center and by
customer.
Each of the Operating Centers validates its invoices against its telephone
bills to verify billing accuracy. In addition, each Operating Center generates
reports and files which provide detailed customer activity including usage and
rate profiles, payments, adjustments, accounts receivable aging, credit status
and commission summaries. All of these files are input into a centralized
database being implemented by the Company to provide management with the
ability to monitor customer value and make informed marketing, sales,
financial and operational decisions.
The Company believes that the flexibility and capabilities of its billing
systems represent a significant competitive advantage by allowing the Company
to customize invoices according to a number of variables such as detail level,
frequency of billing and class of service. The Company has spent several years
developing and refining the proprietary software used in the billing services
provided to long distance service carriers that outsource their
teleconferencing function to the Company.
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The Company intends to consolidate its billing function over the next 3 to 9
months by using the most advanced of the Operating Center billing systems as a
platform for centralization. The Company believes that centralization of the
billing system will enable the Company to deliver additional customized
pricing, billing and reporting features to satisfy both customer and internal
requests. Each of the Operating Centers will continue to process invoices with
its existing system until the new centralized system has been implemented and
management has verified that the centralized system is performing at designed
proficiency. See "Risk Factors--Absence of Consolidated Operating History;
Difficulty of Integrating the Operating Centers."
COMPETITION
The teleconferencing service industry is highly competitive and subject to
rapid change. The Company currently competes, or expects to compete in the
near future, with the following categories of companies: (i) IXCs, such as
AT&T, MCI, Sprint, Frontier and Cable & Wireless, (ii) independent LECs, such
as GTE and Cincinnati Bell, and (iii) other PCSBs. According to estimates from
industry sources, the IXCs currently serve approximately 80% of the audio
teleconferencing market. The IXCs generally do not market teleconferencing
services separately, but rather offer such services as part of a "bundled"
telecommunications offering. The IXCs have not emphasized enhanced services or
customized communications solutions to meet customer needs. However, there can
be no assurance that these competitors will not alter their current strategies
and begin to focus on services-specific selling, customized solutions and
operator-attended services, the occurrence of any of which could increase
competition. Under the Telecommunications Act of 1996, the RBOCs may also be
allowed to provide long distance services within the regions in which they
also provide local exchange services ("in-region long distance services") upon
the satisfaction of certain conditions, including the specific approval of the
FCC, the introduction of or a defined potential for facilities-based local
competition, the offering of local services for resale, and compliance with
access and interconnection requirements for facilities-based competitors. Upon
entrance into the long distance market, the ability of an RBOC to gain
immediate and significant teleconferencing market share could be enhanced by
its status as the incumbent primary provider of local services to its
customers.
Management expects that there will be additional competition in video and
data conferencing from existing providers of audio teleconferencing services,
as well as new competitors dedicated to video and/or data conferencing. The
Company believes that the principal competitive factors influencing the market
for its services are brand identity, quality of customer service, breadth of
service offerings, price and vendor reputation. There can be no assurance that
the Company will be able to compete successfully with respect to any of these
factors. Competition may result in significant price reductions, decreased
gross margins, loss of market share and reduced acceptance of the Company's
services.
The Company derived approximately 14% of its 1997 combined net revenues from
IXCs and LECs which outsource teleconferencing services provided to their
respective customers. These telecommunications companies have the financial
capability and expertise to deliver such services internally. There can be no
assurance that the Company's current IXC and LEC customers will not begin to
provide the teleconferencing services now being provided by the Company and
pursue such market actively and in direct competition with the Company, which
could have a material adverse effect on the Company's business, financial
condition, results of operations and prospects. Moreover, the Company believes
that part of the Company's growth will occur from RBOCs which may enter the
long distance market and outsource their teleconferencing services. There can
be no assurance that any telecommunications company able to offer
teleconferencing services legally, now or in the future, will choose to do so
or that those choosing to do so will outsource their teleconferencing services
or choose the Company as their provider in case they do outsource
teleconferencing.
Two of the Company's largest outsourcing customers have recently agreed to
acquire or merge with competitors of the Company. Collectively, these
customers accounted for approximately 13% of the Company's 1997 combined net
revenues. Although one of these customers, representing approximately 9% of
the Company's 1997 combined net revenues, has verbally informed the Company
that it will honor its current outsourcing contract with the Company, which
expires in August 1999, there can be no assurance that such
50
<PAGE>
customer will continue to use the Company's services going forward. The second
customer, representing approximately 4% of the Company's 1997 combined net
revenues, has moved its teleconferencing business to a teleconferencing
company it has recently acquired. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
The Company also believes that many of its current and prospective customers
have sufficient resources to purchase the equipment and hire the personnel
necessary to establish and maintain teleconferencing capabilities sufficient
to meet their own respective teleconferencing needs. If the manufacturers of
PBXs develop improved, cost-effective PBX capabilities for handling
teleconferences with the quality of existing MCUs used in the teleconferencing
business, the Company's customers could choose to purchase such equipment and
hire the personnel necessary to service their teleconferencing needs through
internal telephone systems. The loss of such customers could have a material
adverse effect on the Company's business, financial condition, results of
operations and prospects. Additionally, if Internet technology can be modified
to accommodate multipoint voice transmission comparable to existing MCUs used
in the teleconferencing business, there could be a material adverse effect on
the Company's business, financial condition, results of operations and
prospects.
Many of the Company's current and potential competitors have substantially
greater financial, sales, marketing, managerial, operational and other
resources, as well as greater name recognition, than the Company and may be
able to respond more effectively than the Company to new or emerging
technologies and changes in customer requirements. In addition, such
competitors may be capable of initiating or withstanding significant price
decreases or devoting substantially greater resources than the Company to the
development, promotion and sale of new services. Because MCUs are not
prohibitively expensive to purchase or maintain, companies previously not
involved in teleconferencing could choose to enter the marketplace and compete
with the Company. There can be no assurance that new competitors will not
enter the Company's markets or that consolidations or alliances among current
competitors will not create significant new competition. In order to remain
competitive, the Company will be required to provide superior customer service
and to respond effectively to the introduction of new and improved services
offered by its competitors. Any failure of the Company to accomplish these
tasks or otherwise to respond to competitive threats may have a material
adverse effect on the Company's business, financial condition, results of
operations and prospects.
SUPPLIERS
The Company's services require two material components which it purchases
from outside suppliers:
Telecommunications Services. A significant portion of the Company's direct
costs are attributable to the purchase of local and long distance telephone
services. The Operating Centers have purchased telecommunications services
from a number of vendors, including AT&T, Sprint, MCI and Qwest. The Company
believes that multiple suppliers will continue to compete for the Company's
telecommunications contracts. Since the minutes of use generated by the
Company will be substantially higher than the largest of the Operating
Centers, the Company's experience subsequent to the Acquisitions is that it
has been able to negotiate telecommunications contracts with lower prices and
improved service guarantees. In light of what the Company believes to be
increased competition among long distance service providers, the Company has
been entering into shorter-term contracts for long distance services in order
to obtain the benefit of anticipated reduced costs over time. However, there
can be no assurance that competition in the long distance services market will
continue to increase, that any increased competition will reduce the cost of
long distance services or that the Company's purchasing strategy will result
in cost savings. If the costs of long distance services increase over time,
the Company's current purchasing strategy (which calls for shorter-term
contracts) may place it at a competitive disadvantage with respect to
competitors that have entered into longer-term contracts for long distance
services. There can be no assurance that the Company's analysis of the future
costs of long distance services will be accurate, and the failure to predict
future cost trends accurately could have a material adverse effect on the
Company's business, financial condition, results of operations and prospects.
51
<PAGE>
Bridging Hardware and Software Support Systems. The Company uses MCU
equipment produced by four outside manufacturers. At present, the MCU
equipment being utilized is not functionally identical, but is compatible with
substantially all network standards. As of September 30, 1998, approximately
55% of the Operating Centers' port capacity was manufactured by one vendor,
MultiLink, Inc. ("MultiLink"), which was acquired by PictureTel Corporation in
1997. However, a number of other vendors offer similar MCU equipment. In
February 1998, the Company entered into a two year non-exclusive volume
purchase agreement with MultiLink which provides for graduated MCU price
discounts based on the number of ports purchased by VIALOG during the term of
the agreement. The Company may negotiate similar volume contracts with other
manufacturers in the future. In addition, one of the Operating Centers has MCU
design and manufacturing resources that are utilized to build equipment for
internal use. The Company intends to develop its internal MCU capabilities
further to provide advanced feature functionality to address specific client
applications, remote operations (network or client based) and improved
integration of the MCU into existing management information systems.
FACILITIES
The Company's corporate headquarters are currently located in approximately
11,900 square feet of office space in Andover, Massachusetts under a lease
expiring in June 2004.
The Operating Centers are located in leased locations in Virginia, Georgia,
Alabama, Massachusetts, New Jersey and Connecticut. The Company believes all
of its locations are fully utilized except for its approximately 41,000 square
foot facility in Reston, Virginia and its approximately 12,000 square foot
facility in Oradell, New Jersey, each of which is approximately 80% utilized.
The Company occupies the Operating Centers and other facilities under leases
which provide for a total of approximately 88,500 square feet at rates ranging
from $5.00 to $23.00 per square foot with expiration dates, excluding month-
to-month leases, ranging from May 1999 to May 2008. The Company's total lease
expense related to its facilities was approximately $908,000 and $961,000 for
the years ended December 31, 1996 and 1997, respectively. The Company believes
its properties are adequate for its needs. The Company's facilities are
located either within one mile of central telephone switching locations or on
a sonet fiberoptic loop in metropolitan locations. Each facility has dual
sources of power or back-up generating capabilities. While the Company's
telephone and power requirements may preclude it from locating in some areas,
the Company believes alternative locations are available for its facilities at
competitive prices.
The Company has determined that operational efficiencies will be achieved by
consolidating the Operating Centers located in Atlanta, Georgia and
Montgomery, Alabama into a new leased facility in Montgomery. The
consolidation plan being implemented by the Company, which is subject to the
receipt of certain consents, calls for the Atlanta Center to remain staffed
through the early part of the first quarter of 1999, after which time its
traffic will be managed by operators in the Montgomery Center as well as other
Operating Centers. The Company anticipates relocating its Montgomery Center
into a new leased facility by March 1999. The lease for the new Montgomery
Center provides for a total of approximately 23,500 square feet at a base rate
of $12.25 per square foot with an expiration date of December 31, 2004.
EMPLOYEES
As of September 30, 1998, the Company had 448 employees, 247 of whom were
employed full time or part time as operators or reservationists. None of the
Company's employees are represented by unions. The Company has experienced no
work stoppages and believes its relationships with its employees are good.
REGULATION
In general, the telecommunications industry is subject to extensive
regulation by federal, state and local governments. Although there is little
or no direct regulation in the United States of the core group communications
services offered by the Company, various government agencies, such as the FCC,
have
52
<PAGE>
jurisdiction over some of the Company's current and potential suppliers of
telecommunications services, and government regulation of those services has a
direct impact on the cost of the Company's group communications services.
There can be no assurance that the FCC or other government agencies will not
seek in the future to regulate the Company as a common carrier and regulate
the prices, conditions or other aspects of the group communications services
offered by the Company, that the FCC will not impose registration,
certification or other requirements on the provision of those services, or
that the Company would be able to comply with any such requirements.
A central element of the Company's business strategy is to capitalize on
outsourcing opportunities. With the passage of the Telecommunications Act of
1996, the Company believes that the RBOCs will seek to enter the market for
long distance services and that competition in the markets for both local and
long distance telephone services will increase. In order to compete
successfully in those markets, the Company believes that the IXCs, LECs and
RBOCs will seek to provide teleconferencing and other group communications
services, but will outsource such services. Because the Company's outsourcing
strategy in part depends on the entrance of the RBOCs into the long distance
market, any factor that delays or prevents the entrance of the RBOCs into that
market could impact the Company's strategy. For example, the
Telecommunications Act of 1996 imposes strict pre-conditions to the provision
of in-region long distance services by the RBOCs, including the specific
approval of the FCC, the availability of unbundled network elements, the
offering of local services for resale, compliance with access and
interconnection requirements for competitive LECs, and the establishment of a
separate operating subsidiary with separate financing, management, employees,
and books and records. There can be no assurance that the RBOCs will be able
to meet all of the requirements of the Telecommunications Act of 1996 on a
timely basis, if at all. Even if one or more RBOCs meets these requirements,
there can be no assurance that the entrance of such RBOCs into the long
distance market will cause any IXCs, LECs or RBOCs to seek to outsource their
audio teleconferencing services or that a significant number of IXCs, LECs or
RBOCs will not continue to provide audio teleconferencing services in direct
competition with the Company. Finally, there can be no assurance that any
IXCs, LECs or RBOCs seeking to outsource audio teleconferencing services will
obtain such services from the Company. The failure of IXCs, LECs and RBOCs to
outsource audio teleconferencing services to the Company could have a material
adverse effect on the Company's growth strategy and business, financial
condition, results of operations and prospects.
The Telecommunications Act of 1996 is being contested both administratively
and in the courts, and opinions vary widely as to the effects and timing of
various aspects of the law. There can be no assurances at this time that the
Telecommunications Act of 1996 will create any opportunities for the Company,
that local access services will be provided by the IXCs, or that the RBOCs
will be able to offer long distance services, including teleconferencing. The
Telecommunications Act of 1996 has caused changes in the telecommunications
industry, and the Company is unable to predict the extent to which such
changes may ultimately affect its business.
The Company is subject to laws and regulations that affect its ability to
provide certain of its enhanced services, such as those relating to the
recording of telephone calls. Changes in the current federal, state or local
legislation or regulation could have a material adverse effect on the
Company's business, financial condition, results of operations and prospects.
Moreover, government regulations in countries other than the United States
vary widely and may restrict the Company's ability to offer its services in
those countries. The Company believes that it is currently in material
compliance with applicable communications laws and regulations.
LEGAL PROCEEDINGS
Other than as described below, there are no material pending legal
proceedings to which the Company is a party or to which any of its properties
are subject.
A former employee of Conference Source International, Inc. ("CSI"), the
Atlanta Center, has claimed in writing that he may be entitled to up to five
percent of the stock of CSI, based on an unsigned paper outlining
53
<PAGE>
possible employment terms. Based on the $18.7 million consideration paid to
CSI's stockholders upon the consummation of the Acquisition of CSI by VIALOG
Corporation, the value of a five percent equity interest in CSI would be
approximately $934,000. CSI's position is that the only agreements with such
employee were set forth in two successive executed employment agreements, each
of which had a specific provision that such agreement was inclusive as to the
terms of employment. The Company and the former stockholders of CSI believe
that such claim is without merit.
54
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with regard to the
Directors and executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Glenn D. Bolduc(1)...... 46 Chief Executive Officer, President, Treasurer and Director,
President--Oradell (NJ) Center, Montgomery (AL) Center
and Atlanta (GA) Center
John J. Dion............ 40 Vice President--Finance
Robert F. Moore......... 44 Vice President--Marketing and Business Development
Gary G. Vilardi......... 44 Vice President--Sales
John R. Williams........ 38 Vice President--Operations
Michael D. Shepherd..... 34 Vice President--Wholesale Sales
Clarissa A. Peterson.... 35 Vice President--Human Resources
C. Raymond Marvin....... 60 Vice President
Joanna M.
Jacobson(1)(2)......... 38 Director
David L. Lougee(1)(2)... 58 Director
Richard E. Hamermesh.... 50 Director
Patti R. Bisbano........ 54 Director and President--Danbury (CT) Center
Edward M. Philip(3)..... 33 Director
William P. Pucci........ 53 President--Reston (VA) Center
Courtney P. Snyder...... 49 President--Cambridge (MA) Center
</TABLE>
- --------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
(3) Mr. Philip will become a Director of the Company upon completion of this
Offering.
GLENN D. BOLDUC has served as Chief Executive Officer, President and a
Director of the Company since October 1, 1996 and as Treasurer since July 9,
1997. He has also served as President of the Oradell Center since June 24,
1998, as President of the Montgomery Center since July 1, 1998 and as
President of the Atlanta Center since September 30, 1998. From July 1989 to
September 1996, Mr. Bolduc served as Chief Financial Officer of MultiLink, an
independent supplier of audio conferencing bridges.
JOHN J. DION has served as Vice President--Finance for the Company since
November 1996, and served as a Director from July 9, 1997 to November 12,
1997. On February 23, 1998, Mr. Dion was also appointed Vice President-Finance
of each of the Operating Centers. From October 1995 to October 1996, Mr. Dion
provided financial consultative services to a medical device manufacturer and
publishing company. From August 1985 to August 1995, Mr. Dion served in
various financial positions for DSC Communications Corporation, a manufacturer
of telecommunications hardware and software. Mr. Dion's final position with
DSC was Director of Accounting.
ROBERT F. MOORE joined the Company on November 1, 1997 as Vice President--
Marketing and Business Development. Mr. Moore served as Vice President--Sales
and Marketing for Citizens Communication Corporation, a division of Citizens
Utilities, Inc. from March 1997 to October 31, 1997. From January 1994 to
February 1997, Mr. Moore was with Hill Holliday Connors Cosmopulos, Inc.
Advertising. For the 17 years prior to that, Mr. Moore served in various sales
and marketing positions with Southern New England Telephone ("SNET"), the last
four years of which he served as President of SNET Mobility, Inc., the
cellular communications subsidiary of SNET.
GARY G. VILARDI has served as Vice President--Sales of the Company since
April 1, 1997. He has spent 17 years in sales and sales management and has
focused on audio, video, and document conferencing sales during
55
<PAGE>
the last eight years. From October 1995 to December 1996 Mr. Vilardi was Vice
President--Sales with Video-On, Inc., a GE Capital Company specializing in
video conferencing. From June 1995 to October 1995 he served as Eastern
Regional Vice President for Network MCI teleconferencing, and from March 1990
to June 1995 he was Vice President of U.S. Sales for Darome Teleconferencing.
JOHN R. WILLIAMS joined the Company on November 1, 1997 as Vice President--
Operations. Mr. Williams served as General Manager of the Sprint Conference
Line, Sprint's audio teleconferencing service bureau business, from July 1995
to October 1997. Mr. Williams held positions in product development,
marketing, and strategic planning in the Sprint Long Distance Division from
November 1989 to July 1995. From June 1984 to November 1989 he was a National
Account Manager at IBM.
MICHAEL D. SHEPHERD joined the Company on February 2, 1998 as Vice
President--Wholesale Sales. Mr. Shepherd served as Vice President of Carrier
Sales at Citizens Communications Corporation, a division of Citizens Utilities
Companies, Inc. from November 1997 to February 1998. From April 1997 to
November of 1997, Mr. Shepherd served as Director--Major Accounts (Western
Region) with Citizens Communications Corporation where he was responsible for
managing the business relationships with AT&T Communications, Inc., U.S. West
Communications, Inc., Pacific Telesis, and several national wireless
companies. From April 1986 to February 1995, Mr. Shepherd held various sales
positions with WorldCom and MCI.
CLARISSA A. PETERSON joined the Company on August 3, 1998 as Vice
President--Human Resources. Ms. Peterson served as Employee Relations Manager
at Global One from July 1997 to July 1998. From July 1996 to July 1997, Ms.
Peterson served as Director of Human Resources for Telephone Business
Meetings, Inc. ("Access"), the Reston Center. From October 1988 to February
1996, Ms. Peterson served in various human resource positions for Superior
Beverages, Inc., an Anheuser-Busch distributor. Ms. Peterson's final position
with Superior Beverages, Inc. was Vice President--Human Resources.
C. RAYMOND MARVIN has served as a Vice President of the Company since
December 31, 1997. He founded Telephone Business Meetings, Inc. ("Access"),
the Reston Center, in 1987 and served as President and Chief Executive Officer
of Access from its inception to December 31, 1997 and as a director of the
Reston Center from its inception to November 12, 1997.
JOANNA M. JACOBSON served as a consultant to VIALOG Corporation prior to,
and became a Director of the Company on November 12, 1997. Since April 1996,
Ms. Jacobson has been President of Keds, a distributor of athletic footwear
and a division of Stride-Rite Corporation. From February 1995 to March 1996,
she was a partner in Core Strategy Group, a strategic marketing consulting
firm. From December 1991 to September 1994, Ms. Jacobson was a Senior Vice
President of Marketing and Product Development for Converse, Inc., a
distributor of athletic footwear.
DAVID L. LOUGEE became a Director of the Company on November 12, 1997. Mr.
Lougee has been a partner of the law firm of Mirick, O'Connell, DeMallie &
Lougee, LLP since 1972. Mr. Lougee is also a director of Meridian Medical
Technologies, Inc., a public company in the medical devices and drug delivery
business. Mirick, O'Connell, DeMallie & Lougee, LLP serves as outside general
counsel to the Company.
RICHARD G. HAMERMESH became a Director of the Company on June 19, 1998. Dr.
Hamermesh is a founder and Managing Partner of The Center for Executive
Development ("CED"), an executive education consulting firm in Cambridge,
Massachusetts. Prior to founding CED in 1988, he was a member of the faculty
of the Harvard Business School from 1976 to 1988. Dr. Hamermesh has provided
management consulting services in the areas of strategic planning,
organization design, and strategic change and has been an active consultant to
the executive development programs of numerous corporations. Dr. Hamermesh
currently serves on the Board of Directors of two public companies -- BE
Aerospace, Inc. and Applied Extrusion Technologies, Inc.
PATTI R. BISBANO has served as President of the Danbury Center since
November 12, 1997. She co-founded Communication Development Corporation
("CDC") in April 1990 and served as President, Treasurer and as a director of
CDC from its inception to November 12, 1997. Ms. Bisbano became a Director of
the Company on November 12, 1997.
EDWARD M. PHILIP will become a Director of the Company upon completion of
this Offering. He has served as Chief Financial Officer and Secretary of
Lycos, Inc. since December 1995 and Chief Operating Officer since
56
<PAGE>
December 1996. From July 1991 to December 1995, Mr. Philip was employed by The
Walt Disney Company where he served in various finance positions, most
recently as Vice President and Assistant Treasurer. Mr. Philip is also a
director of VDI Media, Inc.
WILLIAM P. PUCCI has served as President of the Reston Center since December
31, 1997 and served as Vice President--Operations for the Company from May
1996 to December 1997. Prior to joining the Company, Mr. Pucci spent 28 years
in the telecommunications industry with New England Telephone, AT&T, and
NYNEX.
COURTNEY P. SNYDER has served as President of the Cambridge Center since
November 12, 1997. He founded Kendall Square Teleconferencing ("TCC") in 1987
and served as President, Chief Executive Officer and as a director of TCC from
its inception until the Acquisition of TCC by VIALOG Corporation.
The Company's Board of Directors is divided into three classes, with one
class of directors elected each year at the annual meeting of stockholders for
a three-year term of office. All directors of one class hold their positions
until the annual meeting of stockholders at which the terms of the directors
in such class expire and until their respective successors are elected and
qualified. Ms. Jacobson and Ms. Bisbano serve in the class whose terms expire
in 1999, Mr. Bolduc and Mr. Lougee serve in the class whose terms expire in
2000, and Dr. Hamermesh, elected as a Director on June 19, 1998, and Mr.
Philip, whose appointment as Director commences upon the completion of this
Offering, serve in the class whose terms expire in 2001. Executive officers of
the Company are elected annually by the Board of Directors and serve at the
discretion of the Board of Directors or until their successors are duly
elected and qualified.
On January 6, 1998, the Board of Directors established an Audit Committee
and a Compensation Committee. The Audit Committee will review the scope and
results of the annual audit of the Company's consolidated financial statements
conducted by the Company's independent accountants, proposed changes in the
Company's financial and accounting standards and principles, and the Company's
policies and procedures with respect to its internal accounting, auditing and
financial controls, and will make recommendations to the Board of Directors on
the engagement of the independent accountants, as well as other matters which
may come before it or as directed by the Board of Directors. The Compensation
Committee will administer the Company's compensation programs, including the
1996 Stock Plan, and will perform such other duties as may from time to time
be determined by the Board of Directors.
DIRECTOR COMPENSATION
Directors who are also employees of the Company or one of its subsidiaries
do not receive additional compensation for serving as Directors. Each Director
who is not an employee of the Company or one of its subsidiaries received upon
his or her election as a Director an option to purchase 12,000 shares of
Common Stock at its then fair market value, and will receive a fee of $500 for
attendance at each Board of Directors meeting and $250 for each committee
meeting (unless held on the same day as a Board of Directors meeting).
Directors are also reimbursed for out-of-pocket expenses incurred in attending
meetings of the Board of Directors or committees thereof or otherwise incurred
in their capacity as Directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
On January 6, 1998, the Company's Board of Directors established a
Compensation Committee, consisting of Mr. Bolduc, Ms. Jacobson and Mr. Lougee.
Mr. Bolduc also serves as the Chief Executive Officer, President, Treasurer
and a Director of the Company. Mr. Lougee also serves as a Director of the
Company and is a partner of Mirick, O'Connell, DeMallie & Lougee, llp, the
Company's legal counsel. Prior to the establishment of the Compensation
Committee, decisions as to executive compensation were made by the Board of
Directors. From January 1, 1997 until February 21, 1997, the Board of
Directors consisted of John J. Hassett, Mr. Bolduc and Thomas M. Carroll. Mr.
Carroll is the brother-in-law of Mr. Hassett. On February 21, 1997, Mr.
Carroll resigned as Director and was replaced by Bruce T. Guzowski. On July 9,
1997, Mr. Guzowski resigned and was replaced by John J. Dion. On November 12,
1997, Mr. Dion and Mr. Hassett resigned as Directors, and Mr. Lougee,
Ms. Bisbano, Ms. Jacobson and David L. Lipsky were appointed Directors. Mr.
Lipsky's term as a Director expired June 19, 1998, the date of VIALOG's
shareholder meeting in lieu of annual meeting. Dr. Hamermesh was elected to
succeed Mr. Lipsky as a Director on June 19, 1998.
There are no compensation committee interlocks.
57
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the compensation earned by the individual who
served as the Company's President during the year ended December 31, 1998 and
the Company's four most highly-compensated executive officers other than the
President who were serving as executive officers on December 31, 1998 (the
"Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
-------------------------- -------------------------
AWARDS PAYOUTS
-------------- ----------
SECURITIES
UNDERLYING ALL
OTHER ANNUAL RESTRICTED OPTIONS/ OTHER
SALARY BONUS COMPENSATION STOCK AWARD(S) SARS COMPENSATION
NAME AND PRINCIPAL POSITION ($) ($) ($) ($)(1) (#) ($)
- --------------------------- ------- ----- ------------ -------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Glenn D. Bolduc.......... 261,923 0 (2) 0 40,000 0
President and CEO
C. Raymond Marvin........ 251,308 0 (2) 0 100,000 0
Vice President
Robert F. Moore.......... 163,269 0 (2) 0 25,000 0
Vice President Marketing
and Business
Development
Courtney P. Snyder....... 159,991 0 (2) 0 0 1,869(3)
President--Cambridge
Center
Gary G. Vilardi.......... 157,308 0 (2) 0 11,000 0
Vice President--Sales
</TABLE>
- --------
(1) None of the Named Executive Officers received compensation for their
services in the form of restricted stock awards during the fiscal year
ended December 31, 1998. However, as of December 31, 1998, each of the
Named Executive Officers held restricted shares of the Company's Common
Stock as follows:
<TABLE>
<CAPTION>
VALUE($)
NAMED EXECUTIVE OFFICERS RESTRICTED SHARES(#) ($10.00/SHARE)
------------------------ -------------------- --------------
<S> <C> <C>
Glenn D. Bolduc........................ 25,000 250,000
C. Raymond Marvin...................... 0 0
Robert F. Moore........................ 0 0
Courtney P. Snyder..................... 48,780 487,800
Gary G. Vilardi........................ 0 0
</TABLE>
The Company has no current plans to pay dividends on the above-referenced
restricted shares.
(2) The aggregate amount of the Named Executive Officer's Compensation
reportable under this category falls below the reporting threshold of the
lesser of $50,000 or 10% of the total annual salary and bonus reported for
the Named Executive Officers.
(3) TCC paid an aggregate of $1,869 in premiums on two life insurance policies
on the life of Mr. Snyder. Both of the policies were canceled in early
1998.
58
<PAGE>
EMPLOYMENT AND NONCOMPETITION AGREEMENTS
The following table sets forth a summary of the terms of the employment
arrangements entered into with the Named Executive Officers.
<TABLE>
<CAPTION>
CURRENT
NAME POSITION SALARY EXPIRES
---- ----------------------- -------- ------------------------------
<C> <S> <C> <C>
President and CEO--
Glenn D. Bolduc(1)..... VIALOG $265,000 Terminable upon 30 days notice
C. Raymond Marvin(2)... Vice President--VIALOG $242,000 November 1999
Robert F. Moore(3)..... Vice President-- $170,000 Terminable upon 30 days notice
Marketing and Business
Development
President--Cambridge
Courtney P. Snyder(4).. Center $164,000 November 2000
Gary G. Vilardi(5) .... Vice President--Sales $160,000 Terminable upon 30 days notice
</TABLE>
- --------
(1) The Company may immediately terminate Mr. Bolduc's employment agreement
for "cause" as defined in the agreement. The Company and Mr. Bolduc each
have the right to terminate Mr. Bolduc's employment without cause upon 30
days' prior written notice. If Mr. Bolduc's employment is terminated
without cause by the Company, the employment agreement provides for a
severance payment of 18 months' then current salary and the continuation
of all fringe benefits for 18 months at the Company's expense after the
termination of his employment. Mr. Bolduc is entitled to a monthly
automobile allowance of $1,000.
(2) Mr. Marvin's employment agreement provides that if Mr. Marvin's employment
terminates during the term of his employment other than for cause, death
or disability, he will be entitled to receive his base compensation and
group insurance benefits during a period equal to the greater of (i) one
year or (ii) the remainder of the term of his employment contract.
(3) Mr. Moore's employment agreement provides that if Mr. Moore's employment
is terminated by the Company other than for cause, disability or death, he
will be entitled to receive his base compensation and group insurance
benefits for a period of twelve months, subject to adjustment in the event
Mr. Moore obtains new employment during the twelve-month period after the
termination of his employment. Mr. Moore is entitled to a monthly
automobile allowance of $500.
(4) Mr. Snyder's employment agreement provides that if Mr. Snyder's employment
is terminated by the Cambridge Center other than for cause, disability or
death, he will be entitled to receive his base compensation and group
insurance benefits during a period equal to the greater of (i) one year or
(ii) the remainder of the term of the employment agreement. Mr. Snyder is
entitled to a monthly automobile allowance of $400.
(5) Mr. Vilardi's employment agreement provides that if Mr. Vilardi's
employment is terminated by the Company other than for cause, disability
or death, he will be entitled to receive his base compensation and group
insurance benefits for a period of twelve months, subject to adjustment in
the event Mr. Vilardi obtains new employment during the twelve-month
period after the termination of his employment. Mr. Vilardi is entitled to
a monthly automobile allowance of $500.
59
<PAGE>
1996 STOCK PLAN
On February 14, 1996, the Board of Directors and the Company's stockholders
approved the Company's 1996 Stock Plan (the "Plan"). The purpose of the Plan
is to provide directors, officers, key employees, consultants and other
service providers with additional incentives by increasing their ownership
interests in the Company. Individual awards under the Plan may take the form
of one or more of (i) incentive stock options ("ISOs"), (ii) non-qualified
stock options ("NQSOs"), (iii) stock appreciation rights ("SARs") and (iv)
restricted stock.
The Compensation Committee administers the Plan and generally selects the
individuals who will receive awards and the terms and conditions of those
awards. The maximum number of shares of Common Stock that may be issued or
issuable under the Plan, determined immediately after the grant of any award,
may not exceed 3,250,000 shares. Shares of Common Stock subject to awards
which have expired, terminated or been canceled or forfeited are available for
issuance or use in connection with future awards. As of January 1, 1999, there
were 756,104 additional shares available for grant under the Plan.
The Plan will remain in effect until February 14, 2006 unless terminated
earlier by the Board of Directors. The Plan may be amended by the Board of
Directors without the consent of the stockholders of the Company, except that
any amendment, although effective when made, will be subject to stockholder
approval if required by any Federal or state law or regulation or by the rules
of any stock exchange or automated quotation system on which the Common Stock
may then be listed or quoted.
The following table sets forth all options granted to the Named Executive
Officers in 1998:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------
POTENTIAL REALIZABLE
VALUE AT ASSUMED
% OF TOTAL ANNUAL RATES OF STOCK
NUMBER OF OPTIONS PRICE
SECURITIES GRANTED TO APPRECIATION FOR
UNDERLYING EMPLOYEES EXERCISE OPTION TERM(4)
OPTIONS IN FISCAL PRICE EXPIRATION ---------------------
NAME GRANTED (#) YEAR ($/SHARE) DATE 5%($) 10%($)
---- ----------- ---------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Glenn D. Bolduc......... 40,000 4.9 (1) (3) 251,600 637,600
C. Raymond Marvin....... 100,000 12.3 5.75(2) (3) 362,000 916,000
Robert F. Moore......... 25,000 3.1 (1) (3) 157,250 398,500
Courtney P. Snyder...... 0 0 0 (3) 0 0
Gary G. Vilardi......... 1,000 0.1 10.00(2) (3) 6,290 15,940
10,000 1.2 (1) (3) 62,900 159,400
</TABLE>
- --------
(1) The exercise price of these options is the lower of $10.00 or the initial
public offering price per share. The $10.00 exercise price per share was
the fair market value per share of the underlying Common Stock as
determined by the Board of Directors of the Company on the date of grant.
The Board of Directors determined the market value of the Common Stock
based on various factors, including the illiquid nature of an investment
in the Company's Common Stock, the absence of any operating history and
the Company's future prospects. In addition, the Company periodically
obtained independent valuations of the Company's Common Stock.
(2) The exercise price of these options is the fair market value on the date
of grant determined as described in footnote 1.
(3) If a Named Executive Officer ceases to be employed by the Company, further
vesting of the Named Executive Officer's options ceases and all vested
options expire 90 days after the date such Named Executive Officer ceases
to be employed by the Company. In any event, all options granted to Named
Executive Officers terminate 10 years from the date of grant.
60
<PAGE>
(4) Amounts reported in this column represent hypothetical values that may be
realized upon exercise of the options immediately prior to the expiration
of their term, assuming the specified compounded rates of appreciation of
the Company's Common Stock over the term of the options. These numbers are
calculated based on rules promulgated by the Commission and do not
represent the Company's estimate of future stock price growth. Actual
gains, if any, on stock option exercises and Common Stock holdings are
dependent on timing of such exercise and future performance of the
Company's Common Stock. There can be no assurance that the rates of
appreciation assumed in this table can be achieved or that the amounts
reflected will be received by the Named Executive Officers. This table
does not take into account any appreciation in the price of the Common
Stock from the date of grant to current date. The values shown are net of
the option exercise price, but do not include deductions for taxes or
other expenses associated with the exercise.
The following table sets forth the value of all unexercised options held by
the Named Executive Officers at the end of 1998:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF SECURITIES IN-THE-MONEY
UNDERLYING UNEXERCISED OPTIONS AT FISCAL
OPTIONS AT FY-END (#) YEAR END ($)(1)
------------------------- -------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Glenn D. Bolduc............. 194,587 80,413 1,845,520 350,000
C. Raymond Marvin........... 0 100,000 0 425,000
Robert F. Moore ............ 30,087 64,913 224,000 336,000
Courtney P. Snyder.......... 30,900 44,100 131,325 187,425
Gary G. Vilardi............. 837 60,163 233,360 166,640
</TABLE>
- --------
(1) There was no public trading market for the Common Stock on December 31,
1998. Accordingly, solely for the purposes of this table, the values in
this column have been calculated on the basis of a $10.00 per share value
which represented the fair market value of the Common Stock on December
31, 1998 as determined by the Company's Board of Directors, less the
aggregate exercise price of the options.
61
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ORGANIZATION OF THE COMPANY
On November 12, 1997, VIALOG Corporation acquired (i) by merger, all of the
issued and outstanding stock of five PCSBs, and (ii) by purchase, the assets
of one PCSB, and each PCSB became a wholly-owned subsidiary of VIALOG
Corporation. The aggregate consideration paid by VIALOG Corporation for the
Acquisitions was 559,330 shares of Common Stock valued at $5.75 per share,
approximately $53.0 million in cash, approximately $925,000 in cash related to
tax reimbursements and approximately $500,000 of Acquisition costs. The
consideration paid was determined through arm's length negotiations among
VIALOG Corporation and the stockholders of each PCSB, and was based upon a
multiple of each PCSB's historical net revenue as well as each PCSB's customer
base, current operating results, geographic market, type and condition of its
equipment and facilities, and potential cost savings resulting from the
Acquisitions. The following table sets forth the approximate consideration
paid for each of the PCSBs.
<TABLE>
<CAPTION>
NAME CASH CONSIDERATION SHARES
---- ------------------ -------
<S> <C> <C>
Telephone Business
Meetings, Inc.
("Access")............... $19,000,000(1) --
Conference Source
International, Inc.
("CSI").................. 18,675,000(2) --
Call Points, Inc. ("Call
Points")................. 8,000,000(3) 21,000
Kendall Square
Teleconferencing, Inc.
("TCC").................. 3,645,000 166,156
American Conferencing
Company, Inc.
("Americo").............. 1,260,000 267,826(4)
Communication Development
Corporation ("CDC")...... 2,400,000 104,348
----------- -------
Total Acquisition
Consideration.......... $52,980,000 559,330
=========== =======
</TABLE>
- --------
(1) VIALOG Corporation and Access agreed to make an election under Section
338(h)(10) of the Code to treat the purchase and sale of the capital stock
of Access as a purchase and sale of assets. VIALOG Corporation agreed to
reimburse the stockholders of Access an amount, estimated to be $700,000,
equal to the difference between the taxes incurred by such stockholders as
a result of the Section 338(h)(10) election and the taxes which would have
been incurred by such stockholders had no Section 338(h)(10) election been
made, together with the costs incurred in connection with making such
calculations. Such reimbursements have not been included in the Total
Acquisition Consideration shown above.
(2) VIALOG Corporation and CSI agreed to make an election under Section
338(h)(10) of the Code to treat the purchase and sale of the capital stock
of CSI as a purchase and sale of assets. VIALOG Corporation has reimbursed
the stockholders of CSI $225,000, an amount estimated to equal the
difference between the taxes incurred by such stockholders as a result of
the Section 338(h)(10) election and the taxes which would have been
incurred by such stockholders had no Section 338(h)(10) election been
made, together with the costs incurred in connection with making such
calculations. Such reimbursements have not been included in the Total
Acquisition Consideration shown above.
(3) Ropir Industries, Inc., the principal stockholder of Call Points, received
$1.0 million of the cash consideration of $8.0 million as compensation for
entering into a noncompetition agreement with VIALOG Corporation.
(4) See "Other Transactions."
From June 30, 1997 through the consummation of the Acquisitions, certain of
the PCSBs made S corporation distributions of $1,687,000. In addition, during
the course of operations, certain of the PCSBs incurred indebtedness or
entered into capital leases which were guaranteed by their principal
stockholders. At September 30, 1997, the aggregate amount of indebtedness and
capital leases of the PCSBs that was subject to such personal guarantees was
approximately $3.5 million. The Company repaid approximately $2.2 million of
such indebtedness upon the closing of the Acquisitions, and the Company agreed
to use its best efforts to cause all such guarantees to be released. If the
Company cannot obtain such releases, it has agreed to arrange for the
discharge of such indebtedness. At September 30, 1998, the remaining aggregate
amount of such indebtedness and capital leases was $842,000.
62
<PAGE>
The following is a discussion of the material information regarding the
PCSBs and their principal stockholders:
VIALOG Corporation (i) caused a subsidiary of VIALOG Corporation to merge
with Access, whereby Access became a wholly owned subsidiary of VIALOG
Corporation and (ii) delivered to the stockholders of Access approximately
$19.0 million in cash in exchange for their shares of Access. VIALOG
Corporation granted options for 142,850 shares of Common Stock exercisable at
$5.75 per share to certain key employees of Access. If the Company completes
an initial public offering of its shares or is acquired or otherwise merges
with another entity and the consideration for such transaction is less than
$13.75 per share, such option holders will receive additional options
exercisable at $5.75 per share on a pro rata basis such that the total
aggregate value of such options equals $1.0 million. If an employee's
employment is terminated, other than by reason of death or disability, the
option must be exercised within 90 days thereafter or it will expire. Such
terminated employees will be entitled to cash bonuses equal to the
consideration required to be paid upon exercise of an option if such option is
exercised. Stockholders' equity of Access was approximately $2.1 million on
the date of the Acquisition. The Company repaid approximately $1.4 million of
indebtedness of Access, of which C. Raymond Marvin was the guarantor. Such
indebtedness was to mature through 2000 and bore interest at rates ranging
from 9.25% to 9.5% per annum. The Company agreed to arrange for the release of
such guarantees or to arrange for the discharge of indebtedness underlying
such guarantees. From June 30, 1997 through the consummation of the
Acquisition, Access made S corporation tax distributions of $652,000. Mr.
Marvin entered into a two-year employment agreement with Access which included
a covenant not to compete expiring no earlier than the latter of the third
anniversary of the merger or one year after the expiration of his severance
period under such agreement.
VIALOG Corporation (i) caused a subsidiary of VIALOG Corporation to merge
with CSI, whereby CSI became a wholly owned subsidiary of VIALOG Corporation
and (ii) delivered to the stockholders of CSI approximately $18.7 million in
cash in exchange for their shares of CSI. Stockholders' equity of CSI was
approximately $260,000 on the date of the Acquisition. Judy B. Crawford
remained as President of CSI following the closing of this Offering and
received approximately $9.3 million in cash. The Company repaid approximately
$500,000 of indebtedness of CSI, of which Ms. Crawford was the guarantor. Such
indebtedness was to mature in 2000 and bore interest at 9.5% per annum. In
addition, Ms. Crawford had guaranteed all of CSI's capital leases, which had
remaining lease payments of approximately $774,000 as of the date of the
Acquisition. The Company agreed to arrange for the release of such guarantees
or to arrange for the discharge of indebtedness underlying such guarantees.
From June 30, 1997 through the consummation of the Acquisition, CSI made S
corporation profit and tax distributions of $880,000. Ms. Crawford entered
into a one-year employment agreement with CSI which included a covenant not to
compete expiring no earlier than the third anniversary of the merger. Ms.
Crawford resigned as President of the Atlanta Center effective July 31, 1998.
VIALOG Corporation (i) caused a subsidiary of VIALOG Corporation to acquire
substantially all of the assets of, and assumed specified liabilities of, Call
Points, (ii) delivered to Call Points $7.0 million in cash and 21,000 shares
of Common Stock in exchange for such assets and (iii) delivered to the
principal stockholder of Call Points $1.0 million in cash in exchange for a
noncompetition agreement. The net value of the assets acquired from Call
Points was approximately $2.4 million on the date of the Acquisition. VIALOG
Corporation obtained noncompetition agreements with a two-year noncompetition
period from the principal stockholder and a key employee of Call Points.
VIALOG Corporation (i) caused a subsidiary of VIALOG Corporation to merge
with TCC, whereby TCC became a wholly owned subsidiary of VIALOG Corporation
and (ii) delivered to the stockholders of TCC 166,156 shares of Common Stock
and approximately $3.6 million in cash in exchange for their shares of TCC.
Stockholders' equity of TCC was approximately $629,000 on the date of the
Acquisition. In 1996, TCC distributed certain technology and hardware with a
net book value of approximately $12,000 to certain stockholders of TCC.
Courtney P. Snyder remained as President of TCC and received 48,780 shares of
Common Stock and approximately $841,000 in cash. VIALOG Corporation granted to
Mr. Snyder options for 75,000 shares of Common Stock exercisable at the fair
market value as of the closing of the Acquisition as determined by the VIALOG
Corporation Board of Directors. Such options are exercisable for 5,700 shares
on December 31, 1997
63
<PAGE>
and an additional 6,300 shares on the last day of each of the 11 calendar
quarters thereafter. The options will expire on the third anniversary of the
Acquisition. John J. Hassett, a principal stockholder of VIALOG Corporation
and of TCC, received 44,512 shares of Common Stock and approximately $768,000
in cash. See "Principal Stockholders." The Company repaid approximately
$66,000 of indebtedness of TCC, of which Mr. Snyder and Mr. Hassett were
guarantors. Such indebtedness was to mature through 1999 and bore interest at
rates ranging from 9.5% to 11% per annum. In addition, Mr. Snyder and Mr.
Hassett were guarantors of certain of TCC's capital leases, which had
remaining lease payments of approximately $324,000 as of the date of the
Acquisition. The Company agreed to arrange for the release of such guarantees
or to arrange for the discharge of indebtedness underlying such guarantees.
From June 30, 1997 through the consummation of the Acquisition, TCC made S
corporation tax distributions of $156,000. Mr. Snyder entered into a three-
year employment agreement with TCC which included a covenant not to compete
expiring no earlier than the third anniversary of the merger or one year from
the expiration of his severance period under such agreement, whichever is the
later to occur. VIALOG Corporation has also obtained noncompetition agreements
with a two-year noncompetition period from certain other principal
stockholders and/or employees of TCC.
VIALOG Corporation (i) caused Americo to merge with and into a wholly owned
subsidiary of VIALOG Corporation and (ii) delivered to David L. Lipsky, the
sole stockholder of Americo, 267,826 shares of Common Stock and approximately
$1.3 million in cash in exchange for his shares of Americo. Stockholders'
deficit of Americo was approximately $273,000 on the date of the Acquisition.
Mr. Lipsky remained as President of Americo. VIALOG Corporation granted to Mr.
Lipsky options for 75,000 shares of Common Stock, exercisable at the fair
market value as of the closing of the Acquisition as determined by the VIALOG
Corporation Board of Directors. The Company repaid approximately $185,000 of
indebtedness of Americo, of which Mr. Lipsky was a guarantor. Such
indebtedness was to mature at various times through June 2001 and bore
interest at 10% per annum. Mr. Lipsky entered into a three-year employment
agreement with Americo which included a covenant not to compete expiring no
earlier than the latter of the third anniversary of the merger or one year
from the expiration of his severance period under such agreement. On June 24,
1998, Mr. Lipsky's employment was terminated and his options were cancelled.
See "--Other Transactions."
VIALOG Corporation (i) caused a subsidiary of VIALOG Corporation to merge
with CDC, whereby CDC became a wholly owned subsidiary of VIALOG Corporation
and (ii) delivered to the stockholders of CDC 104,348 shares of Common Stock
and approximately $2.4 million in cash in exchange for their shares of CDC.
Stockholders' equity of CDC was approximately $418,000 on the date of the
Acquisition. Patti R. Bisbano remained as President of CDC and received 52,174
shares of Common Stock and approximately $1.2 million in cash. Maurya Suda, a
principal stockholder of CDC, received 52,174 shares of Common Stock and
approximately $1.2 million in cash. VIALOG Corporation granted to Ms. Bisbano
and Ms. Suda options for an aggregate of 75,000 shares of Common Stock
exercisable at the fair market value as of the closing of the Acquisition as
determined by the VIALOG Corporation Board of Directors. Ms. Bisbano received
options for 62,500 shares which are exercisable for 5,212 shares on December
31, 1997 and an additional 5,208 shares on the last day of each of the 11
calendar quarters thereafter. Ms. Suda received options for 12,500 shares,
which are exercisable for 3,125 shares on December 31, 1997 and an additional
3,125 shares in the last day of each of the 3 calendar quarters thereafter.
The options will expire on the third anniversary of the closing of the
Acquisition. The Company repaid indebtedness of CDC, of which Ms. Bisbano was
a guarantor, of approximately $43,000. Such indebtedness was to mature in 2000
and bore interest at 9.5% per annum. Ms. Bisbano entered into a three-year
employment agreement with CDC which included a covenant not to compete
expiring on the later of one year from the expiration of her employment
agreement or two years from the expiration of her severance period under such
agreement. Ms. Suda entered into a one-year employment agreement with CDC
which included a covenant not to compete expiring on the latter of one year
from the expiration of her employment agreement or two years from the
expiration of her severance period under such agreement. Ms. Suda's
resignation from CDC was accepted effective May 29, 1998. Ms. Suda will be
paid under her employment agreement through November 12, 1998. Unvested
options previously granted to Ms. Suda for 6,250 shares of Common Stock were
granted to Ms. Bisbano on May 22, 1998. Such options are exercisable at $7.00
per share, the fair market value on the date of grant as determined by the
Board of Directors.
64
<PAGE>
The Company agreed with all of the PCSBs, except Call Points, that until
November 1999 there would be no (i) change in the location of an Operating
Center's facilities, (ii) physical merging of any Operating Center's
operations with another operation, (iii) change in the position of certain
persons receiving employment agreements authorized by the Acquisition
agreements, or (iv) reduction in work force or termination of employment
except as related to employee performance or the contemplated reorganization
of the combined sales/marketing staff or the accounting function, without the
approval of a majority in interest of the respective Operating Center's former
stockholders. In the case of Call Points, similar restrictions apply except
that there are no restrictions with respect to a change in the location of
Call Points' facilities. The Company is in the process of obtaining the
necessary approvals to the consolidation of its Atlanta Center and Montgomery
Center. See "Business--Facilities."
OTHER TRANSACTIONS
Glenn D. Bolduc, President and Chief Executive Officer of the Company, owned
approximately five percent of the issued and outstanding common stock of
MultiLink, a principal supplier of MCUs to the Company, prior to the
acquisition of MultiLink by PictureTel Corporation in 1997. In 1995, 1996 and
1997, aggregate purchases of MCUs and ancillary services from MultiLink by the
Operating Centers were approximately $889,000, $811,000 and $878,000,
respectively. Currently, Mr. Bolduc owns less than 1% of the outstanding
shares of capital stock of PictureTel Corporation.
David L. Lougee, one of the Company's Directors, is a partner of Mirick,
O'Connell, DeMallie & Lougee, LLP, the law firm currently retained as the
Company's legal counsel. In 1998, the Company paid Mirick, O'Connell, DeMallie
& Lougee, LLP an aggregate of approximately $844,000 in legal fees and
expenses for legal services provided to VIALOG.
TCC provides teleconferencing services to customers of a company owned by
Susan C. Hassett, spouse of John J. Hassett, for which TCC recorded revenues
of $86,000, $175,000 and $230,000 in 1995, 1996 and 1997, respectively.
On November 6, 1997, John J. Hassett entered into a stockholder agreement
with the Company that provides, among other things, that while any Senior
Notes remain outstanding or any obligation of the Company or the Operating
Centers (as subsidiary guarantors) with respect thereto remains unpaid finally
and in full, (i) with respect to all matters submitted to a vote of the
stockholders of the Company regarding the appointment, election or removal of
directors or officers of the Company, Mr. Hassett will vote any shares of
voting stock of the Company over which he has direct or indirect voting power
in the same proportion as the votes cast in favor of and against the
particular matter voted upon, by all of the other stockholders of the Company,
and (ii) Mr. Hassett will not serve as a director or officer of the Company or
any subsidiary. For certain months between December 1997 and December 1998,
John J. Hassett provided consulting services to the Company for a monthly fee
of $10,000.
The Company terminated the employment of David L. Lipsky, former President
of the Oradell Center, in June 1998. On July 22, 1998, the Company and Mr.
Lipsky signed an agreement resolving a dispute regarding his employment and
position at the Oradell Center. The Company agreed to pay Mr. Lipsky a sum of
$309,000, less required witholdings and deductions, in satisfaction of amounts
due under his employment agreement and to include Mr. Lipsky as a selling
stockholder in this Offering with respect to the 267,826 shares of Common
Stock owned by Mr. Lipsky. In exchange, Mr. Lipsky agreed, among other things,
to cancel all of his vested and unvested stock options, release the Company
from all claims, refrain from acquiring any voting securities of the Company
for ten years, and acknowledge the termination of his employment as President
of the Oradell Center and his term as a Director of the Company.
COMPANY POLICY
The Company has implemented a policy whereby neither the Company nor any
subsidiary (which includes the Operating Centers) will enter into contracts or
business arrangements with persons or entities owned in whole or in part by
officers or directors of the Company or any subsidiary except on an arms-
length basis and with the approval of the Company's Board of Directors. The
Company's By-Laws require that any approval must be by a majority of the
independent Directors then in office who have no interest in such contract or
transaction.
65
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock of the Company as of January 1, 1999 by (i) each
person known to the Company to beneficially own more than five percent of the
outstanding shares of Common Stock, (ii) each of the Company's Directors and
persons who have consented to be named as Directors (the "Named Directors"),
(iii) each Named Executive Officer, and (iv) all executive officers, Directors
and Named Executive Officers as a group. All persons listed have an address in
care of the Company's principal executive office and have sole voting and
investment power with respect to their shares unless otherwise indicated. As
of January 1, 1999, the Company had outstanding 3,693,672 shares of Common
Stock.
<TABLE>
<CAPTION>
NUMBER OF
NUMBER OF SHARES SHARES BEING PERCENT OF CLASS PERCENT OF CLASS
NAME BENEFICIALLY OWNED(1) OFFERED BEFORE OFFERING AFTER OFFERING(2)
---- --------------------- ------------ ---------------- -----------------
<S> <C> <C> <C> <C>
John J. Hassett......... 937,762 (3) 25.4 11.3
J. Michael Powell....... 327,800 (4) 8.9 4.0
Jefferies & Company,
Inc.................... 304,263 (5) 7.6 3.6
David L. Lipsky......... 267,826 (6) 267,826 7.3 0
Glenn D. Bolduc......... 249,587 (7) 6.4 2.9
Reynolds E. Moulton..... 187,500 5.1 2.3
Patti R. Bisbano........ 84,468 (8) 2.3 1.0
Courtney P. Snyder...... 79,680 (9) 2.1 *
David L. Lougee......... 71,672 (10) 1.9 *
Robert F. Moore......... 30,087 (11) * *
Gary V. Vilardi......... 30,007 (12) * *
C. Raymond Marvin....... 12,000 (13) * *
Joanna M. Jacobson...... 9,000 (14) * *
Richard G. Hamermesh.... 5,346 (15) * *
Edward M. Philip........ 4,008 (16) * *
All executive officers,
Directors and Named
Executive Officers as a
group (14 persons)..... 760,441 18.1 8.7
</TABLE>
- -------
* Less than 1%.
(1) Calculated pursuant to Rule 13d-3(d) under the Exchange Act. Under Rule
13d-3(d), shares not outstanding which are subject to options, warrants,
rights or conversion privileges exercisable within 60 days are deemed
outstanding for the purpose of calculating the number and percentage
owned by such person, but not deemed outstanding for the purpose of
calculating the percentage owned by each other person listed.
(2) Calculation excludes the 730,173 shares of Common Stock that may be
issued if the Underwriters' over-allotment option is exercised in full.
(3) Includes 837,762 shares held by Mr. Hassett and 100,000 shares held by
Susan C. Hassett, the spouse of Mr. Hassett. Does not include 60,000
shares held by J. Michael Powell as Trustee for Mr. Hassett's two minor
children, as to which Mr. Hassett disclaims beneficial ownership.
(4) Includes 267,800 shares held by Mr. Powell individually and 60,000 shares
held by Mr. Powell as Trustee.
(5) Includes 302,658 shares with respect to which Warrants issued to
Jefferies & Company, Inc. in connection with the Unit Offering may be
exercised and 1,605 shares with respect to which Warrants acquired by
Jefferies & Company, Inc. in its capacity as a market-maker may be
exercised.
(6) Includes 267,826 shares issued to Mr. Lipsky in connection with the
Acquisition.
(7) Includes 25,000 shares held by Mr. Bolduc, 194,587 shares with respect to
which options held by Mr. Bolduc may be exercised as of January 1, 1999
and 30,000 shares held by Grace K. Bolduc, the spouse of Mr. Bolduc, as
Trustee for their three minor children.
(8) Includes 52,174 shares issued to Ms. Bisbano in connection with the
Acquisition and 32,294 shares with respect to which options granted to
Ms. Bisbano may be exercised as of January 1, 1999.
(9) Includes 48,780 shares issued to Mr. Snyder in connection with the
Acquisition and 30,900 shares with respect to which options granted to
Mr. Snyder may be exercised as of January 1, 1999.
(10) Includes 65,000 shares held by Mr. Lougee and 6,672 shares with respect
to which options held by Mr. Lougee may be exercised as of January 1,
1999.
(11) Includes 30,087 shares with respect to which options held by Mr. Moore
may be exercised as of January 1, 1999.
(12) Includes 30,007 shares with respect to which options held by Mr. Vilardi
may be exercised as of January 1, 1999.
(13) Includes an estimated 12,000 shares with respect to which options granted
to Mr. Marvin will vest upon the closing of the ABCC, CPI and ABCI
acquisitions.
(14) Includes 9,000 shares with respect to which options held by Ms. Jacobson
may be exercised as of January 1, 1999.
(15) Includes 5,346 shares with respect to which options held by Dr. Hamermesh
may be exercised as of January 1, 1999.
(16) Includes 4,008 shares with respect to which options to be granted to Mr.
Philip upon the completion of this Offering may be exercised.
66
<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
The Company's authorized capital stock as of January 1, 1999 consisted of
30,000,000 shares of Common Stock and 10,000,000 shares of preferred stock,
$.01 par value (the "Preferred Stock"). As of January 1, 1999, the Company had
outstanding 3,693,672 shares of Common Stock and no shares of Preferred Stock.
The Company has reserved 3,250,000 shares of Common Stock for issuance
pursuant to the Plan. See "Management--1996 Stock Plan." After giving effect
to the issuance of the shares of Common Stock offered hereby, the Company will
have outstanding 8,293,672 shares of Common Stock (9,023,845 if the
Underwriters' over-allotment option is exercised in full) and no shares of
Preferred Stock.
COMMON STOCK
Holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders of the Company.
When a quorum is present at a meeting, the holders of a majority of the Common
Stock present or represented and voting on a matter will decide any matter to
be voted on by the stockholders except where a larger vote is required by law.
Any election by stockholders shall be determined by a plurality of the votes
cast by stockholders entitled to vote at the election. Subject to the rights
of any then outstanding shares of Preferred Stock, holders of Common Stock are
entitled to receive dividends when and as declared in the discretion of the
Board of Directors out of funds legally available therefor. Dividends are non-
cumulative. Holders of Common Stock are entitled to share ratably in the net
assets of the Company upon liquidation after payment or provision for all
liabilities of the Company and any preferential liquidation rights of any
Preferred Stock then outstanding. The holders of Common Stock have no
preemptive rights to purchase any securities of the Company. Shares of Common
Stock are not subject to any redemption provisions and are not convertible
into any other securities of the Company. All outstanding shares of Common
Stock are, and the shares of Common Stock issued pursuant to this Prospectus
will, upon payment therefor, be fully paid and non-assessable. The rights,
preferences and privileges of holders of Common Stock are subject to and may
be adversely affected by, the rights of holders of Preferred Stock which the
Company may designate and issue in the future. As of January 1, 1999, there
were 3,693,672 outstanding shares of Common Stock held by an aggregate of 99
Stockholders and an aggregate of 1,680,062 shares of Common Stock underlying
vested and non-vested outstanding stock options. Prior to the Offering, there
was no established public trading market for the Common Stock.
PREFERRED STOCK
The Preferred Stock may be issued from time to time by the Board of
Directors in one or more classes or series. Subject to the provisions of the
Company's Articles of Organization and limitations prescribed by law, the
Board of Directors is expressly authorized to adopt resolutions to issue
shares of Preferred Stock, to fix or change the number of shares of Preferred
Stock to be included in any series and to provide for or change the voting
powers, designations, preferences and relative, participating, optional or
other special rights, qualifications, limitations or restrictions thereof,
including dividend rights (including whether dividends are cumulative),
dividend rates, terms of redemption (including sinking fund provisions),
redemption prices, conversation rights and liquidation preferences of the
shares constituting any series of the Preferred Stock, in each case without
any further action or vote by the stockholders. The Company has no current
plans to issue any shares of Preferred Stock.
One of the effects of undesignated Preferred Stock may be to enable the
Board of Directors to render more difficult or to discourage an attempt to
obtain control of the Company by means of a tender offer, proxy contest,
merger or otherwise, and thereby to protect the continuity of the Company's
management. The issuance of shares of the Preferred Stock pursuant to the
Board of Directors' authority described above may adversely affect the rights
of the holders of Common Stock. For example, Preferred Stock issued by the
Company may rank prior to the Common Stock as to dividend rights, liquidation
preferences or both, may have full or limited voting rights and may be
convertible into shares of Common Stock. Accordingly, the issuance of shares
of Preferred Stock may discourage bids for the Common Stock or may otherwise
adversely affect the market price of the Common Stock.
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WARRANTS
On February 24, 1997, the Company issued promissory notes in the aggregate
principal amount of $500,000 bearing interest at 8.0% per annum and payable
upon the earlier of ten days following the closing of the initial public
offering of the Company's Common Stock or one year from their date of
issuance, together with warrants to purchase an aggregate of 111,118 shares of
Common Stock at an exercise price of $4.50 per share. The notes were paid in
November 1997. The warrants expire on February 28, 1999 and contain
antidilution provisions. As of the date of this Prospectus, such warrants
entitle the holders thereof to purchase an aggregate of 42,260 additional
shares of Common Stock as a result of adjustments required by the antidilution
provisions of the warrants. The antidilution provisions of the warrants will
not be triggered by the issuance of Common Stock in this Offering.
On November 12, 1997, the Company issued warrants ("Warrants") and the Old
Notes in the Unit Offering. Each Warrant, when exercised, entitles the holder
thereof to receive 10.0886 shares of Common Stock of the Company (each, a
"Warrant Share") at an exercise price of $.01 per share (the "Exercise
Price"). A total of 75,000 Warrants, representing 756,645 Warrant Shares, were
issued in connection with the Old Notes. In addition, the Company issued
warrants to purchase 302,658 shares of Common Stock at an exercise price of
$.01 per share to the Initial Purchaser. The Exercise Price and the number of
Warrant Shares issuable on exercise of a Warrant are both subject to
adjustment in certain cases. See "Adjustments" below. The Warrants are
exercisable at any time. Unless exercised, the Warrants will automatically
expire on November 12, 2001. Following is a description of the terms of the
Warrants:
Adjustments. The number of Warrant Shares purchasable upon the exercise of
the Warrants and the Exercise Price are each subject to adjustment in certain
events including stock dividends, reclassifications and distributions.
Furthermore, if the Company issues Common Stock (or securities convertible
into Common Stock) at or below the market price, the Company shall offer to
sell to each holder of Warrants, at the same price and on the same terms
offered to all other prospective buyers. The antidilution provisions of the
Warrants will not be triggered by the issuance of Common Stock in this
Offering. In case of certain consolidations or mergers of the Company, or the
sale of all or substantially all of the assets of the Company to another
corporation, each Warrant will thereafter be exercisable for the right to
receive the kind and amount of shares of stock or other securities or property
to which such holder would have been entitled as a result of such
consolidation, merger or sale had the Warrants been exercised immediately
prior thereto.
Registration Rights. The Company has granted demand and piggy back
registration rights to holders of the Warrants pursuant to a Securityholders'
and Registration Rights Agreement (the "Securityholders' Agreement"). From
time to time after 180 days following the completion by the Company of this
Offering, holders of Warrant shares owning, individually or in the aggregate,
not less than 25% of the Warrant shares held in the aggregate by all holders
of the Warrant shares may make a written request for registration under the
Securities Act of their warrant shares. Subject to certain conditions, within
120 days of the receipt of such written request for such a demand
registration, the Company shall file with the Commission and use its best
efforts to cause to become effective under the Securities Act a registration
statement with respect to such securities. This summary of the
Securityholders' Agreement does not purport to be complete and is qualified in
its entirety by reference to the terms and provisions of the Securityholders'
Agreement.
General. The holders of the warrants issued by the Company have no right to
vote on matters submitted to the stockholders of the Company and have no right
to receive cash dividends. The holders of these warrants are not entitled to
share in the assets of the Company in the event of the liquidation,
dissolution or winding up of the Company's affairs.
PROVISIONS OF MASSACHUSETTS LAW AND THE COMPANY'S ARTICLES OF ORGANIZATION AND
BY-LAWS
Certain Anti-takeover Provisions. After the closing of this Offering, the
Company will be subject to the provisions of Chapter 110F of the Massachusetts
General Laws, an anti-takeover law. In general, this statute
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prohibits a Massachusetts corporation with more than 200 stockholders of
record from engaging in a "business combination" with "interested
stockholders" for a period of three years after the date of the transaction in
which the person becomes an interested stockholder, unless (i) prior to such
date, the board of directors approves either the business combination or the
transaction which results in the stockholder becoming an interested
stockholder, (ii) the interested stockholder acquires 90% of the outstanding
voting stock of the corporation (excluding shares held by certain affiliates
of the corporation) at the time the stockholder becomes an interested
stockholder, or (iii) the business combination is approved by both the board
of directors and holders of two-thirds of the outstanding voting stock of the
corporation (excluding shares held by the interested stockholder). A "business
combination" includes a merger, consolidation, certain stock or asset sales,
and certain other specified transactions involving the corporation or any
direct or indirect majority-owned subsidiary of the corporation resulting in a
financial benefit to the interested stockholder. Generally, an "interested
stockholder" is (i) a person who, alone or together with affiliates and
associates, owns five percent or more of the corporation's voting stock, (ii)
an affiliate or associate of the corporation who at any time within the three
year period preceding the date of the transaction owned five percent or more
of the corporation's voting stock, or (iii) the affiliates and associates of
any such affiliate or associate of the corporation. A person is not an
"interested stockholder" if its ownership of shares in excess of the five
percent limitation is the result of action taken solely by the Company,
provided, however, that such a person will become an "interested stockholder"
if the person thereafter acquires additional shares of voting stock, except as
a result of further corporate action not caused, directly or indirectly, by
such person. The Company may at any time elect not to be governed by Chapter
110F by amending its Articles of Organization and By-Laws by a vote of a
majority of the stockholders entitled to vote, but such an amendment would not
be effective for 12 months and would not apply to a business combination with
any person who became an interested stockholder prior to the adoption of the
amendment.
In addition, Massachusetts General Laws Chapter 110D, entitled "Regulation
of Control Share Acquisitions," provides, in general, that any stockholder of
a Massachusetts corporation with more than 200 stockholders of record who
acquires voting stock of such corporation in a "control share acquisition" may
not vote the shares so acquired (or shares acquired within 90 days before or
after the "control share acquisition") unless a majority of the other
stockholders of such corporation entitled to vote so authorize. In general, a
"control share acquisition" includes the acquisition by any person of
beneficial ownership of shares which, when added to all other shares of such
corporation beneficially owned by such person, would entitle such person to
vote (i) between 20% and 33 1/3%, (ii) between 33 1/3% and 50%, or (iii) more
than 50% of the outstanding voting stock of such corporation. A "control share
acquisition" generally does not include, among other transactions, the
acquisition of shares directly from the issuing corporation. The Company has
amended its By-Laws to opt out of the provisions of Chapter 110D.
Massachusetts General Laws Chapter 156B, Section 50A, requires that publicly
held Massachusetts corporations that have not "opted out" of Section 50A have
a classified board of directors consisting of three classes as nearly equal in
size as possible. Section 50A also provides that directors who are so
classified shall be subject to removal by the stockholders only for cause. The
Company's Articles of Organization reflect the requirements of Section 50A.
The Company's Articles of Organization authorize the issuance of 10,000,000
shares of undesignated Preferred Stock, the terms of which may be fixed from
time to time by the Board of Directors without further stockholder approval.
The Company's By-Laws provide that after the Company has a class of voting
stock registered under the Exchange Act, a special meeting of stockholders may
be called by the President, the Board of Directors or by the holders of 35% or
more of the outstanding voting stock of the Company. Certain other provisions
of the Company's By-Laws, its Articles of Organization and Massachusetts law
may also make more difficult or discourage a proxy contest or the acquisition
of control by a holder of a substantial block of the Company's Common Stock or
the removal of the incumbent Board of Directors and could also have the effect
of discouraging a third party from making a tender offer or otherwise
attempting to obtain control of the Company, even though such an attempt might
be beneficial to the Company and its stockholders. In addition, because such
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provisions also have the effect of discouraging accumulations of large blocks
of Common Stock by purchasers whose objective is to have such Common Stock
repurchased by the Company at a premium, such provisions could tend to reduce
the temporary fluctuations in the market price of the Company's Common Stock
that are caused by such accumulations. Accordingly, stockholders could be
deprived of certain opportunities to sell their Common Stock at a temporarily
higher market price.
Reference is made to the full text of the foregoing statutes, the Company's
Articles of Organization and its By-Laws for their entire terms. The partial
summary contained in this Prospectus is not intended to be complete. See "Risk
Factors--Effect of Certain Charter and By-Law Provisions and Anti-Takeover
Provisions."
Elimination of Monetary Liability for Officers and Directors. The Company's
Articles of Organization also incorporate certain provisions permitted under
the Massachusetts General Laws relating to the liability of directors. The
provisions eliminate to the maximum extent permitted by Chapter 156B of the
Massachusetts General Laws a director's personal liability to the Company for
monetary damages arising out of a breach of the director's fiduciary duty as a
director of the Company, except in circumstances involving certain wrongful
acts, such as the breach of a director's duty of loyalty or acts or omissions
not in good faith or which involve intentional misconduct or a knowing
violation of law or authorization of distributions in violation of the
Articles of Organization or in violation of Chapter 156B or of loans to
officers or directors of the Company or any transaction from which the
director derived an improper personal benefit. These provisions do not prevent
recourse against directors through equitable remedies such as injunctive
relief.
Indemnification of Officers and Directors. The Company's By-Laws contain
provisions to indemnify each of the directors and officers of the Company (as
well as the former directors and officers) to the fullest extent permitted by
Massachusetts law against any and all claims and liabilities to which he or
she may be or become subject by reason of his or her being or having been an
officer or director of the Company, or by reason of his or her alleged acts or
omissions as an officer or director of the Company, except in relation to such
matters as to which such officer or director shall have been guilty of willful
malfeasance, bad faith, gross negligence or reckless disregard of his or her
duties in the conduct of his or her office. The By-Laws further provide that
the Company shall indemnify and reimburse each such officer and director
against and for any and all legal and other expenses reasonably incurred by
him or her in connection with any such claims and liabilities, actual or
threatened, whether or not, at or prior to the time when so indemnified, held
harmless and reimbursed, he or she had ceased being an officer or director of
the Company, except in relation to such matters as to which such officer or
director shall have been guilty of willful malfeasance, bad faith, gross
negligence or reckless disregard of his or her duties in the conduct of his or
her office; provided that the Company prior to such final adjudication may
compromise and settle any such claims and liabilities and pay such expenses,
if such settlement or payment or both appears, in the judgment of a majority
of the Board of Directors, to be for the best interest of the Company,
evidenced by a resolution to that effect after receipt by the Company of a
written opinion of counsel for the Company that such officer or director has
not been guilty of willful malfeasance, bad faith, gross negligence or
reckless disregard of his or her duties in the conduct of his office in
connection with the matters involved in such compromise, settlement and
payment.
REGISTRATION RIGHTS
In addition to the registration rights granted to the holders of the
Warrants, the Company entered into a registration rights agreement with the
principal stockholders of VIALOG Corporation (the "VIALOG Stockholders") and
the principal stockholders of each of the Operating Centers who received
shares of Common Stock in connection with their respective Acquisitions (the
"Operating Center Stockholders"). The registration rights agreement granted
demand and piggy-back registration rights with respect to their shares and
provided for a "lock-up" of their shares following the effective date of a
registration statement of the Company filed under the Securities Act.
The VIALOG Stockholders and the Operating Center Stockholders may demand, on
two occasions only, that the Company will register their shares of Common
Stock under the Securities Act by written request
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delivered at least one year after the effective date of the Acquisitions. Any
such demand must be made by the holders of not less than 20% in interest of
the persons having such registration rights. The Company is obligated to keep
such registration effective for a period of four months. The Company may
defer, not more than once during any twelve-month period, the filing of such
registration statement for up to 180 days, if it is determined in good faith
by the Company's Board of Directors that such registration would be
detrimental to the Company or its stockholders. The Company may include in any
such filing securities of the Company for its own account, or other securities
of the Company which are held by officers or directors of the Company or held
by other persons who, by virtue of agreements with the Company are entitled to
include their securities in any such registration.
If the Company determines to register any of its shares, other than under a
filing relating to transactions such as mergers, consolidations,
reclassifications, asset sales or similar transactions described in Rule 145
promulgated under the Securities Act or on a form which does not permit
secondary sales or does not include substantially the same information as
would be required to be included in a registration statement, then the VIALOG
Stockholders and the Operating Center Stockholders may request that shares of
their Common Stock be included in such registration. If the registration is an
underwritten offering, the lead underwriter may limit the number of shares
requested to be registered pursuant to such piggy-back rights to 25% of the
securities covered by such underwritten offering. Any shares offered by
officers and directors will be the first to be excluded from such offering.
The Company is obligated to use its best efforts to file all reports
necessary to qualify for registration of its securities on Form S-3 or a
comparable or successor form. After qualifying for such use, the Company is
obligated upon request to register the stock of any qualifying VIALOG
Stockholder on Form S-3, unless (i) the aggregate offering price is less than
$1 million or (ii) the Company has effected a registration on Form S-3 in the
last twelve months. Additionally, the Company may defer such registration for
a period of 120 days if the Company has plans to make, within 90 days, a
registered public offering or is engaged in any prior activity which, if
determined in good faith by the Company's Board of Directors, would be
adversely affected by the requested registration.
Certain VIALOG stockholders owning an aggregate of 3,303,123 shares of
Common Stock and options and warrants to acquire an aggregate of 1,465,303
shares of Common Stock have agreed to enter into a 180-day "lock-up" following
the effective date of this Offering. Directors of the Company have agreed to
enter into similar agreements. Such agreements may prohibit the sale, transfer
or disposition of the shares of registrable Common Stock held by VIALOG
Stockholders or Operating Center Stockholders. See "Underwriting."
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Company's Common Stock is State
Street Bank and Trust Company, Boston, Massachusetts.
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SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, there will be 8,293,672 shares of Common
Stock outstanding (9,023,845 shares if the Underwriters' over-allotment option
is exercised in full, in each case assuming no exercise of options or warrants
after January 1, 1999), of which the 4,867,826 shares being sold in this
Offering (5,597,999 shares if the Underwriters' over-allotment option is
exercised in full) will be freely tradable in the United States without
restriction under the Securities Act of 1933, as amended (the "Securities
Act") unless acquired by "affiliates" of the Company (as defined in Rule 144
under the Securities Act). The remaining 3,425,846 shares of Common Stock
outstanding are "restricted securities" (as defined in Rule 144 and Rule 701
under the Securities Act) (the "Restricted Shares") and may not be sold unless
registered under the Securities Act or sold pursuant to an exemption from
registration, such as the exemption provided by Rule 144.
In general, under Rule 144 as currently in effect, if one year has elapsed
since the later of the date of the acquisition of restricted shares of Common
Stock from either the Company or any affiliate of the Company, the acquirer or
subsequent holder thereof may sell, within any three-month period commencing
90 days after the date of this Prospectus, a number of shares that does not
exceed the greater of one percent of the then outstanding shares of the Common
Stock (approximately 82,936 shares immediately after this Offering), or the
average weekly trading volume of the Common Stock on the Nasdaq National
Market during the four calendar weeks preceding the date on which notice of
the proposed sale is filed with the Commission. Sales under Rule 144 are also
subject to certain manner of sale provisions, notice requirements and the
availability of current public information about the Company. If two years
have elapsed since the later of the date of the acquisition of restricted
shares of Common Stock from the Company or any affiliate of the Company, a
person who is not deemed to have been an affiliate of the Company at any time
for 90 days preceding a sale would be entitled to sell such shares under Rule
144 without regard to the volume limitations, manner of sale provisions or
notice requirements. In meeting the one-year and two-year holding periods
described above, a holder of restricted shares may in some circumstances
include the holding period of a prior owner. The one-year and two-year holding
periods described above do not begin until the full purchase price or other
consideration is paid by the person acquiring the restricted shares from the
Company or an affiliate of the Company.
The Company, its officers, Directors and certain stockholders holding an
aggregate of 3,303,123 shares of Common Stock and options and warrants to
acquire an aggregate of 1,465,303 shares of Common Stock have agreed not to,
directly or indirectly, offer, sell, offer to sell, contract to sell, pledge,
grant any option to purchase or otherwise sell or dispose (or announce any
offer, sale, offer of sale, contract of sale, pledge, grant of any option to
purchase or other sale or disposition) of any shares of Common Stock of the
Company, or any securities convertible into, or exercisable or exchangeable
for, any shares of Common Stock (other than pursuant to the 1996 Stock Plan),
for a period of 180 days from the completion of this Offering, without the
prior written consent of Prudential Securities Incorporated, on behalf of the
Underwriters, other than stock issued by the Company in connection with
acquisitions and the exercise of currently outstanding stock options and
except for bona fide gifts or transfers effected by such stockholders other
than on any securities exchange or in the over-the-counter market to donees or
transferees that agree to execute and be bound by such agreements. Prudential
Securities Incorporated may, in its sole discretion, at any time and without
notice, release all or any portion of the shares subject to such lock-up
agreements.
Prior to this Offering, there has been no public market for the Common
Stock. Trading of the Common Stock on the Nasdaq National Market is expected
to commence immediately following completion of this Offering. No prediction
can be made as to the effect, if any, that future sales of Common Stock or the
availability of Common Stock for future sale, will have on the market price
prevailing from time to time. Sales of substantial amounts of Common Stock
(including Common Stock issued upon the exercise of options or warrants), or
the perception that such sales could occur, could adversely affect prevailing
market prices of the Common Stock. See "Risk Factors--No Prior Public Market;
Possible Volatility of Stock Price" and "--Potential Adverse Effect of Shares
Eligible for Future Sale on Price of Common Stock."
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UNDERWRITING
The underwriters named below (the "Underwriters"), for whom Prudential
Securities Incorporated and are acting as representatives (the
"Representatives"), have severally agreed, subject to the terms and conditions
contained in the underwriting agreement (the "Underwriting Agreement"), to
purchase from the Company and the Selling Stockholder the number of shares of
Common Stock set forth below opposite their respective names:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
----------- ---------
<S> <C>
Prudential Securities Incorporated..................................
---------
Total............................................................... 4,867,826
=========
</TABLE>
The Company and the Selling Stockholder are obligated to sell, and the
Underwriters are obligated to purchase, all the shares of Common Stock offered
hereby if any are purchased.
The Underwriters, through their Representatives, have advised the Company
and the Selling Stockholder that they propose to offer the Common Stock
initially at the public offering price set forth on the cover page of this
Prospectus; that the Underwriters may allow to selected dealers a concession
of $ per share; and that such dealers may reallow a concession of $ per
share to certain other dealers. After the Offering, the initial public
offering price and the concessions may be changed by the Representatives.
The Company has granted the Underwriters an option, exercisable for 30 days
from the date of this Prospectus, to purchase up to 730,173 additional shares
of Common Stock at the initial public offering price, less underwriting
discounts and commissions, as set forth on the cover page of this Prospectus.
The Underwriters may exercise such option solely for the purpose of covering
over-allotments incurred in the sale of the shares of Common Stock offered
hereby. To the extent such option is exercised, each Underwriter will become
obligated, subject to certain conditions, to purchase approximately the same
percentage of such additional shares as the number set forth next to such
Underwriter's name in the preceding table bears to 4,867,826.
The Company, its officers, Directors and certain stockholders holding an
aggregate of 3,303,123 shares of Common Stock and options and warrants to
acquire an aggregate of 1,465,303 shares of Common Stock have agreed not to,
directly or indirectly, offer, sell, offer to sell, contract to sell, pledge,
grant any option to purchase or otherwise sell or dispose (or announce any
offer, sale, offer of sale, contract of sale, pledge, grant of any option to
purchase or other sale or disposition) of any shares of Common Stock of the
Company, or any securities convertible into, or exercisable or exchangeable
for, any shares of Common Stock (other than pursuant to the 1996 Stock Plan),
for a period of 180 days from the completion of this Offering without the
prior written consent of Prudential Securities Incorporated, on behalf of the
Underwriters, other than stock issued by the Company in connection with
acquisitions and the exercise of currently outstanding stock options and
except for bona fide gifts or transfers effected by such stockholders other
than on any securities exchange or in the over-the-counter market to donees or
transferees that agree to execute and be bound by such agreements. Prudential
Securities Incorporated may, in its sole discretion, at any time and without
notice, release all or any portion of the shares subject to such lock-up
agreements.
VIALOG Corporation, the Operating Centers, and the Selling Stockholder have
agreed to indemnify the several Underwriters and contribute to losses arising
out of certain liabilities, including liabilities under the Securities Act.
Prior to the Offering, there has been no public market for the Common Stock
of the Company. Consequently, the initial public offering price for the Common
Stock will be determined through negotiations between the Company and the
Representatives of the Underwriters. Among the factors to be considered in
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making such determination will be the prevailing market conditions, the
results of operations of the Company in recent periods relevant to its
prospects and the prospects for its industry in general, the management of the
Company and the market prices of securities for companies in businesses
similar to that of the Company.
The Representatives have informed the Company and the Selling Stockholder
that the Underwriters do not intend to confirm sales to any accounts over
which they exercise discretionary authority.
In connection with the Offering, certain Underwriters (and selling group
members, if any) and their respective affiliates may engage in transactions
that stabilize, maintain or otherwise affect the market price of the Common
Stock. Such transactions may include stabilization transactions effected in
accordance with Rule 104 of Regulation M under the Securities Exchange Act of
1934, pursuant to which such persons may bid for or purchase Common Stock for
the purpose of stabilizing its market price. The Underwriters may also create
a short position for the account of the Underwriters by selling more Common
Stock in connection with the Offering than they are committed to purchase from
the Company and the Selling Stockholder and in such case may purchase Common
Stock in the open market following completion of the Offering to cover all or
a portion of such short position. The Underwriters may also cover all or a
portion of such position, up to 730,173 shares of Common Stock, by exercising
the Underwriters' over-allotment option referred to previously. In addition,
Prudential Securities Incorporated, on behalf of the Underwriters, may impose
"penalty bids" under contractual arrangements with the Underwriters whereby it
may reclaim from an Underwriter (or any dealer participating in the Offering)
for the account of the other Underwriters, the selling concession with respect
to Common Stock that is distributed in the Offering but subsequently purchased
for the account of the Underwriters in the open market. Any of the
transactions described in this paragraph may result in the maintenance of the
price of the Common Stock at a level above that which might otherwise prevail
in the open market. None of the transactions described in this paragraph are
required, and, if they are undertaken, they may be discontinued at any time.
Each of the Representatives uses (and certain of the Underwriters may use)
the teleconferencing and other services of VIALOG from time to time.
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LEGAL MATTERS
Certain legal matters in connection with the sale of the shares of Common
Stock offered hereby will be passed upon for the Company by Mirick, O'Connell,
DeMallie & Lougee, llp, Worcester, Massachusetts. David L. Lougee, a partner
in such firm, is a director of the Company. Partners and associates of Mirick,
O'Connell, DeMallie & Lougee, llp own an aggregate of 69,000 shares of the
Company's Common Stock and hold options to acquire an additional 12,000
shares, 6,672 of which may be exercised as of January 1, 1999. Certain legal
matters related to this Offering will be passed upon for the Underwriters by
Cadwalader, Wickersham & Taft, New York, New York.
EXPERTS
The historical financial statements as indicated in the index on pages F-1
and F-2 of this Prospectus have been included herein and in the Registration
Statement in reliance upon the reports of KPMG Peat Marwick LLP, independent
certified public accountants, appearing elsewhere in this Prospectus, and upon
the authority of said firm as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 (which term shall encompass any amendment thereto) under the Securities
Act for the registration of the shares of the Common Stock offered hereby.
This Prospectus, which constitutes a part of the Registration Statement, does
not contain all of the information set forth in the Registration Statement,
certain items of which are contained in the financial statement schedules and
exhibits to the Registration Statement as permitted by the rules and
regulations of the Commission. For further information, reference is made to
the Registration Statement, including the financial statement schedules and
exhibits filed as a part thereof. Statements made in this Prospectus
concerning the contents of any document referred to herein are not necessarily
complete. With respect to each such document filed with the Commission as an
exhibit to the Registration Statement, reference is made to the exhibit for a
more complete description of the matter involved and each such statement shall
be deemed qualified in its entirety by such reference. The Company is subject
to the informational requirements of the Securities Exchange Act of 1934 and
in accordance therewith, files reports and other information with the
Commission. Such reports and other information filed by the Company with the
Commission, as well as the Registration Statement and the exhibits thereto
filed by the Company with the Commission, may be inspected and copied at the
public reference facilities maintained by the Commission at Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, and at the following regional
offices of the Commission: Seven World Trade Center, Suite 1300, New York, New
York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois, 60661-2511. Copies of such materials can be obtained by mail from
the Public Reference Section of the Commission at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. In addition the
Commission maintains a site on the World Wide Web that contains reports, proxy
and information statements and other information filed electronically by the
Company with the Commission which can be accessed over the Internet at
http://www.sec.gov.
The Company intends to furnish its stockholders with annual reports
containing financial statements audited by independent certified public
accountants and will make available quarterly reports containing unaudited
summary financial information for each of the first three quarters of each
fiscal year.
VIALOG Group Communications is a service mark of the Company. ProShare is a
registered trademark of Intel Corporation. NetMeeting is a registered
trademark of Microsoft Corporation. All other trademarks or trade names
referred to in this Prospectus are the property of their respective owners.
75
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
Basis of Presentation.................................................... F-3
Pro Forma Consolidated Balance Sheet at September 30, 1998............... F-4
Pro Forma Consolidated Statement of Operations for the Year Ended
December 31, 1997....................................................... F-5
Pro Forma Consolidated Statement of Operations for the Nine Months Ended
September 30, 1998...................................................... F-6
Notes to Unaudited Pro Forma Consolidated Financial Statements........... F-7
HISTORICAL FINANCIAL STATEMENTS
VIALOG Corporation
Report of Management................................................... F-11
Independent Auditors' Report........................................... F-12
Consolidated Balance Sheets............................................ F-13
Consolidated Statements of Operations.................................. F-14
Consolidated Statements of Stockholders' Equity (Deficit).............. F-15
Consolidated Statements of Cash Flows.................................. F-16
Notes to Consolidated Financial Statements............................. F-17
Telephone Business Meetings, Inc. ("Access")--The Reston Center
Independent Auditors' Report........................................... F-34
Balance Sheets......................................................... F-35
Statements of Operations............................................... F-36
Statements of Stockholders' Equity..................................... F-37
Statements of Cash Flows............................................... F-38
Notes to Financial Statements.......................................... F-39
Conference Source International, Inc. ("CSI")--The Atlanta Center
Independent Auditors' Report........................................... F-45
Balance Sheets......................................................... F-46
Statements of Operations............................................... F-47
Statements of Stockholders' Equity..................................... F-48
Statements of Cash Flows............................................... F-49
Notes to Financial Statements.......................................... F-50
Call Points, Inc. ("Call Points")--The Montgomery Center
Independent Auditors' Report........................................... F-55
Balance Sheets......................................................... F-56
Statements of Operations............................................... F-57
Statements of Stockholders' Equity..................................... F-58
Statements of Cash Flows............................................... F-59
Notes to Financial Statements.......................................... F-60
Kendall Square Teleconferencing, Inc. ("TCC")--The Cambridge Center
Independent Auditors' Report........................................... F-66
Balance Sheets......................................................... F-67
Statements of Operations............................................... F-68
Statements of Stockholders' Equity..................................... F-69
Statements of Cash Flows............................................... F-70
Notes to Financial Statements.......................................... F-71
</TABLE>
F-1
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
American Conferencing Company, Inc. and Resource Objectives, Inc.
("Americo")--The Oradell Center
Independent Auditors' Report.......................................... F-77
Combined Balance Sheets............................................... F-78
Combined Statements of Operations..................................... F-79
Combined Statements of Stockholders' Equity (Deficit)................. F-80
Combined Statements of Cash Flows..................................... F-81
Notes to Combined Financial Statements................................ F-82
Communication Development Corporation ("CDC")--The Danbury Center
Independent Auditors' Report.......................................... F-88
Balance Sheets........................................................ F-89
Statements of Operations.............................................. F-90
Statements of Stockholders' Equity.................................... F-91
Statements of Cash Flows.............................................. F-92
Notes to Financial Statements......................................... F-93
A Business Conference-Call, Inc. ("ABCC")
Independent Auditors' Report.......................................... F-97
Balance Sheets........................................................ F-98
Statements of Income and Retained Earnings............................ F-99
Statements of Cash Flows.............................................. F-100
Notes to Financial Statements......................................... F-101
</TABLE>
F-2
<PAGE>
VIALOG CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The following unaudited pro forma consolidated financial statements give
effect to (i) the acquisitions by VIALOG Corporation on November 12, 1997 of
all of the stock of (a) Telephone Business Meetings, Inc. ("Access"), (b)
Conference Source International, Inc. ("CSI"), (c) Kendall Square
Teleconferencing, Inc. ("TCC"), (d) American Conferencing Company, Inc.
("Americo"), and (e) Communication Development Corporation ("CDC"), and
substantially all the net assets of Call Points, Inc. ("Call Points")
(together, the "Acquired Companies"), (ii) the closing of a private placement
of notes and warrants on November 12, 1997 (the "Unit Offering"), (iii) the
acquisitions by VIALOG Corporation of all of the stock of A Business
Conference-Call, Inc. ("ABCC"), Conference Pros International, Inc. ("CPI"),
and A Better Conference, Inc. ("ABCI"), which will occur simultaneously with
the closing of this Offering and will be accounted for using the purchase
method of accounting and (iv) the consummation of this Offering. The unaudited
pro forma consolidated statements of operations give effect to the
acquisitions of the Acquired Companies, ABCC, CPI and ABCI, the closing of the
Unit Offering and this Offering as if they had occurred on January 1, 1997.
The unaudited pro forma consolidated balance sheet gives effect to the
acquisitions of ABCC, CPI and ABCI, and the consummation of this Offering as
if they had occurred on September 30, 1998. These statements are based on the
historical financial statements of VIALOG Corporation, the Acquired Companies,
ABCC, CPI and ABCI and the estimates and assumptions set forth below and in
the notes to the unaudited pro forma consolidated financial statements.
The pro forma adjustments are based upon estimates, currently available
information and certain assumptions that management deems appropriate. The
unaudited pro forma consolidated financial data presented herein are not
necessarily indicative of the results the Company would have obtained had such
events occurred on January 1, 1997, as assumed, or the future results of the
Company. The unaudited pro forma consolidated financial statements should be
read in conjunction with the other financial statements and notes thereto
included elsewhere in this Prospectus.
F-3
<PAGE>
VIALOG CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
----------------------------
VIALOG OFFERING AS
CORP. ABCC CPI ABCI ADJUSTMENTS(1) CONSOLIDATED ADJUSTMENT(1) ADJUSTED
------- ------ ---- ---- -------------- ------------ ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents.......... $ 1,093 $ 488 $ 75 $ 68 $ (438)(a) $ 1,211 $45,728 (e) $ 18,600
(75)(a) (28,339)(f)
Accounts receivable,
net.................. 7,261 712 228 286 -- 8,487 -- 8,487
Prepaid expenses...... 269 52 -- -- -- 321 -- 321
Deferred offering
costs................ 443 -- -- -- -- 443 (443)(e) --
Other current assets.. 105 -- -- 17 -- 122 -- 122
------- ------ ---- ---- ------- -------- ------- --------
Total current
assets............. 9,171 1,252 303 371 (513) 10,584 16,946 27,530
Property and equipment,
net.................... 11,618 441 447 511 -- 13,017 -- 13,017
Deferred debt issuance
costs.................. 5,903 -- -- -- -- 5,903 -- 5,903
Goodwill and intangible
assets, net............ 42,302 -- -- -- 14,995 (b) 69,447 -- 69,447
5,998 (c)
6,152 (d)
Other assets............ 903 3 -- -- -- 906 -- 906
------- ------ ---- ---- ------- -------- ------- --------
Total assets........ $69,897 $1,696 $750 $882 $26,632 $ 99,857 $16,946 $116,803
======= ====== ==== ==== ======= ======== ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current portion of
long-term debt....... $ 362 $ -- $191 $285 $ -- $ 838 $ -- $ 838
Accounts payable...... 3,270 154 58 93 -- 3,575 -- 3,575
Pro forma considera-
tion due stockhold-
ers.................. -- -- -- -- 15,889 (b) 28,339 (28,339)(f) --
6,150 (c)
6,300 (d)
Accrued expenses...... 7,556 210 183 147 (182)(a) 7,914 -- 7,914
------- ------ ---- ---- ------- -------- ------- --------
Total current
liabilities........ 11,188 364 432 525 28,157 40,666 (28,339) 12,327
Long-term debt, less
current portion........ 72,093 -- -- 186 -- 72,279 -- 72,279
Other long-term
liabilities............ 465 -- 273 23 -- 761 (273)(f) 488
Stockholders' equity
(deficit):
Common stock.......... 37 -- -- -- -- 37 46 (e) 83
Additional paid-in
capital.............. 11,811 10 1 -- (11)(a) 11,811 45,512 (e) 57,323
Retained earnings
(deficit)............ (25,697) 1,322 44 148 (1,076)(a) (25,697) -- (25,697)
(438)(a)
------- ------ ---- ---- ------- -------- ------- --------
Total stockholders'
equity (deficit)... (13,849) 1,332 45 148 (1,525) (13,849) 45,558 31,709
------- ------ ---- ---- ------- -------- ------- --------
Total liabilities
and stockholders'
equity (deficit)... $69,897 $1,696 $750 $882 $26,632 $ 99,857 $16,946 $116,803
======= ====== ==== ==== ======= ======== ======= ========
</TABLE>
- --------
(1) See Note 3 to unaudited pro forma consolidated financial statements.
F-4
<PAGE>
VIALOG CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
ACQUIRED COMPANIES--PERIOD FROM
VIALOG CORP. JANUARY 1, 1997 TO NOVEMBER 12, 1997 ABCC CPI ABCI
YEAR ENDED ----------------------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, CALL DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 ACCESS CSI POINTS TCC AMERICO CDC 1997 1997 1997
------------ ------- ------ ------ ------ ------- ------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues..... $ 4,816 $10,945 $5,579 $7,335 $3,554 $1,892 $1,796 $5,709 $2,003 $1,962
Cost of revenues,
excluding
depreciation..... 2,492 4,791 2,052 5,092 1,793 1,215 852 2,086 1,081 842
Selling, general
and
administrative
expenses......... 7,178 4,124 831 1,337 1,285 931 602 1,231 767 786
Depreciation
expense.......... 273 823 356 623 159 56 57 148 175 138
Amortization of
goodwill and
intangibles...... 306 -- -- -- -- -- -- -- -- --
Write-off of
purchased
research and
development...... 8,000 -- -- -- -- -- -- -- -- --
--------- ------- ------ ------ ------ ------ ------ ------ ------ ------
Operating income
(loss).......... (13,433) 1,207 2,340 283 317 (310) 285 2,244 (20) 196
Interest income
(expense), net... (1,866) (132) (120) 9 (39) (20) (4) 15 (28) (161)
--------- ------- ------ ------ ------ ------ ------ ------ ------ ------
Income (loss)
before income
taxes........... (15,299) 1,075 2,220 292 278 (330) 281 2,259 (48) 35
Income taxes..... 522 -- -- -- -- (25) 107 -- -- 20
--------- ------- ------ ------ ------ ------ ------ ------ ------ ------
Net income
(loss).......... $ (15,821) $ 1,075 $2,220 $ 292 $ 278 $ (305) $ 174 $2,259 $ (48) $ 15
========= ======= ====== ====== ====== ====== ====== ====== ====== ======
Net loss per
share - basic
and diluted .... $ (5.48)
=========
Weighted average
shares
outstanding..... 2,889,005
=========
<CAPTION>
PRO FORMA
---------------------------------
ADJUSTMENTS(1) CONSOLIDATED(1)
--------------- -----------------
<S> <C> <C>
Net revenues..... $ -- $ 45,591
Cost of revenues,
excluding
depreciation..... -- 22,296 (h)
Selling, general
and
administrative
expenses......... (151)(a) 17,744
(1,177)(b)
Depreciation
expense.......... -- 2,808
Amortization of
goodwill and
intangibles...... 3,540 (c) 3,846
Write-off of
purchased
research and
development...... (8,000)(d) --
--------------- -----------------
Operating income
(loss).......... 5,788 (1,103)
Interest income
(expense), net... (10,587)(e) (12,933)
--------------- -----------------
Income (loss)
before income
taxes........... (4,799) (14,036)
Income taxes..... (102)(f) 522
--------------- -----------------
Net income
(loss).......... $ (4,697) $ (14,558)
=============== =================
Net loss per
share - basic
and diluted .... $ (1.83) (g)
=================
Weighted average
shares
outstanding..... 7,962,284 (g)
=================
</TABLE>
- -----
(1) See Note 4 to unaudited pro forma consolidated financial statements.
F-5
<PAGE>
VIALOG CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
VIALOG ------------------------------
CORP. ABCC CPI ABCI ADJUSTMENTS(1) CONSOLIDATED(1)
---------- ------ ------ ------ -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Net revenues............ $ 34,770 $5,509 $1,798 $2,104 $ -- $ 44,181
Cost of revenues, ex-
cluding
depreciation........... 17,864 1,804 873 752 -- 21,293 (h)
Selling, general and
administrative
expenses............... 11,627 1,094 662 843 (237)(b) 13,989
Depreciation expense.... 1,990 111 114 121 -- 2,336
Amortization of goodwill
and intangibles........ 1,870 -- -- -- 1,015 (c) 2,885
Non-recurring charge.... 1,200 -- -- -- -- 1,200
---------- ------ ------ ------ ----- ---------
Operating income...... 219 2,500 149 388 (778) 2,478
Interest income
(expense), net......... (9,310) 4 (25) (91) -- (9,422)
---------- ------ ------ ------ ----- ---------
Income (loss) before
income
taxes ................. (9,091) 2,504 124 297 (778) (6,944)
Income taxes ........... -- -- -- 145 (145)(f) --
---------- ------ ------ ------ ----- ---------
Net income (loss)..... $ (9,091) $2,504 $ 124 $ 152 $(633) $ (6,944)
========== ====== ====== ====== ===== =========
Net loss per share -
basic and diluted...... $ (2.51) $ (0.85)
========== =========
Weighted average shares
outstanding............ 3,615,362 8,215,362 (g)
========== =========
</TABLE>
- --------
(1) See Note 4 to unaudited pro forma consolidated financial statements.
F-6
<PAGE>
VIALOG CORPORATION
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(1) VIALOG CORPORATION BACKGROUND
VIALOG Corporation was formed on January 1, 1996 to create a national
independent provider of group communications services, consisting primarily of
operator-assisted and operator-on-demand audio teleconferencing, as well as
video and data conferencing services. VIALOG Corporation conducted no
operations through November 12, 1997 and on that date consummated agreements
to acquire the six Acquired Companies simultaneously with the consummation of
the Unit Offering.
(2) ACQUISITIONS
Simultaneously with the closing of this Offering, VIALOG Corporation will
acquire all of the stock of A Business Conference-Call, Inc. ("ABCC"). The
acquisition will be accounted for using the purchase method of accounting. The
purchase price is estimated to be $15.2 million in cash ($400,000 of which has
already been paid as a non-refundable deposit) plus (i) approximately $100,000
related to tax reimbursements discussed below and (ii) an additional amount,
based on ABCC's closing date balance sheet, equal to the balances of cash plus
accounts receivable (net of a bad debt reserve of 5%) less all liabilities as
of the closing date. Based on ABCC's September 30, 1998 balance sheet, such
additional amount would be approximately $389,000. In addition, the Company
expects to incur approximately $200,000 of acquisition costs. Of the estimated
purchase price, $894,000 has been allocated to the identifiable assets
acquired and liabilities assumed and the balance (currently estimated at $15.0
million) has been allocated to intangible assets. In management's opinion, the
preliminary estimates regarding allocation of the purchase price are not
expected to differ materially from the final adjustments. VIALOG Corporation
and ABCC have agreed to make an election to treat the purchase and sale of the
capital stock of ABCC as a purchase and sale of assets. VIALOG Corporation
will reimburse the stockholders of ABCC approximately $100,000, which is the
difference between the taxes incurred by such stockholders as a result of such
election and the taxes which would have been incurred by such stockholders had
no such election been made. ABCC will make distributions to its stockholders
of all cash and income on an accrual basis prior to or upon consummation of
the merger.
Simultaneously with the closing of this Offering, VIALOG Corporation will
acquire all of the stock of Conference Pros International Inc. ("CPI"). The
acquisition will be accounted for using the purchase method of accounting. The
purchase price is estimated to be $6.0 million in cash plus approximately
$50,000 related to tax reimbursements discussed below. In addition, the
Company expects to incur approximately $100,000 of acquisition costs and to
assume approximately $464,000 of indebtedness. Of the estimated purchase
price, $152,000 has been allocated to the identifiable assets acquired and
liabilities assumed and the balance (currently estimated at $6.0 million) has
been allocated to intangible assets. In management's opinion, the preliminary
estimates regarding allocation of the purchase price are not expected to
differ materially from the final adjustments. VIALOG Corporation and CPI have
agreed to make an election to treat the purchase and sale of the capital stock
of CPI as a purchase and sale of assets. VIALOG Corporation will reimburse the
stockholder of CPI approximately $50,000, which is the difference between the
taxes incurred by such stockholder as a result of such election and the taxes
which would have been incurred by such stockholder had no such election been
made, less $100,000.
Simultaneously with the closing of this Offering, VIALOG Corporation will
acquire all of the stock of A Better Conference, Inc. ("ABCI"). The
acquisition will be accounted for using the purchase method of accounting. The
purchase price is estimated to be $6.2 million in cash. In addition, the
Company expects to incur approximately $100,000 of acquisition costs and to
assume approximately $471,000 of indebtedness. Of the estimated purchase
price, $148,000 has been allocated to the identifiable assets acquired and
liabilities assumed, and the balance (currently estimated at $6.2 million) has
been allocated to intangible assets. In management's opinion, the preliminary
estimates regarding allocation of the purchase price are not expected to
differ materially from the final adjustments.
F-7
<PAGE>
VIALOG CORPORATION
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(3) UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET ADJUSTMENTS
(a) Represents a capital distribution to ABCC shareholders, an interest
distribution to the CPI shareholder, and elimination of historical equity
balances of ABCC, CPI and ABCI.
(b) The excess of the total purchase price for ABCC over the allocation of
fair value to the net assets will be recorded as intangible assets, which is
calculated based on the following assumptions:
<TABLE>
<S> <C>
Purchase consideration.............................................. $15,589
Tax reimbursements to stockholders of ABCC.......................... 100
Direct acquisition costs............................................ 200
-------
Total purchase price................................................ 15,889
Less: Tangible assets and liabilities of ABCC
Accounts receivable................................................ 712
Property and equipment............................................. 441
Other assets....................................................... 105
Accounts payable................................................... (154)
Accrued expenses................................................... (210)
-------
Intangible assets................................................... $14,995
=======
</TABLE>
Intangible assets are expected to include goodwill, developed technology and
assembled work force, which will be amortized on a straight-line basis over
their useful lives, estimated to range from 5 to 25 years. The Company expects
to complete a full valuation of the intangible assets subsequent to the
acquisition of ABCC. In management's opinion, the preliminary estimates
regarding allocation of the purchase price and amortization periods are not
expected to differ materially from the final allocation.
(c) The excess of the total purchase price for CPI over the allocation of
fair value to the net assets will be recorded as intangible assets, which is
calculated based on the following assumptions:
<TABLE>
<S> <C>
Purchase consideration ........................................... $6,000
Tax reimbursements to stockholder ................................ 50
Direct acquisition costs ......................................... 100
------
Total purchase price ............................................. 6,150
Less: Tangible assets and liabilities
Accounts receivable ............................................. 228
Property and equipment .......................................... 447
Accounts payable ................................................ (58)
Other liabilities ............................................... (465)
------
Intangible assets ................................................ $5,998
======
</TABLE>
Intangible assets are expected to include goodwill, developed technology and
assembled workforce, which will be amortized on a straight-line basis over
their useful lives, estimated to range from 5 to 25 years. The Company expects
to complete a full valuation of the intangible assets subsequent to the
acquisition. In management's opinion, the preliminary estimates regarding
allocation of the purchase price and amortization periods are not expected to
differ materially from the final allocation.
F-8
<PAGE>
VIALOG CORPORATION
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(d) The excess of the total purchase price for ABCI over the allocation of
fair value to the net assets will be recorded as intangible assets, which is
calculated based on the following assumptions:
<TABLE>
<S> <C>
Purchase consideration ........................................... $6,200
Direct acquisition costs ......................................... 100
------
Total purchase price ............................................. 6,300
Less: Tangible assets and liabilities
Accounts receivable ............................................. 286
Property and equipment .......................................... 511
Other assets .................................................... 85
Accounts payable ................................................ (93)
Accrued expenses ................................................ (147)
Debt and other liabilities....................................... (494)
------
Intangible assets ................................................ $6,152
======
</TABLE>
Intangible assets are expected to include goodwill, developed technology and
assembled workforce, which will be amortized on a straight-line basis over
their useful lives, estimated to range from 5 to 25 years. The Company expects
to complete a full valuation of the intangible assets subsequent to the
acquisition. In management's opinion, the preliminary estimates regarding
allocation of the purchase price and amortization periods are not expected to
differ materially from the final allocation.
(e) Records the cash proceeds of $45.6 million from the issuance of shares
of common stock, net of the underwriting discount of $3.5 million and
estimated offering costs of $1.5 million. Offering costs primarily consist of
legal fees, accounting fees, underwriters' out-of-pocket expenses and printing
expenses.
(f) Represents payment of purchase price to former stockholders of ABCC, CPI
and ABCI and payment of indebtedness to the former stockholder of CPI upon
completion of this Offering.
(4) UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS ADJUSTMENTS
(a) As a condition to closing the acquisitions, certain related party
royalty agreements were terminated as of the acquisition date. The adjustment
reflects the related party royalties under the agreements that were terminated
on November 12, 1997.
(b) As a condition to closing the acquisitions, certain officers, employees
and consultants agreed to accept reduced compensation and benefits subsequent
to the acquisitions. The adjustment reflects the difference between the
historical compensation and benefits of officers, employees and consultants of
the Acquired Companies, ABCC, CPI and ABCI and the compensation and benefits
they agreed to accept subsequent to the acquisitions.
(c) Adjustment reflects the amortization of goodwill and intangible assets,
which are amortized over periods ranging from 5 to 25 years.
(d) Adjustment reflects the elimination of the write-off of purchased in-
process research and development.
(e) Adjustment reflects the retirement of certain debt outstanding and the
consummation of the Unit Offering. Does not include an adjustment for interest
income earned on excess cash balances.
F-9
<PAGE>
VIALOG CORPORATION
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1997
-----------------
(IN THOUSANDS)
<S> <C>
Assumed interest expense on the Senior Notes(1).......... $12,546
Assumed interest expense on capitalized lease
obligations............................................. 213
-------
Pro forma annual interest expense........................ 12,759
Less: interest expense recorded.......................... (2,172)
-------
Net Adjustment to interest expense....................... $10,587
=======
</TABLE>
- --------
(1) Includes $1.9 million of annual amortization of bond issuance costs and
$1.1 million of amortization of original issue discount.
(f) The pro forma income tax provision has been calculated as if each of the
Acquired Companies, ABCC, CPI and ABCI had been included in the Company's
consolidated income tax return and, therefore, was subject to corporate income
taxation.
(g) The pro forma loss per share is computed by dividing the net loss by the
weighted average number of shares outstanding. The calculation of the weighted
average number of shares outstanding assumes that the 559,330 shares of the
Company's common stock issued in connection with the acquisitions of the
Acquired Companies and the 4,600,000 shares of the Company's common stock to
be issued in connection with this Offering were outstanding for the entire
period.
(h) Certain of the Acquired Companies, ABCC, and CPI have entered into new
contracts for long distance telephone service. Had these contracts been in
effect as of January 1, 1997, cost of revenues for the year ended December 31,
1997 and the nine months ended September 30, 1998 would have decreased by $1.8
million and $817,000, respectively.
F-10
<PAGE>
REPORT OF MANAGEMENT
The accompanying consolidated financial statements and related information
of VIALOG Corporation and Subsidiaries (the "Company") have been prepared by
management, which is responsible for their integrity and objectivity. The
statements have been prepared in conformity with generally accepted accounting
principles and necessarily include some amounts based on management's best
estimates and judgments.
Management is also responsible for maintaining a system of internal controls
as a fundamental requirement for the operational and financial integrity of
results. The Company has established and maintains a system of internal
controls designed to provide reasonable assurance that the books and records
reflect the transactions of the Company and that its established policies and
procedures are carefully followed. The Company's internal control system is
based upon standard procedures, policies and guidelines and organizational
structures that provide an appropriate division of responsibility and the
careful selection and training of qualified personnel.
The Company's accompanying consolidated financial statements have been
audited by KPMG Peat Marwick LLP, independent certified public accountants,
whose audit was made in accordance with generally accepted auditing standards.
Management has made available to KPMG Peat Marwick LLP all of the Company's
financial records and related data, as well as the minutes of stockholders'
and directors' meetings. Furthermore, management believes that all
representations made to KPMG Peat Marwick LLP during its audit were valid and
appropriate. The Independent Auditors' Report appears below.
Glenn D. Bolduc John J. Dion
Chief Executive Officer, Vice President--Finance
President and Treasurer
F-11
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors VIALOG Corporation:
We have audited the accompanying consolidated balance sheets of VIALOG
Corporation and subsidiaries as of December 31, 1997 and 1996, and the related
consolidated statements of operations, stockholders' equity (deficit) and cash
flows for each of the years in the two-year period ended December 31, 1997.
These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of VIALOG
Corporation and subsidiaries as of December 31, 1997 and 1996, and the results
of their operations and their cash flows for each of the years in the two-year
period ended December 31, 1997 in conformity with generally accepted
accounting principles.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Boston, Massachusetts
February 20, 1998, except for Notes 16 (a) and (b)
which are as of March 26, 1998,
Note 16(c) which is as of May 23, 1998,
Note 16(d) which is as of July 23, 1998,
Note 16(e) which is as of September 30, 1998,
Note 16(f) which is as of October 6, 1998
and the first paragraph of Note 14 which is as
of October 19, 1998.
F-12
<PAGE>
VIALOG CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1996 1997 1998
------------ ------------ -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............ $ 337 $ 9,567 $ 1,093
Accounts receivable, net of allowance
for doubtful accounts of $0, $32 and
$144, respectively.................. -- 5,686 7,261
Prepaid expenses..................... -- 156 269
Deferred offering costs.............. 377 -- 443
Other current assets................. 13 101 105
------ -------- --------
Total current assets............... 727 15,510 9,171
Property and equipment, net............ 7 7,544 11,618
Deferred debt issuance costs........... -- 7,324 5,903
Goodwill and intangible assets, net.... -- 44,391 42,302
Deferred income taxes.................. 522 -- --
Other assets........................... 7 314 903
------ -------- --------
Total assets....................... $1,263 $ 75,083 $ 69,897
====== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
Current liabilities:
Current portion of long-term debt.... $ -- $ 397 $ 362
Accounts payable..................... 313 2,129 3,270
Accrued expenses..................... 663 5,725 7,556
------ -------- --------
Total current liabilities.......... 976 8,251 11,188
Long-term debt, less current portion... -- 71,539 72,093
Other long-term liabilities............ -- 175 465
Commitments and contingencies
Stockholders' equity (deficit):
Preferred stock, $0.01 par value;
10,000,000 shares authorized; none
issued and outstanding.............. -- -- --
Common stock, $0.01 par value,
30,000,000 shares authorized;
2,695,300, 3,486,380 and 3,686,172
shares, respectively, issued and
outstanding......................... 28 35 37
Additional paid-in capital........... 1,044 11,689 11,811
Retained deficit..................... (785) (16,606) (25,697)
------ -------- --------
Total stockholders' equity
(deficit)......................... 287 (4,882) (13,849)
------ -------- --------
Total liabilities and stockholders'
equity (deficit).................. $1,263 $ 75,083 $ 69,897
====== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-13
<PAGE>
VIALOG CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------ --------------------
1996 1997 1997 1998
----------- ----------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net revenues.................. $ -- $ 4,816 $ -- $ 34,770
Cost of revenues, excluding
depreciation................. -- 2,492 -- 17,864
Selling, general and
administrative expenses...... 1,308 7,178 3,888 11,627
Depreciation expense.......... -- 273 10 1,990
Amortization of goodwill and
intangibles.................. -- 306 -- 1,870
Non-recurring charge.......... -- 8,000 -- 1,200
----------- ----------- --------- ---------
Operating income (loss)..... (1,308) (13,433) (3,898) 219
Interest income (expense),
net.......................... 1 (1,866) (110) (9,310)
----------- ----------- --------- ---------
Loss before income taxes.... (1,307) (15,299) (4,008) (9,091)
Income tax benefit (expense).. 522 (522) -- --
----------- ----------- --------- ---------
Net loss.................... $ (785) $ (15,821) $ (4,008) $ (9,091)
=========== =========== ========= =========
Net loss per share - basic and
diluted...................... $ (0.38) $ (5.48) $ (1.44) $ (2.51)
=========== =========== ========= =========
Weighted average shares
outstanding.................. 2,088,146 2,889,005 2,781,967 3,615,362
=========== =========== ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-14
<PAGE>
VIALOG CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
-------------------- PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES PAR VALUE CAPITAL DEFICIT EQUITY (DEFICIT)
--------- --------- ---------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
Initial investment at
incorporation on
January 1, 1996........ 1,332,800 $ 14 $ (7) $ -- $ 7
Additional shares
issued in connection
with initial
capitalization........ 360,000 4 21 -- 25
Issuance of common
stock:
Contribution of common
stock to capital..... (250,000) (2) 2 -- --
Outsiders by private
offering dated
May 8, 1996.......... 378,000 4 101 -- 105
Outsiders by private
offering dated
October 22, 1996..... 380,000 4 756 -- 760
Employees in lieu of
payment
for services......... 242,500 2 91 -- 93
Consultants in lieu of
payment
for services......... 177,000 2 28 -- 30
Options exercised..... 75,000 -- 2 -- 2
Options granted to
consultants.......... -- -- 50 -- 50
Net loss............... -- -- -- (785) (785)
--------- ---- ------- -------- --------
Balance at December 31,
1996................... 2,695,300 28 1,044 (785) 287
Options exercised...... 104,000 -- 2 -- 2
Conversion of 10%
Subordinated
Convertible
Notes Payable......... 127,750 1 254 -- 255
Issuance of common
stock in connection
with acquisitions..... 559,330 6 3,211 -- 3,217
Warrants related to 8%
Notes Payable dated
February 24, 1997..... -- -- 129 -- 129
Warrants related to 12
3/4% Senior Notes
Payable dated November
12, 1997.............. -- -- 6,091 -- 6,091
Options granted to
consultants........... -- -- 180 -- 180
Options granted to
employees............. -- -- 778 -- 778
Net loss............... -- -- -- (15,821) (15,821)
--------- ---- ------- -------- --------
Balance at December 31,
1997................... 3,486,380 35 11,689 (16,606) (4,882)
Options exercised
(unaudited)........... 197,292 2 42 -- 44
Options granted to
employees............. -- -- 66 -- 66
Issuance of common
stock to consultant in
lieu of payment for
services (unaudited).. 2,500 -- 14 -- 14
Net loss (unaudited)... -- -- -- (9,091) (9,091)
--------- ---- ------- -------- --------
Balance at September 30,
1998 (unaudited)....... 3,686,172 $ 37 $11,811 $(25,697) $(13,849)
========= ==== ======= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-15
<PAGE>
VIALOG CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE
YEAR ENDED MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
--------------- ----------------
1996 1997 1997 1998
----- -------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................. $(785) $(15,821) $(4,008) $(9,091)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation.............................. -- 273 10 1,990
Amortization of goodwill and intangibles.. -- 306 -- 1,870
Amortization of debt issuance costs and
debt discount............................ -- 545 86 2,245
Provision for doubtful accounts........... -- 32 -- 145
Deferred income taxes..................... (522) 522 -- --
Write-off of deferred offering costs...... -- 377 377 --
Compensation expense for issuance of
common stock and options................. 173 958 -- 31
Non-cash portion of non-recurring charge.. -- 8,000 -- 292
Changes in operating assets and
liabilities, net of effects from
acquisitions of businesses:
Accounts receivable....................... -- (576) -- (1,720)
Prepaid expenses and other current
assets................................... (13) (68) (73) (117)
Other assets.............................. (7) (64) (48) (177)
Accounts payable.......................... 313 (351) 1,197 1,141
Accrued expenses.......................... 663 1,716 1,701 1,880
Other long-term liabilities............... -- 3 -- 290
----- -------- ------- -------
Cash flows used in operating activities.. (178) (4,148) (758) (1,221)
----- -------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of businesses, net of cash
acquired................................. -- (53,308) -- --
Additions to property and equipment....... (7) (454) (23) (6,141)
Deferred acquisition costs................ -- -- (203) (381)
----- -------- ------- -------
Cash flows used in investing activities.. (7) (53,762) (226) (6,522)
----- -------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt
and warrants............................. -- 75,755 755 --
Payments of long-term debt of businesses
acquired................................. -- (2,239) -- --
Payments of long-term debt................ -- (533) -- (297)
Proceeds from issuance of common stock ... 899 2 2 44
Deferred offering costs .................. (377) -- -- (443)
Deferred debt issuance costs.............. -- (5,845) (34) (35)
----- -------- ------- -------
Cash flows provided by (used in)
financing activities.................... 522 67,140 723 (731)
----- -------- ------- -------
Net increase in cash and cash equivalents.. 337 9,230 (261) (8,474)
Cash and cash equivalents at beginning of
period.................................... -- 337 337 9,567
----- -------- ------- -------
Cash and cash equivalents at end of
period.................................... $ 337 $ 9,567 $ 76 $ 1,093
===== ======== ======= =======
Supplemental disclosures of cash flow
information:
Cash paid during the year for:
Interest.................................. $ -- $ 72 $ -- $ 4,974
===== ======== ======= =======
Taxes..................................... $ -- $ 1 $ -- $ 8
===== ======== ======= =======
Non-cash investing and financing
transactions:
Conversion of 10% Subordinated Convertible
Notes Payable............................ $ -- $ 256 $ -- $ --
===== ======== ======= =======
Issuance of common stock in connection
with acquisitions........................ $ -- $ 3,217 $ -- $ --
===== ======== ======= =======
Issuance of warrants to the initial
purchaser of the Senior Notes and
included in deferred
debt issuance costs...................... $ -- $ 1,740 $ -- $ --
===== ======== ======= =======
Acquisition of businesses:
Assets acquired........................... $ -- $ 66,523 $ -- $ --
Liabilities assumed and issued............ -- (9,096) -- --
Common stock issued....................... -- (3,217) -- --
----- -------- ------- -------
Cash paid................................. -- 54,210 -- --
Less cash acquired........................ -- (902) -- --
----- -------- ------- -------
Net cash paid for acquisitions of
businesses.............................. $ -- $ 53,308 $ -- $ --
===== ======== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-16
<PAGE>
VIALOG CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998 IS
UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Description of Business
VIALOG Corporation was incorporated in Massachusetts on January 1, 1996 as
Interplay Corporation. In January 1997, the Company changed its name to VIALOG
Corporation. For the purposes of these Notes to Consolidated Financial
Statements, "VIALOG" means VIALOG Corporation on a stand alone basis prior to
November 12, 1997 and VIALOG Corporation and its consolidated subsidiaries on
and after November 12, 1997. VIALOG was formed to create a national provider
of group communications services, consisting primarily of operator-attended
and operator-on-demand audio teleconferencing, as well as video and data
conference services. On November 12, 1997, VIALOG closed a private placement
of $75.0 million in Senior Notes due 2001 (the "Private Placement").
Contemporaneously with the closing of the Private Placement, VIALOG acquired
six private conference service bureaus located in the United States (See Note
2 "Acquisitions").
Prior to November 12, 1997, VIALOG did not conduct any operations, and all
activities conducted by it related to the Acquisitions and the completion of
financing transactions to fund the acquisitions.
(b) Principles of Consolidation and Interim Financial Statements
The consolidated financial statements include the accounts of VIALOG and its
subsidiaries. All significant intercompany accounts and transactions have been
eliminated in consolidation.
The financial statements of VIALOG as of September 30, 1998 and for the nine
months ended September 30, 1997 and 1998 are unaudited. All adjustments and
accruals (consisting only of normal recurring adjustments) have been recorded
that, in the opinion of management, are necessary for a fair presentation.
Results of operations for the interim periods are not necessarily indicative
of the results for the full year.
(c) Management Estimates
Management of VIALOG has made a number of estimates and assumptions relating
to the reporting of assets and liabilities and the disclosure of contingent
assets and liabilities to prepare these financial statements in conformity
with generally accepted accounting principles. Actual results could differ
from those estimates.
(d) Revenue Recognition
Revenue from conference calls is recognized upon completion of the call.
Revenue from services is recognized upon performance of the service.
(e) Cash and Cash Equivalents
Cash and cash equivalents includes cash on hand and short-term investments
with original maturities of three months or less.
(f) Property and Equipment
Property and equipment are recorded at cost. Depreciation of property and
equipment is provided on a straight-line basis over the estimated useful lives
of the respective assets. The estimated useful lives are as follows: three to
ten years for office furniture, fixtures and equipment, five to ten years for
conferencing equipment, and three to seven years for computer equipment.
Capitalized lease equipment and leasehold improvements are amortized over the
lives of the leases, ranging from three to ten years.
VIALOG capitalizes costs related to software obtained for internal use.
These costs are included in computer equipment and amortized accordingly.
During 1996 and 1997 these costs were not significant.
F-17
<PAGE>
VIALOG CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(g) Goodwill and Intangible Assets
Goodwill and identifiable intangible assets, which consisted of assembled
workforce and developed technology, result from the excess of the purchase
price over the net assets of businesses acquired. The cost approach method and
the income approach method were used to value the assembled workforce and
developed technology, respectively. Goodwill and intangibles are being
amortized on a straight-line basis over the following periods: 6 years for
developed technology, 13 years for assembled workforce and 20 years for
goodwill, which represent their estimated useful lives. VIALOG measures
impairment of goodwill and intangible assets by considering a number of
factors as of each balance sheet date including (i) current operating results
of the applicable Acquired Companies, (ii) projected future operating results
of the applicable Acquired Companies, and (iii) any other material event or
circumstance that indicates the carrying amount of the assets may not be
recoverable. Recoverability of goodwill and intangible assets is measured by a
comparison of the carrying amount of the asset to future undiscounted net cash
flows expected to be generated by the Acquired Company. If such assets are
considered to be impaired, the impairment to be recognized is measured by the
amount by which the carrying amount of the assets exceeds the fair value of
the assets.
Goodwill and intangible assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------- SEPTEMBER 30,
1996 1997 1998
----- ------- -------------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Goodwill........................................ $ -- $41,457 $41,457
Developed technology............................ -- 1,930 1,930
Assembled workforce............................. -- 1,310 1,091
----- ------- -------
-- 44,697 44,478
Less: accumulated amortization.................. -- (306) (2,176)
----- ------- -------
$ -- $44,391 $42,302
===== ======= =======
</TABLE>
(h) Research and Development
VIALOG maintains technical support and engineering departments that, in
part, develop features and products for group communications. In accordance
with SFAS No. 2, Accounting for Research and Development Costs, VIALOG charges
to expense when incurred (included in cost of revenues) that portion of the
department costs which relate to research and development activities. Prior to
the acquisition of the businesses described in Note 2 "Acquisitions," VIALOG
did not conduct any research and development activities. Research and
development costs for the period ended December 31, 1997 reflect the
activities of the acquired businesses from November 12, 1997 through December
31, 1997 and were not significant. For the nine months ended September 30,
1998, research and development costs were approximately $727,000.
(i) Stock-Based Compensation
Effective January 1, 1996, VIALOG adopted the provisions of Statement of
Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-
Based Compensation." VIALOG has elected to continue to account for stock
options at intrinsic value under Accounting Principles Board Opinion No. 25
with disclosure of the effects of fair value accounting on net income on a pro
forma basis (See Note 11 "Employee Benefit Plans").
(j) Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit
F-18
<PAGE>
VIALOG CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
carryforwards. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
(k) Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of
VIALOG adopted the provisions of SFAS No. 121, Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, during 1996.
SFAS No. 121 requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future undiscounted net cash
flows expected to be generated by the asset. If such assets are considered to
be impaired, the impairment to be recognized is measured by the amount by
which the carrying amount of the assets exceeds the fair value of the assets.
Assets to be disposed of are reported at the lower of the carrying amount or
fair value less costs to sell. Adoption of this Statement did not have a
material impact on VIALOG's financial position, results of operations, or
liquidity.
(l) Loss Per Share
In 1997, VIALOG adopted the provisions of Statement of Financial Accounting
Standards No. 128 ("SFAS 128"), "Earnings per Share." SFAS 128 requires the
presentation of basic earnings per share and diluted earnings per share for
all periods presented. As VIALOG has been in a net loss position for the years
ended December 31, 1996 and 1997 and the nine month periods ended September
30, 1997 and 1998, common stock equivalents of 249,813, 896,900, 800,471 and
1,993,818 for the years ended December 31, 1996 and 1997 and the nine months
ended September 30, 1997 and 1998, respectively, were excluded from the
diluted loss per share calculation as they would be antidilutive. As a result,
diluted loss per share is the same as basic loss per share, and has not been
presented separately.
(m) Reporting Comprehensive Income
In 1998, VIALOG adopted the provisions of Statement of Financial Accounting
Standards No. 130 ("SFAS 130"), "Reporting Comprehensive Income," which
establishes standards for reporting and display of comprehensive income and
its components in a full set of general-purpose financial statements. Under
this concept, all revenues, expenses, gains and losses recognized during the
period are included in income, regardless of whether they are considered to be
the results of operations of the period. Because VIALOG historically has not
experienced transactions which would be included in comprehensive income, the
adoption of SFAS No. 130 did not have a material impact on VIALOG's
consolidated financial statements and no additional disclosures are required.
(2) ACQUISITIONS
On November 12, 1997, VIALOG acquired all of the issued and outstanding
stock of Telephone Business Meetings, Inc. ("Access"), Conference Source
International, Inc. ("CSI"), Kendall Square Teleconferencing, Inc. ("TCC"),
American Conferencing Company, Inc. ("Americo") and Communication Development
Corporation ("CDC"), and substantially all of the net assets of Call Points,
Inc. ("Call Points") (together, the "Acquired Companies"). These acquisitions
occurred contemporaneously with the closing of the Private Placement of a
total of $75.0 million in Senior Notes due 2001 (See Note 6 "Long-Term Debt").
The acquisitions were accounted for using the purchase method.
F-19
<PAGE>
VIALOG CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table sets forth for each Acquired Company the consideration
paid its common stockholders in cash and in shares of common stock of VIALOG.
<TABLE>
<CAPTION>
CASH(1) SHARES OF
($000'S) COMMON STOCK
-------- ------------
<S> <C> <C>
Access................................................. $19,000 --
CSI.................................................... 18,675 --
Call Points............................................ 8,000 21,000
TCC.................................................... 3,645 166,156
Americo................................................ 1,260 267,826
CDC.................................................... 2,400 104,348
------- -------
Total Consideration.................................... $52,980 559,330
======= =======
</TABLE>
- --------
(1) Excludes tax reimbursements of approximately $925,000 to certain
stockholders of certain of the Acquired Companies.
The total purchase price of the Acquired Companies was $57.6 million and
consisted of approximately $53.0 million in cash paid to the stockholders of
the Acquired Companies (the "Sellers"), $500,000 of acquisition costs, the
issuance of 559,330 shares of common stock to the Sellers and approximately
$925,000 related to tax reimbursements The shares of common stock were valued
at $5.75 per share which represents the estimated fair market value based on
arms-length negotiations with the former stockholders of the Acquired
Companies. The total purchase price was allocated as follows (in thousands):
<TABLE>
<S> <C>
Working capital deficit......................................... $ (618)
Property and equipment, net..................................... 7,356
Goodwill and intangible assets.................................. 44,697
Purchased in-process research and development................... 8,000
Other assets.................................................... 200
Long-term liabilities........................................... (2,014)
-------
$57,621
=======
</TABLE>
The purchase price exceeded the fair value of the net assets acquired by
$52.7 million. The excess was allocated to goodwill and other intangibles
which are being amortized over periods from 6 to 20 years. In addition, at the
time of the acquisitions, VIALOG repaid $2.2 million of long-term debt of the
Acquired Companies.
In connection with the acquisitions, VIALOG recorded a non-recurring charge
of $8.0 million related to the fair value of purchased in-process research and
development. The $8.0 million write-off of purchased research and development
noted above represents the amount of the purchase price of the Acquisitions
allocated to incomplete research and development projects. This allocation
represents the estimated fair value based on risk-adjusted cash flows related
to the incomplete products. The acquired in-process research and development
represents engineering and test activities associated with the introduction of
new enhanced services and information systems. The Acquired Companies are
working on projects that are essential to offering high quality, secure and
reliable products including unattended audio conferencing, video and data
teleconferencing, integrated voice response and broadcast fax services. Since
these had not yet reached technological feasibility and have no alternative
future uses, there can be no guarantee as to the achievability of the projects
or the ascribed values. Accordingly, these costs were expensed as of the date
of the Acquisition.
F-20
<PAGE>
VIALOG CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The operating results of the Acquired Companies have been included in the
Consolidated Statement of Operations from the date of acquisition. The
unaudited pro forma consolidated historical results for the years ended
December 31, 1996 and 1997 below assume the acquisitions occurred at the
beginning of fiscal 1996:
<TABLE>
<CAPTION>
1996 1997
----------- -----------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
Net revenues....................................... $ 28,298 $ 35,917
Net loss........................................... $ (11,529) $ (15,752)
Net loss per share................................. $ (4.35) $ (4.68)
</TABLE>
The pro forma results include amortization of the goodwill and intangible
assets described above, interest expense on debt assumed issued to finance the
acquisitions and reductions to selling, general and administrative expenses
related to certain royalties, compensation and benefits that were eliminated
or reduced as a result of the acquisitions. The pro forma results do not
include the write-off of in-process research and development expenses at the
date of acquisition. The pro forma results are not necessarily indicative of
the results that would have been obtained had these events actually occurred
at the beginning of the periods presented, nor are they necessarily indicative
of future consolidated results.
The acquisition agreements, pursuant to which the Acquired Companies were
acquired, except for Americo, limit through 1999 the Company's ability to
change the location of an Acquired Company's facilities, physically merge the
Acquired Company's operations with another operation, change the position of
those employees who received employment agreements pursuant to the applicable
acquisition agreement, reduce the workforce or terminate employees (except as
related to employee performance, the contemplated reorganization of the
combined sales and marketing staff and the consolidation of certain accounting
functions) without the approval of a majority in interest of the former
stockholders of the affected Acquired Company. Based on the term of these
limitations and since the Company has been growing and adding additional
employees, the Company does not believe that these limitations will have a
significant impact on the future results of operations and liquidity.
(3) CASH, CASH EQUIVALENTS AND FINANCIAL INSTRUMENTS
VIALOG classifies all investments with an original maturity of less than
ninety days as cash equivalents and values them at cost which approximates
market. VIALOG's policy is to invest cash primarily in income producing short-
term instruments and to keep uninvested cash balances at minimum levels.
VIALOG's financial instruments consist of cash, cash equivalents, accounts
receivable, accounts payable, other accrued liabilities and long-term debt.
Except for long-term debt, the carrying amounts of such financial instruments
approximate fair value due to their short maturities. The fair value of the
Company's long-term debt at December 31, 1997 is based on quoted market
values. The fair value of long-term debt was not materially different from its
carrying amount.
(4) ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
Prior to the acquisitions discussed in Note 2 "Acquisitions," VIALOG had no
accounts receivable. At acquisition, the accounts receivable of the Acquired
Companies were recorded at fair market value. The allowance for doubtful
accounts at December 31, 1997 represents the provision charged to operations
for the period November 12, 1997 through December 31, 1997.
<TABLE>
<CAPTION>
BALANCE AT PROVISION BALANCE
BEGINNING OF CHARGED TO NET DEDUCTIONS AT END OF
PERIOD OPERATIONS FROM ALLOWANCE PERIOD
------------ ---------- -------------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Nine Months Ended
September 30, 1998
(unaudited)............. $ 32 $ 145 $ (33) $ 144
Year Ended December 31,
1997.................... $ -- $ 32 $ -- $ 32
Year Ended December 31,
1996.................... $ -- $ -- $ -- $ --
</TABLE>
F-21
<PAGE>
VIALOG CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(5) PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------- SEPTEMBER 30,
1996 1997 1998
------------- -------------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Office furniture and equipment................ $ 7 $ 869 $ 1,268
Conferencing equipment........................ -- 5,163 9,360
Computer equipment............................ -- 697 2,196
Equipment under capital lease................. -- 898 824
Leasehold improvements........................ -- 190 233
----- ------- -------
7 7,817 13,881
Less: accumulated depreciation and amortiza-
tion......................................... -- (273) (2,263)
----- ------- -------
$ 7 $ 7,544 $11,618
===== ======= =======
</TABLE>
(6) LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------- SEPTEMBER 30,
1996 1997 1998
----- ------- -------------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
12 3/4% Senior Notes payable, due 2001, net of
unamortized discount of $0, $4,203, and $3,387
respectively................................... $ -- $70,797 $71,613
Capitalized lease obligations................... -- 1,044 764
Other long-term debt............................ -- 95 78
----- ------- -------
Total long-term debt.......................... -- 71,936 72,455
Less current portion.......................... -- 397 362
----- ------- -------
Total long-term debt, less current portion.... $ -- $71,539 $72,093
===== ======= =======
</TABLE>
Notes Payable
On February 24, 1997, VIALOG issued $500,000 of 8% promissory notes due on
the earlier of (a) ten days following the closing of an initial public
offering or (b) one year from their issue date. Warrants to purchase 111,118
common shares at an exercise price of $4.50 were issued in conjunction with
the promissory notes. The value of the warrants was determined using the
minimum value method. The value of the warrants at the date of issuance
totaled $129,000 and was amortized as interest expense. The warrants may be
exercised between November 1997 and February 1999. In November 1997, the
promissory notes were repaid, including accrued interest, from the proceeds of
the Private Placement, which was completed on November 12, 1997. In
conjunction with the Private Placement, the warrants issued to the note
holders were increased to a total of 153,378 in accordance with anti-dilution
provisions contained in the promissory notes.
Convertible Bridge Facility
In early October 1997, VIALOG completed a private placement to certain of
its existing investors of $255,500 of 10% subordinated convertible promissory
notes due on the earlier of (a) five days after the closing of a sale of
VIALOG's equity securities or debt securities for an aggregate price of $50.0
million or more, or (b) January 1, 1998. The notes were convertible at the
option of the holders at any time prior to and including the
F-22
<PAGE>
VIALOG CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
due date into such number of shares of VIALOG's common stock as determined by
dividing the aggregate unpaid principal amount of the notes by the conversion
price of $2.00 per share, subject to adjustment pursuant to the terms of the
notes. The conversion price of $2.00 per share was equal to the estimated fair
market value of the Company's common stock on the date of issuance. In
November 1997, the notes were converted into 127,750 shares of VIALOG's common
stock.
Senior Notes Payable
On November 12, 1997, VIALOG completed a Private Placement of $75.0 million
of Senior Notes, Series A. The Senior Notes bear interest at 12 3/4% per
annum, payable semi-annually on May 15 and November 15 of each year,
commencing May 15, 1998. The Senior Notes are guaranteed by the Acquired
Companies (see note 15) and mature on November 15, 2001 and are redeemable in
whole or in part at the option of VIALOG on or after November 15, 1999 at 110%
of the principal amount thereof, and on or after November 15, 2000 at 105% of
the principal amount thereof, in each case together with accrued interest to
the date of redemption. In addition, there are certain other early redemption
options available to VIALOG at any time on or prior to November 15, 1999 at
certain premiums, as specified in the indenture pursuant to which the Senior
Notes were issued (the "Indenture"). In the event of a change in control, as
defined in the Indenture, the Company may be required to repurchase all of the
outstanding Senior Notes at 101% of the principal amount plus accrued interest
and additional interest, if any. The Indenture contains restrictive covenants
with respect to the Company that among other things, create limitations
(subject to certain exceptions) on (i) the incurrence of additional
indebtedness, (ii) the ability of VIALOG to purchase, redeem or otherwise
acquire or retire any VIALOG common stock or warrants, rights or options to
acquire VIALOG common stock, to retire any subordinated indebtedness prior to
final maturity or to make investments in any person, (iii) certain
transactions with affiliates, (iv) the ability to materially change the
present method of conducting business, (v) the granting of liens on property
or assets, (vi) mergers, consolidations and the disposition of assets, (vii)
declaring and paying any dividends or making any distribution on shares of
common stock, and (viii) the issuance or sale of any capital stock of the
Company's subsidiaries. The Indenture does not require VIALOG to maintain
compliance with any financial ratios or tests, except with respect to certain
restrictive covenants noted above. The Company is in compliance with all
covenants contained in the Indenture at December 31, 1997. Warrants to
purchase 1,059,303 common shares at an exercise price of $.01 per share were
issued in conjunction with the Senior Notes. Of the total issued, 756,645
warrants were attached to the Senior Notes and 302,658 were issued to
Jefferies and Company, Inc., the initial purchaser of the Senior Notes, as
part of its compensation for services rendered in connection with such
offering. The value of the warrants attached to the Senior Notes was $4.4
million and was recorded as debt discount and additional paid-in capital. The
value of the warrants issued, which represented additional consideration to
the initial purchaser of the Senior Notes, was $1.7 million and was recorded
as deferred debt issuance costs. In addition, the Company incurred commissions
of $3.8 million and legal and other costs of $2.1 million. The deferred debt
issuance costs are being amortized over the life of the Senior Notes. The
warrants may be exercised between November 1997 and November 2001. The
proceeds from the Senior Notes were used to complete the acquisitions (see
Note 2 "Acquisitions"), repay outstanding indebtedness and fund working
capital requirements. On February 12, 1998, VIALOG offered to exchange Senior
Notes, Series B for Senior Notes, Series A (see Note 16 "Subsequent Events").
Interest Income (Expense), Net
Interest income (expense), net consists of the following:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
------------ ----------------
1996 1997 1997 1998
---- ------- ------ --------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest income............................. $ 1 $ 56 $ 2 $ 188
Interest expense............................ -- (1,922) (112) (9,498)
---- ------- ------ --------
Interest income (expense), net............ $ 1 $(1,866) $ (110) $ (9,310)
==== ======= ====== ========
</TABLE>
F-23
<PAGE>
VIALOG CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(7) ACCRUED EXPENSES
Accrued expenses consist primarily of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------ SEPTEMBER 30,
1996 1997 1998
----- ------ -------------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Accrued interest........ $ -- $1,310 $3,606
Accrued payroll and
related costs.......... 257 1,119 1,356
Accrued acquisition and
financing related
costs.................. 406 1,550 1,026
Accrued other........... -- 1,746 1,568
----- ------ ------
$ 663 $5,725 $7,556
===== ====== ======
</TABLE>
(8) COMMITMENTS AND CONTINGENCIES
VIALOG conducts its operations primarily in leased facilities under
operating lease arrangements expiring on various dates through May 2008.
Certain long-term capital leases have been included in Property and Equipment
and Long-Term Debt in the accompanying consolidated balance sheets.
Future minimum lease payments under capital and operating leases with
initial terms of one year or more are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, CAPITAL LEASES OPERATING LEASES
------------------------ -------------- ----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
1998....................................... $ 485 $1,035
1999....................................... 434 980
2000....................................... 232 938
2001....................................... 90 809
2002....................................... 1 750
Thereafter................................. -- 2,241
------ ------
Total minimum lease payments............... 1,242 $6,753
======
Less: Amount representing interest on
capital leases............................ 198
------
Present value of minimum lease payments at
December 31, 1997......................... $1,044
======
</TABLE>
Total operating lease rental expense for VIALOG for the years ended December
31, 1996 and 1997 were $0 and $198,000, respectively.
(9) PROVISION FOR INCOME TAXES
Income tax (expense) benefit for the years ended December 31, 1996 and 1997
consists of the following:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
------- -------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
December 31, 1996:
Federal............................................ $ -- $ 398 $ 398
State.............................................. -- 124 124
----- ----- -----
$ -- $ 522 $ 522
===== ===== =====
December 31, 1997:
Federal............................................ $ -- $(398) $(398)
State.............................................. -- (124) (124)
----- ----- -----
$ -- $(522) $(522)
===== ===== =====
</TABLE>
F-24
<PAGE>
VIALOG CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Income tax benefit differed from the amounts computed by applying the U.S.
statutory federal income tax rate of 34% as a result of the following:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------
1996 1997
------ --------
(DOLLARS
IN THOUSANDS)
<S> <C> <C>
Computed "expected" tax benefit........................... $ 445 $ 5,202
State and local income taxes, net of federal tax benefit.. 82 918
Non deductible amounts and other differences.............. (5) (167)
Change in valuation allowance for deferred taxes allocated
to income tax expense.................................... -- (6,469)
Other..................................................... -- (6)
----- --------
Tax benefit............................................. $ 522 $ (522)
===== ========
</TABLE>
The tax effects of temporary differences that give rise to significant
portion of deferred tax assets and liabilities are presented below:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------
1996 1997
--------------
(DOLLARS
IN THOUSANDS)
<S> <C> <C>
Deferred tax asset:
Organizational expenditures and start-up costs........... $ 522 $ 2,029
Accrual to cash accounting adjustment.................... -- (162)
Purchased in-process research and development amortized
for tax purposes over 15 years.......................... -- 3,040
Net operating loss carryforwards......................... -- 1,563
Capital loss and charitable contribution carry forwards.. -- 2
Property and equipment................................... -- (92)
Bad debts................................................ -- 24
Original issue discount amortization..................... -- 13
Other.................................................... -- 52
Valuation allowance...................................... -- (6,469)
----- --------
Net deferred tax assets................................ $ 522 $ --
===== ========
</TABLE>
VIALOG had net operating loss carryforwards of $0 and $3.9 million at
December 31, 1996 and 1997, respectively, which expire in 2012. Utilization of
the net operating losses may be subject to an annual limitation provided by
change in ownership provisions of Section 382 of the Internal Revenue Code of
1986 and similar state provisions.
In assessing the realizability of deferred tax assets, VIALOG considers
whether it is more likely than not that some portion or all of the deferred
tax assets will not be realized. Based on management's projections for future
taxable income, a valuation allowance has been established for the deferred
tax assets.
In accordance with FAS 109, the accounting for the tax benefits of acquired
deductible temporary differences, which are not recognized at the acquisition
date because a valuation allowance is established, and are recognized
subsequent to the Acquisitions will be applied first to reduce to zero any
goodwill and other
F-25
<PAGE>
VIALOG CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
noncurrent intangible assets related to the acquisitions. Any remaining
benefits would be recognized as a reduction of income tax expense. As of
December 31, 1997, $144,260 of the Company's net operating loss carryforward
deferred tax asset of $1,563,000 pertains to the Acquired Companies and all of
the Company's
$2,000 capital loss and charitable contribution carryforward deferred tax
asset pertains to the Acquired Companies, the future benefit of which will be
applied first to reduce to zero any goodwill and other noncurrent intangible
assets related to the acquisitions prior to reducing the Company's income tax
expense.
(10) STOCKHOLDERS' EQUITY
(a) Sale of Common Stock
During 1996, VIALOG sold common stock through several private placements.
The proceeds of the sales were used primarily for expenses relating to the
business acquisition agreements and a proposed financing. A total of 758,000
shares of common stock were sold for aggregate net proceeds of $865,000.
(b) Common Stock Grants
Between February and November 1996, VIALOG issued a total of 419,500 shares
of common stock under the 1996 Stock Plan to consultants and employees as an
inducement to them to provide services to VIALOG. Compensation expense of
$123,000 which represents the estimated fair market value of the stock
granted, was recorded in connection with these transactions.
(c) Common Stock Split
On October 16, 1997, the Board of Directors approved a 2-for-1 stock split
of VIALOG's common stock. All prior periods have been restated to reflect this
stock split effected as a recapitalization.
(d) Preferred Stock
On February 14, 1997, the stockholders voted to authorize 10,000,000 shares
of preferred stock. No shares of preferred stock are issued and outstanding.
(e) Warrants
During 1997, VIALOG issued warrants to purchase common stock in connection
with certain financing transactions (see Note 6 "Long-Term Debt").
(11) EMPLOYEE BENEFIT PLANS
(a) The 1996 Stock Plan
On February 14, 1996, the Board of Directors and VIALOG's stockholders
approved VIALOG's 1996 Stock Plan (the "Plan"). The purpose of the Plan is to
provide directors, officers, key employees, consultants and other service
providers with additional incentives by increasing their ownership interests
in VIALOG. Individual awards under the plan may take the form of one or more
of: (i) incentive stock options ("ISOs"); (ii) non-qualified stock options
("NQSOs"); (iii) stock appreciation rights ("SARs"); and (iv) restricted
stock.
The Compensation Committee administers the Plan and generally selects the
individuals who will receive awards and the terms and conditions of those
awards. The maximum number of shares of common stock that may be subject to
outstanding awards, determined immediately after the grant of any award, may
not exceed 3,000,000 and 3,250,000 shares as of December 31, 1996 and 1997,
respectively. Shares of common stock attributable to awards which have
expired, terminated or been canceled or forfeited are available for issuance
or use in connection with future awards.
F-26
<PAGE>
VIALOG CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Plan will remain in effect until February 14, 2006 unless terminated
earlier by the Board of Directors. The Plan may be amended by the Board of
Directors without the consent of the stockholders of VIALOG, except that any
amendment, although effective when made, will be subject to stockholder
approval if required by any Federal or state law or regulation by the rules of
any stock exchange or automated quotation system on which the common stock may
then be listed or quoted.
The following is a summary of stock option activity:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
--------- ----------------
<S> <C> <C>
Options outstanding at December 31, 1995......... -- $ --
Granted........................................ 1,746,132 0.29
Exercised...................................... (75,000) 0.03
Canceled....................................... (576,000) 0.03
--------- -----
Options outstanding at December 31, 1996......... 1,095,132 0.45
Granted........................................ 763,849 4.14
Exercised...................................... (104,000) 0.03
Canceled....................................... (400,110) 1.03
--------- -----
Options outstanding at December 31, 1997......... 1,354,871 $2.39
========= =====
</TABLE>
The options generally vest in equal quarterly installments over 3 years and
have a 10 year term. At December 31, 1996 and 1997, 75,000 and 467,771
options, respectively, were exercisable at weighted average exercise prices of
$.2775 and $1.03 per share, respectively. At December 31, 1997, there were
1,296,629 additional shares available for grant under the Plan.
The following is a summary of options outstanding and exercisable at
December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------- --------------------------
RANGE OF WEIGHTED WEIGHTED AVERAGE WEIGHTED
EXERCISE NUMBER AVERAGE REMAINING NUMBER AVERAGE
PRICES OUTSTANDING EXERCISE PRICE CONTRACTUAL LIFE EXERCISABLE EXERCISE PRICE
-------- ----------- -------------- ---------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$0.025-
$0.278 547,552 $0.19 6.7 years 360,306 $0.21
$2.00 387,470 2.00 9.4 years 43,720 2.00
$4.50-
$5.75 419,849 5.63 9.0 years 63,745 4.97
--------- -------
1,354,871 2.39 467,771 1.03
========= =======
</TABLE>
In 1996, VIALOG granted a total of 111,112 options to consultants.
Compensation expense of $50,000 has been recorded in connection with these
transactions in 1996. During 1997, modifications were made to the vesting and
expiration periods of certain outstanding options. Compensation expense of
$958,000 has been recorded in 1997 in connection with these modifications.
F-27
<PAGE>
VIALOG CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
VIALOG applies APB Opinion No. 25 accounting for stock issued to employees
in accounting for its Plan and, accordingly, compensation cost is only
recognized in the financial statements for stock options granted to employees
when the fair value on the grant date exceeds the exercise price. Had VIALOG
determined compensation cost based on the fair value at grant date for its
stock options under SFAS No. 123, its net loss would have been increased to
the pro forma amounts indicated below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1996 1997
----------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Net loss
As reported...................................... $ (785) $ (15,821)
Pro forma........................................ $ (800) $ (15,901)
Loss per share
As reported...................................... $ (0.38) $ (5.48)
Pro forma........................................ $ (0.38) $ (5.50)
</TABLE>
The per share weighted-average fair value of stock options granted during
1996 and 1997, respectively, were $.135 and $1.00 for ISOs and $.37 and $1.30
for NQSOs on the date of grant using the minimum value option-pricing model
with the following weighted-average assumptions used for grants in 1996 and
1997, respectively: no expected dividend yields for both periods, risk-free
interest rates of 6.1% and 5.88%, and expected lives of 5 years for both
periods.
(b) Retirement Plan
Access, one of the Acquired Companies, maintains a defined contribution
retirement plan (the "Plan") under Section 401(k) of the Internal Revenue Code
which covers all eligible employees. Employee contributions are voluntary and
vest with the employee immediately. The Plan provides for matching
contributions by Access of 50% of employee contributions, up to certain limits
as defined in the Plan. Access' matching contributions vest over the
employee's period of service. Access' matching contributions to the Plan for
the period ended December 31, 1997 was $1,000.
Effective December 31, 1997, all employees became fully vested in Access'
matching contributions. Effective January 1, 1998, Access' matching
contributions were discontinued.
(c) Employment Agreements
Certain of the executive officers of VIALOG have entered into employment
agreements with VIALOG which provide for severance payments in the event their
employment is terminated prior to the expiration of their employment terms.
The severance terms range from six months to three years, depending on the
timing and circumstances of the termination.
(12) SIGNIFICANT CUSTOMERS
During the year ended December 31, 1997, VIALOG had one customer which
represented 8.4% of total net revenues.
(13) RELATED PARTY TRANSACTIONS
The following summarizes the significant related party transactions:
(a) During 1997 VIALOG paid $1.8 million for legal fees and expenses to a
firm having a member who is also a director of VIALOG.
F-28
<PAGE>
VIALOG CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(b) From December 1997 to February 1998, one of VIALOG's stockholders
provided consulting services to the Company for a monthly fee of $10,000.
(c) TCC provides teleconferencing services to customers of a company
owned by the spouse of a shareholder of the Company.
(d) VIALOG has implemented a policy whereby neither VIALOG nor any
subsidiary (which includes the Acquired Companies) will enter into
contracts or business arrangements with persons or entities owned in whole
or in part by officers or directors of VIALOG or any subsidiary except on
an arms-length basis and with the approval of VIALOG's Board of Directors.
VIALOG's bylaws require that any approval must be by a majority of the
independent directors then in office who have no interest in such contract
or transaction.
(14) LITIGATION
In connection with the acquisition of Call Points, one of the Acquired
Companies, VIALOG agreed to assume all disclosed liabilities with the
exception of any liabilities arising out of Equal Employment Opportunity
Commission ("EEOC") claims and litigation filed against Call Points and Ropir
Industries, Inc. ("Ropir"), the sole stockholder and parent corporation of
Call Points, by certain former and current employees. On or about October 24,
1997, 11 employees or former employees of Call Points filed claims in federal
district court (Middle District of Alabama, Northern Division) against Call
Points and Ropir. On or about August 4, 1998, the complainants were granted
leave to add VIALOG as a defendant. All 11 complainants sought to hold VIALOG
liable for damages as a successor in interest to Call Points. Two of the
complainants added additional claims against VIALOG alleging discriminatory
and retaliatory conduct alleged to have occurred subsequent to the
acquisition. The parties have recently settled all claims brought by the
complainants, and all of the complainants' claims were dismissed with
prejudice by the federal district court on October 19, 1998. Neither the
Company nor any of its subsidiaries are liable to the complainants for any
monetary or other damages under the settlement agreement.
A former employee of CSI, one of the Acquired Companies, has claimed in
writing that he may be entitled to up to five percent of the stock of CSI,
based on an unsigned paper outlining possible employment terms. Based on the
$18.7 million consideration paid to CSI's stockholders upon the consummation
of the acquisition of CSI by VIALOG Corporation, the value of a five percent
equity interest in CSI would be approximately $934,000. CSI's position is that
the only agreements with such employee were set forth in two successive
executed employment agreements, each of which had a specific provision that
such agreement was inclusive as to the terms of employment. VIALOG and the
former stockholders of CSI believe that such claim is without merit.
F-29
<PAGE>
VIALOG CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(15) SUPPLEMENTAL CONSOLIDATING CONDENSED FINANCIAL INFORMATION
The 12 3/4% Senior Notes due November 15, 2001, in the aggregate principal
amount of $75 million, are fully and unconditionally guaranteed, on a joint
and several basis, by all of the Company's subsidiaries. Each of the
guarantors is a wholly-owned subsidiary of the Company. Summarized financial
information of the Company and its subsidiaries is presented below as of and
for the year ended December 31, 1997 and the six months ended June 30, 1998.
Separate financial statements and other disclosures concerning the guarantor
subsidiaries are not presented because management has determined that they are
not material to investors.
<TABLE>
<CAPTION>
VIALOG CALL
CORP. ACCESS CSI POINTS TCC AMERICO CDC ELIMINATIONS CONSOLIDATED
-------- ------- ------- ------- ------ ------- ------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET INFORMATION
AS OF DECEMBER 31, 1997
Total current assets..... $ 11,799 $ 725 $ 431 $ 1,506 $ 556 $ 5 $ 488 $ -- $ 15,510
Property and equipment,
net..................... 70 3,306 961 1,617 883 611 96 -- 7,544
Investment in
subsidiaries............ 57,121 -- -- -- -- -- -- (57,121) --
Goodwill and intangible
assets, net............. -- 15,899 15,202 3,872 3,945 2,970 2,503 -- 44,391
Other assets............. 7,430 34 86 -- 12 73 3 -- 7,638
-------- ------- ------- ------- ------ ------ ------ -------- --------
Total assets............ $ 76,420 $19,964 $16,680 $ 6,995 $5,396 $3,659 $3,090 $(57,121) $ 75,083
======== ======= ======= ======= ====== ====== ====== ======== ========
Current liabilities...... $ 3,145 $ 1,976 $ 471 $ 824 $ 680 $1,038 $ 117 $ -- $ 8,251
Long-term debt........... 70,797 24 449 -- 195 74 -- -- 71,539
Other liabilities........ -- 155 -- -- -- -- 20 -- 175
Stockholders' equity
(deficit)............... 2,478 17,809 15,760 6,171 4,521 2,547 2,953 (57,121) (4,882)
-------- ------- ------- ------- ------ ------ ------ -------- --------
Total liabilities and
stockholders' equity
(deficit).............. $ 76,420 $19,964 $16,680 $ 6,995 $5,396 $3,659 $3,090 $(57,121) $ 75,083
======== ======= ======= ======= ====== ====== ====== ======== ========
STATEMENT OF OPERATIONS
INFORMATION FOR THE YEAR
ENDED DECEMBER 31,
1997(1)
Net revenues............. $ -- $ 1,620 $ 854 $ 1,142 $ 567 $ 290 $ 353 $ (10) $ 4,816
Cost of revenues,
excluding depreciation.. -- 709 322 806 279 212 174 (10) 2,492
Selling, general and
administrative
expenses................ 6,117 403 93 159 190 134 82 -- 7,178
Depreciation expense..... 10 80 60 79 27 9 8 -- 273
Amortization of goodwill
and intangibles......... -- 103 108 33 26 20 16 -- 306
Write-off of in-process
research and
development............. -- 2,200 3,400 2,000 120 160 120 -- 8,000
-------- ------- ------- ------- ------ ------ ------ -------- --------
Operating loss.......... (6,127) (1,875) (3,129) (1,935) (75) (245) (47) -- (13,433)
Interest income
(expense), net.......... (1,828) (16) (12) 2 (4) (8) -- -- (1,866)
-------- ------- ------- ------- ------ ------ ------ -------- --------
Loss before taxes....... (7,955) (1,891) (3,141) (1,933) (79) (253) (47) -- (15,299)
Income tax expense....... (522) -- -- -- -- -- -- -- (522)
-------- ------- ------- ------- ------ ------ ------ -------- --------
Net loss................ $ (8,477) $(1,891) $(3,141) $(1,933) $ (79) $ (253) $ (47) $ -- $(15,821)
======== ======= ======= ======= ====== ====== ====== ======== ========
<CAPTION>
CASH FLOW INFORMATION FOR
THE
YEAR ENDED DECEMBER 31,
1997(1)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Cash flows provided by
(used in) operating ac-
tivities................ $ (7,072) $ 1,663 $ 407 $ 320 $ 65 $ 264 $ 205 $ -- $ (4,148)
Cash flows provided by
(used in) investing ac-
tivities................ (54,281) 192 90 169 56 (8) 20 -- (53,762)
Cash flows provided by
(used in) financing ac-
tivities................ 69,412 (1,415) (546) -- (75) (189) (47) -- 67,140
-------- ------- ------- ------- ------ ------ ------ -------- --------
Net increase in cash and
cash
equivalents............. 8,059 440 (49) 489 46 67 178 -- 9,230
Cash and cash equivalents
at the beginning of
year.................... 337 -- -- -- -- -- -- -- 337
-------- ------- ------- ------- ------ ------ ------ -------- --------
Cash and cash equivalents
at the end of year...... $ 8,396 $ 440 $ (49) $ 489 $ 46 $ 67 $ 178 $ -- $ 9,567
======== ======= ======= ======= ====== ====== ====== ======== ========
</TABLE>
- --------
(1)Represents operating results of the Acquired Companies from the date of
Acquisition on November 12, 1997.
F-30
<PAGE>
VIALOG CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
VIALOG
CORP. ACCESS CSI CALL POINTS TCC AMERICO CDC ELIMINATIONS CONSOLIDATED
-------- ------- ------- ----------- ------ ------- ------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET
INFORMATION AS OF
SEPTEMBER 30, 1998
(UNAUDITED)
Total current assets.... $ (1,606) $ 3,440 $ 2,994 $3,098 $1,366 $ (802) $ 681 $ -- $ 9,171
Property and equipment,
net.................... 424 5,444 2,038 1,847 1,041 610 214 -- 11,618
Investment in
subsidiaries........... 57,121 -- -- -- -- -- -- (57,121) --
Goodwill and intangible
assets, net............ -- 15,239 14,337 3,680 3,790 2,852 2,404 -- 42,302
Other assets............ 6,472 157 79 -- 14 76 8 -- 6,806
-------- ------- ------- ------ ------ ------ ------ -------- -------
Total assets........... $ 62,411 $24,280 $19,448 $8,625 $6,211 $2,736 $3,307 $(57,121) $69,897
======== ======= ======= ====== ====== ====== ====== ======== =======
Current liabilities..... $ 4,953 $ 1,690 $ 2,402 $ 920 $ 622 $ 478 $ 123 $ -- $11,188
Long-term debt,
excluding current
portion................ 71,613 12 281 -- 109 78 -- -- 72,093
Other liabilities....... -- 179 264 -- -- -- 22 -- 465
Stockholders' equity
(deficit).............. (14,155) 22,399 16,501 7,705 5,480 2,180 3,162 (57,121) (13,849)
-------- ------- ------- ------ ------ ------ ------ -------- -------
Total liabilities and
stockholders' equity
(deficit)............. $ 62,411 $24,280 $19,448 $8,625 $6,211 $2,736 $3,307 $(57,121) $69,897
======== ======= ======= ====== ====== ====== ====== ======== =======
STATEMENT OF OPERATIONS
INFORMATION FOR THE
NINE MONTHS ENDED
SEPTEMBER 30, 1998
(UNAUDITED)
Net revenues............ $ -- $13,341 $ 6,029 $7,412 $4,367 $2,083 $1,976 $ (438) $34,770
Cost of revenues,
excluding
depreciation........... -- 6,027 2,522 4,879 2,336 1,319 1,216 (438) 17,861
Selling, general and
administrative
expenses............... 7,488 1,041 586 478 712 906 419 -- 11,630
Depreciation expense.... 49 1,024 282 330 179 87 39 -- 1,990
Amortization of goodwill
and intangibles........ -- 662 649 190 153 117 99 -- 1,870
Non-recurring charge.... -- -- 1,200 -- -- -- -- -- 1,200
-------- ------- ------- ------ ------ ------ ------ -------- -------
Operating income
(loss)................ (7,537) 4,587 790 1,535 987 (346) 203 -- 219
Interest income
(expense), net......... (9,221) 3 (48) -- (28) (22) 6 -- (9,310)
-------- ------- ------- ------ ------ ------ ------ -------- -------
Net income (loss)...... $(16,758) $ 4,590 $ 742 $1,535 $ 959 $ (368) $ 209 $ -- $(9,091)
======== ======= ======= ====== ====== ====== ====== ======== =======
CASH FLOW INFORMATION
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
1998 (UNAUDITED)
Cash flows provided by
(used in)
operating activities... $ (6,099) $ 2,570 $ 1,783 $ 109 $ 355 $ 42 $ 19 $ -- $(1,221)
Cash flows used in in-
vesting activities..... (784) (3,162) (1,436) (560) (337) (86) (157) -- (6,522)
Cash flows used in fi-
nancing activities..... (434) (22) (180) -- (78) (17) -- -- (731)
-------- ------- ------- ------ ------ ------ ------ -------- -------
Net increase (decrease)
in cash and cash
equivalents............ (7,317) (614) 167 (451) (60) (61) (138) -- (8,474)
Cash and cash equiva-
lents at the
beginning of period.... 8,396 440 (49) 489 46 67 178 -- 9,567
-------- ------- ------- ------ ------ ------ ------ -------- -------
Cash and cash equiva-
lents at the end of
period................. $ 1,079 $ (174) $ 118 $ 38 $ (14) $ 6 $ 40 $ -- $ 1,093
======== ======= ======= ====== ====== ====== ====== ======== =======
</TABLE>
F-31
<PAGE>
VIALOG CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(16) SUBSEQUENT EVENTS
(a) Exchange Offer
On February 12, 1998, VIALOG offered to exchange (the "Exchange Offer")
$75.0 million of 12 3/4% Senior Notes, Series B (the "Exchange Notes") for the
existing $75.0 million of 12 3/4% Senior Notes, Series A (the "Old Notes"). In
connection with the Exchange Offer, VIALOG filed with the Securities and
Exchange Commission a Registration Statement on Form S-4 for the registration
of the Exchange Notes under the Securities Act of 1933. The form and terms of
the Exchange Notes are identical in all material respects to the form and
terms of the Old Notes except for certain transfer restrictions and
registration rights relating to the Old Notes. VIALOG did not receive any
proceeds from the Exchange Offer.
On March 26, 1998, the Exchange Offer of 12 3/4% Senior Notes, Series B for
the existing 12 3/4% Senior Notes, Series A terminated, with all of the Old
Notes being surrendered for Exchange Notes.
(b) The 1996 Stock Plan
During the nine months ended September 30, 1998, VIALOG granted to employees
under the 1996 Stock Plan, options to purchase 699,525 shares of common stock
at exercise prices ranging from $5.75 to $10.00 per share.
(c) ABCC Acquisition
In May, 1998, VIALOG signed a definitive merger agreement to acquire all of
the common stock of A Business Conference-Call, Inc., contingent upon
completion of certain items defined in the merger agreement. The acquisition
will be accounted for using the purchase method of accounting. The total
purchase price is $15.2 million in cash plus (i) an additional amount, based
on ABCC's closing date balance sheet, equal to the balances of cash plus
accounts receivable (net of a bad debt reserve of 5%) less all liabilities as
of the closing date and (ii) approximately $100,000 related to tax
reimbursements. Based on the September 30, 1998 balance sheet, the amount of
such additional consideration would be approximately $389,000. In addition,
the Company expects to incur approximately $200,000 of acquisition costs. The
two stockholders of ABCC will each enter into one-year employment contracts
and receive incentive stock options for the purchase of 37,500 shares of
common stock at an exercise price equal to the fair value of the common stock
at the effective date of the merger. The options will vest as to 3,125 shares
on the effective date of the merger and an additional 3,125 shares on each
April 1, July 1, October 1, and January 1 thereafter until fully vested.
(d) Officer Termination
The Company terminated the employment of David L. Lipsky, former President
of Americo, in June 1998. On July 22, 1998, the Company and Mr. Lipsky signed
an agreement resolving a dispute regarding his employment and position at
Americo. The Company agreed to pay Mr. Lipsky a sum of $309,000, less required
witholdings and deductions, in satisfaction of amounts due under his
employment agreement and to include Mr. Lipsky as a selling stockholder in
this Offering with respect to the 267,826 shares of common stock owned by Mr.
Lipsky. In exchange, Mr. Lipsky agreed, among other things, to cancel all of
his vested and unvested stock options, release the Company from all claims,
refrain from acquiring any voting securities of the Company for ten years, and
acknowledge the termination of his employment as President of Americo and his
term as a Director of the Company. Approximately $413,000 has been expensed in
the nine months ended September 30, 1998 related to the payment of $309,000
and associated legal fees.
(e) Non-recurring Charge
The results for the nine months ended September 30, 1998 include a non-
recurring charge of $1.2 million related to the consolidation of the Atlanta
and Montgomery Operating Centers. The combined Operating Center
F-32
<PAGE>
VIALOG CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
will operate in a new facility in Montgomery, Alabama. The charge includes
$908,000 associated with personnel reductions of approximately 45 positions in
the Atlanta Center and closing of the Atlanta facility, and includes $292,000
associated with the disposal and impairment of assets in both the Atlanta and
Montgomery Centers. No amounts have been paid as of September 30, 1998.
(f) Credit Facility
On October 6, 1998, the Company closed a two year, $15.0 million credit
facility (the "Credit Facility") with Coast Business Credit, a division of
Southern Pacific Bank. The Credit Facility provides for (i) a term loan in the
principal amount of $1.5 million, (ii) a term loan of up to 80% of the
purchase price of new and used equipment, not to exceed $4.0 million, and
(iii) a revolving loan based on a percentage of eligible accounts receivable.
Loans under the Credit Facility will bear interest at the higher of 7% or the
Prime Rate plus 1 1/2%, and interest will be based on a minimum outstanding
principal balance of the greater of $5.0 million or 33% of the available
Credit Facility. The Credit Facility includes certain early termination fees.
The Credit Facility is secured by the assets of each of the Operating Centers
and the assets of VIALOG Corporation, excluding the ownership interest in each
of the Operating Centers. The Company is required to maintain compliance with
certain financial ratios and tests, including a debt service coverage ratio
and minimum net worth level.
F-33
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Telephone Business Meetings, Inc.:
We have audited the accompanying balance sheets of Telephone Business
Meetings, Inc. ("Access") as of December 31, 1995 and 1996, and the related
statements of operations, stockholders' equity and cash flows for the year
ended December 31, 1994, the period January 1, 1995 to April 9, 1995, the
period April 10, 1995 to December 31, 1995, the year ended December 31, 1996
and for the period January 1, 1997 to November 12, 1997. These financial
statements are the responsibility of Access' management. Our responsibility is
to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Telephone Business
Meetings, Inc. as of December 31, 1995 and 1996, and the results of its
operations and its cash flows for the year ended December 31, 1994, the period
January 1, 1995 to April 9, 1995, the period April 10, 1995 to December 31,
1995, the year ended December 31, 1996 and the period January 1, 1997 to
November 12, 1997, in conformity with generally accepted accounting
principles.
As discussed in note 4 to the financial statements, effective April 10,
1995, Access repurchased all of the common stock of one of Access' founding
stockholders, representing a 50% interest in Access. As a result of the change
in control, the financial information for the periods after the change in
control is presented on a different cost basis than that for the periods
before the change in control and, therefore, is not comparable.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Washington, D.C.
July 2, 1998
F-34
<PAGE>
TELEPHONE BUSINESS MEETINGS, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1995 1996
------ ------
<S> <C> <C>
ASSETS (note 3)
Current assets:
Cash and cash equivalents...................................... $ 390 $ 804
Trade accounts receivable, less allowance for doubtful accounts
of $33 and $206 at December 31, 1995 and December 31, 1996,
respectively.................................................. 802 1,103
Prepaid expenses and other current assets...................... 108 161
------ ------
Total current assets......................................... 1,300 2,068
------ ------
Property and equipment, net (note 2)............................. 2,032 2,201
Restricted cash.................................................. 105 110
Excess of purchase price over the fair value of the interest in
net assets of the former stockholders, net of accumulated
amortization of $12 and $28 at December 31, 1995 and December
31, 1996 (note 4)............................................... 231 215
Other assets..................................................... 4 11
------ ------
Total assets................................................. $3,672 $4,605
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt (note 3)................ $ 732 $ 654
Current installments of note payable to former stockholder
(note 4)...................................................... 109 116
Current installments of obligations under capital leases (note
7)............................................................ 28 32
Accounts payable............................................... 4 141
Accrued expenses (note 6)...................................... 276 366
Income taxes payable........................................... 10 --
------ ------
Total current liabilities.................................... 1,159 1,309
------ ------
Long-term debt, excluding current installments (note 3)........ 1,029 880
Note payable to former stockholder, excluding current
installments
(note 4)...................................................... 439 323
Obligations under capital leases, excluding current
installments (note 7)......................................... 79 47
Deferred rent.................................................. 94 128
------ ------
Total liabilities............................................ 2,800 2,687
------ ------
Common stock issued to employees with redemption option, 15.464
shares at liquidation value (note 5)............................ -- 148
------ ------
Stockholders' equity (notes 4 and 5):
Common stock, $.01 par value. Authorized and issued 1,000
shares; 500 shares outstanding................................ -- --
Additional paid-in capital..................................... 660 660
Retained earnings.............................................. 212 1,110
------ ------
Total stockholders' equity................................... 872 1,770
------ ------
Commitments and contingencies (notes 7 and 8)
Total liabilities and stockholders' equity..................... $3,672 $4,605
====== ======
</TABLE>
See accompanying notes to financial statements.
F-35
<PAGE>
TELEPHONE BUSINESS MEETINGS, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
PERIOD FROM
PERIOD PERIOD JANUARY 1,
YEAR ENDED JANUARY 1, APRIL 10, TO YEAR ENDED 1997 TO
DECEMBER 31, TO APRIL 9, DECEMBER 31, DECEMBER 31, NOVEMBER 12,
1994 1995 1995 1996 1997
------------ ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net revenues............ $ 5,114 $ 1,590 $ 4,918 $ 9,073 $ 10,945
Cost of revenues,
excluding
depreciation........... 2,608 760 2,261 3,564 4,791
Selling, general and
administrative
expenses............... 1,691 498 1,986 3,332 4,124
Depreciation and
amortization expense... 269 121 375 630 823
------- -------- ------- --------- ---------
Income from
operations........... 546 211 296 1,547 1,207
Interest expense, net... 49 12 140 174 132
------- -------- ------- --------- ---------
Income before income
tax expense
(benefit)............ 497 199 156 1,373 1,075
Income tax expense
(benefit).............. 52 8 (56) -- --
------- -------- ------- --------- ---------
Net income............ $ 445 $ 191 $ 212 $ 1,373 $ 1,075
======= ======== ======= ========= =========
Net income per share -
basic and
diluted ............. $445.00 $ 191.00 $424.00 $2,746.00 $2,150.00
======= ======== ======= ========= =========
Weighted average
shares
outstanding ......... 1,000 1,000 500 500 500
======= ======== ======= ========= =========
</TABLE>
See accompanying notes to financial statements.
F-36
<PAGE>
TELEPHONE BUSINESS MEETINGS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK
------------------- TOTAL
NUMBER OF ADDITIONAL RETAINED STOCKHOLDERS'
SHARES PAR VALUE PAID IN CAPITAL EARNINGS EQUITY
--------- --------- --------------- -------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31,
1993................... 1,000 $-- $ 4 $ 715 $ 719
Disbursements........... -- -- -- (39) (39)
Net income.............. -- -- -- 445 445
----- ---- ---- ------ ------
Balance at December 31,
1994................... 1,000 -- 4 1,121 1,125
Net income.............. -- -- -- 191 191
----- ---- ---- ------ ------
Balance at April 9,
1995................... 1,000 $-- $ 4 $1,312 $1,316
===== ==== ==== ====== ======
Balance subsequent to
repurchase of 50% in-
terest (note 4)........ 500 $-- $660 $ -- $ 660
Net income.............. -- -- -- 212 212
----- ---- ---- ------ ------
Balance at December 31,
1995................... 500 -- 660 212 872
Distributions........... -- -- -- (475) (475)
Net income.............. -- -- -- 1,373 1,373
----- ---- ---- ------ ------
Balance at December 31,
1996................... 500 -- 660 1,110 1,770
Distributions........... -- -- -- (1,284) (1,284)
Net income.............. -- -- -- 1,075 1,075
----- ---- ---- ------ ------
Balance at November 12,
1997................... 500 $-- $660 $ 901 $1,561
===== ==== ==== ====== ======
</TABLE>
See accompanying notes to financial statements.
F-37
<PAGE>
TELEPHONE BUSINESS MEETINGS, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM
PERIOD PERIOD JANUARY 1,
YEAR ENDED JANUARY 1, APRIL 10, 1995 YEAR ENDED 1997 TO
DECEMBER 31, TO APRIL 9, TO DECEMBER 31, DECEMBER 31, NOVEMBER 12,
1994 1995 1995 1996 1997
------------ ----------- --------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash flows from operat-
ing activities:
Net income............. $ 445 $ 191 $ 212 $1,373 $1,075
Adjustments to recon-
cile net income to net
cash
provided by operating
activities:
Depreciation and amor-
tization.............. 269 121 375 630 823
Deferred income tax-
es.................... 24 -- (62) -- --
Compensation expense
for issuance of com-
mon stock............. -- -- -- 148 402
Changes in operating
assets and liabili-
ties:
Trade accounts re-
ceivable, net........ (71) (170) (108) (301) (589)
Prepaid expenses and
other current as-
sets................. (58) 62 (5) (53) 146
Accounts payable and
accrued expenses..... (17) 90 22 227 711
Income taxes pay-
able................. -- -- -- (10) --
Deferred rent......... -- -- 93 34 --
Other non current li-
abilities............ -- -- -- -- 364
----- ------ ------- ------ ------
Net cash provided by
operating activi-
ties................ 592 294 527 2,048 2,932
----- ------ ------- ------ ------
Cash flows from invest-
ing activities:
Additions to property
and equipment......... (560) (123) (1,227) (783) (1,704)
Restricted cash........ -- -- (105) (5) --
Other assets........... 3 (40) 63 (7) --
----- ------ ------- ------ ------
Net cash used in in-
vesting activities.. (557) (163) (1,269) (795) (1,704)
----- ------ ------- ------ ------
Cash flows from financ-
ing activities:
Proceeds from long-term
debt.................. 484 2,149 -- 587 (765)
Principal repayments of
long-term debt........ (338) (626) (389) (814)
Principal repayments of
notes payable to
stockholders.......... (85) -- (51) (109) 500
Principal payments un-
der capital lease ob-
ligations............. -- -- (12) (28) --
Cash portion of consid-
eration paid to former
stockholder........... -- -- (300) -- --
Distributions to stock-
holders............... (39) -- -- (475) (1,284)
----- ------ ------- ------ ------
Net cash provided by
(used in) financing
activities.......... 22 1,523 (752) (839) (1,549)
----- ------ ------- ------ ------
Net increase (decrease)
in cash and cash
equivalents........... 57 1,654 (1,494) 414 (321)
Cash and cash equiva-
lents at beginning of
period................ 173 230 1,884 390 804
----- ------ ------- ------ ------
Cash and cash equiva-
lents at end of peri-
od.................... $ 230 $1,884 $ 390 $ 804 $ 483
===== ====== ======= ====== ======
Supplemental disclosures
of cash flow informa-
tion:
Cash paid during the
period for:
Interest............... $ 49 $ 18 $ 169 $ 191 $ 108
===== ====== ======= ====== ======
Income taxes........... $ 22 $ -- $ -- $ 10 $ --
===== ====== ======= ====== ======
Supplemental disclosure
of noncash investing
and
financing activities:
Capital lease obliga-
tions................. $ -- $ -- $ 120 $ -- $ --
===== ====== ======= ====== ======
Issuance of note pay-
able in partial con-
sideration to
former stockholder.... $ -- $ -- $ 599 $ -- $ --
===== ====== ======= ====== ======
</TABLE>
See accompanying notes to financial statements.
F-38
<PAGE>
TELEPHONE BUSINESS MEETINGS, INC.
NOTES TO FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Description of Business
Telephone Business Meetings, Inc. ("Access"), which operates under the names
ACCESS Conference Call Service and ACCESS Teleconferencing International,
provides telephone and video group communications services to a broad spectrum
of individuals and businesses throughout the United States. Access' operations
center is located in Reston, Virginia.
On November 12, 1997, VIALOG Corporation acquired all of the outstanding
stock of Access for cash, and Access became a wholly-owned subsidiary of
VIALOG Corporation. The acquisition of Access was accounted for by the
purchase method. Accordingly, all of the identified tangible and intangible
assets and liabilities were recorded at their current fair market value and
the excess of the purchase price over the fair value of the net assets
acquired were recorded as intangible assets, which are being amortized over
periods up to 20 years. Under the terms of the acquisition agreement, the
stockholders of Access agreed to make an election under Section 338(h)(10) of
the Internal Revenue Code in order for the acquisition to be treated as an
asset purchase for tax purposes.
At the time of the acquisition, the tax election of Access under the
provisions of the Internal Revenue Code was changed from an S corporation to a
C Corporation. As a result, Access will be subject to corporate income taxes
subsequent to the date of the acquisition.
(c) Use of Estimates
Management of Access has made a number of estimates and assumptions relating
to the reporting of assets and liabilities and the disclosure of contingent
assets and liabilities to prepare these financial statements in conformity
with generally accepted accounting principles. Actual results could differ
from those estimates.
(d) Cash and Cash Equivalents
Cash and cash equivalents includes cash on hand and short-term investments
with original maturities of three months or less.
(e) Restricted Cash
Restricted cash consists of a certificate of deposit which is security for
Access' commitment under its office lease and is classified as long-term in
the accompanying balance sheets.
(f) Property and Equipment
Property and equipment are recorded at cost. Depreciation of property and
equipment is provided on the straight-line basis over the estimated useful
lives of the respective assets. The estimated useful lives are as follows:
five to seven years for office furniture and equipment; seven years for
conferencing equipment; and three to five years for computer equipment.
Capitalized lease equipment and leasehold improvements are amortized over the
lives of the leases, ranging from three to ten years.
(g) Intangible Assets
Access monitors its excess of purchase price over the fair value of interest
in net assets of the former stockholders (goodwill) to determine whether any
impairment of goodwill has occurred. In making such determination with respect
to goodwill, Access evaluates the performance, on an undiscounted basis, of
the underlying business which gave rise to such amount. Amortization of
goodwill is recorded on a straight-line basis over the estimated useful life
of 15 years.
(h) Research and Development
Access maintains a technical support and engineering department that, in
part, develops features and products for group communications. In accordance
with SFAS No. 2, Accounting for Research and Development
F-39
<PAGE>
TELEPHONE BUSINESS MEETINGS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Costs, Access charges to expense (included in cost of revenues) that portion
of this department's costs which are related to research and development
activities. Access' research and development expenses for the years ended
December 31, 1994, 1995, 1996 and the period January 1, 1997 to November 12,
1997 were $128,000, $207,000, $288,000 and $253,000 respectively.
(i) Income Taxes
Access has elected to be taxed under the provisions of Subchapter S of the
Internal Revenue Code. Under those provisions, Access does not pay income
taxes on its taxable income. Instead, stockholders of Access are liable for
individual federal income taxes for their respective shares of Access' taxable
income. Notwithstanding the federal Subchapter S election, franchise income
taxes were payable through May of 1995 to the District of Columbia, which does
not recognize the Subchapter S election. As of June 1995, Access moved all of
its property and office facilities to the State of Virginia.
(j) Revenue Recognition
Revenue for conference calls is recognized upon completion of the call.
Revenue for services is recognized upon performance of the service.
(k) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
Access adopted the provisions of SFAS No. 121, Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, during 1996.
This Statement requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Adoption of this Statement did not have a material impact on
Access' financial position, results of operations, or liquidity.
(l) Earnings Per Share
Access adopted the provisions of SFAS No. 128, "Earnings per Share," during
1997. This statement requires the presentation of basic earnings per share and
diluted earnings per share for all periods presented. For the years ended
December 31, 1994, 1995 and 1996, and for the period January 1, 1997 to
November 12, 1997, basic earnings per share were calculated based on weighted
average common shares outstanding. There were no common stock equivalents
outstanding for any of the periods presented; accordingly, basic and fully
diluted earnings per share are the same.
(2) PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1995 1996
------ ------
<S> <C> <C>
Office furniture and equipment.............................. $ 66 $ 88
Conferencing equipment...................................... 1,982 2,632
Computer equipment.......................................... 456 567
Capitalized lease equipment................................. 120 120
Leasehold improvements...................................... 234 234
------ ------
2,858 3,641
Less: accumulated depreciation and amortization............. 826 1,440
------ ------
Property and equipment, net............................... $2,032 $2,201
====== ======
</TABLE>
F-40
<PAGE>
TELEPHONE BUSINESS MEETINGS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(3) LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1995 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Note payable to a bank, interest at the prime rate plus 0.75%
(9.25% at September 30, 1997), monthly principal payments of
13,890 plus interest, balance due in May 2000................. $ -- $ --
Note payable to a bank, interest only at 9.33% payable monthly
through October 1995 and then monthly principal payments of
$38,095 plus interest until February 1999, with the balance
due in March 1999............................................. 1,486 1,029
Note payable to a bank, interest at the prime rate plus 0.75%
(9.25% at September 30, 1997), monthly principal payments of
$7,000 plus interest, balance due in March 1999............... -- 187
Note payable to a bank, interest at 9.5%, monthly principal
payments of $9,400 plus interest, balance due in October
1999.......................................................... -- 318
Note payable to a bank, interest at 9.33%, repaid in full in
September 1996................................................ 275 --
------- -------
Total long-term debt......................................... 1,761 1,534
Less current installments.................................... 732 654
------- -------
Long-term debt, excluding current installments............... $ 1,029 $ 880
======= =======
</TABLE>
All of Access' assets are collateral for the bank notes. In addition,
Access' majority stockholder is a guarantor of each of the bank notes. The
terms of each of the bank notes include certain financial and other covenants.
As of December 31, 1996, as a result of the stock awards discussed in note 5,
Access was not in compliance with a covenant which limits the amount of the
annual increase in executive compensation. Subsequent to December 31, 1996,
Access obtained a waiver of the noncompliance from the lender.
The aggregate maturities of all notes payable, including the note payable to
the former stockholder (see note 4), are as follows (in thousands):
<TABLE>
<S> <C>
1997............................................................. $ 770
1998............................................................. 777
1999............................................................. 357
2000............................................................. 69
------
$1,973
======
</TABLE>
In November 1997, all of the bank notes were repaid in full. On November 12,
1997, Access became a joint and several guarantor of VIALOG's $75.0 million
Senior Notes.
(4) RELATED PARTY TRANSACTIONS
On April 10, 1995, under a Share Purchase Agreement, as amended, all of the
common stock, 500 shares, of one of Access' founding stockholders
(representing a 50 percent interest in Access) was repurchased by Access for
total consideration of $899,000. The consideration consisted of $300,000 of
cash paid at closing and a note payable of $599,000 due May 2000, bearing
interest at 6%, with equal quarterly principal and interest payments. As of
the date of the repurchase, Access experienced a change in control and,
accordingly, the acquired 50% interest in the net assets of Access was
recognized at fair market value, which approximated book value. The excess
consideration paid over the fair market value of the interest in the net
assets of the former stockholder was approximately $240,000.
Concurrent with the repurchase of the shares, Access and the former
stockholder entered into an agreement for consulting services and an agreement
not to compete for a five-year period in exchange for total consideration
F-41
<PAGE>
TELEPHONE BUSINESS MEETINGS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
of $625,000 payable in equal quarterly payments by Access of $31,000
commencing with the first quarter subsequent to the closing and continuing
through April 2000.
As of December 31, 1995, and December 31, 1996, $548,000, and $439,000
respectively, were due under the note payable to the former stockholder, of
which $109,000, and $116,000 respectively, were current. During the period
from April 10, 1995 to December 31, 1995, the year ended December 31, 1996,
and the period January 1, 1997 to November 12, 1997 Access paid the former
stockholder $62,000, $125,000 and $433,000, respectively, under the agreements
for consulting services and not to compete.
As stipulated in the business combination agreement between Access and
VIALOG, $662,000 of the purchase price was paid directly to the related party
to retire the note and to pay the remaining obligation under the agreement for
consulting services and an agreement not to compete.
During the period from January 1, 1997 to November 12, 1997 Access expensed
$340,000 of the $662,000 of the purchase price paid to the related party by
VIALOG.
(5) EMPLOYEE BENEFITS
Stock Awards
During 1996, Access awarded 7.732 shares of common stock to each of two
executive officers of Access. The shares are fully vested but are restricted
as to transfer by each of the executive officers. In the event of termination
of the executive officers' employment with Access, Access has the right at its
sole option to require the executives to sell their shares back to Access and
the executives have the right to require Access to repurchase their shares,
all at the then determined fair market value. In the event of a public
offering of Access' shares or the sale of Access, all such restrictions,
rights, and options terminate.
As a result of the executive officers' right to require Access to repurchase
the shares upon termination of employment, the awards have been accounted for
using variable plan accounting, whereby compensation expense is recognized
each period for the increase, if any, in the estimated fair market value of
Access' common stock. During the year ended December 31, 1996 and the period
January 1, 1997 to November 12, 1997, Access recognized a total of $148,000
and $402,000, respectively, of compensation expense relating to the stock
awards. Further, the liquidation value of the shares has been reflected
between total liabilities and stockholders' equity in the accompanying balance
sheets.
In connection with the acquisition by VIALOG, as described in note 1, these
shares were acquired by VIALOG.
Retirement Plan
Access maintains a defined contribution retirement plan (the "Plan") under
Section 401(k) of the Internal Revenue Code which covers all eligible
employees. Employee contributions are voluntary and vest with the employee
immediately. The Plan provides for matching contributions by Access of 50
percent of employee contributions, up to certain limits as defined in the
Plan. Access' matching contributions vest over the employee's period of
service. Contributions by Access to the Plan were approximately $27,000,
$7,000, $20,000, $42,000 and $43,000 for the year ended December 31, 1994, the
period January 1, 1995 to April 9, 1995, the period April 10, 1995 to December
31, 1995, the year ended December 31, 1996, and the period January 1, 1997 to
November 12, 1997, respectively.
F-42
<PAGE>
TELEPHONE BUSINESS MEETINGS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(6) ACCRUED EXPENSES
Accrued expenses consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1995 1996
------ ------
<S> <C> <C>
Accrued salaries, wages and benefits........................ $ 86 $ 215
Accrued fees and other expenses............................. 190 151
------ ------
$276 $ 366
====== ======
</TABLE>
(7) COMMITMENTS AND CONTINGENCIES
Operating Lease
Access leases office space for its teleconferencing facility under a
noncancelable operating lease in Reston, Virginia. The lease is for a total of
ten years expiring May 31, 2005.
Future minimum payments under this lease are approximately as follows (in
thousands):
<TABLE>
<S> <C>
1997............................................................. $ 362
1998............................................................. 373
1999............................................................. 384
2000............................................................. 396
2001............................................................. 407
Thereafter....................................................... 1,485
------
$3,407
======
</TABLE>
Total rent expense was approximately $185,000, $51,000, $287,000, $396,000
and $363,000 for the year ended December 31, 1994, the period from January 1,
1995 to April 9, 1995, the period from April 10, 1995 to December 31, 1995,
the year ended December 31, 1996 and the period January 1, 1997 to November
12, 1997, respectively.
As of December 31, 1996, Access had an outstanding letter of credit in the
amount of $100,000 with a commercial bank which secures Access' obligations
under the office lease.
Capital Leases
Access has entered into noncancelable capital leases for various computer
equipment. The leases, which expire between June 1998 and June 2000, consist
of two 36 month leases and one 60 month lease. Interest rates range from 9.07%
to 10.31%.
F-43
<PAGE>
TELEPHONE BUSINESS MEETINGS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Future minimum payments under the leases are as follows (in thousands):
<TABLE>
<S> <C>
1997............................................................... $38
1998............................................................... 28
1999............................................................... 17
2000............................................................... 8
---
91
Less: imputed interest............................................. 12
---
Net present value of future lease obligations...................... 79
Less: current portion.............................................. 32
---
Obligations under capital leases, net of current portion........... $47
===
</TABLE>
F-44
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors Conference Source International, Inc.
We have audited the accompanying balance sheets of Conference Source
International, Inc. ("CSI") as of December 31, 1995 and 1996, and the related
statements of operations, stockholders' equity and cash flows for each of the
years in the three-year period ended December 31, 1996 and for the period
January 1, 1997 to November 12, 1997. These financial statements are the
responsibility of CSI's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Conference Source
International, Inc. as of December 31, 1995 and 1996 and the results of its
operations and its cash flows for each of the years in the three-year period
ended December 31, 1996, and the period January 1, 1997 to November 12, 1997
in conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Boston, Massachusetts
July 2, 1998
F-45
<PAGE>
CONFERENCE SOURCE INTERNATIONAL, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1995 1996
------ ------
<S> <C> <C>
ASSETS (NOTE 3)
Current assets:
Cash and cash equivalents...................................... $ 375 $ 318
Trade account receivables, less allowance for doubtful accounts
of $5 and $10 at December 31, 1995 and December 31, 1996,
respectively (note 6)......................................... 692 801
Due from stockholder (note 4).................................. 72 --
Prepaid expenses and other current assets...................... -- 24
------ ------
Total current assets......................................... 1,139 1,143
------ ------
Property and equipment, net (notes 2 and 5)...................... 866 1,059
Other assets..................................................... 32 91
------ ------
Total assets................................................. $2,037 $2,293
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt (note 3)................ $1,089 $ 111
Current installments of obligations under capital leases (note
5)............................................................ 141 375
Accounts payable............................................... 201 121
Accrued expenses............................................... 30 91
------ ------
Total current liabilities.................................... 1,461 698
------ ------
Long-term debt, excluding current installments (note 3).......... 43 219
Obligations under capital leases, excluding current installments
(note 5)........................................................ 173 700
------ ------
Total liabilities............................................ 1,677 1,617
------ ------
Stockholders' equity:
Common stock, $1.00 par value. Authorized 100,000 shares; is-
sued and outstanding 1,000 shares............................. 1 1
Additional paid-in capital..................................... 349 349
Retained earnings.............................................. 10 326
------ ------
Total stockholders' equity................................... 360 676
------ ------
Commitments and contingencies (notes 5 and 7)
Total liabilities and stockholders' equity................... $2,037 $2,293
====== ======
</TABLE>
See accompanying notes to financial statements.
F-46
<PAGE>
CONFERENCE SOURCE INTERNATIONAL, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, PERIOD FROM JANUARY 1,
------------------------ 1997 TO NOVEMBER 12,
1994 1995 1996 1997
------ ------- --------- ----------------------
<S> <C> <C> <C> <C>
Net revenues (note 6)......... $2,331 $ 3,808 $ 5,868 $ 5,579
Cost of revenues, excluding
depreciation................. 1,256 1,617 2,438 2,052
Selling, general and adminis-
trative expenses............. 707 905 998 831
Depreciation expense.......... 235 292 393 356
------ ------- --------- ---------
Income from operations...... 133 994 2,039 2,340
Interest expense, net......... 124 160 165 120
------ ------- --------- ---------
Net income.................. $ 9 $ 834 $ 1,874 $ 2,220
====== ======= ========= =========
Net income per share - basic
and
diluted.................... $ 9.00 $834.00 $1,874.00 $2,220.00
====== ======= ========= =========
Weighted average shares out-
standing .................. 1,000 1,000 1,000 1,000
====== ======= ========= =========
</TABLE>
See accompanying notes to financial statements.
F-47
<PAGE>
CONFERENCE SOURCE INTERNATIONAL, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK
------------------- ADDITIONAL TOTAL
NUMBER OF PAID-IN RETAINED STOCKHOLDERS'
SHARES PAR VALUE CAPITAL EARNINGS EQUITY
--------- --------- ---------- -------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31,
1993................... 1,000 $ 1 $349 $ (833) $ (483)
Net income............ -- -- -- 9 9
----- ---- ---- ------- -------
Balance at December 31,
1994................... 1,000 1 349 (824) (474)
Net income............ -- -- -- 834 834
----- ---- ---- ------- -------
Balance at December 31,
1995................... 1,000 1 349 10 360
Net income............ -- -- -- 1,874 1,874
Distributions......... -- -- -- (1,558) (1,558)
----- ---- ---- ------- -------
Balance at December 31,
1996................... 1,000 1 349 326 676
Net income............ -- -- -- 2,220 2,220
Distributions......... -- -- -- (2,636) (2,636)
----- ---- ---- ------- -------
Balance at November 12,
1997................... 1,000 $ 1 $349 $ (90) $ 260
===== ==== ==== ======= =======
</TABLE>
See accompanying notes to financial statements.
F-48
<PAGE>
CONFERENCE SOURCE INTERNATIONAL, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED PERIOD FROM
DECEMBER 31, JANUARY 1, 1997
--------------------- TO NOVEMBER 12,
1994 1995 1996 1997
----- ----- ------- ---------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income............................. $ 9 $ 834 $ 1,874 $ 2,220
Adjustments to reconcile net income to
net cash provided by operating activi-
ties:
Loss on sale of property and equip-
ment................................. -- -- -- 5
Depreciation and amortization......... 235 292 393 356
Changes in operating assets and lia-
bilities:
Trade accounts receivable, net....... (205) (312) (109) 5
Due from stockholder................. (6) (66) 72 --
Prepaid expenses and other assets.... (35) 4 (83) 36
Accounts payable and accrued ex-
penses.............................. 55 (31) (19) 275
----- ----- ------- -------
Net cash provided by operating ac-
tivities........................... 53 721 2,128 2,897
----- ----- ------- -------
Cash flows from investing activities:
Additions to property and equipment.... (476) (225) (41) (317)
Cash proceeds from disposal of property
and equipment......................... -- -- -- 6
----- ----- ------- -------
Net cash used in investing activities.. (476) (225) (41) (311)
----- ----- ------- -------
Cash flows from financing activities:
Proceeds from borrowings on long-term
debt.................................. 652 201 -- 573
Principal repayment of long-term debt.. (100) (197) (438) (400)
Proceeds from refinancing of obliga-
tions under capital leases............ -- -- 142 --
Principal repayment of obligations un-
der capital leases.................... (126) (148) (290) (338)
Distributions to stockholder........... -- -- (1,558) (2,636)
----- ----- ------- -------
Net cash provided by (used in) fi-
nancing activities................. 426 (144) (2,144) (2,801)
----- ----- ------- -------
Net increase (decrease) in cash and cash
equivalents............................ 3 352 (57) (215)
Cash and cash equivalents at beginning
of period.............................. 20 23 375 318
----- ----- ------- -------
Cash and cash equivalents at end of pe-
riod................................... $ 23 $ 375 $ 318 $ 103
===== ===== ======= =======
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest.............................. $ 119 $ 162 $ 169 $ 127
===== ===== ======= =======
Noncash transaction:
Equipment purchased under capital
lease obligations.................... $ 296 $ -- $ 545 $ --
===== ===== ======= =======
</TABLE>
See accompanying notes to financial statements.
F-49
<PAGE>
CONFERENCE SOURCE INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Description of Business
Conference Source International, Inc. ("CSI") is a provider of group
communications to a variety of customers located primarily in the United
States. CSI was incorporated in February, 1992, and is headquartered in
Atlanta, Georgia.
(b) Sale of Business
On November 12, 1997, VIALOG Corporation acquired all of the outstanding
stock of CSI for cash, and CSI became a wholly-owned subsidiary of VIALOG
Corporation. The acquisition of CSI was accounted for by the purchase method.
Accordingly, all of the identified tangible and intangible assets and
liabilities were recorded at their current fair market value and the excess of
the purchase price over the fair value of the net assets acquired were
recorded as intangible assets, which are being amortized over periods up to 20
years. Under the terms of the acquisition agreement, the stockholders of CSI
agreed to make an election under Section 338(h) (10) of the Internal Revenue
Code in order for the acquisition to be treated as an asset purchase for tax
purposes.
At the time of the acquisition, the tax election of CSI under the provisions
of the Internal Revenue Code was changed from an S corporation to a C
corporation. As a result, CSI will be subject to corporate income taxes
subsequent to the date of the acquisition.
In November 1997, the remaining balance of long-term debt described in note
3 was repaid in full, plus accrued interest.
(c) Use of Estimates
Management of CSI has made a number of estimates and assumptions relating to
the reporting of assets and liabilities and the disclosure of contingent
assets and liabilities to prepare these financial statements in conformity
with generally accepted accounting principles. Actual results could differ
from those estimates.
(d) Cash and Cash Equivalents
CSI considers all highly liquid debt instruments with original maturities of
three months or less to be cash equivalents. At December 31, 1995 and December
31, 1996, certain cash deposits with financial institutions are in excess of
the $100,000 Federal Depository Insurance Corporation (FDIC) guarantee.
(e) Property and Equipment
Property and equipment is stated at cost. Equipment under capital leases is
stated at the present value of minimum lease payments. Depreciation is
calculated using accelerated methods over the estimated useful lives of the
respective assets. Estimated useful lives are as follows: five years for
vehicles; five to seven years for office equipment; five to seven years for
bridge equipment; and five years for computer software. Equipment under
capital leases is amortized using accelerated methods over the shorter of the
lease term or the estimated useful life of the asset, ranging from five to
seven years.
(f) Income Taxes
CSI has elected by consent of its stockholders to be taxed under the
provisions of Subchapter S of the Internal Revenue Code. Under those
provisions, CSI does not pay corporate income taxes on its taxable income.
Instead, the stockholders are liable for individual income taxes on CSI's
taxable income. Accordingly, these financial statements do not contain a
provision for income taxes.
F-50
<PAGE>
CONFERENCE SOURCE INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(g) Revenue Recognition
Revenue for conference calls is recognized upon completion of the call.
Revenue for services is recognized upon performance of the service.
(h) Research and Development
CSI maintains a technical support and engineering department that, in part,
develops features and products for group communications. In accordance with
SFAS No. 2, Accounting for Research and Development Costs, CSI charges to
expense (included in cost of revenues) that portion of this department's costs
which are related to research and development activities. CSI's research and
development expenses for the years ended December 31, 1994, 1995 and 1996 were
$179,000, $209,000 and $218,000, respectively. CSI's research and development
expenses for the period from January 1, 1997 to November 12, 1997 were
$139,000.
(i) Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of
CSI adopted the provisions of SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of, during 1996.
This Statement requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Adoption of this Statement did not have a material impact on
CSI's financial position, results of operations, or liquidity.
(j) Earnings Per Share
CSI adopted the provisions of SFAS No. 128 "Earnings per Share," during
1997. This statement requires the presentation of basic earnings per share and
diluted earnings per share for all periods presented. For the years ended
December 31, 1994, 1995 and 1996, and for the period January 1, 1997, to
November 12, 1997, basic earnings per share were calculated based on weighted
average common shares outstanding. There were no common stock equivalents
outstanding for any of the periods presented; accordingly, basic and fully
diluted earnings per share are the same.
(2) PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1995 1996
----- ------
<S> <C> <C>
Vehicles....................................................... $ 27 $ 27
Office equipment............................................... 123 148
Bridge equipment............................................... 1,313 1,874
Computer software.............................................. 62 62
----- ------
1,525 2,111
Less: accumulated depreciation and amortization.............. 659 1,052
----- ------
Property, and equipment, net............................... $ 866 $1,059
===== ======
</TABLE>
F-51
<PAGE>
CONFERENCE SOURCE INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(3) LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1995 1996
------ ------
(IN
THOUSANDS)
<S> <C> <C>
Note payable to bank in monthly installments of $18,412,
including interest at 9.5%, matures May 2000; collateralized
by equipment and cash surrender value of life insurance and
personal guarantee of stockholder............................. $ -- $ --
Note payable to bank in monthly installments of $10,597,
including interest at 10.25%, matures August 1999;
collateralized by accounts receivable and cash surrender value
of life insurance and personal guarantee of stockholders...... 634 286
Note payable to bank in monthly installments of $1,029,
including interest at 10.5%, matures October 1999;
collateralized by equipment, accounts receivable, and cash
surrender value of life insurance and personal guarantee of
stockholders.................................................. 39 30
Notes payable for bridge equipment purchases; balances were
converted to a capital lease obligation during 1996........... 437 --
Note payable to bank in monthly installments of $846, including
interest at 9.20%, matures May 1998; collateralized by
vehicles...................................................... 22 14
------ -----
Total long-term debt........................................... 1,132 330
Less: current installments..................................... 1,089 111
------ -----
Long-term debt, excluding current installments................. $ 43 $ 219
====== =====
</TABLE>
The aggregate maturities of long-term debt are as follows (in thousands):
<TABLE>
<S> <C>
1997.................................................................. $111
1998.................................................................. 127
1999.................................................................. 92
----
$330
====
</TABLE>
On November 12, 1997, CSI became a joint and several guarantor of VIALOG's
$75.0 million Senior Notes.
(4) RELATED PARTY TRANSACTIONS
(a) Advance to Stockholder
CSI loaned one of the stockholders a total of $72,000 during 1994 and 1995.
The note had no set repayment schedule and was interest free. The amount was
repaid in full during 1996.
(b) Lease Transactions
CSI paid monthly lease payments to a stockholder for use of certain
equipment. Total payments under these arrangements during the years ended
December 31, 1994, 1995 and 1996 were approximately $53,000 per year and for
the period January 1, 1997 to November 12, 1997 were approximately $9,000. The
leases expired during May 1997.
F-52
<PAGE>
CONFERENCE SOURCE INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(5) COMMITMENTS AND CONTINGENCIES
(a) Leases
CSI is obligated under noncancelable operating leases covering its office
facilities and certain equipment. Rent expense amounted to $261,000, $205,000
and $192,000 for the years ended December 31, 1994, 1995 and 1996,
respectively, and $87,000 for the period January 1, 1997 to November 12, 1997,
respectively. Future minimum lease payments under noncancelable operating
leases are as follows (in thousands):
<TABLE>
<S> <C>
November 13 to December 31, 1997....................................... $183
1998................................................................... 164
1999................................................................... 158
2000................................................................... 152
2001................................................................... 152
2002 and thereafter.................................................... 139
----
Total minimum operating lease payments............................... $948
====
</TABLE>
CSI is also obligated under various capital leases for equipment that are
guaranteed by one of the owners. The gross amounts of equipment and related
accumulated amortization recorded under capital leases were as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1995 1996
------ ------
<S> <C> <C>
Equipment..................................................... $1,243 $1,788
Less: accumulated amortization................................ 521 852
------ ------
$ 722 $ 936
====== ======
</TABLE>
Future minimum payments under capital leases are as follows (in thousands):
<TABLE>
<S> <C>
1997................................................................. $ 482
1998................................................................. 312
1999................................................................. 287
2000................................................................. 157
2001................................................................. 69
-----
Total minimum capital lease payments............................... 1,307
Less: amounts representing interest (at rates ranging from 10% to
18%)................................................................ 232
-----
Present value of minimum capital lease payments.................... 1,075
Less: current installments of obligations under capital leases....... 375
-----
Obligations under capital leases, excluding current installments... $ 700
=====
</TABLE>
(b) Purchase Agreements
CSI has entered into purchase agreements with two long distance telephone
service providers. CSI is committed to minimum monthly purchases under the
agreements which amount to $48,000 in 1997 and 1998, and $23,000 in 1999.
F-53
<PAGE>
CONFERENCE SOURCE INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(c) Consulting Agreement
CSI has entered into a consulting agreement with a stockholder and former
officer of CSI. Total payments under the agreement amount to $120,000, payable
in equal monthly payments through December 1997.
(d) Dispute
A former employee of CSI has claimed that he may be entitled to 5% of the
stock of CSI based on an unsigned paper outlining possible employment terms.
CSI's position is that the only agreements with such employee were set forth
in two successive executed employment agreements, each of which had a specific
provision that such agreement was inclusive as to the terms of employment. CSI
believes that such claim is without merit.
(6) SIGNIFICANT CUSTOMERS
Two customers accounted for the following percentages of revenues and
accounts receivable:
<TABLE>
<CAPTION>
PERCENTAGE OF ACCOUNTS
PERCENTAGE OF NET REVENUES RECEIVABLE
--------------------------- ------------------------
PERIOD
JANUARY 1,
YEAR ENDED 1997 TO
DECEMBER 31, NOVEMBER 12, DECEMBER 31,
-------------- ------------ ------------------------
1994 1995 1996 1997 1995 1996
---- ---- ---- ---- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Customer A.............. 14% 30% 49% 47% 47% 58%
Customer B.............. 14% 24% 21% 25% 26% 26%
</TABLE>
F-54
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors Call Points, Inc.:
We have audited the accompanying balance sheets of Call Points, Inc. ("Call
Points") as of December 31, 1995 and 1996, and the related statements of
operations, stockholders' equity, and cash flows for each of the years in the
three-year period ended December 31, 1996. These financial statements are the
responsibility of Call Points' management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Call Points, Inc. as of
December 31, 1995 and 1996, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 1996,
in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that Call
Points will continue as a going concern. As discussed in Note 10 to the
financial statements, Call Points' recurring losses and working capital
deficiency raise substantial doubt about the entity's ability to continue as a
going concern. Management's plans in regard to these matters are also
described in Note 10. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Birmingham, Alabama
January 17, 1997 except for note 11 which is as of November 12, 1997
F-55
<PAGE>
CALL POINTS, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------- SEPTEMBER 30,
1995 1996 1997
------- ------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................... $ 149 $ 31 $ 481
Trade accounts receivable, less allowance for
doubtful accounts of $73, $85 and $68 at De-
cember 31, 1995, December 31, 1996 and Sep-
tember 30, 1997 respectively (notes 4 and
8).......................................... 787 1,080 1,244
Due from related parties..................... 22 1 --
Prepaid expenses............................. 4 3 3
------- ------- -------
Total current assets....................... 962 1,115 1,728
------- ------- -------
Property and equipment, net (notes 2, 3 and
4)............................................ 2,256 1,919 1,659
Other assets................................... 4 2 --
------- ------- -------
Total assets............................... $ 3,222 $ 3,036 $ 3,387
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of notes payable to
related parties
(notes 4 and 7)............................. $ 439 $ 574 $ 861
Current installments of obligations under
capital lease-related party
(note 3).................................... -- 43 --
Accounts payable............................. 359 394 363
Accrued expenses (note 5).................... 273 315 595
Due to related parties (note 7).............. 140 169 --
------- ------- -------
Total current liabilities.................. 1,211 1,495 1,819
------- ------- -------
Notes payable to related parties, excluding
current installments
(notes 4 and 7)............................... 784 625 338
------- ------- -------
Total liabilities.......................... 1,995 2,120 2,157
------- ------- -------
Stockholders' equity:
Common stock--Class A, $1 par value. Autho-
rized 8,000 shares;
issued and outstanding 1,000 shares......... 1 1 1
Common stock--Class B, $1 par value. Autho-
rized 12,000 shares;
issued and outstanding 1,400 shares......... 1 1 1
Additional paid-in capital................... 3,132 3,132 3,132
Accumulated deficit.......................... (1,907) (2,218) (1,904)
------- ------- -------
Total stockholders' equity................. 1,227 916 1,230
------- ------- -------
Commitments and contingencies (notes 9, 10, 11
and 12)
Total liabilities and stockholders' equi-
ty........................................ $ 3,222 $ 3,036 $ 3,387
======= ======= =======
</TABLE>
See accompanying notes to financial statements.
F-56
<PAGE>
CALL POINTS, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------- ------------------
1994 1995 1996 1996 1997
------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenues (note 8).......... $ 8,537 $ 6,852 $ 7,509 $ 5,606 $ 6,230
Cost of revenues, excluding de-
preciation.................... 5,642 4,784 5,272 3,920 4,273
Selling, general and adminis-
trative expenses.............. 1,692 1,522 1,803 1,330 1,114
Depreciation expense........... 841 845 696 519 536
------- -------- -------- -------- --------
Income (loss) from opera-
tions....................... 362 (299) (262) (163) 307
Other income (expense):
Other income (expense), net.. 3 (7) -- -- --
Interest income/(expense),
net......................... (64) (65) (49) (48) 7
------- -------- -------- -------- --------
Income (loss) before income
tax expense................. 301 (371) (311) (211) 314
Income taxes (note 6).......... -- -- -- -- --
------- -------- -------- -------- --------
Net income (loss)............ $ 301 $ (371) $ (311) $ (211) $ 314
======= ======== ======== ======== ========
Net income (loss) per share -
basic and diluted .......... $125.42 $(154.58) $(129.58) $ (87.92) $ 130.83
======= ======== ======== ======== ========
Weighted average shares out-
standing ................... 2,400 2,400 2,400 2,400 2,400
======= ======== ======== ======== ========
</TABLE>
See accompanying notes to financial statements.
F-57
<PAGE>
CALL POINTS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK
--------------- ADDITIONAL TOTAL
NUMBER PAR PAID-IN ACCUMULATED STOCKHOLDERS'
OF SHARES VALUE CAPITAL DEFICIT EQUITY
--------- ----- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31,
1993.................... 2,400 $ 2 $3,132 $(1,837) $1,297
Net income............. -- -- -- 301 301
----- ---- ------ ------- ------
Balance at December 31,
1994.................... 2,400 2 3,132 (1,536) 1,598
Net loss............... -- -- -- (371) (371)
----- ---- ------ ------- ------
Balance at December 31,
1995.................... 2,400 2 3,132 (1,907) 1,227
Net loss............... -- -- -- (311) (311)
----- ---- ------ ------- ------
Balance at December 31,
1996.................... 2,400 2 3,132 (2,218) 916
Net income (unau-
dited)................ -- -- -- 314 314
----- ---- ------ ------- ------
Balance at September 30,
1997 (unaudited)........ 2,400 $ 2 $3,132 $(1,904) $1,230
===== ==== ====== ======= ======
</TABLE>
See accompanying notes to financial statements.
F-58
<PAGE>
CALL POINTS, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------- --------------
1994 1995 1996 1996 1997
------- ------- ------- ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income (loss)................... $ 301 $ (371) $ (311) $ (211) $ 314
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization...... 841 845 696 519 536
Changes in operating assets and
liabilities:
Trade accounts receivable, net.... (199) 183 (293) (212) (164)
Due from related parties.......... 16 14 21 -- 1
Prepaid expenses.................. -- 1 1 1 --
Other assets...................... 1 -- -- 31 2
Accounts payable.................. (146) 22 35 121 (31)
Accrued expenses.................. 71 (130) 42 13 280
Due to related parties............ (65) 277 29 -- (169)
------- ------- ------- ------ ------
Net cash provided by operating
activities...................... 820 841 220 262 769
------- ------- ------- ------ ------
Cash flows from investing
activities:
Additions to property and
equipment......................... (148) (105) (50) (39) (276)
------- ------- ------- ------ ------
Cash flows from financing
activities:
Principal payments on notes payable
to related party.................. (651) (669) (249) (249) --
Principal payments under capital
lease obligations--related party.. -- -- (39) (18) (43)
Principal repayment of long-term
debt.............................. (44) (8) -- -- --
------- ------- ------- ------ ------
Net cash used in financing
activities...................... (695) (677) (288) (267) (43)
------- ------- ------- ------ ------
Net increase (decrease) in cash and
cash equivalents................... (23) 59 (118) (44) 450
Cash and cash equivalents at
beginning of period................ 113 90 149 149 31
------- ------- ------- ------ ------
Cash and cash equivalents at end of
period............................. $ 90 $ 149 $ 31 $ 105 $ 481
======= ======= ======= ====== ======
Supplemental disclosures of cash
flow information:
Cash paid during the year for:
Interest.......................... $ 263 $ 65 $ 48 $ 48 $ --
======= ======= ======= ====== ======
Supplemental schedule of noncash
investing and financing activities:
During 1996, the Company issued
notes payable to a related party
to refinance two existing notes
payable and to acquire new
equipment as follows:
Notes payable--related party
(refinanced)..................... $ 455
Acquisition of equipment.......... 225
-------
Notes payable--related party..... $ 680
=======
During 1995, the Company issued
notes payable to a related party
to finance the acquisition of new
equipment and to finance operating
expenses due to the related party
as follows:
Acquisition of equipment
financed......................... $ 250
Financing of amounts due to
related parties.................. 409
-------
Notes payable--related party..... $ 659
=======
</TABLE>
During 1994, the Company offset a note payable--related party in the amount
of $135 against amounts due from a related party. Also during 1994, the
Company acquired equipment from a related party in exchange for notes payable
in the amount of $601.
See accompanying notes to financial statements.
F-59
<PAGE>
CALL POINTS, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS
UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Description of Business
Call Points, Inc. ("Call Points") was incorporated in Delaware on December
29, 1988. Call Points operated as a division of one of its stockholders prior
to incorporation and is located at the stockholder's principal place of
business in Montgomery, Alabama. Call Points is a provider of international
group communications services to a wide range of organizations.
(b) Interim Financial Statements
The financial statements of Call Points as of September 30, 1997 and for the
nine months ended September 30, 1996 and 1997 are unaudited. All adjustments
and accruals (consisting only of normal recurring adjustments) have been
recorded that, in the opinion of management, are necessary for a fair
presentation. Results of operations for the interim periods are not
necessarily indicative of the results for the full year.
(c) Use of Estimates
Management of Call Points has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
(d) Cash and Cash Equivalents
Cash and cash equivalents includes cash on hand and money market deposits.
(e) Property and Equipment
Property and equipment are stated at cost. Depreciation of machinery and
equipment and furniture and fixtures is provided on the straight-line basis
over the estimated useful lives of the respective assets. The estimated useful
lives are as follows: three to eight years for furniture and fixtures; five to
ten years for machinery and equipment.
(f) Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
(g) Revenue Recognition
Revenue for conference calls is recognized upon completion of the call.
Revenue for services is recognized upon performance of the service.
(h) Research and Development
Call Points maintains a technical support and engineering department that,
in part, develops customized features and products for group communications.
In accordance with SFAS No. 2, Accounting for Research and
F-60
<PAGE>
CALL POINTS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Development Costs, Call Points charges to expense (included in cost of
revenues) that portion of this department's costs which are related to
research and development activities. Call Points' research and development
expenses for the years ended December 31, 1994, 1995 and 1996 were $217,000,
$199,000 and $236,000, respectively. Call Points' research and development
expenses for the nine months ended September 30, 1996 and 1997 were $177,000
and $161,000, respectively.
(i) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
Call Points adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,
during 1996. This Statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Adoption of this Statement did not have a material impact on Call
Points' financial position, results of operations, or liquidity.
(j) Reclassifications
Certain items in the 1994 and 1995 financial statements have been
reclassified to conform with classifications used in the 1996 financial
statements.
(k) Earnings Per Share
Call Points adopted the provisions of SFAS No. 128, "Earnings per Share,"
during 1997. This statement requires the presentation of basic earnings per
share and diluted earnings per share for all periods presented. For the years
ended December 31, 1994, 1995 and 1996, and for the nine months ended
September 31, 1996 and 1997 (unaudited), basic earnings per share were
calculated based on weighted average common shares outstanding. There were no
common stock equivalents outstanding for any of the periods presented;
accordingly, basic and fully diluted earnings per share are the same.
(2) PROPERTY AND EQUIPMENT
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------- SEPTEMBER 30,
1995 1996 1997
------ ------ -------------
(UNAUDITED)
<S> <C> <C> <C>
Furniture and fixtures........................... $ 382 $ 419 $ 512
Machinery and equipment.......................... 4,348 4,668 4,851
------ ------ ------
4,730 5,087 5,363
Less: accumulated depreciation................. 2,474 3,168 3,704
------ ------ ------
Property and equipment, net...................... $2,256 $1,919 $1,659
====== ====== ======
</TABLE>
(3) OBLIGATIONS UNDER CAPITAL LEASE--RELATED PARTY
Call Points was obligated to a related party under a capital lease that
expired during 1997. Leased equipment with a cost basis of $83,000 and
accumulated depreciation of $6,000 is included in property and equipment at
December 31, 1996. The present value of future minimum lease payments at
December 31, 1996 and September 30, 1997 is $43,000 and $0, respectively, and
is included in current liabilities.
F-61
<PAGE>
CALL POINTS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(4) NOTES PAYABLE TO RELATED PARTIES
Notes payable to related parties consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------- SEPTEMBER 30,
1995 1996 1997
------ ------ -------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
Notes payable to stockholder; due in monthly
installments of $15,000, including interest at 8%
through December 25, 2000 (note 7)................ $ -- $ 659 $ 659
Notes payable to affiliate; due in monthly
installments of $25,000, including interest at 8%
through July 15, 1998 (note 7).................... 666 540 540
Note payable to stockholder; due in monthly
installments of $9,678, including interest at 8%
through July 15, 1998............................. 270 -- --
Note payable to stockholder; due in monthly
installments of $7,834, including interest at 8%
through January 1, 1999........................... 250 -- --
Notes payable to stockholders; noninterest bearing
and due in monthly installments of $37,500 through
January 1996; royalty payments accounted for as
interest were 10.4% of average indebtedness in
1995; secured by certain equipment and accounts
receivable........................................ 37 -- --
------ ------ ------
Total notes payable to related parties........... 1,223 1,199 1,199
Less current installments........................ 439 574 861
------ ------ ------
Notes payable to related parties, excluding
current installments............................ $ 784 $ 625 $ 338
====== ====== ======
</TABLE>
The aggregate maturities of notes payable to related parties are as follows
(in thousands):
<TABLE>
<S> <C>
October 1, to December 31, 1997................................. $ 574
1998............................................................ 304
1999............................................................ 160
2000............................................................ 161
------
$1,199
======
</TABLE>
(5) ACCRUED EXPENSES
Accrued expenses consist of the following at December 31 (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------SEPTEMBER 30,
1995 1996 1997
------ -------------------
(UNAUDITED)
<S> <C> <C> <C>
Accrued long distance fees...................... $ 208 $ 252 $ 354
Accrued fees and other expenses................. 65 63 145
Uninvoiced equipment purchases.................. -- -- 96
------ ----- -----
$ 273 $ 315 $ 595
====== ===== =====
</TABLE>
F-62
<PAGE>
CALL POINTS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(6) INCOME TAXES
The components of income tax expense for the years ended December 31, 1994,
1995 and 1996, were as follows (in thousands):
<TABLE>
<CAPTION>
1994 1995 1996
----- ----- ----
<S> <C> <C> <C>
Current:
Tax on income before carryforwards................... $ 240 $ -- $--
Tax benefit of loss carryforwards.................... (240) -- --
Deferred:
Deferred tax expense (exclusive of the effects of
other component listed below)....................... 113 (133) (112)
Increase (decrease) in valuation allowance for de-
ferred tax assets................................... (113) 133 112
----- ----- ----
$ -- $ -- $--
===== ===== ====
</TABLE>
Call Points had no income tax expense or benefit for the years ended
December 31, 1994, 1995 and 1996, which differs from the expected income tax
(benefit) expense computed by applying the federal statutory rate of 34% to
income (loss) before taxes as follows (in thousands):
<TABLE>
<CAPTION>
1994 1995 1996
----- ----- -----
<S> <C> <C> <C>
Income tax expense (benefit) at statutory rate........ $ 102 $(126) $(106)
Meals and entertainment............................... 2 1 1
State income tax, net of federal benefit.............. 9 (8) (7)
Change in valuation allowance for deferred taxes
allocated to income tax expense...................... (113) 133 112
----- ----- -----
$ -- $ -- $ --
===== ===== =====
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December
31, 1995 and 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
1995 1996
----- ----
<S> <C> <C>
Deferred tax assets:
Accounts receivable, principally due to the allowance for
doubtful accounts.......................................... $ 24 $ 34
Intangible assets, principally due to differences in
amortization............................................... 11 --
Equipment spare parts, principally due to differences in
obsolescence reserves...................................... -- 4
Minimum tax credit carryforward............................. 12 12
Accrued expenses, principally due to vacation............... 4 4
Net operating loss carryforward............................. 858 939
----- ----
Total gross deferred tax assets........................... 909 993
Valuation allowance......................................... (736) (848)
----- ----
Net deferred tax assets................................... 173 145
Deferred tax liabilities:
Equipment, principally due to differences in depreciation... 171 143
Prepaid expenses............................................ 1 1
Other....................................................... 1 1
----- ----
Total deferred tax liabilities............................ 173 145
----- ----
Net deferred tax asset.................................... $ -- $--
===== ====
</TABLE>
F-63
<PAGE>
CALL POINTS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
At December 31, 1996, Call Points has net operating loss carryforwards of
approximately $2.5 million. These carryforwards begin to expire in 2004. Upon
a change in ownership as defined in Section 382 of the Internal Revenue Code,
the ability to utilize these net operating losses may be limited (see note
11). Call Points also has alternative minimum tax credit carryforwards of
$12,000 which are available to reduce future regular income taxes, if any,
over an indefinite period.
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred
tax assets will not be realized. The ultimate realization of deferred tax
assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible. Management
considers the scheduled reversal of deferred tax liabilities, projected future
taxable income, and tax planning strategies in making this assessment. SFAS
109 requires that a valuation allowance be recorded against tax assets which
are not likely to be realized. Specifically, Call Points' carryforwards expire
at specific future dates and utilization of certain carryforwards is limited
to specific amounts each year. However, due to the uncertain nature of their
ultimate realization based upon past performance and expiration dates, Call
Points has established a full valuation allowance against these carryforward
benefits and is recognizing the benefits only as reassessment demonstrates
they are realizable.
(7) RELATED PARTY TRANSACTIONS
Call Points negotiated a restructuring agreement among its stockholders on
March 14, 1991. The significant terms of the agreement included: the
acquisition of teleconferencing bridges from certain stockholders for $2.3
million, in exchange for noninterest bearing notes payable due over a period
of five years; options for certain stockholders to purchase Class B common
stock of other stockholders for $900,000; monthly royalty payments based on
billed minutes through January 2006; forgiveness of certain notes payable to
stockholders totaling $522,000; a noncompete agreement; and a license
agreement. Royalty payments accounted for as interest expense were $61,000,
$27,000, and $0 for the years ended December 31, 1994, 1995 and 1996,
respectively. During 1995 and 1996, certain note payments were not made to
related parties. Although the principal amount of the notes was not changed,
the related parties waived $12,000 and $41,000 of interest payments during
1995 and 1996, respectively.
Call Points incurred expenses for services provided by its stockholders
affiliates are as follows (in thousands):
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------- --------------
1994 1995 1996 1996 1997
------- ------- ------- ------- ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Automotive usage................. $ 8 $ 4 $ 3 $ 2 $ 4
Computer rental.................. 19 19 18 12 6
Long-distance usage.............. 79 92 81 61 62
Management services.............. 64 67 94 70 66
Office space rental.............. 69 68 68 51 44
Miscellaneous.................... -- 1 -- -- 1
Teleconferencing bridge expense.. 286 207 137 103 49
</TABLE>
Teleconferencing bridge expenses include charges for access, maintenance and
equipment rental.
Call Points acquired equipment from its stockholders for which it issued
notes payable to them in the amount of $250,000 in 1995 and $225,000 in 1996.
F-64
<PAGE>
CALL POINTS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(8) SIGNIFICANT CUSTOMERS
For the years ended December 31, 1995 and 1996, one customer accounted for
approximately 10% and 17% of net revenues, respectively. For the nine months
ended September 30, 1996 and 1997, the same customer accounted for
approximately 14% and 20% of net revenues, respectively.
(9) LEGAL PROCEEDINGS
Call Points is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on Call
Points' financial position, results of operations or liquidity.
In April 1997, Call Points settled one of the claims discussed above, which
required Call Points to make payment to the plaintiff of $30,000, which Call
Points paid in April 1997 and which is reflected in income from operations for
the nine months ended September 30, 1997. In July 1997, Call Points settled
another of the claims discussed above, which required Call Points to make
payment to the plaintiff of $28,000, which Call Points paid in July 1997 and
which is reflected in income from operations for the nine months ended
September 30, 1997.
(10) GOING CONCERN UNCERTAINTIES
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles which contemplate continuation of
Call Points as a going concern. During 1994, Call Points did not retain a
significant portion of sales to one customer which represented approximately
15% of revenues. While management has been aggressively pursuing additional
customers, Call Points was unable to replace the revenue volume it lost in
1994 and therefore realized net losses of $371,000 in 1995 and $311,000 in
1996. At December 31, 1996, Call Points' current liabilities exceeded current
assets by $380,000. The recurring losses and working capital deficiency create
an uncertainty about Call Points' ability to continue as a going concern. Call
Points has continued to aggressively market its services and has established a
Quality Assurance department in an effort to improve and maintain customer
satisfaction. Management believes these factors will continue to contribute
towards achieving and maintaining a consistent level of profitability.
(11) SUBSEQUENT EVENTS
On November 12, 1997, VIALOG Corporation ("VIALOG") acquired all of the
assets and certain liabilities of Call Points for cash and shares of common
stock of VIALOG. In conjunction with the acquisition, VIALOG obtained two-year
non-competition agreements from the principal stockholder and a key employee
of Call Points. Call Points also became a joint and several guarantor of
VIALOG's $75.0 million Senior Notes.
F-65
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Kendall Square Teleconferencing, Inc.:
We have audited the accompanying balance sheets of Kendall Square
Teleconferencing, Inc. ("TCC") as of December 31, 1995 and 1996, and the
related statements of operations, stockholders' equity and cash flows for each
of the years in the three-year period ended December 31, 1996. These financial
statements are the responsibility of TCC's management. Our responsibility is
to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Kendall Square
Teleconferencing, Inc. as of December 31, 1995 and 1996 and the results of its
operations and its cash flows for each of the years in the three-year period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Boston, Massachusetts
January 18, 1997 except for note 10 which is as of November 12, 1997
F-66
<PAGE>
KENDALL SQUARE TELECONFERENCING, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
--------------
1995 1996 1997
------ ------ -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS (NOTE 3)
Current assets:
Cash and cash equivalents...................... $ 61 $ 104 $ --
Trade accounts receivable, less allowance for
doubtful accounts of $30, $60 and $85 at De-
cember 31, 1995, December 31, 1996 and Septem-
ber 30, 1997, respectively.................... 283 471 782
Due from related party (note 8)................ 16 61 70
Note receivable, stockholder................... 11 -- --
Other current assets........................... -- 28 3
------ ------ ------
Total current assets......................... 371 664 855
------ ------ ------
Property and equipment, net (notes 2, 3 and 4)... 643 733 902
Other assets..................................... 5 10 12
Deferred income taxes (note 6)................... 26 -- --
------ ------ ------
Total assets................................. $1,045 $1,407 $1,769
====== ====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt (note
3)............................................ $ 43 $ 28 $ 59
Current installments of obligations under capi-
tal leases (note 4)........................... 33 65 103
Accounts payable (note 8)...................... 279 438 343
Accrued expenses (note 5)...................... 33 127 232
Income taxes payable (note 6).................. 74 -- --
Distributions payable.......................... -- 45 130
Other current liabilities...................... -- 11 3
------ ------ ------
Total current liabilities.................... 462 714 870
------ ------ ------
Long-term debt, excluding current installments
(note 3)........................................ 55 26 7
Obligations under capital leases, excluding cur-
rent installments
(note 4)........................................ 105 157 221
Other liabilities................................ 21 -- --
Deferred income taxes (note 6)................... 47 -- --
------ ------ ------
Total liabilities............................ 690 897 1,098
------ ------ ------
Stockholders' equity:
Common stock, no par value. Authorized 15,000
shares;
issued and outstanding 1,000 shares at Decem-
ber 31, 1995; 1,740 at December 31, 1996 and
September 30, 1997............................ 62 68 68
Treasury stock, 428 common shares at cost...... (15) (15) (15)
Note receivable, stockholder................... -- (6) (6)
Retained earnings.............................. 308 463 624
------ ------ ------
Total stockholders' equity................... 355 510 671
------ ------ ------
Commitments and contingencies (notes 4, 8 and 10)
Total liabilities and stockholders' equity... $1,045 $1,407 $1,769
====== ====== ======
</TABLE>
See accompanying notes to financial statements.
F-67
<PAGE>
KENDALL SQUARE TELECONFERENCING, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------------------- -------------------
1994 1995 1996 1996 1997
------- ------- ------- -------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenues (note 8 and 9).... $ 1,515 $ 2,329 $ 3,396 $ 2,501 $ 3,003
Cost of revenues, excluding de-
preciation.................... 800 1,062 1,680 1,242 1,517
Selling, general and adminis-
trative expenses.............. 510 889 1,329 969 1,010
Depreciation expense........... 16 67 133 109 138
------- ------- ------- -------- ---------
Income from operations..... 189 311 254 181 338
Other income (expense):
Interest expense, net........ (6) (23) (42) (31) (31)
Other income................. 19 33 -- -- --
------- ------- ------- -------- ---------
Income before income tax
expense................... 202 321 212 150 307
Income tax expense (note 6).... 82 129 -- -- --
------- ------- ------- -------- ---------
Net income................. $ 120 $ 192 $ 212 $ 150 $ 307
======= ======= ======= ======== =========
Net income per share - ba-
sic and diluted .......... $120.00 $192.00 $121.84 $ 86.21 $ 176.44
======= ======= ======= ======== =========
Weighted average shares
outstanding .............. 1,000 1,000 1,740 1,740 1,740
======= ======= ======= ======== =========
</TABLE>
See accompanying notes to financial statements.
F-68
<PAGE>
KENDALL SQUARE TELECONFERENCING, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK TREASURY STOCK NOTE TOTAL
------------- ----------------- RECEIVABLE RETAINED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT STOCKHOLDER EARNINGS EQUITY
------ ------ ------- ------- ----------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1993................... 1,000 $ 35 -- $ -- $-- $ 16 $ 51
Shares repurchased by
the Company.......... -- -- (428) (15) -- (20) (35)
Issuance of stock
options.............. -- 27 -- -- -- -- 27
Net income............ -- -- -- -- -- 120 120
------ ---- ------- ------- ---- ----- -----
Balance at December 31,
1994................... 1,000 62 (428) (15) -- 116 163
Net income............ -- -- -- -- -- 192 192
------ ---- ------- ------- ---- ----- -----
Balance at December 31,
1995................... 1,000 62 (428) (15) -- 308 355
Exercise of stock
options.............. 740 6 -- -- (6) -- --
Distributions:
Declared............ -- -- -- -- -- (45) (45)
Asset Distribution.. -- -- -- -- -- (12) (12)
Net income............ -- -- -- -- -- 212 212
------ ---- ------- ------- ---- ----- -----
Balance at December 31,
1996................... 1,740 68 (428) (15) (6) 463 510
Net income
(unaudited).......... -- -- -- -- -- 307 307
Distributions:
Cash (unaudited).... -- -- -- -- -- (16) (16)
Declared
(unaudited)........ -- -- -- -- -- (130) (130)
------ ---- ------- ------- ---- ----- -----
Balance at September 30,
1997 (unaudited)....... 1 ,740 $ 68 (428) $ (15) $ (6) $ 624 $ 671
====== ==== ======= ======= ==== ===== =====
</TABLE>
See accompanying notes to financial statements.
F-69
<PAGE>
KENDALL SQUARE TELECONFERENCING, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------------ ------------------
1994 1995 1996 1996 1997
---- ----- ----- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income............................ $120 $ 192 $ 212 $ 150 $ 307
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization........ 16 67 133 109 138
Deferred income taxes................ 34 32 (21) (21) --
Compensation expense arising from
stock options granted............... 27 -- -- -- --
Gain on disposal of assets........... (19) (33) -- -- --
Forgiveness of note receivable,
stockholder......................... -- -- 11 -- --
Changes in operating assets and
liabilities:
Trade accounts receivable, net...... (98) (133) (222) (170) (311)
Due from related party.............. -- -- (45) (20) (9)
Other current assets................ 15 -- (28) (6) 25
Other assets........................ (52) 46 (5) (4) (2)
Accounts payable.................... (28) 41 114 (99) (95)
Income taxes payable................ 23 (27) (74) (74) --
Accrued expenses.................... 24 5 94 159 105
Other current liabilities........... -- -- 11 8 (8)
Other liabilities................... -- 21 (21) -- --
---- ----- ----- -------- --------
Net cash provided by operating
activities........................ 62 211 159 32 150
---- ----- ----- -------- --------
Cash flows from investing activities:
Additions to property and equipment... (39) (231) (156) (153) (144)
Proceeds from sale of equipment....... 19 -- -- -- --
---- ----- ----- -------- --------
Net cash used in investing
activities........................ (20) (231) (156) (153) (144)
---- ----- ----- -------- --------
Cash flows from financing activities:
Proceeds from notes payable........... 20 121 -- -- 45
Principal payments on notes payable... (59) (53) (44) (29) (33)
Principal payments of capital lease
obligations.......................... -- -- (51) (34) (61)
Proceeds from capital lease
obligations.......................... -- -- 135 135 --
Repayment of stockholder loan......... (10) -- -- -- --
Payments to acquire treasury stock.... (35) -- -- -- --
Distributions to stockholders......... -- -- -- -- (61)
---- ----- ----- -------- --------
Net cash provided by (used in)
financing activities.............. (84) 68 40 72 (110)
---- ----- ----- -------- --------
Net increase (decrease) in cash and
cash equivalents....................... (42) 48 43 (49) (104)
Cash and cash equivalents at beginning
of period............................. 55 13 61 61 104
---- ----- ----- -------- --------
Cash and cash equivalents at end of
period................................ $ 13 $ 61 $ 104 $ 12 $ --
==== ===== ===== ======== ========
Supplemental disclosures of cash flow
information:
Cash paid during the year for:
Interest............................. $ 6 $ 19 $ 46 $ 34 $ 31
==== ===== ===== ======== ========
Taxes................................ $ 38 $ 92 $ 18 $ -- $ 13
==== ===== ===== ======== ========
Supplemental schedule of noncash
investing and financing activities:
Equipment acquired through capital
lease obligation..................... $-- $ 148 $ -- $ -- $ 163
==== ===== ===== ======== ========
Equipment acquired through accounts
payable to a related party (note 8).. $-- $ 216 $ 67 $ -- $ --
==== ===== ===== ======== ========
Distribution of assets to
stockholders......................... $-- $ -- $ 12 $ -- $ --
==== ===== ===== ======== ========
Distributions declared................ $-- $ -- $ 45 $ -- $ 130
==== ===== ===== ======== ========
</TABLE>
See accompanying notes to financial statements.
F-70
<PAGE>
KENDALL SQUARE TELECONFERENCING, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS
UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Description of Business
Kendall Square Teleconferencing, Inc. ("TCC") provides group communications
services to a variety of customers, primarily located in the United States.
The Company was incorporated in 1987 and has its operations center located in
Cambridge, Massachusetts. Prior to November 29, 1996, TCC operated under the
name Teleconversant Ltd.
On December 2, 1996, certain assets of TCC related to a contract for
services provided by TCC were distributed to certain of the stockholders of
TCC. These assets were incidental to the basic operations of TCC. The assets
distributed consisted of property and equipment, accounts receivable, accounts
payable and a customer contract with a net carrying value of $12,000 at
December 31, 1996. Revenues associated with the customer contract were
$642,000, $727,000, $565,000 and $707,000 for the years ended December 31,
1994, 1995 and the period January 1, to September 30, 1996 and January 1 to
December 2, 1996, respectively.
(b) Interim Financial Statements
The financial statements of TCC as of September 30, 1997 and for the nine
months ended September 30, 1996 and 1997 are unaudited. All adjustments and
accruals (consisting only of normal recurring adjustments) have been recorded
that, in the opinion of management, are necessary for a fair presentation.
Results of operations for the interim periods are not necessarily indicative
of the results for the full year.
(c) Revenue Recognition
Revenue for conference calls is recognized upon completion of the call.
Revenue for services is recognized upon performance of the service.
(d) Cash and Cash Equivalents
TCC considers all highly liquid debt instruments with original maturities of
three months or less to be cash equivalents.
(e) Property and Equipment
Property and equipment are stated at cost. Equipment under capital leases is
stated at the present value of minimum lease payments. Depreciation of
property and equipment is provided on the straight-line method over the
estimated useful lives of the respective assets. The estimated useful lives
are as follows: seven to ten years for furniture and fixtures; five to seven
years for office equipment; seven years for conferencing equipment; and three
years for purchased computer software. Equipment held under capital leases is
amortized straight line over the shorter of the lease life or the estimated
useful life of the assets, generally seven years.
(f) Income Taxes
Effective January 1, 1996, TCC elected by consent of its stockholders to be
taxed under the provisions of Subchapter S of the Internal Revenue Code. Under
those provisions, TCC does not pay corporate income taxes on its taxable
income. Instead, the stockholders are liable for individual income taxes on
TCC's taxable income. Prior to that election, income taxes were accounted for
under the asset and liability method. Deferred tax assets and liabilities were
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities
and their respective tax bases and operating loss and
F-71
<PAGE>
KENDALL SQUARE TELECONFERENCING, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
tax credit carryforwards. Deferred tax assets and liabilities were measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates was
recognized in income in the period that includes the enactment date.
(g) Use of Estimates
Management of TCC has made a number of estimates and assumptions relating to
the reporting of assets and liabilities and the disclosure of contingent
assets and liabilities to prepare these financial statements in conformity
with generally accepted accounting principles. Actual results could differ
from those estimates.
(h) Research and Development
TCC maintains a technical support and engineering department that, in part,
develops features and products for group communications. In accordance with
SFAS No. 2, Accounting for Research and Development Costs, TCC charges to
expense (included in cost of revenues) that portion of this department's costs
which are related to research and development activities. TCC's research and
development expenses for the years ended December 31, 1994, 1995 and 1996 were
$51,000, $51,000 and $75,000, respectively. TCC's research and development
expenses for the nine months ended September 30, 1996 and 1997 were $56,000
and $90,000, respectively.
(i) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
TCC adopted the provisions of SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of, during 1996.
This Statement requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Adoption of this Statement did not have a material impact on
TCC's financial position, results of operations, or liquidity.
(j) Stock Option Plan
Prior to January 1, 1996, TCC accounted for its stock option plan in
accordance with the provisions of Accounting Principles Board ("APB") Opinion
No. 25, Accounting for Stock Issued to Employees, and related interpretations.
As such, compensation expense would be recorded on the date of grant only if
the current market price of the underlying stock exceeded the exercise price.
During 1996, TCC adopted SFAS No. 123, Accounting for Stock-Based
Compensation, which permits entities to recognize as expense over the vesting
period the fair value of all stock-based awards on the date of grant.
Alternatively, SFAS No. 123 allows entities to continue to apply the
provisions of APB Opinion No. 25 and provide pro forma net income and pro
forma earnings per share disclosures for employee stock option grants made in
1995 and later years as if the fair-value-based method defined in SFAS No. 123
had been applied. TCC has elected to continue to apply the provisions of APB
Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No.
123. There were no stock option grants during 1995 and 1996 and for the nine
month period ended September 30, 1997, therefore, no pro forma disclosures
have been provided for these periods.
(k) Earnings Per Share
TCC adopted the provisions of SFAS No. 128, "Earnings per Share," during
1997. This statement requires the presentation of basic earnings per share and
diluted earnings per share for all periods presented. For the years ended
December 31, 1994, 1995 and 1996, and for the nine months ended September 31,
1996 and 1997 (unaudited), basic earnings per share were calculated based on
weighted average common shares outstanding. There were no common stock
equivalents outstanding for any of the periods presented; accordingly, basic
and fully diluted earnings per share are the same.
F-72
<PAGE>
KENDALL SQUARE TELECONFERENCING, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(2) PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------- SEPTEMBER 30,
1995 1996 1997
------ ------ -------------
(UNAUDITED)
<S> <C> <C> <C>
Furniture and fixtures......................... $ 3 $ 16 $ 32
Office equipment............................... 37 64 142
Conferencing equipment......................... 651 738 890
Purchased computer software.................... -- 96 153
------ ------ ------
691 914 1,217
Less: accumulated depreciation and amortiza-
tion.......................................... 48 181 315
------ ------ ------
Property and equipment, net.................. $ 643 $733 $ 902
====== ====== ======
</TABLE>
(3) LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 30,
------------- SEPTEMBER 30,
1995 1996 1997
------ ------ -------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
Note payable to bank, due on demand at prime
plus 1% (9.5% at September 30, 1997); secured
by all assets and personal guarantees of
certain stockholders......................... $ -- $ -- $ 35
Note payable to bank, due in monthly
installments of $1,389 plus interest at 10%
through December, 1996; secured by certain
equipment. Balance was repaid during 1996.... 5 -- --
Note payable to bank; due in monthly
installments of $2,740 including interest at
11% through January 1999; secured by certain
equipment and personal guarantees of certain
stockholders. Additional principal repayments
were made without penalty during 1996........ 82 54 31
Note payable to bank; due in monthly
installments of $699, including interest at
11% through May, 1997; secured by certain
equipment. Balance was repaid during 1996.... 11 -- --
------ ------ -----
Total long-term debt........................ 98 54 66
Less: current installments.................. 43 28 59
------ ------ -----
Long-term debt, excluding current install-
ments...................................... $ 55 $ 26 $ 7
====== ====== =====
</TABLE>
The aggregate maturities of long-term debt are as follows (in thousands):
<TABLE>
<S> <C>
October 1 to December 31, 1997......................................... $41
1998................................................................... 23
1999................................................................... 2
---
$66
===
</TABLE>
F-73
<PAGE>
KENDALL SQUARE TELECONFERENCING, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(4) LEASES
TCC is obligated for equipment under various capital leases that expire at
various dates during the next four years. At December 31, 1995 and 1996, and
September 30, 1997 the gross amount of equipment and related accumulated
amortization recorded under capital leases were as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------- SEPTEMBER 30,
1995 1996 1997
------ ------ -------------
(UNAUDITED)
<S> <C> <C> <C>
Equipment........................................ $ 142 $ 357 $520
Less: accumulated amortization................... 7 68 145
------ ------ ----
$ 135 $ 289 $375
====== ====== ====
</TABLE>
Amortization of assets held under capital leases is included in depreciation
expense.
TCC also leases two facilities under operating leases expiring at various
dates through March, 2001. TCC's total rent expense was $29,000, $47,000 and
$108,000 for the years ended December 31, 1994, 1995 and 1996, respectively,
and $65,000 and $103,000 for the nine months ended September 30, 1996 and
1997, respectively. Future minimum payments under operating and capital leases
(which are guaranteed by certain stockholders) are as follows (in thousands):
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
--------- -------
(UNAUDITED)
<S> <C> <C>
October 1, to December 31, 1997.......................... $ 47 $ 29
1998..................................................... 188 147
1999..................................................... 176 126
2000..................................................... 176 69
2001..................................................... 44 30
---- ----
Total future minimum lease payments.................... $631 $401
====
Less: imputed interest................................... 77
----
Present value of minimum capital lease payments........ 324
Less: current installments of obligations under capital
leases................................................ 103
----
Obligations under capital leases excluding current
installments.......................................... $221
====
</TABLE>
(5) ACCRUED EXPENSES
Accrued expenses consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------- SEPTEMBER 30,
1995 1996 1997
------ ------ -------------
(UNAUDITED)
<S> <C> <C> <C>
Accrued wages and related........................ $ 3 $ 53 $ 53
Accrued telephone charges and related............ 30 74 179
----- ------ ----
$33 $127 $232
===== ====== ====
</TABLE>
F-74
<PAGE>
KENDALL SQUARE TELECONFERENCING, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(6) INCOME TAXES
Income tax expense consists of the following for the years ended December
31:
<TABLE>
<CAPTION>
1994 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
Current.................................................... $ 48 $ 97
Deferred................................................... 34 32
------ -------
$ 82 $ 129
====== =======
</TABLE>
There is no income tax expense recorded for the year ended December 31, 1996
as a result of TCC's election to be taxed under the provisions of Subchapter
S. Income tax expense differed from the amounts computed by applying the U.S.
statutory federal income tax rate of 34% as a result of the following:
<TABLE>
<CAPTION>
1994 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
Income tax expense at statutory rate...................... $ 69 $ 109
State income tax, net of federal tax benefit.............. 12 19
Nondeductible expenses and other differences.............. 1 1
------ -------
$ 82 $ 129
====== =======
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and liabilities at December 31, 1995 are
presented below:
<TABLE>
<CAPTION>
1995
--------------
(IN THOUSANDS)
<S> <C>
Deferred tax assets:
Allowance for doubtful accounts and accrued expenses..... $15
Stock compensation....................................... 11
---
Total gross deferred tax asset......................... 26
---
Deferred tax liabilities:
Property and equipment................................... 47
---
Total gross deferred tax liability..................... 47
---
Net deferred tax liability............................. $21
===
</TABLE>
(7) STOCK OPTIONS
In January 1994, the Board of Directors granted options to five individuals
to purchase an aggregate of 740 shares of common stock at an exercise price of
$8.77 per share. The options vested immediately and expire three years from
the date of grant. On January 2, 1996, all 740 options were exercised in
exchange for $6,490 in notes receivable from stockholders.
(8) RELATED PARTY TRANSACTIONS
TCC provides conferencing services to customers of Conferencing Services
International Inc. ("CSII"), a company owned by the spouse of a stockholder.
Total revenue from CSII was $80,000, $86,000 and $175,000 for the years ended
December 31, 1994, 1995 and 1996, respectively, and $75,000 and $183,000 for
the nine
F-75
<PAGE>
KENDALL SQUARE TELECONFERENCING, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
month periods ended September 30, 1996 and 1997, respectively. Total accounts
receivable from CSII were $16,000 and $61,000 and $70,000 at December 31, 1995
and 1996 and September 30, 1997, respectively.
TCC has certain accounts payable to a supplier. Several stockholders are
also stockholders of the supplier company. The amounts outstanding are
$209,000, $89,000 and $110,000 at December 31, 1995 and 1996 and September 30,
1997, respectively, and are included in accounts payable.
TCC pays consulting fees to several of its stockholders. Total consulting
fees were $37,000, $45,000 and $14,000 for the years ended December 31, 1994,
1995 and 1996, respectively. There were no consulting fees for the nine month
periods ending September 30, 1996 and 1997.
(9) SIGNIFICANT CUSTOMERS
For the years ended December 31, 1994, 1995 and 1996 and for the nine months
ended September 30, 1996 and 1997, no customer accounted for more than 10% of
TCC's net revenues. At December 31, 1996 and September 30, 1997, one customer,
CSII, the related party discussed in note 8, accounted for 11% and 7% of the
total accounts receivable balance, respectively.
(10) SUBSEQUENT EVENTS
On November 12, 1997, VIALOG Corporation ("VIALOG") acquired all of the
outstanding stock of TCC for cash and Common Stock of VIALOG and TCC became a
wholly owned subsidiary of VIALOG. The acquisition of TCC will be accounted
for by the purchase method. Accordingly, all of the identified tangible and
intangible assets and liabilities will be recorded at their current fair
market value and the excess of the purchase price over the fair value of the
net assets acquired will be recorded as intangible assets, which will be
amortized over periods up to 20 years.
In conjunction with this merger, the tax status of TCC was converted from an
S corporation to a C corporation, whereby TCC will now be liable for income
taxes.
In November 1997, all of the long-term debt described in note 3 was repaid
in full, plus accrued interest. On November 12, 1997, TCC became a joint and
several guarantor of VIALOG's $75.0 million Senior Notes.
F-76
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Boards of Directors American Conferencing Company, Inc. and Resource
Objectives, Inc.:
We have audited the accompanying combined balance sheets of American
Conferencing Company, Inc. and Resource Objectives, Inc. (collectively
"Americo") as of December 31, 1995 and 1996, and the related combined
statements of operations, stockholders' equity (deficit), and cash flows for
each of the years in the three-year period ended December 31, 1996. These
combined financial statements are the responsibility of Americo's management.
Our responsibility is to express an opinion on these combined financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of American
Conferencing Company, Inc. and Resource Objectives, Inc. as of December 31,
1995 and 1996, and the results of their operations and their cash flows for
each of the years in the three-year period ended December 31, 1996, in
conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Short Hills, New Jersey
January 20, 1997 except for Note 10 which is as of November 12, 1997
F-77
<PAGE>
AMERICAN CONFERENCING COMPANY, INC.
AND RESOURCE OBJECTIVES, INC.
COMBINED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------- SEPTEMBER 30,
1995 1996 1997
------ ------ -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS (note 3)
Current assets:
Cash........................................... $ 17 $ 39 $ 9
Trade accounts receivable, net (note 8)........ 217 213 235
Inventory...................................... 30 4 3
Deferred income taxes (note 6)................. -- 15 15
Prepaid expenses and other current assets...... 5 5 44
------ ------ -----
Total current assets......................... 269 276 306
------ ------ -----
Property and equipment, net (note 2)............. 122 111 556
Other assets..................................... 14 17 78
------ ------ -----
Total assets................................. $ 405 $ 404 $ 940
====== ====== =====
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Line of credit agreement (note 3).............. $ 35 $ 35 $ 45
Current installments of long-term debt (note
11)........................................... -- -- 38
Current installments of obligations under capi-
tal leases ................................... 15 7 23
Accounts payable............................... 100 64 535
Accrued expenses (notes 4 and 5)............... 57 196 311
Income taxes payable........................... 17 14 --
Due to stockholder (note 5).................... 14 18 46
------ ------ -----
Total current liabilities.................... 238 334 998
------ ------ -----
Long-term debt, excluding current installments
(note 11)....................................... -- -- 104
Obligations under capital leases, excluding cur-
rent installments .............................. 16 -- 80
Other liabilities................................ 4 -- --
Deferred income taxes (note 6)................... 13 14 --
------ ------ -----
Total liabilities............................ 271 348 1,182
Stockholders' equity (deficit):
American Conferencing Company Inc.--common
stock, at stated value
Authorized 1,000 shares; issued and outstanding
50 shares..................................... 1 1 1
Resource Objectives, Inc.--common stock, at
stated value. Authorized 1,000 shares; issued
and outstanding 100 shares in 1995 and 1996... -- -- --
Resource Objectives, Inc.--treasury stock, 50
shares in 1995 and 1996....................... (35) (35) --
Retained earnings (deficit).................... 168 90 (243)
------ ------ -----
Total stockholders' equity (deficit)......... 134 56 (242)
------ ------ -----
Commitments and contingencies (notes 7 and 10)
Total liabilities and stockholders' equity... $ 405 $ 404 $ 940
====== ====== =====
</TABLE>
See accompanying notes to combined financial statements.
F-78
<PAGE>
AMERICAN CONFERENCING COMPANY, INC.
AND RESOURCE OBJECTIVES, INC.
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------ ------------------
1994 1995 1996 1996 1997
------- ------- -------- -------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenues (note 8)............. $ 772 $ 1,227 $ 1,679 $ 1,210 $ 1,581
Cost of revenues, excluding depre-
ciation.......................... 308 593 818 601 1,003
Selling, general, and administra-
tive expenses.................... 345 514 889 593 840
Depreciation expense.............. 27 32 36 30 48
------- ------- -------- ------- ---------
Income (loss) from operations... 92 88 (64) (14) (310)
Interest expense, net............. 6 6 9 10 13
------- ------- -------- ------- ---------
Income (loss) before income tax
expense (benefit)................. 86 82 (73) (24) (323)
Income tax expense (benefit) (note
6)............................... 16 22 (14) -- (25)
------- ------- -------- ------- ---------
Net income (loss)............... $ 70 $ 60 $ (59) $ (24) $ (298)
======= ======= ======== ======= =========
Net income (loss) per share -
basic and diluted.............. $ 1,400 $ 1,200 $ (1,180) $ (480) $ (14,900)
======= ======= ======== ======= =========
Weighted average shares out-
standing ...................... 50 50 50 50 20
======= ======= ======== ======= =========
</TABLE>
See accompanying notes to combined financial statements.
F-79
<PAGE>
AMERICAN CONFERENCING COMPANY, INC.
AND RESOURCE OBJECTIVES, INC.
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
AMERICAN
CONFERENCING
COMPANY, INC. RESOURCE OBJECTIVES, INC.
COMMON STOCK COMMON STOCK
------------- ------------------------------
NUMBER NUMBER TOTAL
OF STATED OF STATED TREASURY RETAINED STOCKHOLDERS'
SHARES VALUE SHARES VALUE STOCK EARNINGS (DEFICIT) EQUITY (DEFICIT)
------ ------ -------- -------- --------- ------------------ ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1993...................... 50 $ 1 100 $ -- $ (35) $ 38 $ 4
Net income............... -- -- -- -- -- 70 70
--- ---- -------- -------- -------- ----- -----
Balance at December 31,
1994...................... 50 1 100 -- (35) 108 74
Net income............... -- -- -- -- -- 60 60
--- ---- -------- -------- -------- ----- -----
Balance at December 31,
1995...................... 50 1 100 -- (35) 168 134
Net loss................. -- -- -- -- -- (59) (59)
Dividends................ -- -- -- -- -- (19) (19)
--- ---- -------- -------- -------- ----- -----
Balance at December 31,
1996...................... 50 1 100 -- (35) 90 56
Net loss (unaudited)..... -- -- -- -- -- (298) (298)
Merger and recapitaliza-
tion (note 1a) (unau-
dited).................. 20 -- (100) -- 35 (35) --
--- ---- -------- -------- -------- ----- -----
Balance at September 30,
1997 (unaudited).............70 $ 1 -- $ -- $ -- $(243) $(242)
=== ==== ======== ======== ======== ===== =====
</TABLE>
See accompanying notes to combined financial statements.
F-80
<PAGE>
AMERICAN CONFERENCING COMPANY, INC.
AND RESOURCE OBJECTIVES, INC.
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------------- ------------------
1994 1995 1996 1996 1997
----- ----- ----- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).................... $ 70 $ 60 $ (59) $ (24) $ (298)
Adjustments to reconcile net income
(loss) to net cash provided by (used
in) operating activities:
Depreciation and amortization....... 27 32 36 30 48
Deferred income taxes............... 9 -- (14) -- (14)
Changes in operating assets and lia-
bilities:
Trade accounts receivable, net..... (80) (35) 4 28 (22)
Inventory.......................... (11) (17) 26 23 1
Prepaid expenses and other current
assets............................ 2 -- -- -- (39)
Other assets....................... (6) (2) (3) (18) (61)
Accounts payable................... 18 (21) (36) (70) 131
Accrued expenses................... (26) 38 139 21 115
Income taxes payable............... -- 16 (3) (17) (14)
Due to stockholder................. 30 (48) 4 35 28
Other liabilities.................. 10 (6) (4) 11 --
----- ----- ----- -------- --------
Net cash provided by (used in) op-
erating activities............... 43 17 90 19 (125)
----- ----- ----- -------- --------
Cash flows from investing activities:
Additions to property and equipment.. (47) (17) (25) (21) (47)
----- ----- ----- -------- --------
Cash flows from financing activities:
Proceeds from revolving line of cred-
it.................................. -- 35 -- 10 10
Proceeds from issuance of long-term
debt................................ -- -- -- -- 150
Principal payments on long-term
debt................................ -- -- -- -- (8)
Principal payments under capital
lease obligations................... (1) (18) (24) -- (10)
Dividends............................ -- (19) (16) --
----- ----- ----- -------- --------
Net cash provided by (used in) fi-
nancing activities............... (1) 17 (43) (6) 142
----- ----- ----- -------- --------
Net increase (decrease) in cash....... (5) 17 22 (8) (30)
Cash at beginning of period........... 5 -- 17 17 39
----- ----- ----- -------- --------
Cash at end of period................. $ -- $ 17 $ 39 $ 9 $ 9
===== ===== ===== ======== ========
Supplemental disclosures of cash flow
information:
Cash paid during the year for:
Interest............................ $ 6 $ 6 $ 9 $ 6 $ 16
===== ===== ===== ======== ========
Income taxes........................ $ 17 $ 6 $ 3 $ -- $ 1
===== ===== ===== ======== ========
Supplemental schedule of non cash
investing and financing activities:
Equipment acquired through capital
lease obligation.................... $ -- $ -- $ -- $ -- $ 106
===== ===== ===== ======== ========
Equipment acquired through accounts
payable............................. $ -- $ -- $ -- $ -- $ 340
===== ===== ===== ======== ========
</TABLE>
See accompanying notes to combined financial statements.
F-81
<PAGE>
AMERICAN CONFERENCING COMPANY, INC.
AND RESOURCE OBJECTIVES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS
UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Description of Business
American Conferencing Company, Inc. ("Americo") is a provider of group
communications services to a variety of customers primarily located in the
United States. Americo was incorporated in April 1987 and is headquartered in
Oradell, New Jersey.
Resource Objectives, Inc. ("ROI") is a reseller of teleconferencing
equipment and a provider of consulting services. ROI was incorporated in
September 1983 and is headquartered in Oradell, New Jersey. Effective in
January 1997, ROI was merged with and into Americo with the surviving entity
being Americo.
(b) Interim Financial Statements
The financial statements of Americo as of September 30, 1997 and for the
nine months ended September 30, 1996 and 1997 are unaudited. All adjustments
and accruals (consisting only of normal recurring adjustments) have been
recorded that, in the opinion of management, are necessarily for a fair
presentation. Results of operations for the interim periods are not
necessarily indicative of the results for the full year.
(c) Principles of Combination
Through 1996, the financial statements of Americo and ROI were combined, as
the 100% stockholder of ROI owned 50% of the stock of Americo, and ROI owned
the remaining 50% of Americo stock. Affiliated company accounts and
transactions are eliminated in combination.
(d) Use of Estimates
Management of Americo and ROI have made a number of estimates and
assumptions relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities to prepare these combined
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
(e) Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market.
(f) Property and Equipment
Property and equipment are stated at cost. Depreciation of property and
equipment is provided on the straight-line method over the estimated useful
lives of the respective assets. The estimated useful lives are as follows: ten
years for machinery and equipment; seven years for furniture and fixtures; and
five to seven years for office equipment. Capitalized lease equipment is
amortized over the lives of the leases, generally seven years.
(g) Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
F-82
<PAGE>
AMERICAN CONFERENCING COMPANY, INC.
AND RESOURCE OBJECTIVES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(h) Revenue Recognition
Revenue for conference calls is recognized upon completion of the call.
Revenue for services is recognized upon performance of the service. Sales of
teleconferencing equipment are recognized upon shipment.
(i) Research and Development
Americo maintains a technical support and engineering department that, in
part, develops features and products for group communications. In accordance
with SFAS No. 2, Accounting for Research and Development Costs, Americo
charges to expense (included in cost of revenues) that portion of this
department's costs which are related to research and development activities.
Americo's research and development expenses for the years ended December 31,
1994, 1995 and 1996 were $24,000, $62,000 and $85,000, respectively. Americo's
research and development expenses for the nine months ended September 30,
1996, and 1997 were $62,000 and $63,000, respectively.
(j) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
Americo and ROI adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,
in 1996. This Statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Adoption of this Statement did not have an impact on the combined
statements of financial position, results of operations, or liquidity.
(k) Treasury Stock
Treasury stock purchases are recorded at cost.
(l) Earnings Per Share
Americo adopted the provisions of SFAS No. 128, "Earnings per Share," during
1997. This statement requires the presentation of basic earnings per share and
diluted earnings per share for all periods presented. For the years ended
December 31, 1994, 1995 and 1996, and for the nine months ended September 31,
1996 and 1997 (unaudited), basic earnings per share were calculated based on
weighted average common shares outstanding. There were no common stock
equivalents outstanding for any of the periods presented; accordingly, basic
and fully diluted earnings per share are the same.
(2) PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------- SEPTEMBER 30,
1995 1996 1997
------ ------ -------------
(UNAUDITED)
<S> <C> <C> <C>
Machinery and equipment........................ $ 125 $ 125 $545
Furniture and fixtures......................... 3 7 50
Office equipment............................... 142 163 193
------ ------ ----
270 295 788
Less: accumulated depreciation and amortiza-
tion.......................................... 148 184 232
------ ------ ----
Property and equipment, net.................... $ 122 $ 111 $556
====== ====== ====
</TABLE>
F-83
<PAGE>
AMERICAN CONFERENCING COMPANY, INC.
AND RESOURCE OBJECTIVES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(3) LINE OF CREDIT
Americo has a line of credit agreement with a commercial bank which permits
Americo to borrow up to $50,000. Amounts borrowed under the line were $35,000,
$35,000 and $45,000 at December 31, 1995, December
31, 1996 and September 30, 1997, respectively. Amounts borrowed under the line
bear interest at the bank's base lending rate plus 1.25% (10% at September 30,
1997). Substantially all assets of Americo are pledged as security for amounts
borrowed under the line of credit agreement. In addition, the line of credit
is guaranteed by the sole stockholder.
(4) ACCRUED EXPENSES
Accrued expenses consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------- SEPTEMBER 30,
1995 1996 1997
------ ------ -------------
(UNAUDITED)
<S> <C> <C> <C>
Accrued payroll, commissions and related tax-
es........................................... $ 15 $ 22 $ 27
Accrued payroll-stockholder................... 15 65 139
Accrued fees and other expenses............... 27 1 4
Profit Sharing Plan accrual................... -- 52 74
Money Purchase Plan accrual................... -- 56 67
----- ------ ----
$ 57 $ 196 $311
===== ====== ====
</TABLE>
(5) RELATED PARTY TRANSACTIONS
(a) Due to Stockholder
Amounts due to stockholder consist of short-term demand notes at December
31, 1995, December 31, 1996 and September 30, 1997. In addition, included in
accrued expenses at December 31, 1995, December 31, 1996 and September 30,
1997 is accrued payroll of $15,000, $65,000 and $139,000, respectively, due to
this stockholder.
(b) Lease Transactions
ROI leases certain equipment to Americo. Total rent expense under these
leases for the years ended December 31, 1994, 1995 and 1996 was $40,000,
$105,000, and $105,000, respectively, and $83,000 and $9,000 for the nine
months ended September 30, 1996 and 1997, respectively. All rent expense under
these leases has been eliminated in the accompanying combined statements of
operations.
F-84
<PAGE>
AMERICAN CONFERENCING COMPANY, INC.
AND RESOURCE OBJECTIVES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(6) INCOME TAXES
The components of income tax expense (benefit) attributable to income (loss)
before income tax expense (benefit) consists of the following for years ended:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
------- -------- -----
(IN THOUSANDS)
<S> <C> <C> <C>
Federal............................................ $ 5 $ 2 $ 7
State.............................................. 2 7 9
----- ----- ----
$ 7 $ 9 $ 16
===== ===== ====
1995:
Federal............................................ $ 15 $ -- $ 15
State.............................................. 7 -- 7
----- ----- ----
$ 22 $ -- $ 22
===== ===== ====
1996:
Federal............................................ $ -- (8) $ (8)
State.............................................. -- (6) (6)
----- ----- ----
$ -- $ (14) $(14)
===== ===== ====
</TABLE>
Income tax expense (benefit) differed from the amounts computed by applying
the U.S. statutory federal income tax rate of 34% as a result of the
following:
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Computed "expected" tax expense (benefit)................. $ 29 $ 28 $(25)
State income taxes, net of federal tax benefit............ 4 5 (4)
Tax rate differential..................................... (16) (15) 14
Nondeductible expenses and other differences.............. (1) 4 1
---- ---- ----
$ 16 $ 22 $(14)
==== ==== ====
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and liabilities at December 31 are presented
below:
<TABLE>
<CAPTION>
1995 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Accrued expenses.......................................... $ -- $ 15
------- ------
Total gross deferred tax asset.......................... -- 15
------- ------
Deferred tax liabilities:
Property and equipment.................................... 13 14
------- ------
Total gross deferred tax liability...................... 13 14
------- ------
Net deferred tax liability (asset)...................... $ 13 $ (1)
======= ======
</TABLE>
In assessing the realizability of deferred tax assets, Americo considers
whether it is more likely than not that some portion or all of the deferred
tax assets will not be realized. Due to the fact that Americo has sufficient
taxable income in carryback periods, and Americo projects future taxable
income over the periods in which the deferred tax assets are deductible, the
ultimate realization of deferred tax assets recognized appears more likely
than not.
F-85
<PAGE>
AMERICAN CONFERENCING COMPANY, INC.
AND RESOURCE OBJECTIVES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(7) COMMITMENTS
Americo has entered into noncancelable operating leases covering certain
office space and equipment. Rent expense amounted to $22,000, $67,000 and
$76,000 for the years ended December 31, 1994, 1995 and 1996, respectively and
$38,000 and $86,000 for the nine month periods ended September 30, 1996 and
1997, respectively. In June 1997, Americo entered into a 10-year lease
agreement for Americo's headquarters in Oradell, New Jersey. The lease
commenced in September 1997. Future minimum payments under noncancelable lease
agreements are as follows:
<TABLE>
<CAPTION>
OPERATING
LEASE
--------------
(IN THOUSANDS)
<S> <C>
October 1, to December 31, 1997.............. $ 33
1998......................................... 192
1999......................................... 197
2000......................................... 197
2001......................................... 197
Thereafter................................... 1,373
-------
Total minimum lease payments............. $ 2,189
=======
</TABLE>
(8) SIGNIFICANT CUSTOMERS
For the year ended December 31, 1996, and the nine months ended September
30, 1997, one customer accounted for approximately 17% and 15% of net
revenues, respectively and approximately 14% and 25% of accounts receivable,
respectively.
(9) EMPLOYEE BENEFIT PLANS
During 1996, Americo adopted a Money Purchase Plan and a Profit Sharing
Plan. The plans cover substantially all employees who generally work 1,000
hours or more per year and have attained the age of 21. Americo will make a
contribution to the Money Purchase Plan for 10% of each eligible participant's
compensation. Contributions into the Profit Sharing Plan are discretionary.
Money Purchase Plan contributions charged to operations for the year ended
December 31, 1996 and nine months ended September 30, 1997, were $48,000 and
$67,000, respectively. Profit Sharing Plan contributions charged to operations
for the year ended December 31, 1996 and nine months ended September 30, 1997
were $71,000 and $74,000, respectively.
(10) SUBSEQUENT EVENTS
On November 12, 1997, VIALOG Corporation ("VIALOG") acquired all of the
outstanding stock of Americo for cash and shares of common stock of VIALOG and
Americo became a wholly owned subsidiary of VIALOG. The acquisition of Americo
will be accounted for by the purchase method. Accordingly, all of the
identified tangible and intangible assets and liabilities will be recorded at
their current fair market value and the excess of the purchase price over the
fair value of the net assets acquired will be recorded as intangible assets,
which will be amortized up to 20 years.
F-86
<PAGE>
AMERICAN CONFERENCING COMPANY, INC.
AND RESOURCE OBJECTIVES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
In June 1997, Americo entered into a term loan in the amount of $150,000, of
which $38,000 is classified as current, with a bank in order to finance the
relocation of its operating facilities. The loan has an interest rate of 10%
and is payable over four years in equal monthly installments of $3,804,
including interest. Substantially all assets of Americo are pledged as
security for the amount borrowed under the loan. This note was repaid in full
in November 1997. In November 1997, the line of credit described in note 3 was
paid down in full. On November 12, 1997 Americo became a joint and several
guarantor of VIALOG's $75.0 million Senior Notes.
F-87
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors Communication Development Corporation:
We have audited the accompanying balance sheets of Communication Development
Corporation ("CDC") as of December 31, 1995 and 1996, and the related
statements of operations, stockholders' equity and cash flows for each of the
years in the three-year period ended December 31, 1996. These financial
statements are the responsibility of CDC's management. Our responsibility is
to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Communication Development
Corporation as of December 31, 1995 and 1996 and the results of its operations
and its cash flows for each of the years in the three-year period ended
December 31, 1996, in conformity with generally accepted accounting
principles.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Boston, Massachusetts
January 17, 1997 except for Note 8 which is as of November 12, 1997
F-88
<PAGE>
COMMUNICATION DEVELOPMENT CORPORATION
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
------------ SEPTEMBER 30,
1995 1996 1997
------------ -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS (NOTE 3)
Current assets:
Cash and cash equivalents......................... $ 18 $ 90 $ 55
Trade accounts receivable, less allowance for
doubtful accounts of $2 at December 31, 1995 and
1996 and $10 at September 30, 1997 (note 7)...... 237 186 396
Income taxes receivable........................... 6 1 --
Prepaid expenses and other current assets......... 8 9 28
----- ------ -----
Total current assets............................ 269 286 479
----- ------ -----
Property and equipment, net (note 2)................ 212 128 100
Other assets........................................ 1 1 4
----- ------ -----
Total assets.................................... $ 482 $ 415 $ 583
===== ====== =====
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Borrowings under line of credit (note 3).......... $ 37 $ -- $ --
Current installments of long-term debt (note 3)... 35 33 24
Accounts payable.................................. 82 74 72
Accrued expenses (note 5)......................... 9 102 37
Income taxes payable.............................. -- -- 94
Deferred income taxes (note 6).................... 35 7 7
----- ------ -----
Total current liabilities....................... 198 216 234
----- ------ -----
Long-term debt, excluding current installments (note
3)................................................. 72 42 25
Deferred income taxes (note 6)...................... 30 19 19
----- ------ -----
Total liabilities............................... 300 277 278
----- ------ -----
Stockholders' equity:
Common stock, no par value. Authorized, issued and
outstanding 5,000 shares at December 31, 1995 and
1996............................................. 2 2 2
Retained earnings................................. 180 136 303
----- ------ -----
Total stockholders' equity...................... 182 138 305
----- ------ -----
Commitments and contingencies (notes 4 and 8)
Total liabilities and stockholders' equity...... $ 482 $ 415 $ 583
===== ====== =====
</TABLE>
See accompanying notes to financial statements.
F-89
<PAGE>
COMMUNICATION DEVELOPMENT CORPORATION
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
--------------------- -----------------
1994 1995 1996 1996 1997
------ ------ ------ -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenues (note 7)................. $1,121 $1,131 $1,480 $ 1,080 $ 1,486
Cost of revenues, excluding deprecia-
tion................................. 632 670 800 544 717
Selling, general and administrative
expenses............................. 337 377 655 411 442
Depreciation expense.................. 77 95 86 71 49
------ ------ ------ -------- --------
Income (loss) from operations....... 75 (11) (61) 54 278
Interest expense, net................. 7 17 11 7 4
------ ------ ------ -------- --------
Income (loss) before income tax ex-
pense (benefit).................... 68 (28) (72) 47 274
Income tax expense (benefit) (note
6)................................... 29 (11) (28) 18 107
------ ------ ------ -------- --------
Net income (loss)................... $ 39 $ (17) $ (44) $ 29 $ 167
====== ====== ====== ======== ========
Net income (loss) per share - basic
and diluted ....................... $ 7.80 $(3.40) $(8.80) $ 5.80 $ 33.40
====== ====== ====== ======== ========
Weighted average shares outstanding
................................... 5,000 5,000 5,000 5,000 5,000
====== ====== ====== ======== ========
</TABLE>
See accompanying notes to financial statements.
F-90
<PAGE>
COMMUNICATION DEVELOPMENT CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK
--------------- TOTAL
NUMBER RETAINED STOCKHOLDERS'
OF SHARES VALUE EARNINGS EQUITY
--------- ----- -------- -------------
<S> <C> <C> <C> <C>
Balance at December 31, 1993........... 5,000 $ 2 $158 $160
Net income........................... -- -- 39 39
----- ---- ---- ----
Balance at December 31, 1994........... 5,000 2 197 199
Net loss............................. -- -- (17) (17)
----- ---- ---- ----
Balance at December 31, 1995........... 5,000 2 180 182
Net loss............................. -- -- (44) (44)
----- ---- ---- ----
Balance at December 31, 1996........... 5,000 2 136 138
Net income (unaudited)............... -- -- 167 167
----- ---- ---- ----
Balance at September 30, 1997 (unau-
dited)................................ 5,000 $ 2 $303 $305
===== ==== ==== ====
</TABLE>
See accompanying notes to financial statements.
F-91
<PAGE>
COMMUNICATION DEVELOPMENT CORPORATION
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
----------------- -------------------
1994 1995 1996 1996 1997
----- ---- ---- -------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)..................... $ 39 $(17) $(44) $ 29 $ 167
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization........ 77 95 86 71 49
Deferred income taxes................ 1 (11) (39) 17 --
Changes in operating assets and
liabilities:
Trade accounts receivable, net..... (27) (73) 51 29 (210)
Income taxes receivable............ -- -- 5 -- 1
Prepaid expenses and other current
assets............................ (4) (1) (1) 2 (19)
Other asset........................ -- -- -- (2) (3)
Accounts payable................... 41 21 (8) (7) (2)
Accrued expenses................... 9 (3) 93 (2) (65)
Income taxes payable............... 23 (3) -- -- 94
----- ---- ---- -------- ---------
Net cash provided by operating
activities...................... 159 8 143 137 12
----- ---- ---- -------- ---------
Cash flows from investing activity:
Additions to property and equipment... (183) (4) (2) (13) (21)
----- ---- ---- -------- ---------
Cash flows from financing activities:
Proceeds from borrowings under line of
credit............................... -- 37 -- -- --
Repayments of borrowings under line of
credit............................... (38) -- (37) (37) --
Proceeds from long-term debt.......... 100 -- -- -- --
Principal repayments of long-term
debt................................. (31) (36) (32) (26) (26)
----- ---- ---- -------- ---------
Net cash provided by (used in)
financing activities............ 31 1 (69) (63) (26)
----- ---- ---- -------- ---------
Net increase (decrease) in cash and
cash equivalents...................... 7 5 72 61 (35)
Cash and cash equivalents at beginning
of period............................. 6 13 18 18 90
----- ---- ---- -------- ---------
Cash and cash equivalents at end of
period................................ $ 13 $ 18 $ 90 $ 79 $ 55
===== ==== ==== ======== =========
Supplemental cash flow information:
Cash paid during the year for:
Interest............................. $ 7 $ 17 $ 11 $ 8 $ 4
===== ==== ==== ======== =========
Taxes................................ $ 9 $ 3 $-- $ -- $ 16
===== ==== ==== ======== =========
</TABLE>
See accompanying notes to financial statements.
F-92
<PAGE>
COMMUNICATION DEVELOPMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS
UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Description of Business
Communication Development Corporation ("CDC") provides audio group
communications services to a variety of customers, primarily located in the
United States. CDC was incorporated in 1991 and has its operations center in
Danbury, Connecticut.
(b) Interim Financial Statements
The financial statements of CDC as of September 30, 1997 and for the nine
months ended September 30, 1996 and 1997 are unaudited. All adjustments and
accruals (consisting only of normal recurring adjustments) have been recorded
that, in the opinion of management, are necessary for a fair presentation.
Results of operations for the interim periods are not necessarily indicative
of the results for the full year.
(c) Use of Estimates
Management of CDC has made a number of estimates and assumptions relating to
the reporting of assets and liabilities and the disclosure of contingent
assets and liabilities to prepare the financial statements in conformity with
generally accepted accounting principles. Actual results could differ from
those estimates.
(d) Cash and Cash Equivalents
Cash and cash equivalents include cash on hand and money market deposits.
(e) Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization are
provided on the straight-line basis over the estimated useful lives of the
respective assets, generally five years. Leasehold improvements are amortized
over the shorter of the lease term or three years.
(f) Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
(g) Revenue Recognition
Revenue for conference calls is recognized upon completion of the call.
Revenue for services is recognized upon performance of the service.
(h) Research and Development
CDC maintains a technical support and engineering department that, in part,
develops features and products for group communications. In accordance with
SFAS No. 2, Accounting for Research and Development Costs, CDC charges to
expense (included in cost of revenues) that portion of this department's costs
which are related to research and development activities. CDC's research and
development expenses for the years ended December 31, 1994, 1995 and 1996 were
$51,000, $49,000 and $56,000, respectively. CDC's research and development
expenses for the nine months ended September 30, 1996 and 1997 were $42 and
$76, respectively.
F-93
<PAGE>
COMMUNICATION DEVELOPMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(i) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
CDC adopted the provisions of SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to be Disposed Of, during 1996. This
Statement requires that long-lived assets and certain identifiable intangibles
be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. Adoption
of this Statement did not have a material impact on CDC's financial position,
results of operations, or liquidity.
(j) Earnings Per Share
CDC adopted the provisions of SFAS No. 128, "Earnings per Share," during
1997. This statement requires the presentation of basic earnings per share and
diluted earnings per share for all periods presented. For the years ended
December 31, 1994, 1995 and 1996, and for the nine months ended September 31,
1996 and 1997 (unaudited), basic earnings per share were calculated based on
weighted average common shares outstanding. There were no common stock
equivalents outstanding for any of the periods presented; accordingly, basic
and fully diluted earnings per share are the same.
(2) PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------- SEPTEMBER 30,
1995 1996 1997
------ ------ -------------
(UNAUDITED)
<S> <C> <C> <C>
Teleconferencing equipment..................... $ 427 $ 427 $427
Office equipment............................... 41 43 64
Leasehold improvements......................... 10 10 10
------ ------ ----
478 480 501
Less: accumulated depreciation and amortiza-
tion.......................................... 266 352 401
------ ------ ----
Property and equipment, net.................. $ 212 $ 128 $100
====== ====== ====
</TABLE>
(3) DEBT
(a) Line of Credit
CDC has a line of credit with a bank which provides for borrowings of up to
$125,000. Borrowings under this arrangement bear interest at 1% above the
bank's base lending rate (8.5%, 9.25% and 9.5% at December 31, 1995 and 1996
and September 30, 1997, respectively). The loan agreement is renewable
annually in January, is collateralized by accounts receivable, and is
guaranteed by the stockholders. Amounts borrowed under the line of credit were
$37,000, $0 and $0 at December 31, 1995 and 1996 and September 30, 1997,
respectively.
(b) Long-term Debt
Long-term debt at December 31, 1995 and 1996 and September 30, 1997 consists
of bank term notes which are payable in equal monthly installments of
principal plus interest at 1% above the bank's base lending rate through
December 1999. The notes are collateralized by substantially all the assets of
CDC and are guaranteed by the stockholders. Amounts outstanding are as follows
(in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------- SEPTEMBER 30,
1995 1996 1997
------ ------ -------------
(UNAUDITED)
<S> <C> <C> <C>
Bank term notes................................. $ 107 $ 75 $49
Less: current installments...................... 35 33 24
------ ----- ---
Long-term debt excluding current installments... $ 72 $ 42 $25
====== ===== ===
</TABLE>
F-94
<PAGE>
COMMUNICATION DEVELOPMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The aggregate maturities of long-term debt are as follows (in thousands):
<TABLE>
<S> <C>
October 1 to December 31, 1997.......................... $ 7
1998.................................................... 20
1999.................................................... 22
---
$49
===
</TABLE>
(4) COMMITMENTS
CDC rents its office facility under a noncancelable operating lease expiring
in February 1998. Rental expense under this lease for the years ending
December 31, 1994, 1995 and 1996 was $31,000, $57,000 and $65,000,
respectively and $53,000 and $55,000 for the nine months ending September 30,
1996 and 1997, respectively. Future minimum lease payments under this lease
are as follows (in thousands):
<TABLE>
<S> <C>
October 1 to December 31, 1997.......................... $18
1998.................................................... 12
---
Total minimum lease payments.......................... $30
===
</TABLE>
(5) ACCRUED EXPENSES
Accrued expenses consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------- SEPTEMBER 30,
1995 1996 1997
------ ------ -------------
(UNAUDITED)
<S> <C> <C> <C>
Accrued officer bonus............................ $ -- $ 90 $ --
Accrued long distance charges.................... -- -- --
Accrued payroll and related taxes................ 8 6 30
Other accrued expenses........................... 1 6 7
------ ------ -----
$ 9 $ 102 $ 37
====== ====== =====
</TABLE>
(6) INCOME TAXES
Income tax expense (benefit) consists of the following for the years ended
December 31:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
------- -------- -----
(IN THOUSANDS)
<S> <C> <C> <C>
1994:
Federal............................................ $ 21 $ 1 $ 22
State.............................................. 7 -- 7
----- ----- ----
$ 28 $ 1 $ 29
===== ===== ====
1995:
Federal............................................ $ -- $ (8) $ (8)
State.............................................. -- (3) (3)
----- ----- ----
$ -- $ (11) $(11)
===== ===== ====
1996:
Federal............................................ $ 8 $ (29) $(21)
State.............................................. 3 (10) (7)
----- ----- ----
$ 11 $ (39) $(28)
===== ===== ====
</TABLE>
F-95
<PAGE>
COMMUNICATION DEVELOPMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Income tax expense (benefit) differed from the amounts computed by applying
the U.S. statutory federal income tax rate of 34% as a result of the
following:
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Computed "expected" tax expense (benefit).................. $23 $ (9) $(24)
State and local income taxes, net of federal tax benefit... 5 (2) (5)
Nondeductible items and other differences.................. 1 -- 1
--- ---- ----
$29 $(11) $(28)
=== ==== ====
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and liabilities at December 31 are presented
below:
<TABLE>
<CAPTION>
1995 1996
---- -----
(IN
THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Net operating loss............................................. $29 $ --
--- -----
Total gross deferred tax assets.............................. 29 --
--- -----
Deferred tax liabilities:
Property and equipment......................................... 30 19
Accrued expenses............................................... 64 7
--- -----
Total gross deferred tax liabilities......................... 94 26
--- -----
Net deferred tax liability....................................... $65 $ 26
=== =====
</TABLE>
(7) SIGNIFICANT CUSTOMERS
The same five customers accounted for the following percentages of net
revenues and accounts receivable:
<TABLE>
<CAPTION>
PERCENTAGE OF
PERCENTAGE OF NET REVENUES ACCOUNTS RECEIVABLE
----------------------------------- -----------------------------
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
------------------- -------------- -------------- SEPTEMBER 30,
1994 1995 1996 1996 1997 1995 1996 1997
----- ----- ----- ------ ------ ------ ------ -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Customer A...... 25% 63% 35% 41% 35% 33% 17% 21%
Customer B...... -- 11% -- 10% -- 30% 25% --
Customer C...... 11% 10% 11% 12% 10% -- -- 10%
Customer D...... -- -- -- -- -- -- 14% --
Customer E...... -- -- -- -- 13% -- -- 16%
</TABLE>
(8) SUBSEQUENT EVENTS
On November 12, 1997, VIALOG Corporation ("VIALOG") acquired all of the
outstanding stock of CDC for cash and shares of common stock of VIALOG and CDC
became a wholly owned subsidiary of VIALOG. The acquisition of CDC will be
accounted for by the purchase method. Accordingly, all of the identified
tangible and intangible assets and liabilities will be recorded at their
current fair market value and the excess of the purchase price over the fair
value of the net assets acquired will be recorded as intangible assets, which
will be amortized up to 20 years.
In November 1997, the remaining balances of the long-term debt described in
note 3 (b) was repaid in full, plus accrued interest. On November 12, 1997,
CDC became a joint and several guarantor of VIALOG's $75.0 million Senior
Notes.
F-96
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors A Business Conference-Call, Inc.:
We have audited the accompanying balance sheets of A Business Conference-
Call, Inc. ("ABCC") as of December 31, 1997 and 1996, and the related
statements of income, retained earnings, and cash flows for the years then
ended. These financial statements are the responsibility of ABCC's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of A Business Conference-
Call, Inc. as of December 31, 1997 and 1996 and the results of its operations
and its cash flows for the years then ended, in conformity with generally
accepted accounting principles.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Boston, Massachusetts
February 20, 1998, except for
Note 8 which is as of
May 23, 1998
F-97
<PAGE>
A BUSINESS CONFERENCE-CALL, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
------------- SEPTEMBER 30,
1996 1997 1998
------ ------ -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................ $ 26 $ 71 $ 488
Trade accounts receivable, less allowance for
doubtful accounts of $7, $15 and $29, respec-
tively.......................................... 424 577 712
Prepaid expenses and other current assets........ 308 75 52
------ ------ ------
Total current assets........................... 758 723 1,252
------ ------ ------
Property and equipment, net (notes 1 and 2)........ 638 538 441
Other assets....................................... 5 6 3
------ ------ ------
Total assets................................... $1,401 $1,267 $1,696
====== ====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................. $ 23 $ 55 $ 154
Accrued compensation and benefits................ 108 231 205
Accrued expenses................................. 13 3 5
------ ------ ------
Total current liabilities...................... 144 289 364
------ ------ ------
Stockholders' equity:
Common stock, $0.01 par value; authorized 100,000
shares; issued and outstanding 1,000 shares..... -- -- --
Additional paid-in capital....................... 10 10 10
Retained earnings................................ 1,247 968 1,322
------ ------ ------
Total stockholders' equity..................... 1,257 978 1,332
------ ------ ------
Commitments and contingencies (notes 4, 6 and 7)...
Total liabilities and stockholders' equity..... $1,401 $1,267 $1,696
====== ====== ======
</TABLE>
See accompanying notes to financial statements.
F-98
<PAGE>
A BUSINESS CONFERENCE-CALL, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
------------------------ -------------------
1996 1997 1997 1998
----------- ----------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net revenues..................... $ 5,305 $ 5,709 $ 4,234 $ 5,509
Cost of revenues, excluding de-
preciation...................... 1,935 2,086 1,527 1,804
Selling, general, and administra-
tive expenses................... 1,120 1,231 863 1,094
Depreciation expense............. 143 148 111 111
----------- ----------- --------- ---------
Income from operations.......... 2,107 2,244 1,733 2,500
Interest income, net............. 14 8 7 4
Other, net....................... (17) 7 1 --
----------- ----------- --------- ---------
Net income...................... 2,104 2,259 1,741 2,504
----------- ----------- --------- ---------
Retained earnings at beginning of
period.......................... 1,303 1,247 1,247 968
Less stockholder distributions... 2,160 2,538 2,025 2,150
----------- ----------- --------- ---------
Retained earnings at end of peri-
od.............................. $ 1,247 $ 968 $ 963 $ 1,322
=========== =========== ========= =========
Net income per share - basic and
diluted ........................ $ 2,104.00 $ 2,259.00 $1,741.00 $2,504.00
=========== =========== ========= =========
Weighted average shares outstand-
ing ............................ 1,000 1,000 1,000 1,000
=========== =========== ========= =========
</TABLE>
See accompanying notes to financial statements.
F-99
<PAGE>
A BUSINESS CONFERENCE-CALL, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
-------------- --------------
1996 1997 1997 1998
------ ------ ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income.................................... $2,104 $2,259 $1,741 $2,504
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization................ 143 148 111 111
Loss on disposal of equipment................ 17 -- -- --
Changes in operating assets and liabilities:
Trade accounts receivable, net.............. 93 (153) (125) (135)
Prepaid expenses............................ (191) 233 273 26
Accounts payable and accrued expenses....... (149) 145 256 75
------ ------ ------ ------
Net cash provided by operating activities.. 2,017 2,632 2,256 2,581
------ ------ ------ ------
Cash flows from investing activities:
Payments for purchases of property and
equipment................................... (245) (49) (48) (14)
Proceeds from sale of property and equip-
ment........................................ 15 -- -- --
Increase in other assets..................... (2) (1) -- --
------ ------ ------ ------
Net cash used in investing activities...... (232) (50) (48) (14)
------ ------ ------ ------
Cash flows from financing activities:
Distributions to stockholders................. (2,160) (2,537) (2,025) (2,150)
------ ------ ------ ------
Net cash used in financing activities...... (2,160) (2,537) (2,025) (2,150)
------ ------ ------ ------
Net increase (decrease) in cash and cash
equivalents................................... (375) 45 183 417
Cash and cash equivalents at beginning of peri-
od............................................ 401 26 26 71
------ ------ ------ ------
Cash and cash equivalents at end of period..... $ 26 $ 71 $ 209 $ 488
====== ====== ====== ======
</TABLE>
See accompanying notes to financial statements.
F-100
<PAGE>
A BUSINESS CONFERENCE-CALL, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998 IS
UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Description of Business
A Business Conference-Call, Inc. ("ABCC") is a provider of group
communications to a variety of customers located primarily in the United
States. ABCC was incorporated in 1988 and is headquartered in Chaska,
Minnesota.
(b) Interim Financial Statements
The financial statements of ABCC as of September 30, 1998 and for the nine
months ended September 30, 1997 and 1998 are unaudited. All adjustments and
accruals (consisting only of normal recurring adjustments) have been recorded
that, in the opinion of management, are necessary for a fair presentation.
Results of operations for the interim periods are not necessarily indicative
of the results for the full year.
(c) Use of Estimates
Management of ABCC has made a number of estimates and assumptions relating
to the reporting of assets and liabilities and the disclosure of contingent
assets and liabilities to prepare these financial statements in conformity
with generally accepted accounting principles. Actual results could differ
from those estimates.
(d) Cash and Cash Equivalents
Cash and cash equivalents include deposits and short-term investments with
original maturities of three months or less.
(e) Property and Equipment
Property and equipment is stated at cost. Depreciation is provided on the
straight-line method over the estimated useful lives of the respective assets.
Estimated useful lives are as follows: five to seven years for office
furniture and equipment; seven years for conferencing equipment; three years
for computer software; and five years for vehicles.
(f) Income Taxes
ABCC has elected by consent of its stockholders to be taxed under the
provisions of Subchapter S of the Internal Revenue Code. Under those
provisions, ABCC does not pay corporate income taxes on its taxable income.
Instead, the stockholders are liable for individual income taxes on ABCC's
taxable income. Accordingly, these financial statements do not contain a
provision for income taxes.
(g) Revenue Recognition
Revenue for conference calls is recognized upon completion of the call.
Revenue for services is recognized upon performance of the service.
(h) Fair Value of Financial Instruments
All financial instruments are carried at amounts that approximate estimated
fair value.
(i) Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of
ABCC adopted the provisions of SFAS No. 121, Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, during 1997.
This statement requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Adoption of the statement did not have a material impact on
ABCC's financial position, results of operations, or liquidity.
F-101
<PAGE>
A BUSINESS CONFERENCE-CALL, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(j) Earnings Per Share
ABCC adopted the provisions of SFAS No. 128, "Earnings per Share," during
1997. This statement requires the presentation of basic earnings per share and
diluted earnings per share for all periods presented. For the years ended
December 31, 1996 and 1997, and for the nine months ended September 30, 1997
and 1998 (unaudited), basic earnings per share were calculated based on
weighted average common shares outstanding. There were no common stock
equivalents outstanding for any of the periods presented; accordingly, basic
and fully diluted earnings per share are the same.
(2) PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER
31,
----------- SEPTEMBER 30,
1996 1997 1998
---- ------ -------------
(UNAUDITED)
<S> <C> <C> <C>
Office furniture and equipment.................... $179 $ 182 $ 194
Conferencing equipment............................ 779 811 811
Software.......................................... 7 21 21
Vehicles.......................................... 34 34 34
---- ------ ------
999 1,048 1,060
Less accumulated depreciation and amortization.... 361 510 619
---- ------ ------
Property and equipment, net....................... $638 $ 538 $ 441
==== ====== ======
</TABLE>
(3) RELATED PARTY TRANSACTIONS
In 1996, the president of ABCC, who is also a related stockholder, purchased
a vehicle from the Company. ABCC received $15,000 in proceeds related to the
sale of the vehicle.
(4) 401(K) PROFIT SHARING PLAN
The Company has a 401(k) profit sharing plan which is available to employees
meeting certain service requirements. The plan qualifies under section 401(k)
of the Internal Revenue Code (the Code) and allows eligible employees to
contribute up to 5% of their compensation, up to limits established by the
Code. The Company is entitled to make discretionary contributions to the plan.
ABCC's expense related to the plan was $126,366 and $138,803 for the years
ending December 31, 1996 and 1997, respectively. ABCC's expense related to the
plan was $104,102 and $108,000 for the nine month periods ended September 30,
1997 and 1998, respectively.
(5) CONCENTRATION OF SOURCE OF SUPPLY
The Company purchases a significant portion of its long distance telephone
service from a single long distance service provider. Although there are a
limited number of such providers, management believes that other providers
could provide similar services on comparable terms.
(6) STOCK PURCHASE AGREEMENT
The Company has an agreement with its two stockholders which requires the
Company to acquire the stockholders' shares upon the event of death, permanent
disability, or termination of employment. This agreement can be funded by life
insurance policies on each stockholder. The Company and the stockholders also
have an agreement whereby the remaining stockholders have the first option to
purchase the Company's stock upon the occurrence of any of the above events.
The purchase price is determined annually by a formula defined in the
agreement.
F-102
<PAGE>
A BUSINESS CONFERENCE-CALL, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(7) COMMITMENTS AND CONTINGENCIES
(a) Purchase Agreement
In February 1998, the Company entered into an agreement with a long distance
telephone service provider. Under the terms of the agreement, ABCC is
committed to minimum monthly purchases of $25,000 for a term of two years.
(b) Leases
The Company leases office space under a noncancelable operating lease. The
lease provides for monthly rental payments including real estate taxes and
other operating costs. In addition, the Company leases certain equipment and
vehicles under various operating leases. Total rent expense amounted to
approximately $73,000 and $95,000 for the years ended December 31, 1996 and
1997, respectively. Future minimum lease payments under noncancelable
operating leases are as follows (in thousands):
<TABLE>
<S> <C>
1998..................................................................... $61
1999..................................................................... 57
2000..................................................................... 20
</TABLE>
(8) MERGER
In May 1998, ABCC entered into an agreement and plan of reorganization with
VIALOG Corporation and ABC Acquisition Corporation, a wholly-owned subsidiary
of VIALOG Corporation, whereby VIALOG Corporation's subsidiary will merge with
and into ABCC, contingent upon completion of certain items defined in the
merger agreement, with ABCC surviving as a wholly-owned subsidiary of VIALOG
Corporation.
F-103
<PAGE>
[PHOTO DESCRIPTION: SEVERAL PERSONS SEATED
AROUND A TELEVISION]
[PHOTO DESCRIPTION: MAN IN COAT TALKING ON CELLULAR PHONE; CAR
IN BACKGROUND]
[PHOTO DESCRIPTION: PERSON SEATED BESIDE IGLOO]
HELPING YOU MEET ALL YOUR GLOBAL COMMUNICATIONS NEEDS.
[PHOTO DESCRIPTION: MAN TALKING ON CELLULAR PHONE; BUILDING IN
BACKGROUND]
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFER MADE BY
THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, THE SELLING
STOCKHOLDER OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN
THE SHARES OF COMMON STOCK OFFERED BY THIS PROSPECTUS, NOR DOES IT CONSTITUTE
AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY THE SHARES OF COMMON
STOCK BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE IN-
FORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.
UNTIL , 1999, ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECU-
RITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DE-
LIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UN-
SOLD ALLOTMENTS OR SUBSCRIPTIONS.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 11
Use of Proceeds.......................................................... 19
Dividend Policy.......................................................... 19
Capitalization........................................................... 20
Dilution................................................................. 21
Selected Financial Data.................................................. 22
Access and CSI Selected Financial Data................................... 24
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 26
Industry Overview........................................................ 41
Business................................................................. 44
Management............................................................... 55
Certain Relationships and Related Transactions........................... 62
Principal and Selling Stockholders....................................... 66
Description of Capital Stock............................................. 67
Shares Eligible for Future Sale.......................................... 72
Underwriting............................................................. 73
Legal Matters............................................................ 75
Experts.................................................................. 75
Available Information.................................................... 75
Index to Financial Statements............................................ F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
4,867,826 Shares
Common Stock
-------------
PROSPECTUS
-------------
PRUDENTIAL SECURITIES INCORPORATED
, 1999
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses (other than the underwriting
compensation expected to be incurred) in connection with the Offering
described in this Registration Statement. All of such amounts (except the SEC
Registration Fee, the NASD Filing Fee and the Nasdaq National Market Listing
Fee) are estimates.
<TABLE>
<S> <C>
SEC Registration Fee.......................................... $ 19,816
NASD Filing Fee............................................... 6,848
Nasdaq National Market Listing Fee............................ 72,875
Blue Sky Fees and Expenses.................................... 5,000
Printing and Engraving Costs.................................. 300,000
Legal Fees and Expenses....................................... 400,000
Accounting Fees and Expenses.................................. 250,000
Transfer Agent and Registrar Fees and Expenses................ 5,000
Miscellaneous................................................. 439,910
----------
Total....................................................... $1,499,449
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 67 of Chapter 156B of the Massachusetts General Laws, or the
Massachusetts Business Corporation Law (the "MBCL"), provides that the
indemnification of directors, officers, employees and other agents of a
corporation, and persons who serve at its request as directors, officers,
employees or other agents of another organization, or who serve at its request
in any capacity with respect to any employee benefit plan, may be provided by
it to whatever extent shall be specified in or authorized by (i) the articles
of organization or (ii) a by-law adopted by the stockholders or (iii) a vote
adopted by the holders of a majority of the shares of stock entitled to vote
on the election of directors. Except as the articles of organization or by-
laws otherwise require, indemnification of any persons who are not directors
of the corporation may be provided by it to the extent authorized by the
directors. Such indemnification may include payment by the corporation of
expenses incurred in defending a civil or criminal action or proceeding in
advance of the final disposition of such action or proceeding, upon receipt of
an undertaking by the person indemnified to repay such payment if he shall be
adjudicated to be entitled to indemnification, which undertaking may be
accepted without reference to the financial ability of such person to make
repayment. Any such indemnification may be provided although the person to be
indemnified is no longer an officer, director, employee or agent of the
corporation or of such other organization or no longer serves with respect to
any such employee benefit plan. Section 67 further provides that no
indemnification shall be provided for any person with respect to any matter as
to which he shall have been adjudicated in any proceeding not to have acted in
good faith in the reasonable belief that his action was in the best interest
of the corporation or to the extent that such matter relates to service with
respect to any employee benefit plan, in the best interests of the
participants or beneficiaries of such employee benefit plan. Article VI of the
Company's Articles of Organization provides that the Company shall, to the
fullest extent permitted by the laws of the Commonwealth of Massachusetts,
indemnify each person who is, or shall have been, a director, officer,
employee or agent of the Company, or who is serving or shall have served, at
the request of the Company, as director or officer of another organization or
in any capacity with respect to any employee benefit plan of the Company,
against all liabilities and expenses (including judgments, fines, penalties,
amounts paid or to be paid in settlement and reasonable attorney's fees)
imposed upon or incurred by any such person in connection with or arising out
of claims made, or any action, suit or proceeding threatened or brought
against him or in which he may be involved by reason of any action taken or
omitted by him as a director, officer, employee or agent, or as a result of
any service with respect to any such employee benefit plan.
Section 13(b)(1 1/2) of Chapter 156B of the MBCL permits a corporation to
include in its articles of organization a provision eliminating or limiting
the personal liability of a director to the corporation or its
II-1
<PAGE>
stockholders for monetary damages for breach of fiduciary duty as a director,
provided that such provision shall not eliminate or limit the liability of a
director (i) for any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, (iii)
under Section 61 or 62 of the MBCL (relating to unlawful payment of dividends,
unlawful stock purchase and redemption and loans to insiders) or (iv) for any
transaction from which the director derived an improper personal benefit.
Article VI of the Company's Articles of Organization provides that the
Company's directors shall not be liable to the Company or its stockholders for
monetary damages for breach of fiduciary duty as a director, except in the
circumstances that are set forth in the MBCL.
The effect of these provisions is to permit indemnification by the Company
for, among other liabilities, liabilities arising out of the Securities Act.
The Underwriting Agreement (the form of which appears as Exhibit 1.1)
provides for indemnification of the Company's directors and officers in
certain circumstances.
Section 67 of the MBCL also affords a Massachusetts corporation the power to
obtain insurance on behalf of its directors and officers against liabilities
incurred by them in those capacities. The Company currently maintains a
$5,000,000 Directors and Officers Liability Insurance Policy.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The following information relates to securities of the Company issued or
sold within the past three years which were not registered under the
Securities Act of 1933. Except as set forth in (vii) below, none of the sales
of the securities issued by the Company have involved the use of an
underwriter, and no commissions were paid in connection with the sale of any
of the securities issued by the Company.
(i) From January 1, 1996 to October 31, 1996, the Company issued
1,222,650 shares of Common Stock, $.01 par value to twelve accredited
investors and twenty-one of its consultants and employees at value ranging
from $.01 per share to $.555 per share for a total consideration of
$173,152. The issuance of shares to consultants and employees may be
considered to be compensation to such individuals and the Company expensed
$36,753 in 1996 as compensation.
(ii) In November 1996 the Company issued 212,500 shares of Common Stock
to twenty accredited investors and four employees at a value of $4.00 per
share for a total consideration of $850,000. The issuance of shares to
employees may be considered to be compensation to such individuals and the
Company expensed $90,000 in 1996 as compensation.
(iii) On February 12, 1997, the Company issued an aggregate of 52,000
shares of Common Stock at $.05 per share to two of its consultants upon the
exercise of two NQSOs for an aggregate purchase price of $2,600.
(iv) On February 24, 1997, the Company issued to eight accredited
investors promissory notes in the aggregate principal amount of $500,000
bearing interest at 8.0% per annum and payable upon the earlier of ten days
following the closing of an initial public offering of the Company's common
stock or one year from their date of issuance (the "February Notes"),
together with warrants to purchase an aggregate of II 1, 1 18 shares of the
Company's common stock at an exercise price of $4.50 per share (the
"February Warrants"). The February Notes were paid in November 1997. The
February Warrants expire on February 28, 1999 and contain anti-dilution
provisions. As of the date of this Registration Statement, the February
Warrants entitle the holders thereof to purchase an aggregate of 33,450
additional shares of common stock as a result of required anti-dilution
adjustments. The February Notes and February Warrants were issued to
accredited investors only pursuant to the registration exemption provided
in Rule 506 of Regulation D under the Securities Act.
(v) In September 1997, the Company issued to fifteen accredited investors
(who were existing stockholders or noteholders of the Company) subordinated
convertible promissory notes in the aggregate principal amount of $255,500
bearing interest at 10% per annum and payable upon the earlier to occur of
II-2
<PAGE>
five days following (i) the closing of a sale of the Company's equity
securities or debt securities for an aggregate purchase price of $50.0
million or more and (ii) January 1, 1998 (the "September Notes"). Each
September Note was convertible at the holder's option prior to and
including the due date, into the number of shares of the Company's Common
Stock determined by dividing the outstanding principal of the September
Note by $4.00. All holders of the September Notes elected to convert the
September Notes into Common Stock simultaneously with the Company's
unrelated sale in November 1997 of $75.0 million of senior notes and
warrants as described below.
(vi) On October 16, 1997, the Company declared a 2:1 stock split.
(vii) On November 12, 1997, the Company issued to Jefferies & Company, as
underwriter, 75,000 units, with each unit (a "Unit"; collectively, the
"Units") consisting of (i) a senior note due 2001 in the principal amount
of $1,000 bearing interest at 12% per annum (a "Senior Note"; collectively,
the "Senior Notes"), and (ii) one warrant to purchase 10.0886 shares of the
Company's Common Stock, subject to adjustment in certain circumstances, at
an exercise price of $.01 par value per share (individually, a "November
Warrant" and collectively, the "November Warrants"). Jefferies & Company
paid $72.0 million for the Units, or 96% of the principal amount of the
Senior Notes. As additional compensation to Jefferies & Company, the
Company issued, for no additional consideration, 30 warrants to purchase
302,658 shares of the Company's Common Stock at an initial exercise price
of $.01 per share.
Immediately upon the consummation of the sale of the Units, Jefferies &
Company offered and sold the Units at the face value of $1,000 per Unit to
certain "qualified institutional buyers" (as defined in Rule 144A under the
Securities Act) and to a limited number of accredited investors.
The November Warrants are exercisable on or after November 12, 1997. The
shares purchasable upon the exercise of the November Warrants and the
exercise price will be subject to adjustment in certain events including:
(i) the payment by the Company of dividends (or other distributions) on the
Common Stock of the Company payable in shares of such Common Stock or other
shares of the Company's capital stock, (ii) subdivisions, combinations and
reclassifications of the Common Stock, and (iii) the distribution to all
holders of the Common Stock of any the Company's assets, debt securities or
any rights or warrants to purchase securities (excluding cash dividends or
other cash distributions from current or retained earnings).
Subject to certain exceptions set forth in the warrant agreement under
which the November Warrants were issued, if the Company issues (i) shares
of Common Stock for a consideration per share less than the current market
value per share or (ii) any securities convertible into or exchangeable for
Common Stock for a consideration per share of Common Stock initially
deliverable upon conversion or exchange of such securities that is less
than the current market value per share on the date of issuance of such
securities, the Company shall offer to sell to each holder of warrants, at
the same price and on the same terms offered to all other prospective
buyers (provided that the holder of warrants shall not be required to buy
any other securities in order to buy such Common Stock or convertible
securities), a portion of such Common Stock or convertible securities that
is equal to such holder's portion of the Common Stock then outstanding if
immediately prior thereto all the warrants had been exercised. Each such
holder may elect to buy all or any portion of the Common Stock or
convertible securities offered or may decline to purchase any.
In case of certain consolidations or mergers of the Company, or the sale
of all or substantially all of the assets of the Company to another
corporation, each November Warrant will thereafter be exercisable for the
right to receive the kind and amount of shares of stock or other securities
or property to which such holder would have been entitled as a result of
such consolidation, merger or sale had the warrants been exercised
immediately prior thereto.
(viii) See "Certain Transactions-Organization of the Company" in the
Prospectus for a discussion of the issuance of shares of the Company's
Common Stock and options to purchase shares of the Company's Common Stock
on November 12, 1997 in connection with the acquisitions of the Operating
Centers.
(ix) On January 12, 1998, the Company issued 45,030 shares of Common
Stock at $.2775 per share to one of its former employees upon the exercise
of his incentive stock option for an aggregate purchase price of
$12,495.83.
II-3
<PAGE>
(x) On April 14, 1998, the Company issued 2,500 shares of Common Stock to
Thomas Walsh as partial compensation for his services in connection with
the Company's purchase of the Reston Center in November 1997.
(xi) Between April 14, 1998 and November 15, 1998, the Company issued an
aggregate of 162,262 shares of Common Stock to certain of of its former
employees or consultants upon the exercise of stock options by such
individuals.
Each of the transactions set forth in the preceding clauses were completed
without registration of the relevant security under the Securities Act in
reliance upon one or more of the exemptions afforded by Section 4(2) of the
Securities Act for transactions not involving a public offering, Rule 701
promulgated under the Securities Act for transactions with directors,
consultants, and employees and Rule 506 of Regulation D promulgated under the
Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1*** Form of Underwriting Agreement.
2.1 Agreement and Plan of Reorganization By and Among VIALOG
Corporation, TBMA Acquisition Corporation and Telephone Business
Meetings, Inc. and C. Raymond Marvin Dated as of September 8, 1997.
2.2 Amendment to Agreement and Plan of Reorganization By and Among
VIALOG Corporation, TBMA Acquisition Corporation, Telephone
Business Meetings, Inc. and C. Raymond Marvin Dated as of October
20, 1997.
2.3 Letter Agreement Dated November 5, 1997 between VIALOG Corporation,
Telephone Business Meetings, Inc. and C. Raymond Marvin.
2.4 Amended and Restated Agreement and Plan of Reorganization By and
Among VIALOG Corporation, CSII Acquisition Corporation and
Conference Source International, Inc. and Judy B. Crawford and Olen
E. Crawford Dated as of September 8, 1997.
2.5 Amended and Restated Asset Purchase Agreement By and Among VIALOG
Corporation, Call Points Acquisition Corporation, Call Points, Inc.
and Ropir Industries, Inc. Dated as of October 17, 1997.
2.6 Amended and Restated Agreement and Plan of Reorganization By and
Among VIALOG Corporation, KST Acquisition Corporation, Kendall
Square Teleconferencing, Inc., Courtney Snyder, Paul Ballantine,
John Hassett and Dwight Grader Dated as of September 30, 1997.
2.7 First Amendment to Amended and Restated Agreement and Plan of
Reorganization By and Among VIALOG Corporation, KST Acquisition
Corporation, Kendall Square Teleconferencing, Inc. and Courtney
Snyder, Paul Ballantine, John Hassett and Dwight Grader Dated
October 24, 1997.
2.8 Amended and Restated Agreement and Plan of Reorganization By and
Among VIALOG Corporation, AMCS Acquisition Corporation and American
Conferencing Company, Inc. and David Lipsky Dated as of September
30, 1997.
2.9 Amended and Restated Agreement and Plan of Reorganization By and
Among VIALOG Corporation, CDC Acquisition Corporation and
Communications Development Corporation and Patti R. Bisbano and
Maurya Suda Dated as of September 30, 1997.
2.10 First Amendment to Amended and Restated Agreement and Plan of
Reorganization By and Among VIALOG Corporation, CDC Acquisition
Corporation, Communication Development Corporation and Patti R.
Bisbano and Maurya Suda Dated as of October 24, 1997.
2.11+ Agreement and Plan of Reorganization by and among VIALOG
Corporation, ABC Acquisition Corporation, A Business Conference
Call, Inc. and Daniel L. Barber and Robert M. Kalla dated as of May
23, 1998.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
-------- -----------
<C> <S>
2.12*** First Amendment to Agreement and Plan of Reorganization By and
Among VIALOG Corporation, ABC Acquisition Corporation, A Business
Conference Call, Inc. and Daniel L. Barber and Robert M. Kalla
Dated as of June 5, 1998.
2.13**** Second Amendment to Agreement and Plan of Reorganization By and
Among VIALOG Corporation, ABC Acquisition Corporation, A Business
Conference Call, Inc. and Daniel L. Barber and Robert M. Kalla
Dated as of September 28, 1998.
2.14**** Third Amendment to Agreement and Plan of Reorganization By and
Among VIALOG Corporation, ABC Acquisition Corporation, A Business
Conference Call, Inc. and Daniel L. Barber and Robert M. Kalla
Dated as of December 19, 1998.
2.15**** Agreement and Plan of Reorganization By and Among VIALOG
Corporation, CPI Acquisition Corporation and Conference Pros
International, Inc. and Michael Burns Dated as of November 30,
1998.
2.16**** Agreement and Plan of Reorganization By and Among VIALOG
Corporation, Better Acquisition Corporation, and A Better
Conference, Inc. and Patricia A. Cranford and Otis Cranford and
Matthew Cranford Dated as of December , 1998.
3.1 Restated Articles of Organization of the Company.
3.2 Amended and Restated By-Laws of the Company.
3.3 Certificate of Incorporation of Communication Development
Corporation.
3.4 By-Laws of Communication Development Corporation.
3.5 Articles of Incorporation of Conference Source International, Inc.
3.6 By-Laws of Conference Source International, Inc.
3.7 Unanimous Consent of Board of Directors of Conference Source
International, Inc. Amending Section 2 of Article II of the By-
Laws.
3.8 Certificate of Incorporation of Telephone Business Meetings, Inc.
3.9 Regulations of Telephone Business Meetings, Inc.
3.10 Articles of Organization of Kendall Square Teleconferencing, Inc.
(f/k/a Teleconversant, LTD)
3.11 Articles of Amendment of Certificate of Incorporation of Kendall
Square Teleconferencing, Inc. Changing the Name of the Company
from Teleconversant, Ltd. To Kendall Square Teleconferencing, Inc.
3.12 Articles of Amendment of Certificate of Incorporation of Kendall
Square Teleconferencing, Inc. Deleting the Stock Transfer
Restrictions in Article V in Their Entirety.
3.13 By-Laws of Kendall Square Teleconferencing, Inc.
3.14 Certificate of Incorporation of American Conferencing Company,
Inc. (f/k/a AMCS Acquisition Corporation)
3.15 Certificate of Merger of American Conferencing Company, Inc. Into
AMCS Acquisition Corporation Evidencing Name Change, Filed with
the Secretary of State of Delaware.
3.16 By-Laws of American Conferencing Company, Inc.
3.17 Certificate of Incorporation of Call Points, Inc. (f/k/a Call
Points Acquisition Corporation).
3.18 Certificate of Amendment of Certificate of Incorporation of Call
Points Evidencing Name Change, Filed with the Secretary of State
of Delaware.
3.19 By-Laws of Call Points, Inc.
4.1*** Form of certificate evidencing ownership of Common Stock of the
Company.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
4.2 Indenture Dated as of November 12, 1997 Among VIALOG Corporation,
Telephone Business Meetings, Inc., Conference Source International,
Inc., Kendall Square Teleconferencing, Inc., American Conferencing
Company, Inc., Communication Development Corporation, Inc., Call
Points, Inc. and State Street Bank and Trust Company (including
Forms of Series A Security and Series B Security attached to the
Indenture as Exhibits A-1 and A-2, respectively).
4.3 Unit Agreement Dated as of November 12, 1997 By and Among VIALOG
Corporation, Telephone Business Meetings, Inc., Conference Source
International, Inc., Call Points, Inc., Kendall Square
Teleconferencing, Inc., American Conferencing Company, Inc.,
Communication Development Corporation, and State Street Bank and
Trust Company (including Form of Unit Certificate attached to the
Unit Agreement as Exhibit A).
4.4 Warrant Agreement Dated as of November 12, 1997 Between VIALOG
Corporation and State Street Bank and Trust Company (including Form
of Warrant Certificate attached to the Warrant Agreement as Exhibit
A).
4.5 Security Holders' and Registration Rights Agreement Dated as of
November 12, 1997 Among VIALOG Corporation and Jefferies & Company,
Inc.
4.6 Registration Rights Agreement Dated as of November 12, 1997 By and
Among VIALOG Corporation, Kendall Square Teleconferencing, Inc.,
AMCS Acquisition Corporation, Communication Development
Corporation, Telephone Business Meetings, Inc., Conference Source
International, Inc., Call Points Acquisition Corporation and
Jefferies & Company, Inc.
5.1*** Form of Opinion of Mirick, O'Connell, DeMallie & Lougee, LLP.
10.1 1996 Stock Plan of the Company.
10.2 Equipment Lease between CSI and Ally Capital Corporation Dated
April 1, 1996.
10.3 Equipment Lease between CSI and The CIT Group/Equipment Financing,
Inc. Dated November 11, 1996.
10.4 Equipment Lease between CSI and BSFS Equipment Leasing Dated April
8, 1996.
10.5 Equipment Lease between TCC (f/k/a Teleconversant Ltd.) and Wasco
Funding Corp. Dated May 21, 1996.
10.6 Equipment Lease between TCC (f/k/a Teleconversant Ltd.) and Wasco
Funding Corp. Dated July 20, 1995.
10.7 Lease between Aetna Life Insurance Company and ACCESS, as Amended,
Dated December 6, 1994.
10.8 Lease Agreement between SPP Real Estate (Georgia II), Inc. and CSI
Dated November 1, 1996.
10.9 Amended & Restated Employment Agreement By and Between VIALOG
Corporation and Glenn D. Bolduc Dated May 6, 1997.
10.10 Employment Agreement By and Between Telephone Business Meetings,
Inc. and C. Raymond Marvin Dated as of November 12, 1997.
10.11 Amendment to Employment Agreement between the Company and C.
Raymond Marvin Effective as of December 31, 1997.
10.12 Employment Agreement By and Between CSII Acquisition Corporation
and Judy B. Crawford Dated as of November 12, 1997.
10.13 Employment Agreement By and Between Kendall Square
Teleconferencing, Inc. and Courtney Snyder Dated November 12, 1997.
10.14 Employment Agreement By and Between American Conferencing Company,
Inc. and David Lipsky Dated as of November 12, 1997.
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
--------- -----------
<C> <S>
10.15 Employment Agreement By and Between Communication Development
Corporation and Patti R. Bisbano Dated as of November 12, 1997.
10.16 Employment Agreement By and Between the Company and William Pucci
Dated as of October 1, 1996.
10.17 Employment Agreement By and Between the Company and John Dion
Dated as of November 4, 1996.
10.18 Employment Agreement By and Between the Company and Gary Vilardi
Dated as of April 1, 1997.
10.19 Employment Agreement By and Between the Company and Robert Moore
Dated as of October 20, 1997.
10.20 Employment Agreement By and Between the Company and John Williams
Dated as of October 14, 1997.
10.21* Employment Agreement By and Between Call Points, Inc. and Olen E.
Crawford Dated as of November 20, 1997.
10.22 Stockholder Agreement By and Among John J. Hassett and VIALOG
Corporation Dated as of November 6, 1997.
10.23 Form of Registration Rights Agreement between VIALOG Corporation
and certain of its stockholders specified in Schedules I and II
attached thereto.
10.24 Lease Between Tower Investment Group and Communication
Development Corp. Dated February 23, 1990, Including Subsequent
Modifications Thereto.
10.25 Lease Agreement by and Between 680-690 Kinderkamack Road and
American Conferencing Company, Inc. Dated June 1997.
10.26 Lease Between Robert A. Jones and K. George Najarian, Trustees of
Old Cambridge Realty Trust and Old Kendall Square Realty Trust,
and Kendall Square Teleconferencing, Inc. (f/k/a Teleconversant,
Ltd.) Dated February 15, 1996.
10.27 Lease Between Ropir Communications and Call Points, Inc.
Commencing May 1, 1995.
10.28 Amendment to Lease Between Ropir Industries, Inc. and Call
Points, Inc.
10.29 Equipment Lease between Kendall Square Teleconferencing, Inc. and
Wasco Funding Corp. Dated July 31, 1997.
10.30 Sublease between Eisai Research Institute of Boston, Inc. and
VIALOG Corporation Dated as of August 20, 1997.
10.31** Assignment of Lease between Telephone Business Meetings, Inc. and
CMC Datacomm, Inc. dated as of March 13, 1998.
10.32*** Letter Agreement between Nolan Enterprises and Communication
Development Corporation Dated March 31, 1998.
10.33*** Fourth Lease Modification & Extension Agreement by and between
Danbury Executive Tower Investment Group Limited Liability
Partnership and Communication Development Corporation Dated April
1998.
10.34*** Lease between Connecticut General Life Insurance Company, on
behalf of its Separate Account R, and VIALOG Corporation Dated
April 7, 1998.
10.35**** Lease Agreement By and Between Executive Park, T.I.C. and VIALOG
Corporation Dated as of August 3, 1998.
10.36**** Employment Agreement By and Between VIALOG Corporation and
Clarrissa Peterson Dated as of August 3, 1998.
10.37+++ Loan & Security Agreement Dated as of September 30, 1998 by and
between Kendall Square Teleconferencing, Inc.; Conference Source
International, Inc.; Telephone Business Meetings, Inc.; Call
Points, Inc.; American Conferencing Company, Inc.; and
Communication Development Corporation.
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
-------- -----------
<C> <S>
10.38+++ Secured Term Note Dated September 30, 1998 in the principal amount
of $4,000,000 delivered by Kendall Square Teleconferencing, Inc.;
Conference Source International, Inc.; Telephone Business
Meetings, Inc.; Call Points, Inc.; American Conferencing Company,
Inc.; and Communication Development Corporation to Coast Business
Credit, a division of Southern Pacific Bank.
10.39+++ Secured Term Note Dated September 30, 1998 in the principal amount
of $1,500,000 delivered by Kendall Square Teleconferencing, Inc.;
Conference Source Internationa, Inc.; Telephone Business Meetings,
Inc.; Call Points, Inc.; American Conferencing Company, Inc.; and
Communication Development Corporation to Coast Business Credit, a
division of Southern Pacific Bank.
10.40+++ Security Agreement Dated September 30, 1998 by and between VIALOG
Corporation and Coast Business Credit, a division of Southern
Pacific Bank.
10.41+++ Continuing Guaranty Dated September 30, 1998 executed by VIALOG
Corporation in favor of Coast Business Credit, a division of
Southern Pacific Bank.
11.1++ Statements regarding computation of per share earnings.
21.1 Subsidiaries of the Company.
23.1**** Consent of KPMG Peat Marwick LLP.
23.2 Consent of Mirick, O'Connell, DeMallie & Lougee, LLP (included in
Exhibit 5.1).
23.3*** Consent of Edward M. Philip as nominee for director.
24*** Power of Attorney.
27.1++ Financial Data Schedules.
</TABLE>
- --------
* Incorporated by reference to the Exhibits to Amendment No. 1 to the
Registration Statement on Form S-4 filed with the Securities and Exchange
Commission on February 10, 1998 (File No. 333-44041).
** Incorporated by reference to the Exhibits to Form 10-K for the fiscal year
ended December 31, 1997 filed with the Securities and Exchange Commission
on March 31, 1998 (File No. 333-22585).
*** Previously filed.
**** Filed herewith.
All non-marked Exhibits listed above are incorporated by reference to the
Exhibits to the Registration Statement on Form S-4 filed with the
Securities and Exchange Commission on January 9, 1998 (File No. 333-
44041).
+ Incorporated by Reference to the Exhibits to the Current Report Pursuant
to Section 13 or 15(d) of the Securities Act of 1934 on Form 8-K filed
with the Securities and Exchange Commission on May 28, 1998.
++ Incorporated by reference to the Exhibits to (i) the Form 10-K for fiscal
year ended December 31, 1997 filed with the Securities and Exchange
Commission on March 31, 1998 (File No. 333-22585), (ii) the Form 10-Q for
the quarter ended March 31, 1998 filed with the Securities and Exchange
Commission on May 14, 1998 (File No. 333-22585), (iii) the Form 10-Q for
the quarter ended June 30, 1998 filed with the Securities and Exchange
Commission on August 14, 1998 (File No. 333-22585) and (iv) the Form 10-Q
for the quarter ended September 30, 1998 filed with the Securities and
Exchange Commission on November 13, 1998 (File No. 333-22585).
+++ Incorporated by reference to the Exhibits to the Current Report Pursuant
to Section 13 or 15(d) of the Securities Act of 1934 on Form 8-K filed
with the Securities and Exchange Commission on October 26, 1998.
(b) Financial Statement Schedules
All financial statement schedules have been omitted because they are not
required, not applicable, or the information to be included in the financial
statement schedules is included in the Consolidated Financial Statements or
the notes thereto.
II-8
<PAGE>
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described in Item 14, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance on Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it is declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-9
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT NO. 3 TO REGISTRATION STATEMENT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF
BOSTON, COMMONWEALTH OF MASSACHUSETTS, ON DECEMBER 31, 1998.
VIALOG Corporation
/s/ John J. Dion, Attorney-in-fact
By: _________________________________
GLENN D. BOLDUC
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
II-10
<PAGE>
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 3 TO REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN
THE CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<S> <C>
SIGNATURE TITLE
DATE
* President, Chief December 31,
- ------------------------------------- Executive Officer, 1998
GLENN D. BOLDUC Treasurer and
Director
/s/ John J. Dion Vice President-- December 31,
- ------------------------------------- Finance, Principal 1998
JOHN J. DION Financial Officer
and Principal
Accounting Officer
* Director December 31,
- ------------------------------------- 1998
JOANNA M. JACOBSON
* Director December 31,
- ------------------------------------- 1998
DAVID L. LOUGEE
* Director December 31,
- ------------------------------------- 1998
PATTI R. BISBANO
* Director December 31,
- ------------------------------------- 1998
RICHARD G. HAMERMESH
* /s/ John J. Dion
ATTORNEY-IN-FACT
</TABLE>
II-11
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
-------- -----------
<C> <S>
1.1*** Form of Underwriting Agreement.
2.1 Agreement and Plan of Reorganization By and Among VIALOG
Corporation, TBMA Acquisition Corporation and Telephone Business
Meetings, Inc. and C. Raymond Marvin Dated as of September 8,
1997.
2.2 Amendment to Agreement and Plan of Reorganization By and Among
VIALOG Corporation, TBMA Acquisition Corporation, Telephone
Business Meetings, Inc. and C. Raymond Marvin Dated as of October
20, 1997.
2.3 Letter Agreement Dated November 5, 1997 between VIALOG
Corporation, Telephone Business Meetings, Inc. and C. Raymond
Marvin.
2.4 Amended and Restated Agreement and Plan of Reorganization By and
Among VIALOG Corporation, CSII Acquisition Corporation and
Conference Source International, Inc. and Judy B. Crawford and
Olen E. Crawford Dated as of September 8, 1997.
2.5 Amended and Restated Asset Purchase Agreement By and Among VIALOG
Corporation, Call Points Acquisition Corporation, Call Points,
Inc. and Ropir Industries, Inc. Dated as of October 17, 1997.
2.6 Amended and Restated Agreement and Plan of Reorganization By and
Among VIALOG Corporation, KST Acquisition Corporation, Kendall
Square Teleconferencing, Inc., Courtney Snyder, Paul Ballantine,
John Hassett and Dwight Grader Dated as of September 30, 1997.
2.7 First Amendment to Amended and Restated Agreement and Plan of
Reorganization By and Among VIALOG Corporation, KST Acquisition
Corporation, Kendall Square Teleconferencing, Inc. and Courtney
Snyder, Paul Ballantine, John Hassett and Dwight Grader Dated
October 24, 1997.
2.8 Amended and Restated Agreement and Plan of Reorganization By and
Among VIALOG Corporation, AMCS Acquisition Corporation and
American Conferencing Company, Inc. and David Lipsky Dated as of
September 30, 1997.
2.9 Amended and Restated Agreement and Plan of Reorganization By and
Among VIALOG Corporation, CDC Acquisition Corporation and
Communications Development Corporation and Patti R. Bisbano and
Maurya Suda Dated as of September 30, 1997.
2.10 First Amendment to Amended and Restated Agreement and Plan of
Reorganization By and Among VIALOG Corporation, CDC Acquisition
Corporation, Communication Development Corporation and Patti R.
Bisbano and Maurya Suda Dated as of October 24, 1997.
2.11+ Agreement and Plan of Reorganization by and among VIALOG
Corporation, ABC Acquisition Corporation, A Business Conference
Call, Inc. and Daniel L. Barber and Robert M. Kalla dated as of
May 23, 1998.
2.12*** First Amendment to Agreement and Plan of Reorganization By and
Among VIALOG Corporation, ABC Acquisition Corporation, A Business
Conference Call, Inc. and Daniel L. Barber and Robert M. Kalla
Dated as of June 5, 1998.
2.13**** Second Amendment to Agreement and Plan of Reorganization By and
Among VIALOG Corporation, ABC Acquisition Corporation, A Business
Conference Call, Inc. and Daniel L. Barber and Robert M. Kalla
Dated as of September 28, 1998.
2.14**** Third Amendment to Agreement and Plan of Reorganization By and
Among VIALOG Corporation, ABC Acquisition Corporation, A Business
Conference Call, Inc. and Daniel L. Barber and Robert M. Kalla
Dated as of December 19, 1998.
2.15**** Agreement and Plan of Reorganization By and Among VIALOG
Corporation, CPI Acquisition Corporation and Conference Pros
International, Inc. and Michael Burns Dated as of November 30,
1998.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
-------- -----------
<C> <S>
2.16**** Agreement and Plan of Reorganization By and Among VIALOG
Corporation, Better Acquisition Corporation, and A Better
Conference, Inc. and Patricia A. Cranford and Otis Cranford and
Matthew Cranford Dated as of December , 1998.
3.1 Restated Articles of Organization of the Company.
3.2 Amended and Restated By-Laws of the Company.
3.3 Certificate of Incorporation of Communication Development
Corporation.
3.4 By-Laws of Communication Development Corporation.
3.5 Articles of Incorporation of Conference Source International, Inc.
3.6 By-Laws of Conference Source International, Inc.
3.7 Unanimous Consent of Board of Directors of Conference Source
International, Inc. Amending Section 2 of Article II of the By-
Laws.
3.8 Certificate of Incorporation of Telephone Business Meetings, Inc.
3.9 Regulations of Telephone Business Meetings, Inc.
3.10 Articles of Organization of Kendall Square Teleconferencing, Inc.
(f/k/a Teleconversant, LTD)
3.11 Articles of Amendment of Certificate of Incorporation of Kendall
Square Teleconferencing, Inc. Changing the Name of the Company
from Teleconversant, Ltd. To Kendall Square Teleconferencing, Inc.
3.12 Articles of Amendment of Certificate of Incorporation of Kendall
Square Teleconferencing, Inc. Deleting the Stock Transfer
Restrictions in Article V in Their Entirety.
3.13 By-Laws of Kendall Square Teleconferencing, Inc.
3.14 Certificate of Incorporation of American Conferencing Company,
Inc. (f/k/a AMCS Acquisition Corporation)
3.15 Certificate of Merger of American Conferencing Company, Inc. Into
AMCS Acquisition Corporation Evidencing Name Change, Filed with
the Secretary of State of Delaware.
3.16 By-Laws of American Conferencing Company, Inc.
3.17 Certificate of Incorporation of Call Points, Inc. (f/k/a Call
Points Acquisition Corporation).
3.18 Certificate of Amendment of Certificate of Incorporation of Call
Points Evidencing Name Change, Filed with the Secretary of State
of Delaware.
3.19 By-Laws of Call Points, Inc.
4.1*** Form of certificate evidencing ownership of Common Stock of the
Company.
4.2 Indenture Dated as of November 12, 1997 Among VIALOG Corporation,
Telephone Business Meetings, Inc., Conference Source
International, Inc., Kendall Square Teleconferencing, Inc.,
American Conferencing Company, Inc., Communication Development
Corporation, Inc., Call Points, Inc. and State Street Bank and
Trust Company (including Forms of Series A Security and Series B
Security attached to the Indenture as Exhibits A-1 and A-2,
respectively).
4.3 Unit Agreement Dated as of November 12, 1997 By and Among VIALOG
Corporation, Telephone Business Meetings, Inc., Conference Source
International, Inc., Call Points, Inc., Kendall Square
Teleconferencing, Inc., American Conferencing Company, Inc.,
Communication Development Corporation, and State Street Bank and
Trust Company (including Form of Unit Certificate attached to the
Unit Agreement as Exhibit A).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
4.4 Warrant Agreement Dated as of November 12, 1997 Between VIALOG
Corporation and State Street Bank and Trust Company (including Form
of Warrant Certificate attached to the Warrant Agreement as Exhibit
A).
4.5 Security Holders' and Registration Rights Agreement Dated as of
November 12, 1997 Among VIALOG Corporation and Jefferies & Company,
Inc.
4.6 Registration Rights Agreement Dated as of November 12, 1997 By and
Among VIALOG Corporation, Kendall Square Teleconferencing, Inc.,
AMCS Acquisition Corporation, Communication Development
Corporation, Telephone Business Meetings, Inc., Conference Source
International, Inc., Call Points Acquisition Corporation and
Jefferies & Company, Inc.
5.1*** Form of Opinion of Mirick, O'Connell, DeMallie & Lougee, LLP.
10.1 1996 Stock Plan of the Company.
10.2 Equipment Lease between CSI and Ally Capital Corporation Dated
April 1, 1996.
10.3 Equipment Lease between CSI and The CIT Group/Equipment Financing,
Inc. Dated November 11, 1996.
10.4 Equipment Lease between CSI and BSFS Equipment Leasing Dated April
8, 1996.
10.5 Equipment Lease between TCC (f/k/a Teleconversant Ltd.) and Wasco
Funding Corp. Dated May 21, 1996.
10.6 Equipment Lease between TCC (f/k/a Teleconversant Ltd.) and Wasco
Funding Corp. Dated July 20, 1995.
10.7 Lease between Aetna Life Insurance Company and ACCESS, as Amended,
Dated December 6, 1994.
10.8 Lease Agreement between SPP Real Estate (Georgia II), Inc. and CSI
Dated November 1, 1996.
10.9 Amended & Restated Employment Agreement By and Between VIALOG
Corporation and Glenn D. Bolduc Dated May 6, 1997.
10.10 Employment Agreement By and Between Telephone Business Meetings,
Inc. and C. Raymond Marvin Dated as of November 12, 1997.
10.11 Amendment to Employment Agreement between the Company and C.
Raymond Marvin Effective as of December 31, 1997.
10.12 Employment Agreement By and Between CSII Acquisition Corporation
and Judy B. Crawford Dated as of November 12, 1997.
10.13 Employment Agreement By and Between Kendall Square
Teleconferencing, Inc. and Courtney Snyder Dated November 12, 1997.
10.14 Employment Agreement By and Between American Conferencing Company,
Inc. and David Lipsky Dated as of November 12, 1997.
10.15 Employment Agreement By and Between Communication Development
Corporation and Patti R. Bisbano Dated as of November 12, 1997.
10.16 Employment Agreement By and Between the Company and William Pucci
Dated as of October 1, 1996.
10.17 Employment Agreement By and Between the Company and John Dion Dated
as of November 4, 1996.
10.18 Employment Agreement By and Between the Company and Gary Vilardi
Dated as of April 1, 1997.
10.19 Employment Agreement By and Between the Company and Robert Moore
Dated as of October 20, 1997.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
--------- -----------
<C> <S>
10.20 Employment Agreement By and Between the Company and John Williams
Dated as of October 14, 1997.
10.21* Employment Agreement By and Between Call Points, Inc. and Olen E.
Crawford Dated as of November 20, 1997.
10.22 Stockholder Agreement By and Among John J. Hassett and VIALOG
Corporation Dated as of November 6, 1997.
10.23 Form of Registration Rights Agreement between VIALOG Corporation
and certain of its stockholders specified in Schedules I and II
attached thereto.
10.24 Lease Between Tower Investment Group and Communication
Development Corp. Dated February 23, 1990, Including Subsequent
Modifications Thereto.
10.25 Lease Agreement by and Between 680-690 Kinderkamack Road and
American Conferencing Company, Inc. Dated June 1997.
10.26 Lease Between Robert A. Jones and K. George Najarian, Trustees of
Old Cambridge Realty Trust and Old Kendall Square Realty Trust,
and Kendall Square Teleconferencing, Inc. (f/k/a Teleconversant,
Ltd.) Dated February 15, 1996.
10.27 Lease Between Ropir Communications and Call Points, Inc.
Commencing May 1, 1995.
10.28 Amendment to Lease Between Ropir Industries, Inc. and Call
Points, Inc.
10.29 Equipment Lease between Kendall Square Teleconferencing, Inc. and
Wasco Funding Corp. Dated July 31, 1997.
10.30 Sublease between Eisai Research Institute of Boston, Inc. and
VIALOG Corporation Dated as of August 20, 1997.
10.31** Assignment of Lease between Telephone Business Meetings, Inc. and
CMC Datacomm, Inc. dated as of March 13, 1998.
10.32*** Letter Agreement between Nolan Enterprises and Communication
Development Corporation Dated March 31, 1998.
10.33*** Fourth Lease Modification & Extension Agreement by and between
Danbury Executive Tower Investment Group Limited Liability
Partnership and Communication Development Corporation Dated April
1998.
10.34*** Lease between Connecticut General Life Insurance Company, on
behalf of its Separate Account R, and VIALOG Corporation Dated
April 7, 1998.
10.35**** Lease Agreement By and Between Executive Park, T.I.C. and VIALOG
Corporation Dated as of August 3, 1998.
10.36**** Employment Agreement By and Between VIALOG Corporation and
Clarrissa Peterson Dated as of August 3, 1998.
10.37+++ Loan & Security Agreement Dated as of September 30, 1998 by and
between Kendall Square Teleconferencing, Inc.; Conference Source
International, Inc.; Telephone Business Meetings, Inc.; Call
Points, Inc.; American Conferencing Company, Inc.; and
Communication Development Corporation.
10.38+++ Secured Term Note Dated September 30, 1998 in the principal
amount of $4,000,000 delivered by Kendall Square
Teleconferencing, Inc.; Conference Source International, Inc.;
Telephone Business Meetings, Inc.; Call Points, Inc.; American
Conferencing Company, Inc.; and Communication Development
Corporation to Coast Business Credit, a division of Southern
Pacific Bank.
10.39+++ Secured Term Note Dated September 30, 1998 in the principal
amount of $1,500,000 delivered by Kendall Square
Teleconferencing, Inc.; Conference Source Internationa, Inc.;
Telephone Business Meetings, Inc.; Call Points, Inc.; American
Conferencing Company, Inc.; and Communication Development
Corporation to Coast Business Credit, a division of Southern
Pacific Bank.
</TABLE>
<PAGE>
EXHIBIT 2.13
SECOND AMENDMENT
TO
AGREEMENT AND PLAN OF REORGANIZATION
THIS SECOND AMENDMENT ("Second Amendment") to Agreement and Plan of
Reorganization by and among VIALOG Corporation, ABC Acquisition Corporation, A
Business Conference Call, Inc. and Daniel L. Barber and Robert M. Kalla, dated
as of May 23, 1998 as amended by the First Amendment to Agreement and Plan of
Reorganization dated as of June 5, 1998 (the "Agreement") is entered into as of
and effective the 28th day of September, 1998.
PREAMBLE
A. The Agreement provides for a Termination Date of September 30, 1998 or
such date after September 30, 1998 as to which the parties agree.
B. The VIALOG Public Offering has been delayed due to the conditions
prevailing in the United States and World Stock Markets and the Merger Closing
will not occur prior to the September 30, 1998 Termination Date.
C. VIALOG has requested an extension of the Termination Date and the
Company and the Stockholders are willing to extend such date on the terms herein
provided.
D. The parties enter into this Second Amendment with the foregoing
understanding.
AGREEMENT
In consideration of the provisions in the foregoing Preamble and the other
payments, covenants and agreements set forth in this Second Amendment, the
parties agree as follows:
1. Termination Date. The Termination Date set forth in Article Twelve of
----------------
the Agreement is hereby amended by deleting September 30, 1998 in two places and
inserting December 19, 1998 therein.
2. Merger Consideration. The Aggregate Merger Consideration set forth in
--------------------
Section 2.1 of the Agreement shall be changed from $14,000,000 cash to
$14,200,000 cash.
3. Payment of $200,000. Upon execution of this Second Amendment, VIALOG
-------------------
shall wire transfer to the accounts designated pursuant to the Stockholders the
aggregate sum of $100,000 each (an aggregate amount of $200,000) as a non-
refundable payment on account of the Aggregate Merger Consideration. VIALOG
shall be entitled to a credit of $200,000 in the aggregate at the time of the
Public Offering Closing Date toward payment of the Merger Consideration to each
of the Stockholders. Conversely, in the event the transaction does not close,
the payment of $200,000 shall not be refundable or otherwise an obligation of
---
the Stockholders to VIALOG or any other Person.
<PAGE>
4. Capital Expenditures and Effect on Agreement. VIALOG hereby consents
--------------------------------------------
to and approves the purchase of and payment (or accrual of liability) for,
approximately 240 ports of teleconferencing capability by the Company at a cost
of approximately $230,000 (less trade-ins). This consent is provided for all
purposes under the Agreement, and in particular Section 6.5(b)(xi) thereof. In
the event that the foregoing expenditure (a) is an account payable at the
Effective Time it shall be excluded from liabilities for purposes of Section
6.17 of the Agreement, or (b) has been paid and therefore reduced the cash of
the Company available for distribution, a credit shall be given to the
Stockholders for purposes of calculating the sums due to (including
Distributions required) the Stockholders pursuant to Section 6.17 of the
Agreement, or (c) any combination of the foregoing (a) or (b).
5. Bonus Payments. VIALOG acknowledges that the Company paid bonus
--------------
compensation to its employees at a rate of 3%, as opposed to 1%-2% (which is
customary), for the month of August 1, 1998. VIALOG consents to and approves
such payments, and waives any claims or objections related thereto.
6. Definitions. All terms capitalized in this Second Amendment without
-----------
definition have the same meanings as in the Agreement.
7. Effect of Amendment. Except as provided in this Second Amendment which
-------------------
either supersedes or supplements the Agreement with respect to the subject
matter hereof, all of the provisions of the Agreement shall remain unchanged and
unaffected by this Amendment.
IN WITNESS WHEREOF, VIALOG, VIALOG Merger Subsidiary, the Company and the
Stockholders have caused this Second Amendment to be executed as of the date
first written above by their respective officers thereunto duly authorized.
VIALOG Corporation
By: /s/ Glenn D. Bolduc
-------------------
Glenn D. Bolduc,
Its President and Chief Executive
Officer
ABC Acquisition Corporation
By: /s/ Glenn D. Bolduc
-------------------
Glenn D. Bolduc,
Its President and Chief Executive Officer
<PAGE>
A Business Conference Call, Inc.
By: /s/ Robert M. Kalla
-------------------
Robert M. Kalla, Its President
Stockholders:
/s/ Daniel L. Barber
--------------------
Daniel L. Barber
/s/ Robert M. Kalla
-------------------
Robert M. Kalla
<PAGE>
EXHIBIT 2.14
THIRD AMENDMENT
TO
AGREEMENT AND PLAN OF REORGANIZATION
THIS THIRD AMENDMENT ("Third Amendment") to Agreement and Plan of
Reorganization by and among VIALOG Corporation, ABC Acquisition Corporation, A
Business Conference Call, Inc. and Daniel L. Barber and Robert M. Kalla, dated
as of May 23, 1998 as amended by the First Amendment to Agreement and Plan of
Reorganization dated as of June 5, 1998 and the Second Amendment to Agreement
and Plan of Reorganization dated as of September 28, 1998 (as so amended, the
"Agreement") is entered into as of and effective the 19th day of December, 1998.
PREAMBLE
A. The Agreement provides for a Termination Date of December 19, 1998 or
such date after December 19, 1998 as to which the parties agree.
B. The VIALOG Public Offering has been delayed due to the conditions
prevailing in the United States and world stock markets and the Merger Closing
will not occur prior to the December 19, 1998 Termination Date.
C. VIALOG has requested an extension of the Termination Date and the
Company and the Stockholders are willing to extend such date on the terms herein
provided.
D. The parties enter into this Third Amendment with the foregoing
understanding.
AGREEMENT
In consideration of the provisions in the foregoing Preamble and the other
payments, covenants and agreements set forth in this Third Amendment, the
parties agree as follows:
1. Termination Date. The Termination Date set forth in Article Twelve of
----------------
the Agreement is hereby amended by deleting December 19, 1998 in two places and
inserting March 31, 1999 therein.
2. Merger Consideration. The Aggregate Merger Consideration set forth in
--------------------
Section 2.1 of the Agreement shall be changed from $14,200,000 cash to
$15,200,000 cash.
3. Payment of $200,000. On January 4, 1999, VIALOG shall wire transfer to
-------------------
the accounts designated pursuant to the Stockholders the aggregate sum of
$100,000 each (an aggregate amount of $200,000) as a non-refundable payment on
account of the Aggregate Merger Consideration. VIALOG shall be entitled to a
credit of $400,000 in the aggregate at the
<PAGE>
time of the Public Offering Closing Date toward payment of the Merger
Consideration to each of the Stockholders ($200,000 paid upon execution of the
Second Amendment and $200,000 to be wired in accordance with Section 3 of this
Amendment). Conversely, in the event the transaction does not close, the
aggregate payment of $400,000 shall not be refundable or otherwise an obligation
---
of the Stockholders to VIALOG or any other Person.
4. Capital Expenditures and Effect on Agreement. VIALOG hereby consents
--------------------------------------------
to and approves the additional purchase of and payment (or accrual of liability)
for, (i) approximately 144 ports of teleconferencing capability by the Company
at a cost of approximately $125,000 (less trade-ins) and (ii) up to $40,000 of
capital improvements to the Company's servers/computer software. This consent
is provided for all purposes under the Agreement, and in particular Section
6.5(b)(xi) thereof. In the event that either or both of the foregoing
expenditures (a) is an account payable at the Effective Time it shall be
excluded from liabilities for purposes of Section 6.17 of the Agreement, or (b)
has been paid and therefore reduced the cash of the Company available for
distribution, a credit shall be given to the Stockholders for purposes of
calculating the sums due to (including Distributions required) the Stockholders
pursuant to Section 6.17 of the Agreement, or (c) any combination of the
foregoing (a) or (b).
5. Employment Agreements. The employment and noncompetition agreement
---------------------
attached to the Agreement as Exhibit 7.2(s) shall be changed to reflect a 2 year
contract instead of a 1 year contract and shall include a car allowance of $350
per month, for each of the Stockholders.
6. Distributions. The vehicles currently used by each of the Stockholders
-------------
shall be converted to personal vehicles of the Stockholders at market value at
Closing and count toward the distribution to the Stockholders pursuant to
Section 6.17 of the Agreement.
7. Definitions. All terms capitalized in this Third Amendment without
-----------
definition have the same meanings as in the Agreement.
8. Effect of Amendment. Except as provided in this Third Amendment which
-------------------
either supersedes or supplements the Agreement with respect to the subject
matter hereof, all of the provisions of the Agreement shall remain unchanged and
unaffected by this Amendment.
[SIGNATURE PAGE FOLLOWS]
<PAGE>
IN WITNESS WHEREOF, VIALOG, VIALOG Merger Subsidiary, the Company and the
Stockholders have caused this Third Amendment to be executed as of the date
first written above by their respective officers thereunto duly authorized.
VIALOG Corporation
By: /s/ Glenn D. Bolduc
-------------------
Glenn D. Bolduc,
Its President and Chief Executive Officer
ABC Acquisition Corporation
By: /s/ Glenn D. Bolduc
-------------------
Glenn D. Bolduc,
Its President and Chief Executive Officer
A Business Conference Call, Inc.
By: /s/ Robert M. Kalla
-------------------
Robert M. Kalla, Its President
Stockholders:
/s/ Daniel L. Barber
--------------------
Daniel L. Barber
/s/ Robert M. Kalla
-------------------
Robert M. Kalla
<PAGE>
EXHIBIT 2.15
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
VIALOG CORPORATION
CPI ACQUISITION CORPORATION
AND
CONFERENCE PROS INTERNATIONAL, INC.
AND
MICHAEL BURNS
DATED AS OF NOVEMBER 30, 1998
<PAGE>
TABLE OF CONTENTS
PREAMBLE.......................................................... 1
ARTICLE 1 THE MERGER.............................................. 2
SECTION 1.1 The Merger..................................... 2
SECTION 1.2 Action by Stockholders......................... 2
SECTION 1.3 Closing........................................ 3
SECTION 1.4 Effective Time................................. 3
SECTION 1.5 Effect of the Merger........................... 3
SECTION 1.6 Certificate of Incorporation................... 3
SECTION 1.7 By-laws........................................ 4
SECTION 1.8 Directors and Officers......................... 4
ARTICLE 2 CONVERSION OF SECURITIES AND EXCHANGE OF CERTIFICATES... 4
SECTION 2.1 Conversion of Securities....................... 4
SECTION 2.2 Exchange of Certificates; Exchange Agent and
Exchange Procedures............................ 5
SECTION 2.3 Stock Transfer Books........................... 6
SECTION 2.4 Option Securities and Convertible Securities... 6
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY.......... 7
SECTION 3.1 Organization and Business; Power and Authority;
Etc............................................ 7
SECTION 3.2 Financial and Other Information................ 9
SECTION 3.3 Changes in Condition........................... 10
SECTION 3.4 Liabilities.................................... 10
SECTION 3.5 Title to Properties; Leases.................... 11
SECTION 3.6 Compliance with Private Authorizations......... 12
SECTION 3.7 Compliance with Governmental Authorizations and
Applicable Law................................. 12
SECTION 3.8 Intangible Assets.............................. 14
SECTION 3.9 Related Transactions........................... 14
SECTION 3.10 Insurance...................................... 14
SECTION 3.11 Tax Matters.................................... 15
SECTION 3.12 Employee Retirement Income Security Act
of 1974........................................ 16
SECTION 3.13 Absence of Sensitive Payments.................. 19
SECTION 3.14 Inapplicability of Specified Statutes.......... 19
SECTION 3.15 Authorized and Outstanding Capital Stock....... 19
SECTION 3.16 Employment Arrangements........................ 20
SECTION 3.17 Material Agreements............................ 21
SECTION 3.18 Ordinary Course of Business.................... 21
SECTION 3.19 Bank Accounts; Etc............................. 23
i
<PAGE>
SECTION 3.20 Adverse Restrictions........................... 23
SECTION 3.21 Broker or Finder............................... 23
SECTION 3.22 Personal Injury or Property Damage; Warranty
Claims; Etc.................................... 23
SECTION 3.23 Environmental Matters.......................... 24
SECTION 3.24 Materiality.................................... 26
SECTION 3.25 Solvency....................................... 26
SECTION 3.26 Compliance with Regulations Relating to
Securities Credit.............................. 26
SECTION 3.27 Certain State Statutes Inapplicable............ 26
SECTION 3.28 Continuing Representations and Warranties...... 26
SECTION 3.29 Financing Document............................. 27
SECTION 3.30 Predecessor Status; Etc........................ 27
SECTION 3.31 Systems Performance............................ 27
SECTION 3.32 Year 2000 Compliance........................... 27
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF THE
PRINCIPAL STOCKHOLDER........................................ 28
SECTION 4.1 Organization................................... 28
SECTION 4.2 Power and Authority............................ 28
SECTION 4.3 Enforceability................................. 28
SECTION 4.4 Title to Shares................................ 28
SECTION 4.5 No Conflict; Required Filings and Consents..... 29
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF VIALOG AND
VIALOG MERGER SUBSIDIARY..................................... 29
SECTION 5.1 Organization and Qualification................. 29
SECTION 5.2 Power and Authority............................ 29
SECTION 5.3 No Conflict; Required Filings and Consents..... 30
SECTION 5.4 Financing...................................... 30
SECTION 5.5 Broker or Finder............................... 30
SECTION 5.6 Prior Activities of VIALOG Merger Subsidiary... 31
SECTION 5.7 Capitalization of VIALOG Merger Subsidiary..... 31
SECTION 5.8 Financing Document............................. 31
SECTION 5.9 Financing Commitment........................... 31
SECTION 5.10 Continuing Representations and Warranties...... 31
ARTICLE 6 ADDITIONAL COVENANTS.................................... 32
SECTION 6.1 Access to Information; Confidentiality......... 32
SECTION 6.2 Agreement to Cooperate......................... 33
SECTION 6.3 Assignment of Contracts and Rights............. 34
SECTION 6.4 Audit Financial Statements..................... 35
SECTION 6.5 Conduct of Business............................ 35
SECTION 6.6 No Solicitation................................ 36
ii
<PAGE>
SECTION 6.7 Directors' and Officers' Indemnification
and Insurance.................................. 36
SECTION 6.8 Notification of Certain Matters................ 37
SECTION 6.9 Public Announcements........................... 37
SECTION 6.10 Conveyance Taxes............................... 38
SECTION 6.11 This Section Intentionally Left Blank.......... 38
SECTION 6.12 Employee Benefits; Severance Policy............ 38
SECTION 6.13 Certain Actions Concerning Business
Combinations................................... 38
SECTION 6.14 Termination of Option Securities and
Convertible Securities......................... 39
SECTION 6.15 Tax Returns.................................... 39
SECTION 6.16 This Section Intentionally Left Blank.......... 39
SECTION 6.17 Distributions; Liabilities; Etc................ 39
SECTION 6.18 Release from Personal Guarantees and Payment of
Indebtedness................................... 40
SECTION 6.19 Financing Document............................. 40
SECTION 6.20 Section 338(h)(10) Election.................... 41
SECTION 6.21 Allocation..................................... 42
SECTION 6.22 Tax Status..................................... 42
ARTICLE 7 CLOSING CONDITIONS...................................... 42
SECTION 7.1 Conditions to Obligations of Each Party to
Effect the Merger.............................. 42
SECTION 7.2 Conditions to Obligations of VIALOG and
VIALOG Merger Subsidiary....................... 43
SECTION 7.3 Conditions to Obligations of the Company....... 46
ARTICLE 8 TERMINATION, AMENDMENT AND WAIVER....................... 48
SECTION 8.1 Termination.................................... 48
SECTION 8.2 Effect of Termination.......................... 50
SECTION 8.3 Amendment...................................... 50
SECTION 8.4 Waiver......................................... 51
SECTION 8.5 Fees, Expenses and Other Payments.............. 51
SECTION 8.6 Effect of Investigation........................ 51
ARTICLE 9 ARBITRATION............................................. 51
SECTION 9.1 Best Efforts to Settle Disputes................ 51
SECTION 9.2 Arbitration.................................... 51
ARTICLE 10 INDEMNIFICATION........................................ 53
SECTION 10.1 Indemnification................................ 53
SECTION 10.2 Procedures Concerning Claims by Third Parties;
Payment of Damages; Etc........................ 54
SECTION 10.3 Access to Books and Records.................... 56
SECTION 10.4 Exclusivity.................................... 56
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ARTICLE 11 GENERAL PROVISIONS..................................... 56
SECTION 11.1 Effectiveness of Representations; Etc.......... 56
SECTION 11.2 Notices........................................ 56
SECTION 11.3 Headings....................................... 58
SECTION 11.4 Severability................................... 58
SECTION 11.5 Entire Agreement............................... 58
SECTION 11.6 Assignment..................................... 58
SECTION 11.7 Parties in Interest............................ 58
SECTION 11.8 Governing Law.................................. 58
SECTION 11.9 Enforcement of the Agreement................... 59
SECTION 11.10 Counterparts................................... 59
SECTION 11.11 Disclosure Supplements......................... 59
ARTICLE 12 DEFINITIONS............................................ 59
iv
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EXHIBIT 2.14
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION dated as of November 30, 1998 among
VIALOG Corporation, a Massachusetts corporation ("VIALOG"), CPI Acquisition
Corporation, a Delaware corporation and wholly owned subsidiary of VIALOG
("VIALOG Merger Subsidiary"), CONFERENCE PROS INTERNATIONAL, INC., a Texas
corporation (the "Company"), and MICHAEL BURNS (the "Principal Stockholder").
Capitalized terms used but not otherwise defined herein shall have the meanings
ascribed thereto in Article 12 hereof.
PREAMBLE
1. The Company and VIALOG Merger Subsidiary have agreed to carry
out a business combination transaction upon the terms and subject to the
conditions of this Agreement and in accordance with the Texas Business
Corporation Act (the "BCA") and the General Corporation Law of the State of
Delaware (the "DBCL"), pursuant to which the VIALOG Merger Subsidiary will merge
with and into the Company (the "Merger") and the Principal Stockholder and other
Persons holding equity interests in the Company (the "Stockholders") will
convert their holdings into cash determined in accordance with Section 2.1(a).
2. Pursuant to the Underwriting Agreement, VIALOG will issue and
sell VIALOG stock in a firm commitment offering (the "Financing") in accordance
with the requirements of the Securities Act of 1933, as amended (the "Securities
Act").
3. The Board of Directors of the Company has unanimously determined that
the Merger is fair to, and in the best interests of, the Company and the
Stockholders and has approved and adopted this Agreement and the Merger as a
convenient means to accomplish a cash reverse merger pursuant to the Internal
Revenue Code of 1986, as amended (the "Code") and a convenient means to cause
all of the Stockholders to transfer their capital stock of the Company to
VIALOG, has approved this Agreement, the Merger and the Transactions and has
recommended approval and adoption of this Agreement, the Merger and the
Transactions by the Stockholders.
4. The Board of Directors of VIALOG has approved and adopted this
Agreement and has approved the Merger and the Transactions as the sole
stockholder of VIALOG Merger Subsidiary and the Board of Directors of VIALOG
Merger Subsidiary has approved and adopted this Agreement.
<PAGE>
AGREEMENT
In consideration of the foregoing and the respective representations,
warranties, covenants and agreements set forth in this Agreement, the parties
agree as follows:
ARTICLE
1
THE MERGER
1.1 The Merger.
----------
(a) Upon the terms and subject to the conditions set forth in this
Agreement, and in accordance with the BCA and the DBCL at the Effective Time the
VIALOG Merger Subsidiary will be merged with and into the Company. As a result
of the Merger, the separate existence of the VIALOG Merger Subsidiary will cease
and the Company will continue as the surviving corporation of the Merger (the
"Surviving Corporation").
(b) The Company represents that, at a meeting duly called and held at
which a quorum was present and acting throughout, its Board of Directors has
unanimously (i) determined that this Agreement, the Merger and the Transactions
are fair to and in the best interest of the Stockholders, (ii) approved this
Agreement, the Merger and the Transactions, which approval satisfies in full the
requirements of the BCA and Texas law, and (iii) resolved to recommend approval
and adoption by the Stockholders of this Agreement, the Merger and the
Transactions to the extent required and in a manner permitted by Applicable Law.
1.2 Action by Stockholders.
----------------------
(a) The Company, acting through its Board of Directors, will, in
accordance with Applicable Law and its Organizational Documents: (i) as soon as
practicable and after consultation with VIALOG, duly call, give notice of,
convene and hold a special meeting of, or to the extent permitted by Applicable
Law submit for approval and adoption by written consent by, the Stockholders for
the purpose of adopting and approving this Agreement, the Merger and the
Transactions (the "Special Meeting"); (ii) include in any proxy statement the
conclusion and recommendation of the Board of Directors to the effect that the
Board of Directors, having determined that this Agreement, the Merger and the
Transactions are in the best interests of the Company and the Stockholders, has
approved this Agreement, the Merger and the Transactions and recommends that the
Stockholders vote in favor of the approval and adoption of this Agreement, the
Merger and the Transactions; and (iii) use its reasonable best efforts to obtain
the necessary approval and adoption of this Agreement, the Merger and the
Transactions by the Stockholders.
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(b) The approvals required by Sections 1.2(a) will occur prior to the
closing of the Merger (the "Merger Closing") or any filing required by state law
and in any event within 30 days of the date hereof.
1.3 Closing. Unless this Agreement is terminated pursuant to Section 8.1 and
-------
the Merger and the Transactions have been abandoned, and subject to the
satisfaction or, if possible, waiver of conditions set forth in Article 7, the
Merger Closing will take place one day prior to the Effective Date, at the
offices of Mirick, O'Connell, DeMallie & Lougee, LLP, unless another date, time
or place is agreed to in writing by the Parties to this Agreement. Counsel for
the Parties to this Agreement will hold a pre-closing at least one day prior to
the Merger Closing, at the offices of Mirick, O'Connell, DeMallie & Lougee, LLP,
for the purpose of finalizing all documents to be signed at the Merger Closing.
All certificates, legal opinions and other instruments required to be delivered
in order to satisfy the conditions to the obligations of the Parties to effect
the Merger set forth in Article 7 below shall be delivered at the Merger
Closing, and each such certificate, legal opinion or other instrument shall,
except to the extent otherwise provided in Article 7, be dated as of the
anticipated Financing Closing Date as hereafter defined, which is expected to
occur no later than three business days following the date of Merger Closing.
All such certificates, legal opinions and other instruments shall be held in
escrow by Mirick, O'Connell, DeMallie & Lougee, LLP between the Merger Closing
and the Financing Closing Date and shall be released from escrow on the
Financing Closing Date. In the event that the Financing Closing Date occurs on
a date other than the third business day following the Merger Closing, all such
certificates, legal opinions and instruments shall be re-dated as of the
Financing Closing Date. The Company, the Principal Stockholder, VIALOG and
VIALOG Merger Subsidiary shall use their respective best efforts to cause each
of the conditions set forth in Article 7 reasonably capable of being satisfied
prior to the Merger Closing, to be satisfied prior to the Merger Closing.
1.4 Effective Time. On the Financing Closing Date, the Parties will cause the
--------------
Merger to be consummated by filing articles or certificates of merger, as the
case may be, with the Secretary of State of Texas and with the Secretary of
State of Delaware, and by making any related filings required under the BCA and
the DBCL. The Merger will become effective at such time (but not prior to the
Financing Closing Date) as such articles or certificates, as the case may be,
are duly filed with the Secretary of State of Texas and the Secretary of State
of Delaware, respectively (the "Effective Time").
1.5 Effect of the Merger. From and after the Effective Time, the Surviving
--------------------
Corporation will possess all the rights, privileges, powers and franchises and
be subject to all of the restrictions, disabilities and duties of the Company
and VIALOG Merger Subsidiary, and the Merger will otherwise have the effects,
all as provided under the BCA and the DBCL.
1.6 Certificate of Incorporation. From and after the Effective Time, the
----------------------------
Certificate of Incorporation of the Surviving Corporation will be substantially
in the form attached as Exhibit 1.6 until amended in accordance with Applicable
-----------
Law, and the name of the Surviving Corporation will be the name of the Company
or such other name as VIALOG may select.
7
<PAGE>
1.7 By-laws. From and after the Effective Time, the by-laws of the Surviving
-------
Corporation will be in the form attached as Exhibit 1.7, until amended in
-----------
accordance with Applicable Law.
1.8 Directors and Officers. From and after the Effective Time, until
----------------------
successors are duly elected or appointed and qualified (or their earlier
resignation or removal) in accordance with Applicable Law (a) the directors of
VIALOG Merger Subsidiary at the Effective Time will be the directors of the
Surviving Corporation and (b) the officers of the Company at the Effective Time
will be the officers of the Surviving Corporation.
ARTICLE
2
CONVERSION OF SECURITIES AND EXCHANGE OF CERTIFICATES
2.1 Conversion of Securities. At the Effective Time, by virtue of the Merger
------------------------
and without any action on the part of VIALOG Merger Subsidiary, the Company or
the holders of any of the following securities:
(a) Each share of common stock, without par value of the Company (the
"Company Stock") issued and outstanding or issuable upon the election to
exercise or convert outstanding Option Securities and Convertible Securities
immediately prior to the Effective Time (other than any shares of Company Stock
to be canceled pursuant to Section 2.1(b)) will be converted into the right to
receive cash (the "Merger Consideration") pursuant to the following formula:
Aggregate Merger Consideration = $6,000,000
Merger Consideration = Aggregate Merger Consideration
------------------------------
Aggregate Equity
At the Effective Time, all issued and outstanding shares of Company Stock (the
"Shares") will no longer be outstanding and will automatically be canceled and
retired and will cease to exist, and certificates previously evidencing any such
Shares (each a "Certificate") will thereafter represent the right to receive,
upon the surrender of such Certificate in accordance with the provisions of
Section 2.2, cash equal to the number of Shares represented by such Certificate
multiplied by the Merger Consideration. A holder of more than one Certificate
will have the right to receive cash equal to the Merger Consideration multiplied
by the number of Shares represented by all such Certificates (the "Exchange
Merger Consideration"). The holders of Certificates previously evidencing
Shares outstanding immediately prior to the Effective Time will cease to have
any rights with respect to such Shares except as otherwise provided in this
Agreement or by Applicable Law.
8
<PAGE>
(b) Each Share held in the treasury of the Company or by any direct or
indirect wholly-owned Subsidiary of the Company immediately prior to the
Effective Time will automatically be canceled and extinguished without
conversion, and no payment will be made with respect to such Share.
(c) Each share of common stock of the VIALOG Merger Subsidiary outstanding
immediately prior to the Effective Time will be converted into and become one
share of common stock of the Surviving Corporation with the same rights, powers
and privileges as the shares so converted and will constitute the only
outstanding shares of capital stock of the Surviving Corporation.
2.2 Exchange of Certificates; Exchange Agent and Exchange Procedures.
----------------------------------------------------------------
(a) On the Financing Closing Date, VIALOG will deliver to the holders of
Shares for exchange in accordance with this Article by wire transfer of
immediately available funds to the bank accounts designated by the respective
Stockholders, an amount equal to the Merger Consideration multiplied by the
number of shares issued and outstanding immediately prior to the Effective Time
(other than Shares to be canceled pursuant to Section 2.1(b)) in exchange for
all of the outstanding Shares (collectively the "Exchange Fund").
(b) Upon surrender of a Certificate for cancellation to VIALOG or to
such other agent or agents as may be appointed by VIALOG together with such
letter of transmittal, duly executed, and such other customary documents as may
be reasonably required pursuant to such instructions (collectively, the
"Transmittal Documents"), the holder of such Certificate will become entitled to
receive, as of the Effective Time, in exchange therefor the Exchange Merger
Consideration which such holder has the right to receive pursuant to Section
2.1(a), and the Certificate so surrendered will be canceled. Until surrendered
as contemplated by this Section, each Certificate will be deemed at any time
after the Effective Time to evidence only the right to receive, upon such
surrender, the Exchange Merger Consideration, without interest.
(c) If any Certificate is lost, stolen or destroyed, upon the making of an
affidavit of that fact by the Person claiming such Certificate to be lost,
stolen or destroyed and subject to such other conditions as VIALOG may impose,
the Surviving Corporation will issue in exchange for such lost, stolen or
destroyed Certificate the Exchange Merger Consideration deliverable in respect
thereof as determined in accordance with Section 2.1(a). VIALOG may, in its
discretion and as a condition precedent to authorizing the issuance thereof by
the Surviving Corporation, require the owner of such lost, stolen or destroyed
Certificate to provide a bond or other surety to VIALOG and the Surviving
Corporation in such sum as VIALOG may reasonably direct as indemnity against any
claim that may be made against VIALOG, VIALOG Merger Subsidiary or the Surviving
Corporation (and their Affiliates) with respect to the Certificate alleged to
have been lost, stolen or destroyed.
(d) None of VIALOG, VIALOG Merger Subsidiary, the Company or the Surviving
Corporation will be liable to any holder of Shares for any cash from the
Exchange Fund delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law.
9
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(e) Each of VIALOG and the Surviving Corporation will be entitled to
deduct and withhold from the consideration otherwise payable pursuant to this
Agreement to any holder of Shares such amounts as VIALOG or the Surviving
Corporation is required to deduct and withhold with respect to the making of
such payment under the Code, or any provision of state, local or foreign tax
law. If any holder of Shares who has the right under the Code (or other
Applicable Law) to elect to receive the Exchange Merger Consideration without
any deduction or withholding therefrom, notifies VIALOG of such election to do
so and the form and content of the election is reasonably acceptable to VIALOG,
neither VIALOG nor the Surviving Corporation will deduct or withhold any amount
from the consideration payable to any such holder of Shares. To the extent that
amounts are so withheld by VIALOG or the Surviving Corporation, such withheld
amounts will be treated for all purposes of this Agreement as having been paid
to the holder of the Shares in respect of which such deduction and withholding
was made by VIALOG or the Surviving Corporation.
2.3 Stock Transfer Books. At the Merger Closing Date, the stock transfer books
--------------------
of the Company will be closed, and there will be no further registration of
transfers of Shares thereafter on the records of the Company other than to
VIALOG. On or after the Effective Time, any Certificate presented to the
Exchange Agent or the Surviving Corporation will be converted into the Exchange
Merger Consideration.
2.4 Option Securities and Convertible Securities. At the Effective Time:
--------------------------------------------
(a) Each outstanding Option Security and each outstanding Convertible
Security exercisable or convertible to purchase Shares as of immediately prior
to the Effective Time, will be canceled and the holder thereof will be entitled
to receive, and will receive, upon payment of the consideration required to
exercise or convert, or debit of such consideration against the Merger
Consideration otherwise due, and termination of such holder's rights to exercise
or convert, as the case may be, all other Option Securities or Convertible
Securities issued to such holder, Merger Consideration in the form of cash
payable with respect to the number of Shares issuable pursuant to such Option
Security or Convertible Security so exercised or converted, as the case may be,
as provided in Section 2.1(a).
(b) Each Option Security outstanding not then exercisable or exercised
and the conversion rights of each Convertible Security outstanding not then
convertible or converted will be canceled.
(c) VIALOG shall grant to Robin Fisher options for 75,000 shares of VIALOG
Stock as constituted on the date hereof exercisable at the fair market value at
the Effective Time as determined by the VIALOG Board of Directors in its
reasonable and good faith judgment, which such options shall become exercisable
for 5,700 shares on the last day of the calendar quarter in which the Effective
Time occurs and an additional 6,300 shares on the last day of the 11 calendar
quarters thereafter and expiring on the third anniversary of the Effective Time.
10
<PAGE>
ARTICLE
3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents, warrants and covenants to, and agrees with, VIALOG
and VIALOG Merger Subsidiary as follows:
3.1 Organization and Business; Power and Authority; Etc.
---------------------------------------------------
(a) The Company:
(i) is a corporation duly organized, validly existing and in good
standing under the laws of Texas.
(ii) has all requisite power and authority (corporate and other) to
own or hold under lease its properties and to conduct its
business as now conducted and as presently proposed to be
conducted, and has in full force and effect all Governmental
Authorizations and Private Authorizations and has made all
Governmental Filings, to the extent required for such ownership
and lease of its property and conduct of its business, except to
the extent the failure to have in full force and effect all
governmental authorizations and Private Authorizations and the
failure to make all governmental filings would not have an
Adverse Effect, and
(iii) has duly qualified and is authorized to do business and is in
good standing as a foreign corporation in each jurisdiction (a
true and correct list of which is set forth in Section 3.1(a) of
the Disclosure Letter as hereafter defined) in which the
character of its property or the nature of its business or
operations requires such qualification or authorization, except
to the extent the failure so to qualify or to maintain such
authorizations would not have an Adverse Effect.
(b) The Company has all requisite power and authority (corporate and
other) and has in full force and effect all Governmental Authorizations and
Private Authorizations in order to enable it to execute and deliver, and to
perform its obligations under, this Agreement and each Collateral Document
executed or required to be executed by it pursuant hereto or thereto and to
consummate the Merger and the Transactions. The execution, delivery and
performance of this Agreement and each Collateral Document executed or required
to be executed pursuant hereto or thereto have been duly authorized by all
requisite corporate or other action (other than that of the Stockholders). This
Agreement has been duly executed and delivered by the Company and constitutes,
and each Collateral Document executed or required to be executed pursuant hereto
or thereto or to consummate the Merger and the Transactions, when executed and
11
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delivered by the Company or an Affiliate of the Company will constitute, legal,
valid and binding obligations of the Company or such Affiliate, enforceable in
accordance with their respective terms except as may be limited by applicable
bankruptcy, insolvency or similar laws affecting creditors' rights generally or
the availability of equitable remedies. The affirmative vote or action by
written consent of 2/3rds of the votes the holders of the outstanding shares of
the Company are entitled to cast is the only vote of the holders of any class or
series of the capital stock of the Company necessary to approve this Agreement,
the Merger and the Transactions under Applicable Law and the Company's
Organizational Documents.
(c) Except as set forth in Section 3.1(c) of the Disclosure Letter,
neither the execution and delivery of this Agreement or any Collateral Document
executed or required to be executed pursuant hereto or thereto, nor the
consummation of the Transactions, nor compliance with the terms, conditions and
provisions hereof or thereof by the Company or any of the other parties hereto
or thereto which is Affiliated with the Company:
(i) will conflict with, or result in a breach or violation of, or
constitute a default under, the Certificate of Incorporation,
Bylaws or any Applicable Law on the part of the Company or any
Subsidiary or will conflict with, or result in a breach or
violation of, or constitute a default under, or permit the
acceleration of any obligation or liability in, or but for any
requirement of giving of notice or passage of time or both would
constitute such a conflict with, breach or violation of, or
default under, or permit any such acceleration in, any
Contractual Obligation of the Company or any Subsidiary,
(ii) will result in or permit the creation or imposition of any
Lien (except to the extent set forth in Section 3.1(c) of the
Disclosure Letter) upon any property now owned or leased by the
Company or any such other party, or
(iii) will require any Governmental Authorization or Governmental
Filing or Private Authorization, except for filing requirements
under Applicable Law in connection with the Merger and the
Transactions and as the Securities Act and applicable state
securities laws may apply to compliance by the Company with the
provisions of this Agreement relating to the Merger and
registration rights provided for hereunder and except pursuant
to the HSR Act. (if applicable).
(d) The Company does not have any Subsidiaries other than those listed on
Section 3.1(d) of the Disclosure Letter. Each Subsidiary so listed is wholly-
owned, is a corporation which is duly organized, validly existing and in good
standing under the laws of the respective state of incorporation set forth
opposite its name on Section 3.1(d) of the Disclosure Letter, and is duly
qualified and in good standing as a foreign corporation in each other
12
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jurisdiction (as shown in Section 3.1(d) of the Disclosure Letter) in which the
character of its property or the nature of its business or operations requires
such qualification or authorization, with full power and authority (corporate
and other) to carry on the business in which it is engaged. Each Subsidiary has
in full force and effect all Governmental Authorizations and Private
Authorizations and has made all Governmental Filings, to the extent required for
such ownership and lease of its property and conduct of its business. The
Company owns all of the outstanding capital stock (as shown on Section 3.1(d) of
the Disclosure Letter) of each Subsidiary, free and clear of all Liens (except
to the extent set forth in Section 3.1(d) of the Disclosure Letter), and all
such stock has been duly authorized and validly issued and is fully paid and
non-assessable. There are no outstanding Option Securities or Convertible
Securities, or agreements or understandings with respect to any of the
foregoing, of any nature whatsoever relating to the authorized and unissued or
the outstanding capital stock of any Subsidiary.
3.2 Financial and Other Information.
-------------------------------
(a) The Company has furnished to VIALOG copies of the financial
statements of the Company and its Subsidiaries listed in Section 3.2(a) of the
Disclosure Letter (the "Financial Statements"). The Financial Statements,
including in each case the notes thereto, have been prepared in accordance with
GAAP applied on a consistent basis throughout the periods covered thereby,
except as otherwise noted therein, are materially true, correct and complete, do
not contain any untrue statement of a material fact or omit to state a material
fact required by GAAP to be stated therein or necessary in order to make any
statements contained therein not misleading, and fairly present the financial
condition and results of operations of the Company and its Subsidiaries, on the
bases therein stated, as of the respective dates thereof, and for the respective
periods covered thereby subject, in the case of unaudited financial statements
to normal nonmaterial year-end audit adjustments and accruals.
(b) Neither the Disclosure Letter, the Financial Statements, this
Agreement nor any Collateral Document furnished or to be furnished by or on
behalf of the Company or any of the Stockholders pursuant to this Agreement or
any Collateral Document executed or required to be executed by or on behalf of
the Company or the Stockholders pursuant hereto or thereto or to consummate the
Merger and the Transactions, contains or will contain any untrue statement of a
material fact or omits or will omit to state a material fact required to be
stated in such document by its terms or necessary in order to make the
statements contained herein or therein not misleading and all such Collateral
Documents are and will be true, correct and complete in all material respects;
provided that:
(i) with respect to projections contained or referred to in the
Disclosure Letter, the Company represents and warrants only that
such projections were prepared in good faith on the basis of the
past business of the Company and other information and
assumptions which the Company and the Principal Stockholder
believe to be reasonable,
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(ii) each such Collateral Document will not be deemed misleading by
virtue of the absence of factual recitations or references not
germane thereto and necessary to the purpose thereof, and
(iii) responses to due diligence requests will not be subject to this
Section 3.2(b) except to the extent that, to the Company's
knowledge, such response is materially misleading.
(c) The Company does not own any capital stock or equity or proprietary
interest in any other Entity or enterprise, however organized and however such
interest may be denominated or evidenced, except as set forth in Sections 3.1(d)
or 3.2(c) of the Disclosure Letter. None of the Entities, if any, so set forth
in Section 3.2(c) of the Disclosure Letter is a Subsidiary of the Company except
as so set forth. The Company owns all of the outstanding capital stock or equity
or proprietary interests (as shown on Section 3.2(c) of the Disclosure Letter)
of each such Entity or other enterprise, free and clear of all Liens (except to
the extent set forth in Section 3.2(c) of the Disclosure Letter), and all of
such stock or equity or proprietary interests have been duly authorized and
validly issued and are fully paid and non-assessable. There are no outstanding
Option Securities or Convertible Securities, or agreements or understandings
with respect to any of the foregoing, of any nature whatsoever, except as
described in Section 3.2(c) of the Disclosure Letter.
3.3 Changes in Condition. Since the date of the most recent financial
--------------------
statements forming part of the Financial Statements, to the Company's knowledge
and except to the extent specifically described in Section 3.3 of the Disclosure
Letter, there has been no Adverse Change in the Company or the Company and its
Subsidiaries taken as a whole. There is no Event known to the Company which
Adversely Affects, or in the future might (so far as the Company or the
Principal Stockholder can now reasonably foresee) Adversely Affect, the Company
or the Company and its Subsidiaries taken as a whole, or the ability of the
Company to perform any of the obligations set forth in this Agreement or any
Collateral Document executed or required to be executed pursuant hereto or
thereto except for changes in general economic conditions and to the extent set
forth in Section 3.3 of the Disclosure Letter.
3.4 Liabilities. At the date of the most recent balance sheet forming part of
-----------
the Financial Statements, neither the Company nor any Subsidiary had any
obligations or liabilities, past, present or deferred, accrued or unaccrued,
fixed, absolute, contingent or other, except as disclosed in such balance sheet,
or the notes thereto, and since such date neither the Company nor any Subsidiary
has incurred any such obligations or liabilities, other than obligations and
liabilities incurred in the ordinary course of business consistent with past
practice of the Company and its Subsidiaries, which do not and, to the Company's
knowledge, will not, in the aggregate, Adversely Affect the Company or the
Company and its Subsidiaries taken as a whole except to the extent set forth in
Section 3.4 of the Disclosure Letter.
Neither the Company nor any Subsidiary has Guaranteed or is otherwise
primarily or secondarily liable in respect of any obligation or liability of any
other Person material to the Company or the Company and its Subsidiaries, except
for endorsements of negotiable
14
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instruments for deposit in the ordinary course of business or as disclosed in
the most recent balance sheet, or the notes thereto, forming part of the
Financial Statements or in Section 3.4 of the Disclosure Letter.
3.5 Title to Properties; Leases.
---------------------------
(a) Each of the Company and its Subsidiaries has good legal and insurable
title, with respect to all real property owned or leased (in fee simple if owned
and leasehold if leased) and marketable title if owned (in fee simple), if any,
reflected as an asset on the most recent balance sheet forming part of the
Financial Statements, or held by the Company or any of its Subsidiaries for use
in its business if not so reflected, and good indefeasible and merchantable
title to all other assets, tangible and intangible (excluding leased property),
reflected on such balance sheet, or held by the Company or any of its
Subsidiaries for use in its business if not so reflected, or purported to have
been acquired by the Company or any of its Subsidiaries since such date, except
inventory sold or depleted, or property, plant and other equipment used up or
retired, since such date, in each case in the ordinary course of business
consistent with past practice of the Company and its Subsidiaries, free and
clear of all Liens, except such as are reflected in the most recent balance
sheet, or the notes thereto, forming part of the Financial Statements or set
forth in Section 3.5(a) of the Disclosure Letter. Except for financing
statements evidencing Liens referred to in the preceding sentence (a true,
correct and complete list and description of which is set forth in Section
3.5(a) of the Disclosure Letter), to the Company's knowledge, no financing
statements under the Uniform Commercial Code and no other filing which names the
Company or any of its Subsidiaries as debtor or which covers or purports to
cover any of the property of the Company or any of its Subsidiaries is on file
in any state or other jurisdiction, and neither the Company nor any Subsidiary
has signed or agreed to sign any such financing statement or filing or any
agreement authorizing any secured party thereunder to file any such financing
statement or filing. Each Lease or other occupancy or other agreement under
which the Company or any of its Subsidiaries holds real or personal property has
been duly authorized, executed and delivered by the Company or Subsidiary, as
the case may be, and, to the Company's knowledge, by each of the parties
thereto. Each such Lease is a legal, valid and binding obligation of the Company
or a Subsidiary, as the case may be, and, to the Company's knowledge, of each
other party thereto, enforceable in accordance with its terms. Each of the
Company and its Subsidiaries has a valid leasehold interest in and enjoys
peaceful and undisturbed possession under all Leases pursuant to which it holds
any real property or tangible personal property, none of which contains any
provision which would impair the Company's ability to use such property as it is
currently used by the Company, except as described in Section 3.5(a) of the
Disclosure Letter. All of such Leases are valid and subsisting and in full force
and effect. Neither the Company nor any of its Subsidiaries nor, to the
Company's knowledge, any other party thereto, is in default in the performance,
observance or fulfillment of any obligation, covenant or condition contained in
any such Lease, except to the extent any such default would not have an Adverse
Effect.
(b) Section 3.5(b) of the Disclosure Letter contains a true, correct and
complete description of all real estate owned or leased by the Company or any of
its Subsidiaries and all Leases and an identification of all material items of
fixed assets and machinery and equipment.
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None of the fixed assets and machinery and equipment is subject to contracts of
sale, and none is held by the Company or any of its Subsidiaries as lessee or as
conditional sales venue under any Lease or conditional sales contract and none
is subject to any title retention agreement, except as set forth in Section
3.5(b) of the Disclosure Letter. The real property (other than land), fixtures,
fixed assets and machinery and equipment are in a state of good repair and
maintenance and are in good operating condition, reasonable wear and tear
excepted.
(c) Except as set forth in Section 3.5(c) of the Disclosure Letter all
real property owned or leased by the Company or any of its Subsidiaries conforms
to and complies with all applicable title covenants, conditions, restrictions
and reservations and all applicable zoning, wetlands, land use and other
Applicable Law.
3.6 Compliance with Private Authorizations. Section 3.6 of the Disclosure
--------------------------------------
Letter sets forth a true, correct and complete list and description of each
Private Authorization which individually is material to the Company or the
Company and its Subsidiaries taken as a whole, all of which are in full force
and effect. Each of the Company and each Subsidiary has obtained all Private
Authorizations which are necessary for the ownership by the Company or each
Subsidiary of its properties and the conduct of its business as now conducted or
as presently proposed to be conducted or which, if not obtained and maintained,
could, singly or in the aggregate, Adversely Affect the Company or the Company
and its Subsidiaries taken as a whole. Neither the Company nor any Subsidiary
is in breach or violation of, or is in default in the performance, observance or
fulfillment of, any Private Authorization, and no Event exists or has occurred,
which constitutes, or but for any requirement of giving of notice or passage of
time or both would constitute, such a breach, violation default, under any
Contractual Obligation or Private Authorization, except for such defaults,
breaches or violations, as do not and, to the Company's knowledge, will not have
in the aggregate any Adverse Effect on the Company or the Company and its
Subsidiaries taken as a whole or the ability of the Company to perform any of
the obligations set forth in this Agreement or any Collateral Document executed
or required to be executed pursuant hereto or thereto or to consummate the
Merger and the Transactions. No Private Authorization is the subject of any
pending or, to the Company's knowledge, threatened attack, revocation or
termination.
3.7 Compliance with Governmental Authorizations and Applicable Law.
--------------------------------------------------------------
(a) Section 3.7(a) of the Disclosure Letter contains a description of:
(i) all Legal Actions which are pending or, other than those finally
adjudicated or settled on or before December 31, 1997, in which
the Company or any of its Subsidiaries, or any of its officers
or directors, is, or at any time during the last three calendar
years ending on December 31, 1997 has been, engaged, or which
involves, or at any time during such period involved, the
business, operations or properties of the Company or any of its
Subsidiaries or, to the Company's knowledge, which is threatened
or contemplated against, or in any other manner relating
Adversely to,
16
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the Company or any of its Subsidiaries or the business,
operations or properties, or the officers or directors, or any
of them in connection therewith; and
(ii) each Governmental Authorization to which the Company or any
Subsidiary is subject and which relates to the business,
operations, properties, prospects, condition (financial or
other), or results of operations of the Company or the Company
and its Subsidiaries taken as a whole, all of which are in full
force and effect.
(b) Each of the Company and each of its Subsidiaries has obtained all
Governmental Authorizations which are necessary for the ownership or uses of its
properties and the conduct of its business as now conducted or as presently
proposed to be conducted by the Company or which, if not obtained and
maintained, could singly or in the aggregate, have any Adverse Effect on the
Company or the Company and its Subsidiaries taken as a whole. No Governmental
Authorization is the subject of any pending or, to the Company's knowledge,
threatened attack, revocation or termination. Neither the Company nor any
Subsidiary nor any officer or director (in connection with the business,
operations and properties of the Company or any Subsidiary) is or at any time
since January 1, 1993 has been, or is or has during such time been charged with,
or to the knowledge of the Company, is threatened or under investigation with
respect to any material breach or violation of, or in default in the
performance, observance or fulfillment of, any Governmental Authorization or any
Applicable Law, and no Event exists or has occurred, which constitutes, or but
for any requirement of giving of notice or passage of time or both would
constitute, such a breach, violation or default, under
(i) any Governmental Authorization or any Applicable Law, except
for such breaches, violations or defaults as do not and, to the
Company's knowledge, will not have in the aggregate any Adverse
Effect on the Company or the Company and its Subsidiaries taken
as a whole or the ability of the Company to perform any of the
obligations set forth in this Agreement or any Collateral
Document executed or required to be executed pursuant hereto or
thereto, or to consummate the Merger and the Transactions, or
(ii) any requirement of any insurance carrier, applicable to its
business, operations or properties,
except as otherwise specifically described in Section 3.7(b) of the Disclosure
Letter.
(c) With respect to matters, if any, of a nature referred to in Sections
3.7(a) or 3.7(b) of the Disclosure Letter, all such information and matters set
forth in the Disclosure Letter, individually and in the aggregate, if adversely
determined against the Company or any Subsidiary, will not Adversely Affect the
Company or the Company and its Subsidiaries taken as a whole, or the ability of
the Company to perform its obligations under this Agreement or any
17
<PAGE>
Collateral Documents or required to be executed pursuant hereto or thereto or to
consummate the Merger and the Transactions.
3.8 Intangible Assets.
-----------------
(a) Each of the Company and each Subsidiary owns or possesses or
otherwise has the right to use all Governmental Authorizations and other
Intangible Assets necessary for the present and planned future conduct of its
business, without any known conflict with the rights of others. The present and
planned future conduct of business by the Company and each Subsidiary is not
dependent upon any one or more, or all, of such Governmental Authorizations and
other Intangible Assets or rights with respect to any of the foregoing, except
as set forth in Section 3.8(a) of the Disclosure Letter.
(b) Section 3.8(b) of the Disclosure Letter sets forth a true, correct and
complete description of all of such Governmental Authorizations and other
Intangible Assets or rights with respect thereto, including without limitation
the nature of the Company's and each Subsidiary's interest in each and the
extent to which the same have been duly registered in the offices as indicated
therein.
3.9 Related Transactions. Section 3.9 of the Disclosure Letter sets forth a
--------------------
true, correct and complete description of any Contractual Obligation or
transaction, not fully discharged or consummated, as the case may be, on or
before the beginning of the Company's current fiscal year, between the Company
or any of its Subsidiaries and any of its officers, directors, employees,
stockholders, or any Affiliate of any thereof (other than reasonable
compensation for services as officers, directors and employees and reimbursement
for out-of-pocket expenses reasonably incurred in support of the Company's
business), now existing or which, at any time since its organization, existed or
occurred, including without limitation any providing for the furnishing of
services to or by, providing for rental of property, real, personal or mixed, to
or from, or providing for the lending or borrowing of money to or from or
otherwise requiring payments to or from, any officer, director, stockholder or
employee, or any Affiliate of any thereof. All such Contractual Obligations and
transactions were and are on terms and conditions not materially different to
the Company or any of its Subsidiaries than would be customary for such between
Persons who are not Affiliates or upon terms and conditions on which similar
Contractual Obligations and transactions with Persons who are not Affiliates
could fairly and reasonably be expected to be entered into, except as otherwise
set forth in Section 3.9 of the Disclosure Letter.
3.10 Insurance.
---------
(a) Section 3.10(a) of the Disclosure Letter lists all insurance policies
maintained by the Company or any Subsidiary and includes insurers' names, policy
numbers, expiration dates, risks insured against, amounts of coverage, the
annual premiums, exclusions, deductibles and self-insured retention.
(b) Neither the Company nor any Subsidiary is in breach or violation of
or in default under any such policy, and all premiums due thereon have been
paid, and each such
18
<PAGE>
policy or a comparable replacement policy will continue to be in force and
effect up to and including the Financing Closing Date. The insurance policies so
listed and identified are of a nature and scope and in amounts sufficient to
prevent the Company or any Subsidiary from becoming a coinsurer within the terms
of such policies. Except as set forth in Section 3.10(a) of the Disclosure
Letter, neither the Company nor any Subsidiary has, within the past five (5)
years, been refused insurance by any insurance carrier to which it has applied
for insurance.
3.11 Tax Matters.
-----------
(a) Each of the Company and each Subsidiary has in accordance with all
Applicable Laws filed all Tax Returns which are required to be filed, and has
paid, or made adequate provision for the payment of, all Taxes which have or may
become due and payable pursuant to said Returns and all other governmental
charges and assessments received to date. The Tax Returns of the Company and
each Subsidiary have been prepared in accordance with all Applicable Laws and
generally accepted principles applicable to taxation consistently applied. All
Taxes which the Company and each Subsidiary are required by law to withhold and
collect have been duly withheld and collected and have been paid over, in a
timely manner, to the proper Authorities to the extent due and payable. Neither
the Company nor any Subsidiary has executed any waiver to extend, or otherwise
taken or failed to take any action that would have the effect of extending, the
applicable statute of limitations in respect of any Tax liabilities of the
Company or any Subsidiary for the fiscal year prior to and including the most
recent fiscal year. Adequate provision has been made on the most recent balance
sheet forming part of the Financial Statements for all Taxes of any kind,
including interest and penalties in respect thereof, whether disputed or not,
and whether past, current or deferred, accrued or unaccrued, fixed, contingent,
absolute or other, and to the knowledge of the Company there are no transactions
or matters or any basis which might or could result in additional Taxes of any
nature to the Company or any Subsidiary for which an adequate reserve has not
been provided on such balance sheet. Each of the Company and each Subsidiary has
at all times been taxable as a Subchapter S corporation under the Code, except
as otherwise set forth in Section 3.11(a) of the Disclosure Letter. Neither the
Company nor any Subsidiary has ever been a member of any consolidated group
(other than exclusively with the Company and its Subsidiaries) for Tax purposes,
except as set forth in Section 3.11(a) of the Disclosure Letter.
(b) Each of the Company and each Subsidiary has paid all Taxes which have
become due pursuant to its Returns and has paid all installments (to the extent
required to avoid material underpayment penalties) of estimated Taxes due and
payable.
(c) From the end of its most recent fiscal year to the date hereof
neither the Company nor any Subsidiary has made any payment on account of any
Taxes except regular payments required in the ordinary course of business with
respect to current operations or property presently owned.
(d) The information shown on the federal income Tax Returns of the
Company and its Subsidiaries (true, correct and complete copies of which have
been furnished by the Company to VIALOG) is true, correct and complete and
fairly and accurately reflects the
19
<PAGE>
information purported to be shown. Federal and state income Tax Returns of the
Company and its Subsidiaries have been audited by the IRS or applicable state
Authority for the taxable periods set forth in Section 3.11(d) of the Disclosure
Letters, and neither the Company nor any Subsidiary has been notified regarding
any pending audit, except as shown in Section 3.11(d) of the Disclosure Letter.
(e) Neither the Company nor any Subsidiary is a party to any tax sharing
agreement or arrangement, except as set forth in Section 3.11(e) of the
Disclosure Letter.
(f) Neither the Company nor any Subsidiary has ever (i) filed a consent
under Section 341(f) of the Code concerning collapsible corporations or (ii)
undergone an "ownership change" within the meaning of Section 382(g) of the
Code, except as set forth in Section 3.11(f) of the Disclosure Letter.
3.12 Employee Retirement Income Security Act of 1974.
-----------------------------------------------
(a) Section 3.12(a) of the Disclosure Letter sets forth a list of all
Plans and Benefit Arrangements maintained by the Company and any of its
Subsidiaries (which for purposes of this Section 3.12 will include any ERISA
Affiliate with respect to any Plan subject to Title IV of ERISA). As to all such
Plans and Benefit Arrangements, and except as disclosed in such Section 3.12(a)
of the Disclosure Letter:
(i) all Plans and Benefit Arrangements comply currently, and have
complied in the past, in all material respects both as to form
and operation, with their terms and with all Applicable Laws,
and neither the Company nor any of its Subsidiaries has received
any outstanding notice from any Authority questioning or
challenging such compliance,
(ii) all necessary governmental approvals for each Plan and Benefit
Arrangement have been obtained; the Internal Revenue Service has
issued a favorable determination as to the tax qualified status
of each Plan intended to comply with section 401(a) of the Code
and each amendment thereto, and a recognition of exemption from
federal income taxation under Section 501(a) of the Code of each
Plan which constitutes a funded welfare plan as defined in
Section 3(1) of ERISA; and nothing has occurred since the date
of each such determination or recognition that would adversely
affect such qualification.
(iii) no Plan which is subject to Part 3 of Subtitle B of Title 1 of
ERISA or Section 412 of the Code had an accumulated funding
deficiency (as defined in Section 302(a)(2) of ERISA and Section
412 of the Code), whether or not waived, as of the last day of
the most recently completed fiscal year of such Plan,
20
<PAGE>
(iv) there are no "prohibited transactions" (as described in Section
406 of ERISA or Section 4975 of the Code) with respect to any
Plan for which the Company or any of its Subsidiaries has any
liability, nor are any of the assets of any Plan invested in
employer securities or employer real property,
(v) no Plan is subject to Title IV of ERISA, or if subject, there
have been no "reportable events" (as described in Section 4043
of ERISA) as to which there is any material risk of termination
of such Plan,
(vi) no material liability to the PBGC has been or is expected by
the Company to be incurred by the Company or any of its
Subsidiaries with respect to any Plan, and there has been no
event or condition which presents a material risk of termination
of any Plan by the PBGC,
(vii) with respect to each Plan subject to Title IV of ERISA, the
amount for which Company or any of its Subsidiaries would be
liable pursuant to the provisions of Sections 4062, 4063 or 4064
of ERISA would be zero if such Plans terminated on the date of
this Agreement,
(viii) no notice of intent to terminate a Plan has been filed with,
nor has any Plan been terminated pursuant to the provisions of
Section 4041 of ERISA,
(ix) the PBGC has not instituted proceedings to terminate (or
appointed a trustee to administer) a Plan and no event has
occurred or condition exists which might constitute grounds
under the provisions of Section 4042 of ERISA for the
termination of (or the appointment of a trustee to administer)
any such Plan,
(x) no Plan or Benefit Arrangement covers any employee or former
employee of the Company or any of its Subsidiaries that could
give rise to the payment of any amount that would not be
deductible pursuant to the terms of section 280G of the Code,
(xi) there are no Claims (other than routine claims for benefits)
pending or threatened involving any Plan or Benefit
Arrangement or any of the assets thereof,
(xii) except as set forth in Section 3.12(a) of the Disclosure
Letter (which entry, if applicable, will indicate the present
value of accumulated plan liabilities calculated in a manner
consistent with FAS 106 and the actual annual expense for such
benefits for each
21
<PAGE>
of the last two (2) years) and pursuant to the provisions of
COBRA, neither the Company nor any of its Subsidiaries maintains
any Plan that provides benefits described in Section 3(1) of
ERISA to any former employees or retirees of the Company or any
of its Subsidiaries,
(xiii) all reports, returns and similar items required to be filed
with any Authority or distributed to employees and/or Plan
participants in connection with the maintenance or operation of
any Plan or Benefit Arrangement have been duly and timely filed
and distributed, and there have been no acts or omissions by the
Company or any of its Subsidiaries, which have given rise to or
may reasonably be expected to give rise to fines, penalties,
taxes or related charges under Sections 502(c), 502(i) or 4071
or ERISA or Chapter 43 or Section 6039D of the Code for which
the Company or any of its Subsidiaries may be liable,
(xiv) neither the Company nor any of its Subsidiaries nor any of its
respective directors, officers or employees has committed, nor
to the best of the Company's knowledge has any other fiduciary
committed, any breach of the fiduciary responsibility standards
imposed by ERISA that would subject the Company or any of its
Subsidiaries or any of its respective directors, officers or
employees to liability under ERISA,
(xv) to the extent that the most recent balance sheet forming part
of the Financial Statements does not include a pro rata amount
of the contributions which would otherwise have been made in
accordance with past practices for the Plan years which include
the Financing Closing Date, such amounts are set forth in
Section 3.12(a) of the Disclosure Letter,
(xvi) the Company has furnished to VIALOG a copy of the three most
recently filed annual reports (IRS Form 5500) series and
accountant's opinion, if applicable, for each Plan (and the
three most recent actuarial valuation reports for each Plan, if
any, that is subject to Title IV of ERISA), and all information
provided by the Company to any actuary in connection with the
preparation of any such actuarial valuation report was true,
correct and complete in all material respects,
(b) Neither the Company nor any of its Subsidiaries is or ever has been
a party to any Multiemployer Plan or made contributions to any such plan.
22
<PAGE>
(c) Section 3.12(c) of the Disclosure Letter sets forth the basis of
funding, and the current status of, any past service liability with respect to
each Employment Arrangement to which the same is applicable.
3.13 Absence of Sensitive Payments. The Company has not, nor has any
-----------------------------
Subsidiary, or, to the Company's knowledge, any of its or any Subsidiary's
officers, directors, employees or Representatives, (a) made any contributions,
payments or gifts to or for the private use of any governmental office, employee
or agent where either the payment or the purpose of such contribution, payment
or gift is illegal under the laws of the United States or the jurisdiction in
which made, (b) established or maintained any unrecorded fund or asset for any
purpose or made any false or artificial entries on its books, or (c) made any
payments to any person with the intention or understanding that any part of such
payment was to be used for any purpose other than that described in the
documents supporting the payment.
3.14 Inapplicability of Specified Statutes. Neither the Company nor any
-------------------------------------
Subsidiary is a "holding company", or a "subsidiary company" or an "affiliate"
or a "holding company", as such terms are defined in the Public Utility Holding
Company Act of 1935, as amended, or an "investment company" or a company
"controlled" by or acting on behalf of an "investment company", as defined in
the Investment Company Act of 1940, as amended.
3.15 Authorized and Outstanding Capital Stock.
----------------------------------------
(a) The authorized and outstanding capital stock of the Company is as
set forth in Section 3.15(a) of the Disclosure Letter. All of such outstanding
capital stock has been duly authorized and validly issued, is fully paid and
non-assessable and is not subject to any preemptive or similar rights. Except as
set forth in Section 3.15(a) of the Disclosure Letter, (i) there is neither
outstanding nor has the Company or any Subsidiary agreed to grant or issue any
shares of its capital stock or any Option Security or Convertible Security, and
(ii) neither the Company nor any Subsidiary is a party to or is bound by any
agreement or commitment pursuant to which it is obligated to purchase, redeem or
otherwise acquire any shares of capital stock or any Option Security or
Convertible Security. Between the date of this Agreement and the Effective Time,
the Company will not, and will not permit any Subsidiary to, issue, sell or
purchase or agree to issue, sell or purchase any capital stock or any Option
Security or Convertible Security of the Company or any Subsidiary. As of the
Effective Time, the rights of the holders of all Option Securities and
Convertible Securities issued by the Company to exercise or convert such
Securities will have been terminated pursuant to the terms thereof.
(b) All of the outstanding capital stock of the Company is owned by the
Stockholders as set forth in Section 3.15(b) of the Disclosure Letter, and is,
to the Company's knowledge, free and clear of all Liens, except as set forth in
Section 3.15(b) of the Disclosure Letter. To the Company's knowledge, no Person,
and no group of Persons acting in concert, owns as much as five percent (5%) of
the Company's outstanding Common Stock, and the Company is not controlled by any
other Person, except as set forth in Section 3.15(b) of the Disclosure Letter.
23
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3.16 Employment Arrangements.
-----------------------
(a) Neither the Company nor any Subsidiary has any obligation or
liability, contingent or other, under any Employment Arrangement (whether or not
listed in Section 3.12(a) of the Disclosure Letter), other than those listed or
described in Section 3.16(a) of the Disclosure Letter. Neither the Company nor
any Subsidiary is now or during the past five (5) years has been subject to or
involved in or, to the Company's knowledge, threatened with any election for the
certification of a bargaining representative for any employees, petitions
therefor or other organizational activities, including but not limited to
voluntary requests for recognition as a bargaining representative, or
organizational campaigns of any nature, except as described in Section 3.16(a)
of the Disclosure Letter. None of the employees of the Company or any Subsidiary
are now, or during the past five (5) years have been, represented by any labor
union or other employee collective bargaining organization. Neither the Company
nor any Subsidiary are parties to any labor or other collective bargaining
agreement, and there are no pending grievances, disputes or controversies with
any union or any other employee collective bargaining organization of such
employees, or, to the Company's knowledge, threats of strikes, work stoppages or
slowdowns or any pending demands for collective bargaining by any union or other
such organization. The Company and each Subsidiary have performed all
obligations required to be performed under all Employment Arrangements and are
not in breach or violation of or in default or arrears under any of the terms,
provisions or conditions thereof.
(b) Except as set forth in Section 3.16(b) of the Disclosure Letter, no
employee will accrue or receive additional benefits, service or accelerated
rights to payments of benefits under any Employment Arrangement, including the
right to receive any parachute payment, as defined in Section 280G of the Code,
or become entitled to severance, termination allowance or similar payments as a
direct result of the transactions contemplated by this Agreement.
(c) The Company considers its and each Subsidiary's relationships with
employees to be appropriate, and except as set forth in Section 3.16(c) of the
Disclosure Letter, neither the Company nor any Subsidiary has experienced a work
slowdown or stoppage due to labor problems. Neither the Company nor any
Subsidiary has received notice of any claim that it has failed to comply with
any federal or state law, or is the subject of any investigation by any federal
or state agency to determine compliance with any federal or state law, relating
to the employment of labor, including any provisions relating to wages, hours,
collective bargaining, the payment of taxes, discrimination, equal employment
opportunity, employment discrimination, worker injury and/or occupational
safety, nor to the knowledge of the Company is there any basis for such a claim.
(d) Neither the Company nor any Subsidiary has conducted, and on or prior
to the Effective Time will not conduct, a "plant closing" or "mass layoff" of
employees of the Company or any Subsidiary as defined by the Worker Adjustment
and Retraining Notification Act of 1988 ("the WARN Act"), 29 U.S.C. 2101-2109 as
amended, or discharge, layoff, or reduce the hours of work, of employees in a
sufficient number or manner to trigger any state or local law or regulation
conditioning or regulating in any manner the discharge, layoff, or reduction in
hours of employees or the closing of a facility, plant, workplace, division or
24
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department, from the date hereof or through the Effective Time or during the
twelve-month period immediately prior thereto.
3.17 Material Agreements.
-------------------
(a) Listed on Section 3.17(a) of the Disclosure Letter are all Material
Agreements relating to the ownership or operation of the business and property
of the Company or any Subsidiary presently held or used by the Company or any
Subsidiary or to which the Company or any Subsidiary is a party or to which it
or any of its property is subject or bound. True, complete and correct copies of
each of the Material Agreements have been furnished by the Company to VIALOG (or
true, complete and correct descriptions thereof have been set forth in Section
3.17(a) of the Disclosure Letter, if any such Material Agreements are oral). All
of the Material Agreements are valid, binding and legally enforceable
obligations of the parties thereto, except as may be limited by applicable
bankruptcy, insolvency or similar laws affecting creditors' rights generally or
the availability of equitable remedies and the Company or one of its
Subsidiaries is validly and lawfully operating its business and owning its
property under each of the Material Agreements. The Company and each Subsidiary
have duly complied with all of the material terms and conditions of each
Material Agreement and have not done or performed, or failed to do or perform
(and there is no pending or, to the knowledge of the Company, threatened Claim
that the Company or any Subsidiary has not complied, done and performed or
failed to do and perform) any act the effect of which would be to invalidate or
provide grounds for the other party thereto to terminate (with or without
notice, passage of time or both) such Material Agreement or impair the rights or
benefits, or increase the costs, of the Company or any Subsidiary, under any of
the Material Agreements.
(b) Each Material Agreement, if any, set forth in Section 3.17(a) of the
Disclosure Letter calling for the delivery of goods or merchandise or the
performance of services can be satisfied or performed by the Company or one of
its Subsidiaries at margins providing an operating profit, except as set forth
in Section 3.17(b) of the Disclosure Letter.
3.18 Ordinary Course of Business.
---------------------------
(a) The Company and each Subsidiary, from the earlier of the date of the
most recent balance sheet forming part of the Financial Statements or December
31, 1997 to the date of this Agreement, and until the Effective Time, except as
may be described in Section 3.18 of the Disclosure Letter or as may be required
or permitted expressly by the terms of this Agreement or as may be approved in
writing by VIALOG:
(i) has operated, and will continue to operate, its business in
the normal, usual and customary manner in the ordinary and
regular course of business, consistent with prior practice,
(ii) has not sold or otherwise disposed of, or contracted to sell
or otherwise dispose of, and will not sell or otherwise dispose
of or contract to sell or otherwise dispose of, any of its
properties or assets, other than in the ordinary course of
business,
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(iii) except in each case in the ordinary course of business or as
detailed as transactions not in the ordinary course in the
Company's business plan set forth as Section 3.18(a) of the
Disclosure Letter, and except as expressly otherwise
contemplated hereby,
(A) has not incurred and will not incur any obligations or
liabilities (fixed, contingent or other),
(B) has not entered and will not enter into any
commitments, and
(C) has not canceled and will not cancel any debts or claims,
(iv) has not made or committed to make, and will not make or commit
to make, any additions to its property or any purchases of
machinery or equipment, except for normal maintenance and
replacements,
(v) has not discharged or satisfied, and will not discharge or
satisfy, any Lien and has not paid and will not pay any
obligation or liability (absolute or contingent) other than
current liabilities or obligations under contracts then existing
or thereafter entered into in the ordinary course of business,
and commitments under Leases existing on that date or incurred
since that date in the ordinary course of business,
(vi) except in the ordinary course, has not increased and will not
increase the compensation payable or to become payable to any of
its directors, officers, employees, advisers, consultants,
salesmen or agents or otherwise alter, modify or change the
terms of their employment or engagement,
(vii) has not suffered any material damage, destruction or loss
(whether or not covered by insurance) or any acquisition or
taking of property by any Authority,
(viii) has not waived, and will not waive, any rights of material
value without fair and adequate consideration,
(ix) has not experienced any work stoppage,
(x) has not entered into, amended or terminated and will not enter
into, amend or terminate any Lease, Governmental Authorization,
Private Authorization, Material Agreement, Employment
Arrangement, Contractual Obligation or transaction with any
Affiliate, except for terminations in the ordinary course of
business in accordance with the terms thereof,
26
<PAGE>
(xi) has not amended or terminated and will not amend or terminate,
and has kept and will keep in full force and effect including
without limitation renewing to the extent the same would
otherwise expire or terminate, all insurance policies and
coverage,
(xii) has not entered into, and will not enter into, any other
transaction or series of related transactions which individually
or in the aggregate is material to the Company or the Company
and its Subsidiaries taken as a whole, except in the ordinary
course of business, and
(xiii) has not, nor has any affiliate (as defined in Section
517.021(1) of the Florida Statutes), transacted business with
the government of Cuba or with any person or affiliate located
in Cuba.
(b) From the end of its most recent fiscal year to the date of this
Agreement, except as described in Section 3.18(b) of the Disclosure Letter,
neither the Company nor any Subsidiary has, or on or prior to the Financing
Closing Date will have, declared, made or paid, or agreed to declare, make or
pay, any Distribution.
3.19 Bank Accounts; Etc. A true and correct and complete list as of the date of
-------------------
this Agreement of all banks, trust companies, savings and loan associations and
brokerage firms in which the Company or any Subsidiary has an account or a safe
deposit box and the names of all Persons authorized to draw thereon, to have
access thereto, or to authorize transactions therein, the names of all Persons,
if any, holding powers of attorney from the Company or any Subsidiary and a
summary statement as to the terms thereof has been previously delivered to
VIALOG or is set forth in Section 3.19 of the Disclosure Letter.
3.20 Adverse Restrictions. Neither the Company nor any Subsidiary is a party to
--------------------
or subject to, nor is any of its property subject to, any Applicable Law,
Governmental Authorization, Contractual Obligation, Employment Arrangement,
Material Agreement or Private Authorization, or any other obligation or
restriction of any kind or character, or any aggregation thereof, which impairs
the Company's or any Subsidiary's ability to conduct its business as it is
currently being conducted or which could have any Adverse Effect on the Company
or the Company and its Subsidiaries taken as a whole, except as set forth in
Section 3.20 of the Disclosure Letter.
3.21 Broker or Finder. No Person assisted in or brought about the negotiation
----------------
of this Agreement, the Merger or the subject matter of the Transactions in the
capacity of broker, agent or finder or in any similar capacity on behalf of the
Company or any Stockholder.
3.22 Personal Injury or Property Damage; Warranty Claims; Etc. Except as set
---------------------------------------------------------
forth in Section 3.22 of the Disclosure Letter, neither the Company nor any
Subsidiary or any Person
27
<PAGE>
acting for or on behalf of the Company or any Subsidiary, including without
limitation any insurance carrier, has at any time since December 31, 1997, paid,
and there is not now pending or, to the knowledge of the Company, threatened any
Claim (or any basis for any such Claim) relating to, any damages to any third
party for injuries to Persons or damage to property, or for breach of warranty,
which, in the case of pending or threatened Claims, if determined Adversely to
the Company or any Subsidiary, individually or in the aggregate (taking into
account unasserted Claims of similar nature), could have any Adverse Effect on
the Company or the Company and its Subsidiaries taken as a whole.
3.23 Environmental Matters.
---------------------
(a) Except as set forth in Section 3.23(a) of the Disclosure Letter, the
Company and each Subsidiary:
(i) is in compliance in all material respects with all
Environmental Laws and has not been notified that it is liable
or potentially liable, has not received any request for
information or other correspondence concerning any site or
facility, and is not a "responsible party" or "potentially
responsible party" under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended,
the Resource Conservation Recovery Act of 1976, as amended, or
any similar state law,
(ii) has not entered into or received any consent decree, compliance
order, or administrative order relating to Environmental
Requirements,
(iii) is not a party in interest or in default under any judgment,
order, writ, injunction or decree or any final order relating to
Environmental Requirements, and
(iv) has obtained all material Governmental Authorizations and
Private Authorizations (including without limitation all
Environmental Permits) and made all Governmental Filings which
are required to be filed by the Company and each Subsidiary for
the ownership of its property, facilities and assets and the
operation of its businesses under all Environmental Laws, is and
at all times since its organization has been in material
compliance with the terms and conditions of all such required
Governmental and Private Authorizations and all Environmental
Requirements, and is not the subject of or, to the Company's
knowledge, threatened with any Legal Action involving a demand
for damages or any other potential liability with respect to
violations or breaches of any Environmental Requirement.
(b) Except as set forth in Section 3.23(b) of the Disclosure Letter:
28
<PAGE>
(i) no spill, disposal, release, burial or placement of Hazardous
Materials in the soil, air or water has occurred on any property
or facility owned, leased, operated or occupied by the Company
or any Subsidiary during the period that such facilities and
properties were owned, leased, operated or occupied by it or, to
the knowledge of the Company, at any other time or at any other
facility or site to which Hazardous Materials from or generated
by the Company or any Subsidiary may have been taken at any time
in the past,
(ii) there has been no spill, disposal, release, burial or placement
of Hazardous Materials, in the soil, air or water on any
property which could reasonably be expected to result or has
resulted in contamination of or beneath any properties or
facilities owned, leased, operated or occupied by the Company or
any Subsidiary during the period that such facilities and
properties were owned, leased, operated or occupied by it (or,
to the knowledge of the Company, at any other time), and
(iii) no notice has been received by the Company or any Subsidiary
and no Lien has arisen on its or any Subsidiary's properties or
facilities under Environmental Law.
(c) Except as set forth in Section 3.23(c) of the Disclosure Letter,
neither the Company nor any Subsidiary has any above-ground or underground tanks
on property owned, leased, operated or occupied by it for the storage of
Hazardous Materials.
(d) There has not been, and on or prior to the Effective Time, there will
not be, any past or present Events or plans of the Company or any Subsidiary or
any of its predecessors, which, individually or in the aggregate, constitute a
breach of any Environmental Requirements or which, individually or in the
aggregate, may interfere with or prevent continued compliance with all
Environmental Requirements, or which, individually or in the aggregate, may give
rise to any common law, statutory or other legal liability, or otherwise form
the basis of any Claim, assessment or remediation cost, fine, penalty or
assessment based on or related to the transportation, transmission, gathering,
processing, distribution, use, treatment, storage, disposal or handling, or the
emission, discharge, release or threatened release into the environment, of any
Hazardous Material with respect to the Company or any Subsidiary or any of its
predecessors or its or any of their business, operations or property which could
have any Adverse Effect on the Company or the Company and its Subsidiaries taken
as a whole.
(e) Except as set forth in Section 3.23(e) of the Disclosure Letter,
neither the Company nor any Subsidiary has used any Hazardous Materials in the
conduct of its business. To the extent that any Hazardous Materials are so set
forth, Section 3.23(e) of the Disclosure Letter also sets forth (i) a
description of Hazardous Materials used, (ii) the annual volume of each of the
Hazardous Materials used, (iii) the years during which each of the Hazardous
Materials
29
<PAGE>
used occurred, and (iv) the Persons to whom such Hazardous Materials were
transferred and/or transported after such use.
(f) Section 3.23(f) of the Disclosure Letter contains a complete and
correct description of all Hazardous Materials generated by the Company or any
Subsidiary which are not set forth in Section 3.23(e), the approximate annual
volumes of each of the Hazardous Materials, and all Persons to whom such
Hazardous Materials have been transferred and/or transported.
(g) No site assessment, audit, study, test or other investigation has been
conducted by or on behalf of the Company or any Subsidiary, nor has the Company
received any notice from any governmental agency, or financial institution as to
environmental matters at any property owned, leased, operated or occupied by the
Company or any Subsidiary, except as set forth in Section 3.23(g) of the
Disclosure Letter.
3.24 Materiality. To the Company's knowledge, the matters and items excluded
-----------
from the representations and warranties set forth in this Article by operation
of the materiality exceptions and materiality qualifications contained in such
representations and warranties, in the aggregate for all such excluded matters
and items, are not and could not reasonably be expected to be Adverse to the
Company or the Company and its Subsidiaries taken as a whole.
3.25 Solvency. As of the execution and delivery of this Agreement, the Company
--------
and the Company and its Subsidiaries taken as a whole are and, as of the
Effective Time, will be solvent.
3.26 Compliance with Regulations Relating to Securities Credit. None of the
---------------------------------------------------------
borrowings, if any, of the Company were incurred or used for the purpose of
purchasing or carrying any security which at the date of its acquisitions was,
or any security which now is, margin stock or other margin security within the
meaning of Regulations T of the Margin Rules or a "security that is publicly
held," within the meaning of the Margin Rules, and the cash portion of the
proceeds from the consummation of the Transactions will not be used for the
purpose of purchasing or carrying any margin stock or other margin security, or
a "security that is publicly held", or any security issued by VIALOG, or in any
way which would involve the Company in any violation of the Margin Rules, and
neither the Company nor any Subsidiary owns any margin stock or other margin
security, or a "security that is publicly held", and neither the Company nor any
Subsidiary has any present intention of acquiring any margin stock or other
margin security, or any "security that is publicly held".
3.27 Certain State Statutes Inapplicable. The provisions of applicable state
-----------------------------------
takeover laws, if any, will not apply to this Agreement, the Merger or the
Transactions.
3.28 Continuing Representations and Warranties. Except for those
-----------------------------------------
representations and warranties which speak as of a specific date, all of the
representations and warranties of the Company set forth in this Article will be
true and correct in all material respects at the Effective Time with the same
force and effect as though made on and as of that date and those, if any, which
speak as a specific date will be true and correct in all material respects as of
such date.
30
<PAGE>
3.29 Financing Document. All information furnished by or on behalf of the
------------------
Company or any Stockholder in writing for use in the Financing Document is set
forth in Section 3.29 of the Disclosure Letter and all information relating to
the Company in the Financing Document (a copy of which shall be provided by
VIALOG to the Company and Principal Stockholder for their review) is true,
correct and complete and does not contain any untrue statement of material fact
or omit to state any material fact necessary to make such statements, in the
light of the circumstances in which they were made, not misleading. In the
event any such information, through the occurrence or nonoccurrence of any event
or events between the date of this Agreement and the Effective Time, ceases to
be true, correct and complete or contains any untrue statement of material fact
or omits to state any material fact necessary to make such statements, in the
light of the circumstances in which they were made, not misleading, the Company,
upon discovery thereof will provide VIALOG, in writing, sufficient information
to correct such untrue statement or omission.
3.30 Predecessor Status; Etc. Set forth in Section 3.30 of the Disclosure
------------------------
Letter is a listing of all names of all predecessor companies of the Company and
the names of any Entities from which, since December 31, 1992, the Company
previously acquired material properties or assets. Except as disclosed in
Section 3.30 of the Disclosure Letter, the Company has never been a Subsidiary
or division of another Entity, nor a part of an acquisition which was later
rescinded. None of the Company, the Principal Stockholder or any Subsidiary has
ever owned any capital stock of VIALOG nor, except as set forth in Section 3.30
of the Disclosure Letter, has there been, since December 31, 1992, any sale or
spin-off of material assets by the Company or any Subsidiary other than in the
ordinary course of business.
3.31 Systems Performance. To the Company's knowledge, the Systems used by
--------------------
Company and each of its Subsidiaries are adequate for the conduct of their
business as presently conducted and as proposed to be conducted and there are no
requirements for Systems integration, upgrade or replacement, except as
otherwise disclosed, and there are no inadequacies that could reasonably be
expected to have an adverse effect on the future business operations of VIALOG
Merger Subsidiary. To the Company's knowledge, the Systems perform in accordance
with the written specifications therefor. The Systems' components are capable of
interconnecting or interfacing with each other, and they deliver the
functionality needed to satisfy the information system requirements of the
business of the Company and each Subsidiary as it is presently conducted.
3.32 Year 2000 Compliance.
--------------------
(a) To the Company's knowledge, the software and hardware operated by the
Company are capable of providing or are being adapted or replaced to provide
uninterrupted millennium functionality to record, store, process and present
calendar dates falling on or after January 1, 2000 and date-dependent data in
substantially the same manner and with the same functionality as such software
records, stores, processes and presents such calendar dates and date-dependent
data as of the date hereof, except for the failure to have such capability which
would not, individually or in the aggregate, be reasonably likely to have an
Adverse Effect on the
31
<PAGE>
Company. Schedule 3.32(a) of the Disclosure Letter describes actions taken by
the Company and each Subsidiary to address potential Year 2000 compliance
issues.
(b) The Company and each Subsidiary have made written inquiries of their
key suppliers, vendors and customers as to whether such persons are or will be
Year 2000 Compliant. Schedule 3.31(b) of the Disclosure Letter lists all key
suppliers, vendors and customers and includes a form of letter inquiring into
their preparations and status for becoming Year 2000 Compliant and their
response to the Company's inquiry. To the Company's knowledge, these key
suppliers, vendors and customers are Year 2000 Compliant or will be Year 2000
Compliant in a timely manner except as set forth in Section 3.31 of the
Disclosure Letter.
ARTICLE
4
REPRESENTATIONS AND WARRANTIES OF
THE PRINCIPAL STOCKHOLDER
The Principal Stockholder represents, warrants and covenants to, and agrees
with, VIALOG and VIALOG Merger Subsidiary as follows:
4.1 Organization. The Principal Stockholder (if other than an individual) is an
------------
Entity duly organized, validly existing and in good standing under the laws or
its jurisdiction of organization.
4.2 Power and Authority. The Principal Stockholder (if other than an
-------------------
individual) has adequate power and authority (corporate, partnership, trust or
other) and all necessary Governmental Authorizations and Private Authorizations
in order to enable it to execute and deliver, and to perform its obligations
under, this Agreement and each other Collateral Document executed or required to
be executed pursuant hereto or thereto. The execution, delivery and performance
of this Agreement and each other Collateral Document executed or required to be
executed pursuant hereto or thereto have, to the extent applicable, been duly
authorized by all requisite corporate, partnership, trust or other action,
including that, if required, the Principal Stockholder's stockholders or
partners.
4.3 Enforceability. This Agreement has been duly executed and delivered by the
--------------
Principal Stockholder and constitutes, and each Collateral Document executed or
required to be executed by the Principal Stockholder pursuant hereto or thereto
when executed and delivered by such Principal Stockholder will constitute legal,
valid and binding obligations of such Principal Stockholder, enforceable in
accordance with their respective terms, except as may be limited by applicable
bankruptcy, insolvency or similar laws affecting creditors' rights generally or
the availability of equitable remedies.
4.4 Title to Shares. Except as set forth in Section 4.4 of the Disclosure
---------------
Letter (all of which exceptions will be removed, satisfied or discharged no
later than the Merger Closing),
32
<PAGE>
each of the Principal Stockholder owns and has good and merchantable title to
those Shares owned by such Principal Stockholder and to be exchanged pursuant to
this Agreement, free and clear or all Liens.
4.5 No Conflict; Required Filings and Consents. Neither the execution and
------------------------------------------
delivery of this Agreement or any Collateral Document executed or required to be
executed pursuant hereto or thereto, nor the consummation of the Merger and the
Transactions, nor compliance with the terms, conditions and provisions hereof or
thereof by the Principal Stockholder:
(a) will materially conflict with, or result in a breach or violation of,
or constitute a default under, any Applicable Law on the part of such
Stockholder or will conflict with, or result in a material breach or violation
of, or constitute a material default in the performance, observance or
fulfillment of, or a material default under, or permit the acceleration of any
obligation or liability in, or, but for any requirements of notice or passage of
time or both, would constitute such a conflict with, breach or violation of, or
default under, or permit any such acceleration in, any Contractual Obligation of
such Principal Stockholder,
(b) will result in or permit the creation or imposition of any Lien upon
any property or asset of such Principal Stockholder used or now contemplated to
be used by the Company, or
(c) will require any Governmental Authorization or Governmental Filing or
Private Authorization, except for filing requirements in connection with the
Merger and the Transactions and as the Securities Act or applicable state
securities laws may apply to compliance by such Principal Stockholder with the
provisions of this Agreement relating to the Financing, pursuant to the HSR Act
(if applicable) or as set forth in Section 4.5 of the Disclosure Letter.
ARTICLE
5
REPRESENTATIONS AND WARRANTIES OF VIALOG
AND VIALOG MERGER SUBSIDIARY
VIALOG and VIALOG Merger Subsidiary, jointly and severally, represent,
warrant and covenant to, and agree with, the Company as follows:
5.1 Organization and Qualification. VIALOG is a corporation duly incorporated,
------------------------------
validly existing and in good standing under the laws of Massachusetts. VIALOG
Merger Subsidiary is a corporation duly incorporated, validly existing and in
good standing under the laws of Delaware.
5.2 Power and Authority. Except for such consents of Authorities as may be
-------------------
necessary in connection with change-of-control transactions with respect to
Governmental Authorities listed in Section 3.1(c) of the Disclosure Letter, each
of VIALOG and VIALOG Merger
33
<PAGE>
Subsidiary has all requisite power and authority (corporate and other) and has
in full force and effect all Governmental Authorizations and Private
Authorizations in order to enable it to execute and deliver, and to perform its
obligations under, this Agreement and each Collateral Document executed or
required to be executed pursuant hereto or thereto and to consummate the Merger
and the Transactions. The execution, delivery and performance of this Agreement
and each Collateral Document executed or required to be executed pursuant hereto
or thereto have been duly authorized by all requisite corporate or other action.
This Agreement has been duly executed and delivered by each of VIALOG and VIALOG
Merger Subsidiary and constitutes, and each Collateral Document executed or
required to be executed pursuant hereto or thereto when executed and delivered
by it will constitute, legal, valid and binding obligations of VIALOG and VIALOG
Merger Subsidiary, respectively, enforceable in accordance with their respective
terms, except as may be limited by applicable bankruptcy, insolvency or similar
laws affecting creditors' rights generally or the availability of equitable
remedies.
5.3 No Conflict; Required Filings and Consents. Except for such consents of
------------------------------------------
Authorities as may be necessary in connection with change-of-control
transactions with respect to Governmental Authorities listed in Section 3.1(c)
of the Disclosure Letter, neither the execution and delivery of this Agreement
or any Collateral Document executed or required to be executed pursuant hereto
or thereto, nor the consummation of the Transactions, nor compliance with the
terms, conditions and provisions hereof or thereof by each of VIALOG and VIALOG
Merger Subsidiary:
(a) will conflict with, or result in a breach or violation of, or
constitute a default under the Articles of Organization or Certificate of
Incorporation, Bylaws or any Applicable Law on the part of VIALOG or VIALOG
Merger Subsidiary or will conflict with, or result in a breach or violation of,
or constitute a default under, or permit the acceleration of any obligation or
liability in, or but for any requirement of giving of notice or passage of time
or both would constitute such a conflict with, breach or violation of, or
default under, or permit any such acceleration in, any Contractual Obligation of
VIALOG or VIALOG Merger Subsidiary, or
(b) will require any Governmental Authorization or Governmental Filing or
Private Authorization, except for filing requirements under Applicable Law in
connection with the Merger and the Transactions and as the Securities Act and
applicable state securities laws may apply to compliance by VIALOG with the
provisions of this Agreement relating to the Financing and except pursuant to
the HSR Act (if applicable).
5.4 Financing. On the Financing Closing Date VIALOG will have sufficient funds
---------
or available financing to enable the Surviving Corporation to pay the Aggregate
Merger Consideration for all Shares of the Company Stock as provided in Section
2.1(a), the consideration for each Option Security and each Convertible Security
as provided in Section 2.4, and all fees and expenses related to the Merger.
5.5 Broker or Finder. Except for the Underwriter the fees and expenses of
----------------
which (other than pursuant to the Underwriting Agreement) are solely the
responsibility of VIALOG, no Person assisted in or brought about the negotiation
of this Agreement or the subject matter of the
34
<PAGE>
Transactions in the capacity of broker, agent or finder or in any similar
capacity on behalf of VIALOG or VIALOG Merger Subsidiary.
5.6 Prior Activities of VIALOG Merger Subsidiary. VIALOG Merger Subsidiary has
--------------------------------------------
not incurred any liabilities or Contractual Obligations, except those incurred
in connection with its organization and ordinary course business operations, the
negotiation of this Agreement and the performance of this Agreement, the
proposed Financing, and the performance of all other Governmental Filings.
5.7 Capitalization of VIALOG Merger Subsidiary. All shares of common stock of
------------------------------------------
VIALOG Merger Subsidiary held by VIALOG have been duly authorized and validly
issued to VIALOG and are fully paid and non-assessable and are not subject to
any preemptive or similar rights.
5.8 Financing Document. The Financing Document and any amendments thereto will
------------------
comply when the Financing Document becomes effective in all material respects
with the provisions of the Securities Act and will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading. The
Financing Document will not as of the issue date thereof contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading, except that the representations and
warranties contained in this Section 5.8 will not apply to statements or
omissions in the Financing Document based on information relating to the
Underwriter furnished to VIALOG in writing by the Underwriter, or based on
information relating to any of the Other Participating Companies or its
stockholders furnished to VIALOG in writing by such Participating Company or any
of its stockholders, or the Company or the Stockholders furnished to VIALOG in
writing by the Company or any of the Stockholders. VIALOG will furnish the
Company with a copy of the Financing Document and of each amendment thereto
until the Merger Closing and thereafter will furnish the Principal Stockholder
with each amendment thereto and any final Financing Document.
5.9 Financing Commitment. The Financing shall be a firm commitment financing.
--------------------
5.10 Continuing Representations and Warranties. Except for those
-----------------------------------------
representations and warranties which speak as a specific date, all of the
representations and warranties of VIALOG and the VIALOG Merger Subsidiary set
forth in this Article will be true and correct in all material respects on the
Financing Closing Date with the same force and effect as though made on and as
of that date, and those, if any, which speak as of a specific date will be true
and correct in all material respects as of such date.
35
<PAGE>
ARTICLE
6
ADDITIONAL COVENANTS
6.1 Access to Information; Confidentiality.
--------------------------------------
(a) The Company will afford to VIALOG and the Representatives of VIALOG
full access during normal business hours throughout the period prior to the
Effective Time to all of its (and its Subsidiaries') properties, books,
contracts, commitments and records (including without limitation Tax Returns)
and, during such period, will furnish promptly upon request (i) a copy of each
report, schedule and other document filed or received by any of them pursuant to
the requirements of any Applicable Law (including without limitation federal or
state securities laws) or filed by any of them with any Authority in connection
with the Transactions or which may have a material effect on their respective
businesses, operations, properties, prospects, personnel, condition (financial
or other), or results of operations, (ii) to the extent not provided for
pursuant to the preceding clause, (A) all financial records, ledgers, workpapers
and other sources of financial information processed or controlled by the
Company or its accountants deemed by the Accountants necessary or useful for the
purpose of performing an audit of the Company and the Company and its
Subsidiaries taken as a whole and certifying financial statements and financial
information and (B) all other information relating to the Company, its
Subsidiaries and Stockholders that VIALOG or its Representatives requires, in
either case for inclusion in or in support of the Financing Document, and (iii)
such other information concerning any of the foregoing as VIALOG will reasonably
request. Subject to the terms and conditions of the Confidentiality Letter (as
defined below), which are expressly incorporated in this Agreement by reference
for the benefit of the parties hereto, VIALOG will hold and will use
commercially reasonable efforts to cause the Representatives of VIALOG to hold,
in strict confidence all non-public documents and information furnished (whether
prior or subsequent hereto) to VIALOG as the case may be, in connection with the
Transactions. The cost of performing such due diligence shall be the
responsibility of VIALOG.
(b) VIALOG will afford to the Company and the Representatives of the
Company full access during normal business hours throughout the period prior to
the Effective Time to all of its (and its Subsidiaries') properties, books,
contracts, commitments and records (including without limitation Tax Returns)
and, during such period, will furnish promptly upon request (i) a copy of each
report, schedule and other document filed or received by any of them pursuant to
the requirements of any Applicable Law (including without limitation federal or
state securities laws) or filed by any of them with any Authority in connection
with the Transactions or which may have a material effect on their respective
businesses, operations, properties, prospects, personnel, condition (financial
or other), or results of operations, (ii) to the extent not provided for
pursuant to the preceding clause, (A) all financial records, ledgers, workpapers
and other sources of financial information processed or controlled by VIALOG or
its accountants and (B) all other information relating to VIALOG and its
Subsidiaries that the Company or its Representatives requires, and (iii) such
other information concerning any of the foregoing as the
36
<PAGE>
Company will reasonably request. Subject to the terms and conditions of the
Confidentiality Letter (as defined below), which are expressly incorporated in
this Agreement by reference for the benefit of the parties hereto, the Company
will hold and will use commercially reasonable efforts to cause the
Representatives of the Company to hold in strict confidence all non-public
documents and information furnished (whether prior or subsequent hereto) to the
Company in connection with the Transactions. The cost of performing such due
diligence shall be the responsibility of the Stockholders.
(c) Subject to the terms and conditions of the Confidentiality Letter,
VIALOG and the Company may disclose such information as may be necessary in
connection with seeking all Governmental and Private Authorizations or that is
required by Applicable Law to be disclosed. In the event that this Agreement is
terminated in accordance with its terms, VIALOG and the Company will each
promptly redeliver all non-public written material provided pursuant to this
Section or any other provision of this Agreement or otherwise in connection with
the Merger and the Transactions and will not retain any copies, extracts or
other reproductions in whole or in part of such written material other than one
copy thereof which will be delivered to independent counsel for such party.
(d) The Company and VIALOG acknowledge that the Company and VIALOG
executed one or more Confidential Disclosure Agreements (collectively, the
"Confidentiality Letter"), which separately and as incorporated in this
Agreement will remain in full force and effect after and notwithstanding the
execution and delivery of this Agreement, and that information obtained from the
Company by VIALOG, or its Representatives or by the Company or its
Representatives from VIALOG pursuant to Section 6.1(a), the Confidentiality
Letter or otherwise will be subject to the provisions of the Confidentiality
Letter.
(e) No investigation pursuant to this Section 6.1 will affect any
representation or warranty in this Agreement of any party or any condition to
the obligations of the parties.
6.2 Agreement to Cooperate.
----------------------
(a) Each of the Parties will use good faith best efforts to take, or
cause to be taken, all actions and to do, or cause to be done, all things
necessary, proper or advisable under Applicable Law to consummate the Merger and
make effective the Transactions, including using good faith best efforts (i) to
prepare and file with the applicable Authorities as promptly as practicable
after the execution of this Agreement all requisite applications and amendments
thereto, together with related information, data and exhibits, necessary to
request issuance of orders approving the Merger and the Transactions by all such
applicable Authorities, each of which must be obtained or become final in order
to satisfy the conditions applicable to it set forth in Section 7; (ii) to
obtain all necessary or appropriate waivers, consents and approvals, (iii) to
effect all necessary registration, filings and submissions (including without
limitation the Financing Document, any filings under the Securities Act or the
HSR Act and any other submissions required or requested by any Authority, and
(iv) to lift any injunction or other legal bar to the Merger and the
Transactions (and, in such case, to proceed with the Merger and the Transactions
as expeditiously as possible), subject, however, to the requisite votes of the
37
<PAGE>
Stockholders. Each of the Parties recognizes that the consummation of the Merger
and the Transactions may be subject to the pre-merger notification requirements
of the HSR Act. Each agrees that, to the extent required by Applicable Law to
consummate the Merger, it will file with the Antitrust Division of the
Department of Justice and the Federal Trade Commission a Notification and Report
Form in a manner so as to constitute substantial compliance with the
notification requirements of the HSR Act. Each covenants and agrees to use good
faith best efforts to achieve the prompt termination or expiration of any
waiting period or any extensions thereof under the HSR Act.
(b) Each of the Parties agrees to take such actions as may be necessary to
obtain any Governmental Authorizations legally required for the consummation of
the Merger and the Transactions, including the making of any Governmental
Filings, publications and requests for extensions and waivers.
(c) The Company will use good faith best efforts on or prior to the
Financing Closing Date (i) to obtain the satisfaction of the conditions
specified in Sections 7.1 and 7.2; (ii) if requested by VIALOG, to seek the
consents (to the extent required) to the continued existence in accordance with
its then-stated terms of all long-term debt of each of the Company and each of
its Subsidiaries; and (iii) to attempt to cause those key employees of the
Company and its Subsidiaries designated by VIALOG that are not Stockholders to
execute and deliver non-competition agreements substantially conforming in form
and substance to the non-competition agreements currently maintained by VIALOG
with its key employees in the form attached as Exhibit 6.2(c). Each of VIALOG
--------------
and VIALOG Merger Subsidiary will use its best efforts on or prior to the
Financing Closing Date to obtain the satisfaction of the conditions applicable
to it specified in Sections 7.1 and 7.3. The Principal Stockholder will use good
faith best efforts to obtain the satisfaction of the conditions applicable to
the Principal Stockholder in Section 7.2.
(d) The Company agrees that, except as set forth in Section 3.19 of the
Disclosure Letter, prior to the Financing Closing Date it will not make or
permit to be made any material change affecting any bank, trust company, savings
and loan association, brokerage firm or safe deposit box or in the names of the
Persons authorized to draw thereon, to have access thereto or to authorize
transactions therein or in such powers of attorney, or open any additional
accounts or boxes or grant any additional powers of attorney, without in each
case obtaining the prior written consent of VIALOG, which consent VIALOG will
not unreasonably withhold.
(e) The Company will take such steps as are necessary and appropriate to
obtain, and will promptly obtain, satisfaction and discharge of all Liens set
forth in Section 3.15(b) of the Disclosure Letter.
6.3 Assignment of Contracts and Rights. Anything in this Agreement to the
----------------------------------
contrary notwithstanding, this Agreement will not constitute an agreement to
assign any Claim, Contractual Obligation, Governmental Authorization, Lease,
Private Authorization, commitment, sales, service or purchase order, or any
claim, right or benefit arising thereunder or resulting therefrom, if the Merger
or the Transactions would be deemed an attempted assignment thereof without the
required consent of a third party thereto and would constitute a breach thereof
or in
38
<PAGE>
any way affect the rights of VIALOG, VIALOG Merger Subsidiary or the Company
thereunder. If such consent is not obtained, or if consummation of the Merger
and the Transactions would affect the rights of the Company thereunder so that
the Surviving Corporation would not in fact receive all such rights, the Company
will cooperate with VIALOG in any arrangement designed to provide for the
benefits thereof to the Surviving Corporation, including subcontracting, sub-
licensing or subleasing to the Surviving Corporation or enforcement for the
benefit of the Surviving Corporation of any and all rights of the Company or its
Subsidiaries against a third party thereto arising out of the breach or
cancellation by such third party or otherwise. Any assumption by the Surviving
Corporation of the Company's rights thereunder by operation of law in connection
with the Merger which will require the consent or approval of any third party
will be made subject to such consent or approval being obtained.
6.4 Audited Financial Statements. The Company agrees to allow VIALOG's
----------------------------
Accountants access to the Company's business as is necessary for the Accountant
to perform and update an audit of the Company's Financial Statements for the
three years ended December 31, 1997 and any interim statements for the periods
ending prior to the Financing Closing Date (the "Audit"). The Company agrees to
promptly prepare such financial statements and update and deliver them to
VIALOG's Accountants. VIALOG shall instruct VIALOG's auditor to promptly audit
such financial statements at VIALOG's expense.
6.5 Conduct of Business.
-------------------
(a) Prior to the Effective Time or the date, if any, on which this
Agreement is earlier terminated, the Company and its Subsidiaries will (i) use
their best efforts to preserve intact their respective business organizations
and good will, keep available the services of their respective officers and
employees as a group and maintain satisfactory relationships with suppliers,
distributors, customers and others having business relationships with them, (ii)
confer on a regular and frequent basis with one or more representatives of
VIALOG to report operational matters of Materiality and the general status of
ongoing operations, and (iii) notify VIALOG of any emergency or other change in
the normal course of their business and of any governmental complaints,
investigations or hearings (or communications indicating that the same may be
contemplated) if such emergency, change, complaint, investigation or hearing
would be Material to the business, operations or financial condition of the
Company and its Subsidiaries, taken as a whole.
(b) Except as set forth in Section 6.5(b) of the Disclosure Letter or with
the written permission of VIALOG, the Company agrees further that the Company
(i) will not make, declare or pay any non cash dividends or other non cash
distributions on any shares except as permitted pursuant to Section 6.17 hereof
or the stock of the Company's Subsidiaries or redeem or repurchase or otherwise
acquire any Shares (except cancellation of options and warrants as required in
this Agreement), (ii) will not enter into or terminate any Employment
Arrangement with any director or officer, (iii) will not incur any obligation or
liability (absolute or contingent), except current liabilities incurred, and
obligations under contracts entered into, in the ordinary course of business,
(iv) will not discharge or satisfy any Lien or Encumbrance or pay any obligation
or liability (absolute or contingent) other than current liabilities shown on
its Financial
39
<PAGE>
Statements, and current liabilities incurred since those dates in the ordinary
course of business, (v) will not mortgage, pledge, create a security interest
in, or subject to Lien or other Encumbrance any of its assets, tangible or
intangible, (vi) will not sell or transfer any of its tangible assets or cancel
any debts or claims except in each case in the ordinary course of business,
(vii) will not sell, assign, or transfer any trademark, trade name, patent, or
other Intangible Asset, (viii) will not waive any right of any substantial
value, (ix) will not make any material change in the tax procedures or practices
followed by the Company or any of its Subsidiaries, (x) will not make any change
in credit terms offered by the Company or any of its Subsidiaries, (xi) will not
make any capital expenditure or Material Commitment for any additions or
improvements to its or any of its Subsidiary's property, plant or equipment,
(xii) will not amend its capitalization, or issue any stocks, bonds or other
securities, except that the Company may issue shares pursuant to outstanding
Option Securities and Convertible Securities, (xiii) will not enter into, modify
or extend, or promise any bonus or incentive compensation program that was not
in place prior to December 31, 1997 and (xiv) will otherwise conduct its
operation and the operations of its Subsidiaries according to their ordinary and
usual course of business.
6.6 No Solicitation. During the term of this Agreement the Company will not,
---------------
nor will it permit any Subsidiary, or any of the Company's or any Subsidiary's
Representatives (including, without limitation, any investment banker, attorney
or accountant retained by it) to, initiate, or solicit, directly or indirectly,
any inquiries or the making of any proposal with respect to an Other
Transaction, engage in negotiations concerning, or provide to any other person
any information or data relating to it or any Subsidiary for the purposes of, or
otherwise cooperate in any way with or assist or participate in, the making of
any proposal which constitutes, or may reasonably be expected to lead to, a
proposal to seek or effect an Other Transaction, or agree to or endorse any
Other Transaction. Nothing contained in this Section will prohibit the Company
or its Board of Directors from making any disclosure to Stockholders that, in
the reasonable judgment of its Board of Directors in accordance with, and based
upon the written advice of outside counsel, is required under Applicable Law.
During the term of this Agreement the Company will promptly advise VIALOG of,
and communicate the material terms of, any proposal it may receive, or any
inquires it receives which may reasonably be expected to lead to such a proposal
relating to an Other Transaction, and the identity of the Person making it. The
Company will further advise VIALOG of the status and changes in the material
terms of any such proposal or inquiry (or any amendment to any of them) if any
such changes or amendments occur during the term hereof. During the term of
this Agreement, the Company will not enter into any agreement oral or written,
and whether or not legally binding, with any Person that provides for, or in any
way facilitates an Other Transaction, or affects any other obligation of the
Company under this Agreement.
6.7 Directors' and Officers' Indemnification and Insurance.
------------------------------------------------------
(a) From and after the Effective Time, VIALOG and the Surviving
Corporation will indemnify, defend and hold harmless the present and former
officers and directors of the Company against all Claims or amounts that are
paid in settlement of, with the approval of the Surviving Corporation, or
otherwise in connection with any Claim based in whole or in part on
40
<PAGE>
the fact that such Person is or was a director or officer of the Company and
arising out of actions or omissions occurring at or prior to the Effective Time
(including, without limitation, the Merger and the Transactions), in each case
to the fullest extent permitted under the BCA or the DBCL or the laws of the
Commonwealth of Massachusetts whichever governs and affords the greatest
protection (and will pay any expenses in advance of the final disposition of any
such action or proceeding to each such Person to the fullest extent permitted
under the BCA or the DBCL or the laws of the Commonwealth of Massachusetts, upon
receipt from the Person to whom expenses are advanced of an undertaking to repay
such advances to the extent required under such laws. VIALOG will cause the
Surviving Corporation to, and the Surviving Corporation will observe and comply
with the Company's obligations pursuant to the indemnification agreements, if
any, listed in Section 3.9 of the Disclosure Letter.
(b) This Section 6.7 is intended to be for the benefit of, and will be
enforceable by, the current and former officers and directors of the Company,
their heirs and personal representatives and will be binding on the Surviving
Corporation and its respective successors and assigns.
(c) VIALOG will apply for directors and officers insurance in the amount
of $2,000,000 for the benefit of the directors and officers of VIALOG and the
Surviving Corporations.
(d) The Surviving Corporation will not amend or change its Articles or
Certificate of Incorporation or By-Laws to adopt a lesser standard of
indemnification.
6.8 Notification of Certain Matters. The Company will give prompt notice to
-------------------------------
VIALOG, and VIALOG will give prompt notice to the Company, of (a) the occurrence
or non-occurrence of any Event the occurrence or non-occurrence of which would
be likely to cause in any material respect (i) any representation or warranty of
the Company or VIALOG, as the case may be, contained in this Agreement to be
untrue or inaccurate, or (ii) in the case of the Company or the Principal
Stockholder, any change to be made in the Disclosure Letter and (b) any failure
of the Company or VIALOG, as the case may be, to comply with or satisfy, or be
able to comply with or satisfy, any material covenant, condition or agreement to
be complied with or satisfied by it under this Agreement. The delivery of any
notice pursuant to this Section 6.8 will not limit or otherwise affect the
remedies available hereunder to the Party receiving such notice.
6.9 Public Announcements. Until the earlier of the Effective Time or the
--------------------
termination of this Agreement the Company will consult with VIALOG before
issuing any press release or otherwise making any public statements with respect
to this Agreement, the Merger or any Transaction (including the Participating
Mergers or the termination of this Agreement in such event) and will not issue
any such press release or make any such public statement without the prior
consent of VIALOG. The Company acknowledges and agrees that VIALOG may, without
the prior consent of the Company, issue such press release or make such public
statement as in the reasonable opinion of counsel to VIALOG may be required by
Applicable Law or any listing agreement or arrangement to which VIALOG is a
party with a national securities exchange or the
41
<PAGE>
National Association of Securities Dealers, Inc. Notwithstanding anything to the
contrary in the preceding sentence, VIALOG will give one day prior written
notice to the Company of any press release or public statement it may be
required to issue or make and VIALOG agrees to make any changes to such press
releases or public statements as reasonably requested by the Company. VIALOG
will furnish the Company with a copy of any press release or public information
of VIALOG, at a reasonable time prior to its release for publication.
6.10 Conveyance Taxes. The Parties will cooperate with one another in the
----------------
preparation, execution and filing of all Returns, questionnaires, applications,
or other documents regarding any real property transfer or gains, sales, use,
transfer, value added, stock transfer and stamp Taxes, any transfer, recording,
registration and other fees, and any similar Taxes which become payable in
connection with the Transactions that are required or permitted to be filed on
or before the Effective Time.
6.11 This Section Intentionally Left Blank.
-------------------------------------
6.12 Employee Benefits; Severance Policy. VIALOG will cause the Surviving
-----------------------------------
Corporation to maintain for a period ending 90 days after the Effective Time:
(a) employee incentive compensation and fringe benefits that are
substantially equivalent to those provided to employees of the Company and its
Subsidiaries as in effect on the date of this Agreement, subject to the right of
VIALOG and the Surviving Corporation to amend or terminate such programs in
accordance with their terms, provided that after any such amendment or
termination the resulting programs continue to be substantially equivalent to
the existing programs, and
(b) employee severance pay and benefits that are substantially
equivalent to the applicable severance programs of the Company and its
Subsidiaries as in effect on the date hereof, subject to the right of VIALOG and
the Surviving Corporation to amend or terminate such programs in accordance with
their terms, provided that after any such amendment or termination, the
resulting programs continue to be substantially equivalent to the existing
programs.
Notwithstanding the foregoing, as soon as convenient after such period, the
Surviving Corporation may, in its sole discretion, substitute employee
compensation, benefit and severance programs for those of the Company as are
consistent with the programs provided to VIALOG's employees and the employees of
VIALOG's Subsidiaries.
6.13 Certain Actions Concerning Business Combinations.
------------------------------------------------
(a) Neither the Principal Stockholder nor any Representative thereof will,
during the period commencing on the date hereof and ending with the earlier to
occur of the Merger Closing or the termination of this Agreement in accordance
with its terms, directly or indirectly (i) solicit or initiate the submission of
proposals or offers from any Person or, (ii) participate in any negotiations
pertaining to, or (iii) furnish any information to any Person other than VIALOG
relating to, any acquisition or purchase of all or a material amount of the
42
<PAGE>
assets of, or any equity interest in, the Company or a merger, consolidation or
business combination of the Company or any Subsidiary (other than the Merger).
(b) The Company will not apply, and will not take any action resulting
in the application of, or otherwise elect to apply, the provisions of applicable
state takeover laws, if any, with respect to or as a result of the Merger or the
Transactions.
6.14 Termination of Option Securities and Convertible Securities. The Company
-----------------------------------------------------------
will take all action necessary to terminate the exercise rights of all
outstanding Option Securities and the conversion rights of all Convertible
Securities issued by the Company as of the Effective Time to the extent such
option and conversion rights are not exercised prior to the Merger Closing, and
to provide timely notice to all holders of Option Securities and Convertible
Securities notifying them of such termination. Without the prior written
consent of VIALOG, except as set forth in Section 3.15(a) of the Disclosure
Letter, (a) such termination or notice will not cause an acceleration of the
exercise, conversion or vesting schedule of any Option Security or of any
Convertible Security, and (b) the Company will not otherwise accelerate, or
cause an acceleration of, the exercise, conversion or vesting schedule of any
Option Security or Convertible Security. Prior to the Merger Closing, the
Company will issue Certificates to all holders of properly exercised Option
Securities and properly converted Convertible Securities. Such Certificates
will accurately represent the number of Shares to which such holder is entitled
by virtue of such exercise or conversion and the Company will amend Section
3.15(b) of the Disclosure Letter accordingly.
6.15 Tax Returns. The Principal Stockholder will cause all Tax Returns of the
-----------
Company and its Subsidiaries with respect to taxable periods ending on or before
the Effective Time to be prepared in a manner consistent with past practices and
VIALOG will file such Tax Returns promptly upon receipt thereof from the
Principal Stockholder or the Company. At least thirty days before the due date
(including any extensions) for any such Tax Returns, the Principal Stockholder
or the Company will provide drafts of such Tax Returns to VIALOG for its review
and comment (which reasonable comments will be incorporated into the final Tax
Returns), and VIALOG will cooperate with the Principal Stockholder and provide
the Principal Stockholder with access to any books and records reasonably
necessary for their preparation of such draft Tax Returns. VIALOG will file no
amended Tax Returns with respect to the Company and the Subsidiaries for any
taxable period ending on or before the Effective Time if the Principal
Stockholder reasonably objects thereto and furnishes VIALOG with indemnification
satisfactory in form and substance to it, including without limitation,
indemnification for all interest, penalties and Expenses resulting from the
failure to amend such Tax Returns and all proceedings in connection therewith.
6.16 This Section Intentionally Left Blank.
-------------------------------------
6.17 Distributions; Liabilities; Etc.
-------------------------------
(a) The Company and the Principal Stockholder acknowledge and agree that
(i) prior to the Merger Closing the Company will make no Distributions to
Stockholders, employees of and consultants to the Company, (ii) no later than
Merger Closing, the Company
43
<PAGE>
will cause certain Liens to be discharged in their entirety (with financing
statement terminations properly recorded), and (iii) as of Merger Closing, the
Principal Stockholder will indemnify VIALOG for certain liabilities (except to
the extent obligees with respect thereto release the Company and its Affiliates
therefrom), in each case as set forth in the Disclosure Letter. Section 6.17 of
the Disclosure Letter lists each such Distribution, Lien and liability, if any;
(b) The Company agrees that Distributions not permitted pursuant to
Section 3.18 will be made by the Company (or VIALOG or the Surviving Company if
after the Effective Time) only to the extent provided in Section 6.17 of the
Disclosure Letter; and
(c) The Company and the Principal Stockholder further agree that,
notwithstanding anything to the contrary in Section 10.1, they will indemnify
VIALOG and VIALOG Merger Subsidiary against all Claims and Expenses incurred by
VIALOG and VIALOG Merger Subsidiary (or either of them) by virtue of any failure
on the Company's part to secure the discharges from Liens contemplated by
Section 6.17 of the Disclosure Letter or any damage or harm attributable to a
liability to be indemnified against as contemplated by Section 6.17 of the
Disclosure Letter.
6.18 Release from Personal Guarantees and Payment of Indebtedness. On or prior
------------------------------------------------------------
to the Effective Time, VIALOG will:
(a) either obtain releases of the personal guarantees of the Stockholders
of Indebtedness or discharge or arrange for the discharge of such Indebtedness
as soon thereafter as practicable but in no event more than 30 days after the
Effective Time; and
(b) will repay the Indebtedness shown in Section 6.18 of the Disclosure
Letter. VIALOG will either obtain releases of the personal guarantees of the
Stockholders of Contractual Obligations which extend beyond the Effective Time
and or indemnify and hold the Stockholders harmless from such personal
guarantees.
6.19 Financing Document.
------------------
(a) The Company and the Principal Stockholder will furnish to VIALOG all
necessary information concerning the Company and the Principal Stockholder for
VIALOG to prepare the Financing Document.
(b) The Company and the Principal Stockholder have reviewed or have had
reviewed on their behalf, and will be familiar with the information concerning
the Company and the Stockholders (or any of them) in the Financing Document,
which will be furnished to them by VIALOG for their review, and will have no
knowledge of any material fact, condition or information concerning the Company
and the Stockholders misstated or not disclosed in the Financing Document.
44
<PAGE>
6.20 Section 338(h)(10) Election.
---------------------------
(a) The Company and the Principal Stockholder agree, and each other
stockholder of the Company will agree to join with VIALOG in making an election
under Section 338(h)(10) of the Code (and any corresponding election under
state, local and foreign tax law) with respect to the purchase and sale of the
stock of the Company hereunder (the "Section 338(h)(10) Election"). Each
Stockholder will agree to include any income, gain, loss, deduction or other tax
item resulting from the Section 338(h)(10) Election on its tax returns to the
extent permitted by applicable law and agrees to pay any taxes imposed on the
Company attributed to the making of the Section 338(h)(10) Election, including
but not limited to, (i) any taxes imposed under Section 1374 of the Code, (ii)
any taxes imposed under Regulation Section 1.338(h)(10)-1(e)(5), or (iii) any
state, local or foreign taxes imposed on the Company's gain. At or promptly
following the closing, VIALOG agrees to remit to each of the Stockholders an
amount (the "preliminary reimbursement amount") equal to the amount described in
the following sentence in excess of $100,000, if any. If by reason of such
election, the net after-Tax amount realized by each of the Stockholders
(determined individually) with respect to the Merger Consideration, taking into
account (i) all federal, state and local income Taxes imposed on the
Stockholders as a result of the election, (ii) all costs and expenses of
whatsoever kind or nature incurred by the Stockholders by reason of
participating in such election, including, but not limited to, any reasonable
additional legal or reasonable accounting costs (whether incident to their
review of the final tax return of the Company reflecting such election or the
audit thereof by the Internal Revenue Service or any other Taxing Authority of
the election for that portion of the return relating to the election), or (iii)
any interest or penalties imposed as a consequence of any Tax audit or other
adjustment with respect to the election, is less by more than $100,000 than the
net after-Tax amount which would have been realized by each of the Stockholders
(determined individually) had the Section 338(h)(10) Election not been made,
then VIALOG shall increase the Merger Consideration by such amount which, after
payment of all Taxes payable by the Stockholders for any such increased Merger
Consideration, including any Taxes due with respect to any payment under this
Section 6.20, would result in the same net after-Tax Merger Consideration which
would have been realized by the Stockholders had such election not been made
less the $100,000. The preliminary reimbursement amount will be calculated by
VIALOG's accountants based on information available as of the closing and will
assume that each of the stockholders is in the highest federal and applicable
state income tax brackets. By April 15th of the year following the closing each
of the Stockholders agrees to provide VIALOG's accountants with all information
necessary to permit VIALOG's accountants to adjust the preliminary reimbursement
amount to reflect each of the Stockholder's actual income tax brackets and all
other relevant tax information affecting these calculations (the "final
reimbursement amount"). VIALOG's accountants will provide each of the
Stockholders with a schedule showing their calculation of the final
reimbursement amount within thirty (30) days after receipt of all necessary
information from the Stockholder. VIALOG agrees to reimburse the Stockholders to
the extent that the final reimbursement amount exceeds the preliminary
reimbursement amount, and each of the Stockholders agrees to reimburse VIALOG to
the extent that the preliminary reimbursement amount paid to each of such
Stockholders exceeds the final reimbursement amount, such reimbursement to be
made in each case within thirty (30) days after the final reimbursement amount
is finally determined.
45
<PAGE>
(b) If the accountant for the Stockholders disagrees with the final
reimbursement amount, the Stockholders will give written notice thereof to
VIALOG within ten (10) days of receiving the schedule showing the final
reimbursement amount (the "Disagreement Notice"). VIALOG's Accountant and the
accountant for the Stockholders will try to resolve their differences with
respect to the final reimbursement amount within ten (10) days of the date of
the Disagreement Notice. VIALOG's Accountant and the accountant for the
Stockholders will, within ten (10) days of the date of the Disagreement Notice,
give written notice to VIALOG and the Stockholders that they have agreed or
failed to agree upon a final reimbursement amount. In the event VIALOG's
Accountant and the Stockholders' accountant cannot agree on the final
reimbursement amount, VIALOG's Accountants and the accountant for the
Stockholders will appoint a third accountant to determine the final
reimbursement amount within fifteen (15) days of the Disagreement Notice. If
VIALOG's Accountant and the Stockholders cannot agree on an accounting firm to
determine the national accounting firm of Arthur Anderson shall determine the
final reimbursement amount. The accounting firm selected by VIALOG's Accountant
and the Stockholder's accountant or Arthur Anderson, as the case may be, will
make the determination of the final reimbursement amount as soon as possible but
in no event later than thirty (30) days after receiving all necessary
information.
6.21 Allocation. The Parties agree to allocate the Aggregate Merger
----------
Consideration (and all other capitalizable costs) among the Company's assets for
all purposes (including financial accounting and tax purposes) in accordance
with the allocation schedule set forth in Section 6.21 of the Disclosure Letter.
6.22 Tax Status. VIALOG, the Company and the Principal Stockholder agree (i) to
----------
use their best efforts to maintain the status of the Merger as a cash reverse
merger pursuant to the Code and (ii) not to take any action to endanger the tax
free status for a period of two (2) years from the Merger Closing.
ARTICLE
7
CLOSING CONDITIONS
7.1 Conditions to Obligations of Each Party to Effect the Merger. The
------------------------------------------------------------
respective obligations of each Party to effect the Merger will be subject to the
satisfaction at or prior to the Effective Time of the following conditions, any
or all of which may be waived, in whole or in part, to the extent permitted by
Applicable Law:
(a) This Agreement, the Merger and the Transactions shall have been
approved and adopted in accordance with the BCA by the affirmative vote, or to
the extent permitted by Applicable Law, by written consent, of the Stockholders
holding at least the minimum number of shares of the Company Stock then issued
and outstanding as are required by Applicable Law and the Company's
Organizational Documents for such approval and adoption,
46
<PAGE>
(b) No proceeding before any Authority or Claim by any Person shall be
pending, challenging or seeking to make illegal, to delay materially or
otherwise directly or indirectly to restrain or prohibit the consummation of the
Merger or the Financing, or seeking material damages or imposing any Adverse
conditions in connection therewith,
(c) Other than the filing of merger documents in accordance with the BCA
and the DBCL, all authorizations, consents, waivers, orders or approvals
required to be obtained, and all filings, submissions, registrations, notices or
declarations required to be made, by VIALOG or VIALOG Merger Subsidiary and the
Company prior to the consummation of the Merger and the Transactions shall have
been obtained from, and made with, all required Authorities, except for such
authorizations, consents, waivers, orders, approvals, filings, registrations,
notices or declarations the failure to obtain or make would not, assuming
consummation of the Merger, have an Adverse Effect on the Company and the
Company and its Subsidiaries taken as a whole,
(d) (i) The Financing Document shall contain no untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading, (ii) the securities
of VIALOG offered in the Financing shall have been sold and purchased subject
only to consummation of the Merger, the Participating Mergers and the
Transactions, (iii) every condition to closing the Financing shall have been
satisfied or properly waived.
7.2 Conditions to Obligations of VIALOG and VIALOG Merger Subsidiary. The
----------------------------------------------------------------
obligations of VIALOG and VIALOG Merger Subsidiary to effect the Merger will be
subject to the satisfaction at or prior to the Effective Time of the following
conditions, any or all of which may be waived, in whole or in part, to the
extent permitted by Applicable Law:
(a) The Company shall have complied in all material respects with its
agreements contained in this Agreement, the certificates to be furnished to
VIALOG pursuant to this Section shall be true, correct and complete, all
Collateral Documents shall be reasonably satisfactory in form, scope and
substance to VIALOG and its counsel, and VIALOG and its counsel shall have
received all information and copies of all documents, including records of
corporate proceedings, which they may reasonably request in connection
therewith, such documents where appropriate to be certified by proper corporate
officers,
(b) The Company shall have furnished VIALOG and the Underwriters with the
favorable opinion, dated the Financing Closing Date of Hirsch Westheimer, PC,
Houston, Texas, in the form attached as Exhibit 7.2(b).
--------------
(c) The representations, warranties, covenants and agreements of the
Company contained in this Agreement or otherwise made in writing by it or on its
behalf pursuant to this Agreement or otherwise made in connection with the
Merger and the Transactions shall be true and correct in all material respects
at and as of the Financing Closing Date with the same force and effect as though
made on and as of such date except those which speak as of a certain date which
shall continue to be true and correct in all material respects as of such date
and the Financing Closing Date, each and all of the agreements and conditions to
be performed or satisfied by the Company under this Agreement at or prior to the
Financing Closing Date shall
47
<PAGE>
have been duly performed or satisfied in all material respects, and the Company
shall have furnished VIALOG with such certificates and other documents
evidencing the truth of such representations, warranties, covenants and
agreements and the performance of such agreements or conditions as VIALOG shall
have reasonably requested,
(d) The Principal Stockholder shall have executed and delivered to
VIALOG a noncompetition agreement, substantially in the form attached as
Exhibit 7.2(d),
- --------------
(e) No Legal Action or other Claim shall be pending or threatened at any
time prior to or on the Financing Closing Date before or by any Authority or by
any other Person seeking to restrain or prohibit, or damages or other relief in
connection with, the execution and delivery of this Agreement or the
consummation of the Merger and the Transactions or which might in the reasonable
judgment of VIALOG have any Adverse Effect on the Company or the Company and its
Subsidiaries taken as a whole or, assuming consummation of the Merger and the
Participating Mergers, VIALOG and its Subsidiaries taken as a whole,
(f) The filing and waiting period requirements (if applicable) under the
HSR Act relating to the consummation of the Merger and the Participating Mergers
shall have been complied with,
(g) All actions taken by the Stockholders to approve and adopt this
Agreement, the Merger and the Transactions shall comply in all respects with and
shall be legal, valid, binding, enforceable and effective under the Law of the
jurisdiction of incorporation of the Company, its Organizational Documents and
all Material Agreements to which it or any of its Subsidiaries is a party or by
which it or any of them or any of its or any of their property or assets is
bound,
(h) The Company shall have obtained consents to the assignment and
continuation of all Material Agreements which, in the reasonable judgment of
VIALOG or its counsel, require such consents, including appropriate binders or
consents as to policies of insurance to be assigned to VIALOG or the Surviving
Corporation under this Agreement. The Company shall have obtained satisfaction
and discharge of all Liens set forth in Section 3.15(b) of the Disclosure
Letter, and shall have obtained, on terms and conditions reasonably satisfactory
to VIALOG, all Governmental Authorizations and Private Authorizations, and all
modifications of Contractual Obligations relating to Indebtedness, which VIALOG
deems, reasonably necessary or desirable in order to own and operate and conduct
the business of the Surviving Corporation, substantially on the basis heretofore
owned, operated and conducted by the Company and proposed to be owned, operated
and conducted by VIALOG,
(i) Between the date of this Agreement and the Effective Time, there
shall not have occurred and be continuing any Adverse Change affecting the
Company or the Company and its Subsidiaries taken as a whole from the condition
thereof (financial and other) reflected in the Financial Statements or in the
audited financial statements prepared by the Accountants as contemplated by
Section 6.4 or in the most recent financial statements set forth in the
Financing Document,
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<PAGE>
(j) VIALOG shall have received from its Accountants, a certificate or
letter, dated the Financing Closing Date, to the effect that, on the basis of a
limited review in accordance with the standards for such reviews promulgated by
the American Institute of Certified Public Accountants as outlined in Statement
of Standards of Accounting and Review Services No. 1, they have no reason to
believe that the unaudited financial statements set forth in the Financing
Document were not prepared in accordance with GAAP and practices consistent with
those followed in the preparation of the audited financial statements audited by
the Accountants as contemplated by Section 6.4, or that any material
modifications of such unaudited financial statements are required for a fair
presentation of the financial position or results of operations or changes in
financial position of the Company or that during the period from the last day
covered by the most recent financial statements set forth in the Financing
Document prepared by the Accountants as contemplated by Section 6.1(a) to a date
not more than five (5) days prior to the Financing Closing Date, there has been
any Adverse Change in the financial position or results of the operations of the
Company or the Company and its Subsidiaries taken as a whole which is not
described in the Financing Document,
(k) No Law shall have been enacted or made by or on behalf of any
Authority nor shall any legislation have been introduced and favorably reported
for passage to either House of Congress by any committee, nor shall any Legal
Action by any Authority have been commenced or threatened, nor shall any
decision, order or other action of any Authority have been rendered or taken,
which in VIALOG's reasonable judgment, could have any Adverse Effect on the
Company or the Company and its Subsidiaries taken as a whole, or could restrain,
prevent or change the Merger or the Transactions or Adversely Affect the ability
of the Principal Stockholder to perform its obligations under this Agreement, or
Adversely Affect the ability of VIALOG to continue to own, operate and conduct
the business of the Surviving Corporation, substantially on the basis heretofore
owned, operated and conducted by the Company and as proposed to be owned,
operated and conducted by the Surviving Corporation,
(l) VIALOG shall have received copies of any environmental audits the
Company has received in respect of all real property owned or leased by the
Company or any of its Subsidiaries. VIALOG, in its sole discretion and at its
sole expense, may engage an independent environmental engineer to perform such
audits and the results thereof shall not be materially inconsistent with the
representations and warranties set forth in Section 3.23,
(m) Each of the directors of the Company and each of its Subsidiaries and
each trustee under each Plan shall have submitted his or her unqualified written
resignation, dated as of the Financing Closing Date,
(n) The Principal Stockholder shall have delivered to VIALOG an agreement,
substantially in the form attached as Exhibit 7.2(n), dated the Financing
--------------
Closing Date, releasing the Company and its Subsidiaries from any and all Claims
against them (other than Claims arising from such Principal Stockholder having
acted as a director or officer of the Company or such Subsidiary as contemplated
by Section 6.7),
49
<PAGE>
(o) VIALOG shall have received a letter from its Accountants to the
effect that the Merger and the Transactions qualify as a cash reverse merger
pursuant to the Code and will not result in any taxable income or gain or
deductible loss to the Company, VIALOG or VIALOG Merger Subsidiary.
(p) The Company shall not have suffered any material damage, destruction
or loss (whether or not covered by insurance) or any material acquisition or
taking of property by any Authority, nor shall it have experienced any material
work stoppage,
(q) Except for such leases and other Contractual Obligations as are set
forth on Section 7.2(q) of the Disclosure Letter and are executed, delivered and
effective as of the Effective Time, all Contractual Obligations set forth in
Section 3.9 of the Disclosure Letter shall have been satisfied and discharged as
of the Financing Closing Date,
(r) The representations, warranties, covenants and agreements of the
Principal Stockholder contained in this Agreement or otherwise made in writing
by or on behalf of the Principal Stockholder pursuant to this Agreement or
otherwise made in connection with the Merger and the Transactions shall be true
and correct in all material respects at and as of the Financing Closing Date
with the same force and effect as though made on and as of such date except
those which speak as of a certain date which shall continue to be true and
correct in all material respects as of such date and on the Financing Closing
Date. Each and all of the agreements and conditions to be performed or satisfied
by the Principal Stockholder under this Agreement at or prior to the Financing
Closing Date, including without limitation the provisions set forth in Section
6.19, shall have been duly performed or satisfied in all material respects, and
the Principal Stockholder shall have furnished VIALOG with such certificates and
other documents evidencing the truth of such representations, warranties,
covenants and agreements and the performance of such agreements or conditions as
VIALOG or its counsel shall have reasonably requested,
(s) Robin Fisher shall have executed and delivered to VIALOG an
employment and noncompetition agreement, substantially in the form attached
as Exhibit 7.2(s),
--------------
(t) The individuals listed in Section 7.2(t) of the Disclosure Letter,
shall have executed and delivered to VIALOG an Employment Arrangement
substantially in the form attached as Exhibit 7.2(t), and
(u) The Company shall have entered into (i) a written sublease with
Telesystems for the space occupied by the Company, (ii) written agreements with
Telesystems for the use of long distance, local access, security system and
copier, and (iii) in the case of (i) and (ii) above in each case reasonably
acceptable to VIALOG.
7.3 Conditions to Obligations of the Company. The obligations of the Company
----------------------------------------
to effect the Merger will be subject to the satisfaction at or prior to the
Effective Time of the following conditions, any or all of which may be waived,
in whole or in part to the extent permitted by Applicable Law:
50
<PAGE>
(a) Each of VIALOG and VIALOG Merger Subsidiary shall have complied in all
material respects with its agreements contained in this Agreement, and the
certificates to be furnished to the Company pursuant to this Section shall be
true, correct and complete. All Collateral Documents shall be reasonably
satisfactory in form, scope and substance to the Company and its counsel, and
the Company and its counsel shall have received all information and copies of
all documents, including records of corporate proceedings, which they may
reasonably request in connection therewith, such documents where appropriate to
be certified by proper corporate officers,
(b) VIALOG shall have furnished the Company and the Principal Stockholder
with the favorable opinion dated the Financing Closing Date of Mirick,
O'Connell, DeMallie & Lougee, LLP, counsel to VIALOG and VIALOG Merger
Subsidiary in the form attached as Exhibit 7.3(b).
--------------
(c) The representations, warranties, covenants and agreements of each of
VIALOG and VIALOG Merger Subsidiary contained in this Agreement or otherwise
made in writing by it or on its behalf pursuant to this Agreement or otherwise
made in connection with the Merger and the Transactions shall be true and
correct in all material respects at and as of the Financing Closing Date with
the same force and effect as though made on and as of such date except those
which speak as of a certain date which shall continue to be true and correct in
all material respects as of such date and on the Financing Closing Date; each
and all of the agreements and conditions to be performed or satisfied by each of
VIALOG and VIALOG Merger Subsidiary under this Agreement at or prior to the
Financing Closing Date shall have been duly performed or satisfied in all
material respects; and each of VIALOG and VIALOG Merger Subsidiary shall have
furnished the Company with such certificates and other documents evidencing the
truth of such representations, warranties, covenants and agreements and the
performance of such agreements or conditions as the Company shall have
reasonably requested,
(d) If executed and delivered to VIALOG by the Merger Closing, the
employment agreements contemplated by Section 7.2(s) and for those persons
listed in Section 7.2(t) of the Disclosure Letter shall have been executed by
the Surviving Corporation and delivered by VIALOG to the indicated person,
(e) No Legal Action or other Claim shall be pending or threatened at any
time prior to or on the Financing Closing Date before or by any Authority or by
any other Person seeking to restrain or prohibit, or damages or other relief in
connection with, the execution and delivery of this Agreement or the
consummation of the Merger and the Transactions or which might in the reasonable
judgment of the Company have any Adverse Effect on VIALOG and its Subsidiaries
or the Company and its Subsidiaries taken as a whole or, assuming consummation
of the Merger and the Participating Agreements, VIALOG and its Subsidiaries
taken as a whole, and
(f) The filing and waiting period requirements (if applicable) under the
HSR Act relating to the consummation of the Merger and the Participating Mergers
shall have been complied with,
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<PAGE>
(g) VIALOG shall have obtained the insurance set forth in Section 6.7(c),
and
(h) The Company shall have received a letter from the Accountants to the
effect that the Merger and the Transactions qualify as a cash reverse merger
pursuant to the Code.
ARTICLE
8
TERMINATION, AMENDMENT AND WAIVER
8.1 Termination. This Agreement may be terminated at any time prior to the
-----------
Effective Time, whether before or after approval of this Agreement, the Merger
and the Transactions as follows:
(a) by mutual consent of the Company and VIALOG.
(b) by either VIALOG or the Company,
(i) if any permanent injunction, decree or judgment by any Authority
preventing the consummation of the Merger or the Financing shall
have become final and nonappealable, or if the terminating party
determines in its reasonable discretion that the Merger has
become inadvisable or impracticable by reason of the institution
by any Authority of other Person of material Legal Action, or
(ii) if the Merger Closing shall not occur on or before the
Termination Date,
(c) by the Company:
(i) in the event of a breach of this Agreement by VIALOG or VIALOG
Merger Subsidiary that has not been cured, or if any
representation or warranty of VIALOG or VIALOG Merger Subsidiary
shall have become untrue in any material respect, in either case
such that such breach or untruth is incapable of being cured by
the Merger Closing or will prevent or delay consummation of the
Merger beyond the Termination Date, or
(d) by VIALOG:
(i) if the Merger and the Transactions fail to receive the approval
required by Applicable Law, by vote (or to the extent permitted
by Applicable Law, by consent) of the Stockholders, or if any
Stockholder entitled to vote (or entitled to appraisal rights)
with respect to the Merger dissents from the Merger and the
Transactions,
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<PAGE>
(ii) if it shall determine in its reasonable discretion that the
Merger or the Transactions has or have become inadvisable or
impracticable by reason of the threat by any Authority, or any
other Person of material Legal Action or proceedings which is
likely to result in material harm to either or both of the
Company and VIALOG (or VIALOG Merger Subsidiary, or a Subsidiary
of any of them), it being understood and agreed that a written
request by governmental authorities (other than the SEC) for
information with respect to the Transactions, which information
could be used in connection with such Legal Action or
proceedings, may be deemed by VIALOG to be a threat of material
Legal Action or proceedings,
(iii) if arrangements reasonably satisfactory to VIALOG cannot be
made for (A) the assumption by the Surviving Corporation
substantially on the terms and conditions in effect as of the
date of this Agreement, or for the prepayment without premium,
of all outstanding Indebtedness of the Company for borrowed
money, or (B) the Financing,
(iv) if the business, assets, prospects, management, condition
(financial or other) or results of operation of the Company or
the Company and its Subsidiaries taken as a whole shall have
been Adversely Affected, whether by reason of changes or
developments in the economy or industry generally or operations
in the ordinary course of business or otherwise,
(v) if the Company shall not have received, without the imposition
of any burdensome condition or material cost, all Governmental
Authorizations and Private Authorizations, or if any Authority
or other Person shall withdraw any such Governmental
Authorizations or Private Authorizations,
(vi) if the terms of this Agreement shall not have been approved by
the Underwriter,
(vii) if the Company shall have suffered any material damage,
destruction or loss (whether or not covered by insurance) or any
material acquisition or taking of property by any Authority, or
if it or any of its Subsidiaries shall have suffered a material
work stoppage,
(viii) in the event of a material breach of this Agreement by the
Company or the Principal Stockholder that has not been cured,
or
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<PAGE>
if any representation or warranty of the Company or the
Principal Stockholder shall have become untrue in any material
respect, so that such breach or untruth is incapable of being
substantially cured by the Merger Closing or will prevent or
delay consummation of the Merger by or beyond the Termination
Date, or if any condition to VIALOG's obligation to close under
this Agreement shall not have been satisfied,
(ix) if the Board of Directors of the Company shall withdraw, modify
or change its recommendation so that it is not in favor of this
Agreement, the Merger or the Transactions, or shall have
resolved to do any of the foregoing (it being agreed and
understood that nothing in this clause, obliges the Company to
effect the Merger if the conditions set forth in Section 7.1 and
Section 7.3 are not satisfied or limits the rights of the
Company to consent to terminate this Agreement pursuant to
Section 8.1(a) or to terminate the Agreement pursuant to Section
8.1(b) or Section 8.1(c)),
(x) if the Board of Directors of the Company shall have recommended
or resolved to recommend to the Stockholders an Other
Transaction,
(xi) if the Company, the Board of Directors of the Company or the
Principal Stockholder shall have taken any action in
contravention of Sections 6.6 or 6.13, or
(xii) if the Principal Stockholder shall fail to vote to approve and
adopt this Agreement, the Merger and the Transactions.
8.2 Effect of Termination. Except as provided in Sections 2.2(a), 2.2(d)
---------------------
6.1(c), 6.1(d), 8.5, 11.2 through 11.10 and Article 12, in the event of the
termination of this Agreement pursuant to Section 8.1, this Agreement shall
forthwith become void, there shall be no liability on the part of any Party, or
any of their respective officers or directors, to the other and all rights and
obligations of any Party shall cease; provided, however, that such termination
will not relieve any Party from liability for the willful breach of any of its
representations, warranties, covenants or agreements set forth in this
Agreement.
8.3 Amendment. This Agreement may be amended by the Parties by action taken by
---------
or on behalf of their respective Boards of Directors and by the Principal
Stockholder at any time prior to the Effective Time; provided, however, that,
after approval of this Agreement and the Merger by the Stockholders, no
amendment, which under Applicable Law may not be made without the approval of
the Stockholders, may be made without such approval. This Agreement may not be
amended to impose any additional material obligation on a Party or to burden or
limit a material right of such Party except by an agreement in writing signed by
the Party so affected.
54
<PAGE>
8.4 Waiver. At any time prior to the Effective Time, except to the extent
------
Applicable Law does not permit, either VIALOG or VIALOG Merger Subsidiary and
the Company may (a) extend the time for the performance of any of the
obligations or other acts of the other, subject, however, to the terms and
conditions of Section 8.1, (b) waive any inaccuracies in the representations and
warranties of the other contained in this Agreement or in any document delivered
pursuant to this Agreement and (c) waive compliance by the other with any of the
agreements, covenants or conditions contained in this Agreement. Any such
extension or waiver shall be valid only if set forth in an agreement in writing
signed by the Party or Parties to be bound thereby.
8.5 Fees, Expenses and Other Payments. All costs and expenses incurred by the
---------------------------------
Parties in connection with this Agreement, the Merger and the Transactions and
in connection with compliance with Applicable Law and Contractual Obligations as
a consequence hereof and thereof, including fees and disbursements of counsel,
financial advisors and accountants, will be borne solely and entirely by the
Party which has incurred such costs and expenses (with respect to such Party,
its "Expenses"). The Principal Stockholder acknowledges and agrees for himself
and on behalf of the other Stockholders that the Company has disclosed that it
is obligated and will become further obligated for Expenses (including fees and
expenses of its counsel, its independent accountants, and its financial advisor)
incurred by it in connection with this Agreement, the Merger and the
Transactions and such expenses will not be paid by the Company or become a
liability of the Surviving Company if the Merger is consummated but will be paid
by the Stockholders on a pro-rata basis based on their ownership of the Company
Stock and the Shares outstanding. VIALOG acknowledges that its Expenses also
include the costs of the Audit and Financing.
8.6 Effect of Investigation. The right of any Party to terminate this
-----------------------
Agreement pursuant to Section 8.1 will remain operative and in full force and
effect regardless of any investigation made by or on behalf of any Party, any
Person controlling any such Party or any of their respective Representatives
whether prior to or after the execution of this Agreement.
ARTICLE
9
ARBITRATION
9.1 Best Efforts to Settle Disputes. Except as otherwise expressly provided in
-------------------------------
this Agreement, in the event any dispute, claim, question or difference (a
"Dispute") arises with respect to this Agreement or its performance,
enforcement, breach, termination or validity, the Parties shall use their best
efforts to settle the Dispute. To this end, they shall consult and negotiate
with each other, in good faith and understanding of their mutual interests, to
reach a just and equitable solution satisfactory to all Parties.
9.2 Arbitration. Except as is expressly provided in this Agreement, if the
-----------
Parties do not reach a solution pursuant to Section 9.1 within a period of
fifteen (15) business days following the first notice of the Dispute by any
Party to any other Party, then upon written notice by any
55
<PAGE>
such Party to the other Parties, the Dispute shall be finally settled by
arbitration in effect on the date of this Agreement, except with respect to a
Dispute related to the Principal Stockholder complying with the terms of the
non-competition provisions set forth in the Principal Stockholder's Non-
Competition Agreement or other agreement executed by any such Principal
Stockholder in connection with this Agreement, the Merger or the Other
Transactions. Any arbitration invoked hereunder will be in accordance with the
provisions of the Commercial Arbitration Rules of the American Arbitration
Association in effect on the date of this Agreement. Any arbitration invoked
hereunder will be based on the following:
(a) the arbitration tribunal shall consist of one arbitrator appointed by
mutual agreement of the Parties, or in the event of failure to agree within ten
(10) business days following delivery of the written notice to arbitrate, then
each of the Parties shall appoint one arbitrator and the two nominated shall in
turn choose one-third arbitrator. If arbitrators chosen by the Parties cannot
agree on a choice of the third arbitrator within a period of 10 business days
after their nomination, then any Party may apply to any judge of the United
States District Court for the Central District of Massachusetts to appoint the
third arbitrator. The arbitrators shall be qualified by education and training
to pass upon the particular matter to be decided;
(b) the arbitrator shall be instructed that time is of the essence in the
arbitration proceeding and, in any event, the arbitration award must be made
within sixty (60) days of the submission of the Dispute to arbitration;
(c) after written notice is give to refer any Dispute to arbitration, the
Parties will meet within fifteen (15) business days of delivery of the notice
and will negotiate in good faith any changes in these arbitration provisions or
the rules of arbitration which are herein adopted, in an effort to expedite the
process and otherwise ensure that the process is appropriate given the nature of
the Dispute and the values at risk;
(d) the arbitration shall take place in Boston, Massachusetts;
(e) the arbitration shall be conducted pursuant to such procedures and
schedule for discovery, preparation and filing of pre-hearing briefs, hearing,
preparation and filing of post-hearing briefs and such other matters as the
arbitrator (or, if there is more than one (1), a majority of the arbitrators)
shall determine to be necessary and shall be fixed by the arbitrator or
arbitrators after consultation with the Parties, for such purpose, with the
understanding and agreement of the Parties that all matters pertaining to the
arbitration shall be expedited to the maximum extent possible; provided,
however, that any necessary discovery shall be conducted pursuant to the Federal
Rules of Civil Procedure in effect at the time of such proceeding.
(f) the arbitration award shall be given in writing and shall be final and
binding on the Parties, not subject to any appeal, and shall deal with the
question of costs of arbitration and all related matters;
(g) judgment upon any award may be entered in any court having
jurisdiction or application may be made to such court for a judicial recognition
of the award of an order of enforcement, as the case may be; and
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<PAGE>
(h) all Disputes referred to arbitration (including the scope of the
agreement to arbitrate, any statute of limitations, set-off claims, conflict of
laws rules, tort claims and interest claims) shall be governed by the
substantive law of Delaware except to the extent Texas law may be applicable to
the Merger and except as otherwise provided in Section 9.1(e) hereof.
ARTICLE
10
INDEMNIFICATION
10.1 Indemnification.
---------------
(a) Except as provided in Section 11.1, the Principal Stockholder agrees
to make whole, indemnify and hold VIALOG, VIALOG Merger Subsidiary, the
Surviving Corporation, the Underwriters and their respective Affiliates, agents,
successors and assigns (collectively, the "VIALOG Indemnified Parties") harmless
as a result of, from or against:
(i) any and all Claims of the VIALOG Indemnified Parties or other
Persons based upon, attributable to or resulting from any
material inaccuracy in or material breach of any representation
or warranty on the part of any one or more of the Company or the
Stockholders under this Agreement or any Collateral Document;
(ii) any and all Claims of the VIALOG Indemnified Parties or other
Persons based upon, attributable to or resulting from the
material breach of any covenant or other agreement on the part
of any one or more of the Company or the Stockholders under this
Agreement or any Collateral Document;
(iii) any and all Claims and/or taxes incurred by the VIALOG
Indemnified Parties or other Persons with respect to each tax
year in which the Company is not treated as an S corporation
because distributions made by the Company caused it to violate
the single class of stock rule of IRC Section 1361(b)(1)(D) and
Treasury Regulation 1.1361-1(1); and
(iv) any and all other material Claims of the VIALOG Indemnified
Parties or other Persons incident to the foregoing or to the
enforcement of this Section.
(b) Except as provided in Section 11.1, VIALOG agrees to make whole,
indemnify and hold the Stockholders and their respective Affiliates, agents,
heirs, successors and assigns (collectively, the "Company Indemnified Parties")
harmless as a result of, from or against:
57
<PAGE>
(i) any and all Claims of the Company Indemnified Parties or other
Persons based upon, attributable to or resulting from any
material inaccuracy in or material breach of any representation
or warranty on the part of VIALOG or VIALOG Merger Subsidiary
under this Agreement or any Collateral Document;
(ii) any and all Claims of the Company Indemnified Parties or other
Persons based upon, attributable to or resulting from the
material breach of any covenant or other agreement on the part
of VIALOG or VIALOG Merger Subsidiary; and
(iii) any and all other material Claims of the Company Indemnified
Parties or other Persons incident to the foregoing or to the
enforcement of this Section.
(c) Except in connection with Claims pursuant to Section 10.1(a)(iii),
no one of the Stockholders will be required to pay to the VIALOG Indemnified
Parties for damages an aggregate amount in excess of an amount equal to the cash
received by such Stockholder as the Merger Consideration pursuant to Section
2.1(a). VIALOG will not be required to pay any Company Indemnified Party for
damages an aggregate amount in excess of the amount of cash delivered to such
Company Indemnified Party pursuant to Section 2.1(a). No Claim for
indemnification may be commenced beyond the period applicable to such Claim set
forth in Section 11.1.
(d) Notwithstanding the foregoing, the Stockholders will not be required
to pay any amount for indemnification to the VIALOG Indemnified Parties except
to the extent that (i) the claim is in connection with any of the matters set
forth in Section 10.1(a)(iii); or (b) the aggregate amount of Claims under this
Section 10.1 asserted collectively against the Stockholders exceeds $100,000,
and (iii) in the case under (ii) above after giving effect to the provisions of
subsection (e).
(e) The claims of the Parties for indemnification shall be reduced by tax
benefits or insurance proceeds available to such Party, and no multiplier shall
be used for calculation of Claims for damages.
10.2 Procedures Concerning Claims by Third Parties; Payment of Damages; Etc.
-----------------------------------------------------------------------
(a) If any Claim is instituted or asserted by any person other than such
indemnified party in respect of which payment may be sought hereunder, the
indemnified party will reasonably and promptly cause written notice of the
assertion of any Claim of which it has knowledge which is covered by the
indemnities under Section 10.1 to be forwarded to the indemnifying party. In
such event, the indemnifying party will have the right, at its sole option and
expense, to be represented by counsel of its choice, which must be reasonably
satisfactory to the indemnified party, and to defend against, negotiate, settle
or otherwise deal with any Claim instituted or asserted by any Person other than
such indemnified party and indemnified against hereunder; provided, however,
that no settlement thereof will be made without the prior written
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<PAGE>
consent of the indemnified party, which consent will not be unreasonably
withheld, conditioned or delayed. If the indemnifying party elects to defend
against, negotiate, settle or otherwise deal with any Claim, it will within five
(5) days of receipt of said notice (or sooner, if the nature of the Claim so
requires) notify in writing the indemnified party of its intent to do so. If the
indemnifying party elects not to defend against, negotiate, settle or otherwise
deal with any Claim, fails to notify the indemnified party of its election as
herein provided or contests its obligation to indemnify the indemnified party
for such Claim under this Agreement, the indemnified party may defend against,
negotiate, settle or otherwise deal with such Claim. If the indemnified party
defends any Claim, then the indemnifying party will reimburse the indemnified
party for reasonable Claims incurred in defending such Claim upon a final
determination that the indemnified party was entitled to indemnity hereunder.
Neither the indemnifying party nor the indemnified party may settle any Claim
without the prior written consent of the other party, which consent will not be
unreasonably withheld, conditioned or delayed. If the indemnifying party will
assume the defense of any Claim instituted or asserted by any Person other than
an indemnified party, the indemnified party may participate, at such party's own
expense, in the defense of such Claim.
(b) After any final judgment or award will have been rendered by a court,
arbitration board (which may be engaged upon the consent of each of the
indemnifying party and the indemnified parties) or administrative agency of
competent jurisdiction and the expiration of the time in which to appeal
therefrom, or a settlement will have been consummated, or the indemnified party
and the indemnifying party will have arrived at a mutually binding agreement
with respect to a Claim hereunder, the indemnifying party will pay all of the
sums due and owing to the indemnified party by wire transfer of immediately
available funds, within five business days after the date of notice of such
judgment or award conditioned, however, on the indemnifying party having been
finally determined by the parties' agreement or by final court or arbitration
that the indemnifying party is obligated hereunder to make said payment and
subject to the provisions of this Article 10.
(c) The failure of the indemnified party to give reasonably prompt notice
of any Claim instituted or asserted by any Person other than such indemnified
party and indemnified against hereunder will not release, waive or otherwise
affect the indemnifying party's obligations with respect thereto except to the
extent that the indemnifying party can demonstrate actual loss or material
prejudice as a result of such failure.
(d) No action to enforce a Claim for indemnity will be stayed or
dismissed for failure to join one or more indemnifying parties or to permit an
indemnifying party to cross-claim against another indemnifying party, nor will
the failure to join as indemnifying party be deemed grounds for preventing a
separate or subsequent Legal Action to enforce a Claim for indemnification
against such party, each such Legal Action being deemed a separate and
independent Claim for indemnification. A Legal Action to enforce a Claim for
indemnity may be instituted in the Commonwealth of Massachusetts, or the
jurisdiction to which each Party consents, or any other state having
jurisdiction with respect thereto.
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10.3 Access to Books and Records. In the event of any claim for indemnity under
---------------------------
Section 10.1 or 10.2, VIALOG agrees to give the Stockholders and their
Representatives reasonable access to all files, documents, instruments, papers,
books and records relating to the Company or the Stockholders, and to all
employees of the Company in connection with the matters for which
indemnification is sought to the extent the Stockholders reasonably deem
necessary in connection with their rights and obligations under this Article 10.
10.4 Exclusivity. After the Financing Closing Date, to the extent permitted by
-----------
Law, the indemnities set forth in this Article 10 shall be the exclusive
remedies of the VIALOG Indemnified Parties and the Company Indemnified Parties
for any misrepresentation, breach of warranty or nonfulfillment or failure to be
performed of any covenant or agreement contained in this Agreement, and the
parties shall not be entitled to any further indemnification rights or claims of
any nature whatsoever in respect thereof, all of which the parties hereto hereby
waive.
ARTICLE
11
GENERAL PROVISIONS
11.1 Effectiveness of Representations; Etc.
--------------------------------------
(a) Regardless of any investigation made by or on behalf of any other
party hereto, any Person controlling such party or any of their respective
Representatives whether prior to or after the execution and consummation of this
Agreement, the representations, warranties, covenants and agreements contained
in Article 3, Article 4 and Article 5 will survive the Merger and remain
operative and in full force and effect as follows:
(i) Section 3.11, Section 3.12, Section 3.21, Section 3.23 and
Section 4.4 until sixty (60) days after the applicable statute
of limitations, as the same may be extended from time to time,
has terminated; and
(ii) all other Sections, until the greater of eighteen months or 90
days after the end of the second fiscal year of VIALOG following
the Closing Date.
(b) Except as set forth in Section 8.2, as limited by Section 11.1(a)
hereof, the representations, warranties, covenants and agreements of each Party
will survive and remain operative and in full force and effect, regardless of
any investigation made by or on behalf of any other Party, any Person
Controlling any such Party or any of their respective Representatives whether
such investigation was prior to or after the execution and consummation of this
Agreement.
11.2 Notices. All notices and other communications given or made pursuant to
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this Agreement will be in writing and will be deemed to have been duly given or
made as of the date
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delivered or transmitted, and will be effective upon receipt, if delivered
personally or by recognized national overnight delivery service, mailed by
certified mail (postage prepaid, return receipt requested) to the Parties at the
following addresses or sent by electronic transmission to the fax number
specified below:
(a) If to VIALOG or VIALOG Merger Subsidiary:
Glenn Bolduc, President
VIALOG Corporation
35 New England Business Center
Suite 160
Andover, MA 01810
Fax: (781) 639-8549
with a copy to:
Mirick, O'Connell, DeMallie & Lougee, LLP
Attention: David L. Lougee, Esq.
1700 BankBoston Tower
Worcester, MA 01608
Fax: (508) 791-8502
(b) If to the Company:
Conference Pros International, Inc.
Attention: Robin Fisher and Michael Burns
8401 Westheimer, Suite 201
Houston, TX 77063
with a copy to:
Hirsch & Westheimer, P.C.
Attention: Howard Shulman
700 Louisiana, 25th Floor
Houston, TX 77002-2728
(c) If to the Principal Stockholder:
Michael Burns
Conference Pros International, Inc.
8401 Westheimer, Suite 201
Houston, TX 77063
with a copy to:
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Hirsch & Westheimer, P.C.
Attention: Howard Shulman
700 Louisiana, 25th Floor
Houston, TX 77002-2728
Any address for notice as herein above provided may be changed by the party
or person for whom the change is made by giving notice of said change in the
manner provided in this Section.
11.3 Headings. The headings contained in this Agreement are for reference
--------
purposes only and will not affect in any way the meaning and interpretation of
this Agreement.
11.4 Severability. If any term or other provision of this Agreement is invalid,
------------
illegal or incapable of being enforced by any rule of law or public policy, all
other conditions and provisions of this Agreement will nevertheless remain in
full force and effect so long as the economic or legal substance of the
Transactions is not affected in any manner Adverse to any Party. Upon such
determination that any term or other provisions is invalid, illegal or incapable
of being enforced, the Parties will negotiate in good faith to modify this
Agreement so as to effect the original intent of the Parties as closely as
possible to the fullest extent permitted by Applicable Law in an acceptable
manner to the end that the Transactions are fulfilled to the extent possible.
11.5 Entire Agreement. This Agreement (together with the Disclosure Letter, the
----------------
Confidentiality Agreement and the other Collateral Documents delivered in
connection herewith), constitutes the entire agreement of the Parties and
supersedes all prior agreements (other than the Confidentiality Agreement) and
undertakings, both written and oral, between the Parties, or any of them, with
respect to the subject matter hereof.
11.6 Assignment. This Agreement may not be assigned by operation of law or
----------
otherwise and any purported assignment will be null and void, provided that
VIALOG may cause a wholly owned Subsidiary of VIALOG or Holding Company to be
substituted for VIALOG or VIALOG Merger Subsidiary as the party to the Merger
and may, in addition, assign the other rights, but not its obligations,
including, without limitation, its obligation for payment of the Aggregate
Merger Consideration, under this Agreement to such Subsidiary or Holding
Company.
11.7 Parties in Interest. This Agreement will be binding upon and inure solely
-------------------
to the benefit of each Party, and nothing in this Agreement, express or implied
(other than the provisions of Section 6.7, which provisions are intended to
benefit and may be enforced by the beneficiaries thereof), is intended to or
will confer upon any Person any right, benefit or remedy of any nature
whatsoever under or by reason of this Agreement.
11.8 Governing Law. Except to the extent that Texas Law may be applicable to
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the Merger, this Agreement will be governed by, and construed in accordance
with, the substantive laws of the State of Delaware governing contracts made and
to be performed in such jurisdiction, regardless of the laws that might
otherwise govern under applicable principles of conflicts of law.
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11.9 Enforcement of the Agreement. Each Party recognizes and agrees that if the
----------------------------
remedy of specific performance or injunctive relief is not available under
Article 9 Arbitration, each Party will, in addition to such other remedies as
may be available to it at law or in equity or as provided in this Agreement, be
entitled to seek injunctive relief and to enforce its rights by an action for
specific performance to the extent permitted by Applicable Law. Each party
hereby waives any requirement for security or the posting of any bond or other
surety in connection with any temporary or permanent award of injunctive,
mandatory or other equitable relief. Nothing herein contained will be construed
as prohibiting a Party from pursuing any other remedies available to such Party
for any breach or threatened breach hereof or failure to take or refrain from
any action as required hereunder to consummate the Merger and carry out the
Transactions.
11.10 Counterparts. This Agreement may be executed in one or more
------------
counterparts, and by the different Parties hereto in separate counterparts, each
of which when executed will be deemed to be an original but all of which taken
together will constitute one and the same agreement.
11.11 Disclosure Letter and Supplements. From time to time prior to the
---------------------------------
Financing Closing Date, the Company will promptly supplement or amend the
Disclosure Letter delivered in connection with this Agreement, with respect to
any matter which, if existing, occurring or known at the date of this Agreement,
would have been required to be set forth or described in such Disclosure Letter
or which is necessary to correct any information in such Disclosure Letter which
has been rendered inaccurate thereby; provided, however, that no supplement or
amendment to the Disclosure Letter that constitutes or reflects a Material
Adverse Change to the Company may be made without the prior written consent of
VIALOG.
ARTICLE
12
DEFINITIONS
As used in this Agreement, unless the context otherwise requires, the
following terms (or any variant in the form thereof) have the following
respective meanings. Terms defined in the singular will have a comparable
meaning when used in the plural, and vice versa, and the reference to any gender
will be deemed to include all genders. Any reference to any statutory or
regulatory provision will be deemed to be a reference to any successor statutory
or regulatory provision. Unless otherwise defined or the context otherwise
clearly requires, terms for which meanings are provided in this Agreement will
have such meanings when used in the Disclosure Letter and each Collateral
Document, notice, certificate, communication, opinion, or other document
executed or required to be executed pursuant hereto or thereto or otherwise
delivered, from time to time, pursuant hereto or thereto.
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Accountants means KPMG Peat Marwick, LLP.
Adverse, Adversely, when used alone or in conjunction with other terms
(including without limitation "Affect," "Change" and "Effect") means, with
respect to the Company or any of its Subsidiaries, VIALOG or VIALOG Merger
Subsidiary, as the case may be, any Event which could reasonably be expected to
(a) adversely affect the validity or enforceability of this Agreement or any
Collateral Document executed or required to be executed pursuant hereto or
thereto, or (b) adversely affect the business, operations, management,
properties or the condition, (financial or other), or results of operation of
the Company or the Company and its Subsidiaries taken as a whole, VIALOG or
VIALOG Merger Subsidiary, as the case may be, or (c) impair the Company's, or
VIALOG's or VIALOG Merger Subsidiary's ability to fulfill its obligations under
the terms of this Agreement or any Collateral Document executed or required to
be executed pursuant hereto or thereto, or (d) adversely affect the aggregate
rights and remedies of VIALOG or the Company under this Agreement or any
Collateral Document executed or required to be executed pursuant hereto or
thereto, in all cases, unless otherwise specifically set forth, in a material
respect or manner or to a material degree.
Affiliate or Affiliated means, with respect to any Person, (a) any other
Person at the time directly or indirectly controlling, controlled by or under
direct or indirect common control with such Person, (b) any other Person of
which such Person at the time owns, or has the right to acquire, directly or
indirectly, twenty percent (20%) or more of any class of the capital stock or
beneficial interest, (c) any other Person which at the time owns, or has the
right to acquire, directly or indirectly, twenty percent (20%) or more of any
class of the capital stock or beneficial interest of such Person, (d) any
executive officer or director of such Person, (e) with respect to any
partnership, joint VIALOG or similar Entity, any general partner thereof, and
(f) when used with respect to an individual, will include any member of such
individual's immediate family or a family trust.
Aggregate Equity means such number of shares of Company Stock as shall
equal the aggregate of (a) the Shares, and (b) all shares of Company Stock
otherwise issuable based upon the affirmative election to exercise or convert
outstanding Option Securities and/or Convertible Securities pursuant to Section
2.4.
Aggregate Merger Consideration will have the meaning given to it in Section
2.1(a).
Agreement means this Agreement as originally in effect, including unless
the context otherwise specifically requires, all schedules, including the
Disclosure Letter and exhibits to this Agreement, and as the same may from time
to time be supplemented, amended, modified or restated in the manner herein or
therein provided.
Applicable Law means any Law of any Authority, whether domestic or foreign,
including without limitation all federal and state securities laws and
Environmental Laws, to or by which a Person or to any of its business or
operations is subject or any of its property or assets is bound.
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Authority means any governmental or quasi-governmental authority, whether
administrative, executive, judicial, legislative or other, or any combination
thereof, including without limitation any federal, state, territorial, county,
municipal or other government or governmental or quasi-governmental agency,
arbitrator, authority, board, body, branch, bureau, central bank or comparable
agency or Entity, commission, corporation, court, department, instrumentality,
master, mediator, panel, referee, system or other political unit or subdivision
or other Entity of any of the foregoing, whether domestic or foreign.
BCA will have the meaning given to it in the Preamble.
Benefit Arrangement means any material benefit arrangement that is not a
Plan, including (a) any employment or consulting agreement, (b) any arrangement
providing for insurance coverage or workers' compensation benefits, (c) any
incentive bonus or deferred bonus arrangement, (d) any arrangement providing
termination allowance, severance or similar benefits, (e) any equity
compensation plan, (f) any deferred compensation plan, and (g) any compensation
policy and practice.
Certificate will have the meaning given to it in Section 2.1(a).
Claims means any and all Tax Claims, debts, liabilities, obligations,
losses, damages, deficiencies, assessments and penalties, together with all
Legal Actions, pending or threatened, claims and judgments of whatever kind and
nature relating thereto, and all reasonable fees, costs, expenses and
disbursements (including without limitation attorneys' fees, costs and expenses)
relating to any of the foregoing.
COBRA means the Consolidated Omnibus Budget Reconciliation Act of 1985, as
amended, as set forth in Section 4980B of the Code and Part 6 of Title I of
ERISA.
Code will have the meaning given to it in the Preamble.
Collateral Document means any agreement, instrument, certificate, opinion,
memorandum, schedule or other document delivered by a Party or a Stockholder
pursuant to this Agreement or in connection with the Merger and the
Transactions. For purposes of the representations, warranties, covenants and
agreements of the Company and the Principal Stockholder, on the one hand, or
VIALOG and VIALOG Merger Subsidiary on the other, under this Agreement and with
respect to opinions to be delivered pursuant to this Agreement, except to the
extent of a Party's actual knowledge, the Company and the Principal Stockholder
or VIALOG and VIALOG Merger Subsidiary, as the case may be, assume no
responsibility for the authority of or genuineness of signatures relating to the
others as counterparts or their representations, warranties, covenants and
agreements.
Company will have the meaning given to it in the Preamble.
Company Indemnified Parties will have the meaning given to it in Section
10.1(b).
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The Company's knowledge (including the term "to the knowledge of the
Company") means the knowledge, information or belief of any Company director,
executive officer or the Principal Stockholder; and that such director,
executive officer or Principal Stockholder, after reasonable investigation, will
have reason to believe and will believe that the subject representation or
warranty is true and accurate as stated.
Company Stock will have the meaning given to it in Section 2.1(a).
Confidentiality Letter will have the meaning given to it in Section 6.1(c).
Contract or Contractual Obligation means any term, condition, provision,
representation, warranty, agreement, covenant, undertaking, commitment,
indemnity or other obligation set forth in the Organizational Documents of the
obligee or which is outstanding or existing under any instrument, contract,
lease or other contractual undertaking (including without limitation any
instrument relating to or evidencing any Indebtedness) to which the obligee is a
party or by which it or any of its business is subject or property or assets is
bound.
Control (including the terms "controlled," "controlled by" and "under
common control with") means the possession, directly or indirectly or as trustee
or executor, of the power to direct or cause the direction of the management or
policies of a Person, or the disposition of such Person's assets or properties,
whether through the ownership of stock, equity or other ownership, by contract,
arrangement or understanding, or as trustee or executor, by contract or credit
arrangement or otherwise.
Convertible Securities means any evidences of indebtedness, shares of
capital stock (other than common stock) or other securities directly or
indirectly convertible into or exchangeable for Shares, whether or not the right
to convert or exchange thereunder is immediately exercisable or is conditioned
upon the passage of time, the occurrence or non-occurrence or existence or non-
existence of some other Event, or both.
DBCL will have the meaning given to it in the Preamble.
Disclosure Letter shall mean a separate letter entitled Disclosure Letter
prepared by the Company and the Principal Stockholder.
Distribution means, with respect to the Company or any of its Subsidiaries:
(a) the declaration or payment of any dividend (except dividends payable in
common stock of the Company) on or in respect of any shares of any class of
capital stock of the Company or any shares of capital stock of any Subsidiary
owned by a Person other than the Company or a Subsidiary, (b) the purchase,
redemption or other retirement of any shares of any class of capital stock of
the Company or any shares of capital stock of any Subsidiary owned by a Person
other than the Company or a Subsidiary, and (c) any other distribution on or in
respect of any shares of any class of capital stock of the Company or any shares
of capital stock of any Subsidiary owned by a Person other than the Company or a
Subsidiary.
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Effective Date means the effective date of the Registration Statement and
commencement of the Financing, if applicable, or the dates designated by the
Underwriter if a private financing.
Effective Time will have the meaning given to it in Section 1.4.
Employment Arrangement means, with respect to any Person, any employment,
consulting, retainer, severance or similar contract, agreement, plan,
arrangement or policy (exclusive of any which is terminable within thirty (30)
days without liability, penalty or payment of any kind by such Person or any
Affiliate), or providing for severance, termination payments, insurance coverage
(including any self-insured arrangements), workers compensation, disability
benefits, life, health, medical dental or hospitalization benefits, supplemental
unemployment benefits, vacation or sick leave benefits, pension or retirement
benefits or for deferred compensation, profit-sharing, bonuses, stock options,
stock purchase or appreciation rights or other forms of incentive compensation
or post-retirement insurance, compensation or benefits, or any collective
bargaining or other labor agreement, whether or not any of the foregoing is
subject to the provisions of ERISA.
Encumber means to suffer, accept, agree to or permit the imposition of a
Lien.
Entity means any corporation, firm, unincorporated organization,
association, partnership, limited liability company, trust (inter vivos or
testamentary), estate of a deceased, insane or incompetent individual, business
trust, joint stock company, joint VIALOG or other organization, entity or
business, whether acting in an individual, fiduciary or other capacity, or any
Authority.
Environmental Laws means any Law relating to or otherwise imposing
liability or standards of conduct concerning pollution or protection of the
environment or occupational health and safety, including without limitation Laws
relating to emissions, discharges, releases or threatened releases of Hazardous
Materials or other pollutants, contaminants, chemicals, noises, odors or
industrial, toxic or hazardous substances, materials or wastes, whether as
matter or energy, into the environment (including, without limitation, ambient
air, surface water, ground water, mining or reclamation or mined land, land
surface or subsurface strata) or otherwise relating to the manufacture,
processing, generation, distribution, use, treatment, storage, disposal,
cleanup, transport or handling of pollutants, contaminants, chemicals or
industrial, toxic or hazardous substances, materials or wastes. Environmental
Laws include the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 (42 U.S.C. Section 9601 et seq.), the Hazardous Material
-- ---
Transportation Act (49 U.S.C. Section 1801 et seq.), the Resource Conservation
-- ---
and Recovery Act of 1976 (42 U.S.C. Section 6901 et seq.), the Federal Water
-- ---
Pollution Control Act (33 U.S.C. Section 1251 et seq.), the Clean Air Act (42
-- ---
U.S.C. Section 7401 et seq.), the Toxic Substances Control Act (15 U.S.C.
-- ---
Section 2601 et seq.), the Occupational Safety and Health Act of 1970 (29 U.S.C.
-- ---
Section 651 et seq.), the Federal Insecticide, Fungicide, and Rodenticide Act (7
-- ---
U.S.C. Section 136 et seq.), and the Surface Mining Control and Reclamation Act
-- ---
of 1977 (30 U.S.C. Section 1201 et seq.), and any analogous future federal, or
-- ---
present or future state, local or foreign, Laws, and the rules and regulations
promulgated thereunder all as from time to time in effect, and any reference to
any statutory or regulatory provision will be deemed to be a reference to any
successor statutory or regulatory provision.
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Environmental Permit means any Governmental Authorization required by or
pursuant to any Environmental Law.
Environmental Requirements means all applicable present and future
Governmental Authorizations, Private Authorizations or other requirements
(including without limitation those pertaining to reporting, licensing and
permitting) relating to or required by or pursuant to any Environmental Law,
including without limitation all requirements pertaining or relating to:
(a) the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of, or the remediation, emission,
discharge or release into the air, surface water, groundwater or land
of, Hazardous Materials;
(b) the protection of the health and safety of employees or the public;
(c) the reclamation or restoration of land; and
(d) the ownership or operation of underground storage tanks.
ERISA means the Employee Retirement Security Act of 1974, and the rules and
regulations thereunder, all as from time to time in effect, or any successor
law, rules or regulations, and any reference to any statutory or regulatory
provision will be deemed to be a reference to any successor statutory or
regulatory provision.
ERISA Affiliate means any Person that is treated as a single employer with
the Company or any of its Subsidiaries under Sections 414(b), (c), (m) or (o) of
the Code or Section 4001(b)(1) of ERISA.
Event means the occurrence or existence of any act, action, activity,
circumstance, condition, event, fact, failure to act, omission, incident or
practice, or any set or combination of any of the foregoing.
Exchange Merger Consideration will have the meaning given to it in Section
2.1(a).
Expenses will have the meaning set forth in Section 8.5.
Financing means the sale of VIALOG securities or borrowings from financial
institutions necessary to raise the cash so as to enable VIALOG to pay the
Aggregate Merger Consideration.
Financing Closing Date means the date on which the Financing is closed.
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Financing Document means the offering document furnished to potential
investors or financial institutions in connection with the Financing and any
securities of VIALOG issued to consummate the Financing.
Final Determination (a) means with respect to federal Taxes, a
"determination" as defined in Section 1313(a) of the Code or execution of an IRS
Form 870AD and, with respect to Taxes other than federal Taxes, any final
determination of liability in respect of a Tax which, under Applicable Law, is
not subject to further appeal, review or modification through proceedings or
otherwise, including without limitation the expiration of a statute of
limitations or a period for the filing of claims for refunds, amended returns or
appeals from adverse determinations; and (b) will include the payment of Tax by
the Company or whichever Party is responsible for payment of such Tax under
Applicable Law, with respect to any item disallowed or adjusted by a Taxing
Authority, provided that the other party is notified of such payment and the
party that is responsible for such Tax under this Agreement determines that no
action should be taken to recoup such payment from such Taxing Authority.
Financial Statements will have the meaning given to it in Section 3.2(a).
GAAP means generally accepted accounting principles as in effect from time
to time in the United States of America.
Governmental Authorizations means all approvals, concessions, consents,
franchises, licenses, permits, plans, registrations and other authorizations of
each applicable Authority.
Governmental Filings means all filings, including franchise and
similar Tax filings, and the payment of all fees, assessments, interest and
penalties associated with such filings, with each applicable Authority.
Guaranty or Guaranteed means any agreement, undertaking or arrangement
by which the Company or any of its Subsidiaries, VIALOG or VIALOG Merger
Subsidiary, as the case may be, guarantees, endorses or otherwise becomes or is
liable, directly or indirectly, upon any Indebtedness of any other Person
including without limitation the payment of amounts drawn down by beneficiaries
of letters of credit (other than by endorsements of negotiable instruments for
deposit or collection in the ordinary course of business). The amount of the
obligor's obligation under any Guaranty will be deemed to be the outstanding
amount (or maximum permitted amount, if larger) of the Indebtedness directly or
indirectly guaranteed thereby (subject to any limitation set forth therein).
Hazardous Materials means any substance (in whatever state or matter):
(a) the presence of which requires investigation or remediation under any
Environmental Law; (b) that is defined as a "hazardous waste", "hazardous
material" or "hazardous substance" under any Environmental Law; (c) that is
toxic, explosive, corrosive, pollutive, contaminating, flammable, infectious,
radioactive, carcinogenic, mutagenic or otherwise hazardous and is regulated by
any Authority; (d) that contains or consists of petroleum or petroleum products,
or (e) that contains or consists of PCBs, asbestos, or urea formaldehyde foam
insulation.
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Holding Company means a corporation established by or on behalf of
VIALOG into which VIALOG merges or assigns its rights and obligations hereunder
if the Accountants so advise for purpose of a tax free incorporation of all
parties provided the relative ownership rights of all parties remain the same.
HSR Act means the Hart-Scott-Rodino Antitrust Improvement Act of 1976,
and the rules and regulations thereunder, all as from time to time in effect, or
any successor law, rules or regulations, and any reference to any statutory or
regulatory provision will be deemed to be a reference to any successor statutory
or regulatory provision.
Indebtedness means, with respect to the Company or any of its Subsidiaries
or VIALOG or VIALOG Merger Subsidiary, as the case may be, (a) all items, except
items of capital stock or of surplus or of general contingency or deferred tax
reserves or any minority interest in any Subsidiary to the extent such interest
is treated as a liability with indeterminate term on the consolidated balance
sheet of the Company or VIALOG, which in accordance with GAAP would be included
in determining total liabilities as shown on the liability side of a balance
sheet of the Company or such Subsidiary or VIALOG or VIALOG Merger Subsidiary,
(b) all obligations secured by any Lien to which any property or asset owned or
held by the Company or any Subsidiary or VIALOG or any VIALOG Merger Subsidiary
is subject, whether or not the obligation secured thereby will have been
assumed, and (c) to the extent not otherwise included, all Contractual
Obligations of the Company or any Subsidiary or VIALOG or any VIALOG Merger
Subsidiary constituting capitalized leases and all obligations of the Company or
any Subsidiary or VIALOG or any VIALOG Merger Subsidiary with respect to Leases
constituting part of a sale and leaseback arrangement.
Intangible Assets means all assets and property lacking physical properties
the evidence of ownership of which must customarily be maintained by independent
registration, documentation, certification, recordation or other means.
Law means any (a) administrative, judicial, legislative or other action,
code, consent decree, constitution, decree, directive, enactment, finding,
guideline, law, injunction, interpretation, judgment, order, ordinance, policy
statement, proclamation, promulgation, regulation, requirement, rule, rule of
law, rule of public policy, settlement agreement, statute, or writ of any
Authority, domestic of foreign; (b) the common law, or other legal or quasi-
legal precedent; or (c) arbitrator's, mediator's or referee's award, decision,
finding or recommendation; including, in each such case or instance, any
interpretation, directive, guideline or request, whether or not having the force
of law including, in all cases, without limitation any particular section, part
or provision thereof.
Lease means any lease of property, whether real, personal or mixed, and all
amendments thereto.
Legal Action means any litigation or legal or other actions, arbitrations,
counterclaims, investigations, proceedings, requests for material information by
or pursuant to the order of any
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Authority, or suits, at law or in arbitration, equity or admiralty commenced by
any Person, whether or not purported to be brought on behalf of a party hereto
affecting such party or any of such party's business, property or assets.
Lien means any of the following: mortgage, lien (statutory or other);
preference, priority or other security agreement, arrangement or interest;
hypothecation, pledge or other deposit arrangement; assignment; charge; levy;
executory seizure; attachment; garnishment; encumbrance (including any easement,
exception, variance, reservation or limitation, right of way, zoning
restriction, building to use restriction, and the like); conditional sale, title
retention or other similar agreement, arrangement, device or restriction;
preemptive or similar right; any financing lease involving substantially the
same economic effect as any of the foregoing; the filing of any financing
statement under the Uniform Commercial Code or comparable law of any
jurisdiction; restriction on sale, transfer, assignment, disposition or other
alienation; or any option, equity, claim or right of or obligation to, any other
Person, of whatever kind and character.
Margin Rules means Regulations G, T, U or X of the Board of Governors of
the Federal Reserve System, 12 C.F.R., parts 207, 220, 221 and 224, as now in
effect.
Material or Materiality for the purposes of this Agreement, will, unless
specifically stated to the contrary, be determined without regard to the fact
that various provisions of this Agreement set forth specific dollar amounts.
Material Agreement or Material Commitment means, with respect to the
Company or any of its Subsidiaries, or VIALOG or VIALOG Merger Subsidiary any
Contractual Obligation which (a) was not entered into in the ordinary course of
business, (b) was entered into in the ordinary course of business which (i)
involves the purchase, sale or lease of goods or materials or performance of
services aggregating more than Twenty-Five Thousand Dollars ($25,000), (ii)
extends for more than three (3) months, or (iii) is not terminable on thirty
(30) days or less notice without penalty or other payment, (c) involves
Indebtedness for money borrowed in excess of One Hundred Thousand Dollars
($100,000), (d) is or otherwise constitutes a written agency, dealer, license,
distributorship, sales representative or similar written agreement, or (e) would
account for more than five percent (5%) of purchases or sales made by the
Company and its Subsidiaries for the year ended December 31, 1997.
Merger will have the meaning given to it in the Preamble.
Merger Closing will have the meaning given to it in Section 1.3.
Merger Closing Date means the date on which the Merger is closed.
Merger Consideration will have the meaning given to it in Section 2.1(a).
Multiemployer Plan means a "multiemployer plan" within the meaning of
Section 4001(a)3 of ERISA.
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Net Shares will have the meaning given to it in Section 2.2(a).
Option Securities means all rights, options and warrants, all calls or
commitments evidencing the right, to subscribe for, purchase or otherwise
acquire Shares or Convertible Securities, whether or not the right to subscribe
for, purchase or otherwise acquire is immediately exercisable or is conditioned
upon the passage of time, the occurrence or non-occurrence or the existence or
non-existence of some other Event.
Organizational Documents means, with respect to a Person which is a
corporation, its charter, its by-laws, and all stockholder agreements, voting
trusts and similar arrangements applicable to any of its capital stock, and,
with respect to a Person which is a partnership, its agreement and certificate
of partnership, any agreement among partners, and any management and similar
agreements between the partnership and any general partners (or any Affiliate
thereof).
Other Participating Companies mean those companies or entities engaged
in the teleconferencing business who execute agreements and plans of
reorganization, stock purchase agreements or asset purchase agreements with
VIALOG which agreements close contemporaneously with this Agreement.
Other Transaction means a transaction or series of related transactions
(other than the Merger) resulting in (a) any change in control of the Company,
(b) any merger or consolidation of the Company or any of its Subsidiaries,
regardless of whether the Company or such Subsidiary is the surviving Entity,
(c) any tender offer or exchange offer for, or any acquisition of, any
securities of the Company, or (d) any sale or other disposition of assets of the
Company or any Subsidiary not otherwise permitted under Section 3.18.
Participating Companies will mean the Company and the Other Participating
Companies.
Participating Mergers means the mergers of each of the Other Participating
Companies with a Subsidiary of VIALOG pursuant to a Participating Agreement.
Party means any natural individual or any Entity that has executed this
Agreement.
PBGC means the Pension Benefit Guaranty Corporation and any Entity
succeeding to any or all of its functions under ERISA.
Person means any natural individual or any Entity.
Plan means any "employee benefit plan" as defined in Section 3(3) of
ERISA (whether or not terminated) which is (or was in the case of a frozen or
terminated plan) maintained by the Company or any Subsidiary or VIALOG or VIALOG
Merger Subsidiary, and with respect to which the Company, such Subsidiary or
VIALOG or VIALOG Merger Subsidiary or, in the case of any such plan subject to
Title IV of ERISA, an ERISA Affiliate is (or, if such plan were
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terminated at such time, would under Section 4069 of ERISA be deemed to be) an
"employer" as defined in Section 3(5) of ERISA, other than a Multiemployer Plan.
Principal Stockholder will have the meaning given to it in the Preamble.
Private Authorizations means all approvals, concessions, consents,
franchises, licenses, permits, and other authorizations of all Persons (other
than each Authority) including without limitation those with respect to patents,
trademarks, service marks, trade names, copyrights, computer software programs,
technology and know-how.
Representatives of a Party means the officers, directors, employees,
accountants, counsel, financial advisors, consultants and other representatives
of such Party.
SEC means the Securities and Exchange Commission of the United States or
any successor Authority.
Securities Act means the Securities Act of 1933, and the rules and
regulations of the Commission thereunder, all as from time to time in effect, or
any successor law, rules or regulations.
Shares will have the meaning given to it in Section 2.1(a).
Special Meeting will have the meaning given to it in Section 1.2(a).
Stockholders means the Principal Stockholder and all other Persons
entitled to Merger Consideration (or who would be entitled thereto but for their
dissent from the Merger) pursuant to Sections 2.1(a) or (to the extent Persons
holding Option Securities or Convertible Securities exercise their rights to
acquire Shares prior to the Effective Time, from and after the time they acquire
such Shares) Section 2.4.
Subsidiary means, with respect to a Person, any Entity a majority of
the capital stock ordinarily entitled to vote for the election of directors of
which, or if no such voting stock is outstanding, a majority of the equity
interests of which, is owned directly or indirectly, legally or beneficially, by
such Person or any other Person controlled by such Person.
Surviving Corporation will have the meaning given to it in Section 1.1.
Tax (and "Taxable", which means subject to Tax), means with respect to
the Company or any of its Subsidiaries or VIALOG or any VIALOG Merger
Subsidiary, (a) all taxes (domestic or foreign), including without limitation
any income (net, gross or other including recapture of any tax items such as
investment tax credits), alternative or add-on minimum tax, gross income, gross
receipts, gains, sales, use, leasing, lease, user, ad valorem, transfer,
recording, franchise, profits, property (real or personal, tangible or
intangible), fuel, license, withholding on amounts paid to or by the Company or
any of its Subsidiaries, or VIALOG or any VIALOG Merger Subsidiary, payroll,
employment, unemployment, social security, excise severance, stamp, occupation,
73
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premium, environmental or windfall profit tax, custom, duty or other tax,
governmental fee or other like assessment or charge of any kind whatsoever,
together with any interest, levies, assessments, charges, penalties, addition to
tax or additional amount imposed by any Taxing Authority, (b) any joint or
several liability of the Company or any of its Subsidiaries or VIALOG or any
VIALOG Merger Subsidiary with any other Person for the payment of any amounts of
the type described in (a), and (c) any liability of the Company or any of its
Subsidiaries or VIALOG or any VIALOG Merger Subsidiary for the payment of any
amounts of the type described in (a) as a result of any express or implied
obligation to indemnify any other Person.
Tax Claim means any Claim which relates to Taxes, including without
limitation the representations and warranties set forth in Section 3.11.
Tax Return or Returns means all returns, consolidated or otherwise
(including without limitation information returns), required to be filed with
any Authority with respect to Taxes.
Taxing Authority means any Authority responsible for the imposition of
any Tax.
Termination Date means (a) March 31, 1999, or (b) such date after March 31,
1999 as to which the parties agree.
Transactions means the other transactions contemplated by this Agreement or
the Merger or by any Collateral Document executed or required to be executed in
connection herewith or therewith, but will not include the Participating
Mergers, the sale of VIALOG securities pursuant to the Financing Document or any
credit facilities between VIALOG and any bank described in the Financing
Document.
Transmittal Documents will have the meaning given to it in Section 2.2(b).
Underwriter means any underwriter placement agent, sales agent or other
entity by whatever name known, who assists VIALOG either as agent or for its own
account in selling VIALOG's securities pursuant to the Financing Document.
Underwriting Agreement means the agreement between VIALOG and the
Underwriter.
VIALOG will have the meaning given to it in the Preamble.
VIALOG Indemnified Parties will have the meaning given to it in Section
10.1(a).
VIALOG Merger Subsidiary will have the meaning given to it in the Preamble.
VIALOG Stock will have the meaning given to it in the Preamble.
74
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[THIS SPACE IS INTENTIONALLY LEFT BLANK.]
75
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IN WITNESS WHEREOF, VIALOG, VIALOG Merger Subsidiary, the Company and
the Principal Stockholder have caused this Agreement to be executed as of the
date first written above by their respective officers thereunto duly authorized.
VIALOG CORPORATION
By: /s/ Glenn D. Bolduc
-------------------
Name: Glenn D. Bolduc
Title: President
CPI ACQUISITION CORPORATION
By: /s/ Glenn D. Bolduc
-------------------
Name: Glenn D. Bolduc
Title: President
CONFERENCE PROS INTERNATIONAL, INC.
By: /s/ Robin Fisher
-------------------
Name: Robin Fisher
Title: President
PRINCIPAL STOCKHOLDER:
/s/ Michael Burns
-------------------
Name: Michael Burns
SPOUSAL CONSENT
---------------
The spouse of the Principal Stockholder has executed this Agreement
below as of the date first above written (a) to indicate her understanding of
and Agreement with all of the terms and provisions of this Agreement and (b) to
bind the community property interest, if any, of the spouse in the Shares of the
Principal Stockholder.
/s/ Robin Fisher
---------------------------
Name: Robin Fisher
76
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THE FOLLOWING IS AN INDEX OF INFORMATION PROVIDED IN THE DISCLOSURE SCHEDULES
AND EXHIBITS OF THE AGREEMENT AND PLAN OF REORGANIZATION BY AND AMONG VIALOG
CORPORATION AND CONFERENCE PROS INTERNATIONAL, INC. FURTHER INFORMATION WILL BE
FURNISHED UPON REQUEST.
Schedule 3.1(a) Jurisdictions
Schedule 3.1(c) Conflicts, Breaches, Defaults and Resulting Liens,
Authorizations
Schedule 3.1(d) Subsidiaries, Jurisdictions and Ownership
Schedule 3.2(a) Financial Statements
Schedule 3.2(c) Other Equity Ownership
Schedule 3.3 Adverse Change
Schedule 3.4 Other Company or Subsidiary Liabilities
Schedule 3.5(a) Liens; Financing Statements; Leasehold Interests
Schedule 3.5(b) Description of Owned and Leased Property
Schedule 3.5(c) Compliance with Certain Laws
Schedule 3.6 Private Authorizations
Schedule 3.7(a) Litigation, Permits and Licenses
Schedule 3.7(b) Violations of Certain Governmental Authorizations/Laws
Schedule 3.8(a) Exceptions to Title to Intangible Assets
Schedule 3.8(b) Description of Tangible Assets
Schedule 3.9 Related Transactions
Schedule 3.10(a) Insurance
Schedule 3.11(a) Tax Matters
Schedule 3.11(d) Tax Audits
Schedule 3.11(e) Tax Sharing Agreements
Schedule 3.11(f) Consent Under Code Section 341(f)
Schedule 3.12(a) Employee Plans and Benefits
Schedule 3.12(c) Past Service Liabilities
Schedule 3.15(a) Capitalization
Schedule 3.15(b) Stockholders and Liens on Stock
Schedule 3.16(a) Employment Arrangements
Schedule 3.16(b) Certain Employment Arrangement Payments
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Schedule 3.16(c) Employee Relations; Work Stoppages
Schedule 3.17(a) Material Agreements
Schedule 3.17(b) Margins Under Certain Material Agreements
Schedule 3.18(a) Exceptions to Ordinary Course
Schedule 3.18(b) Distributions
Schedule 3.19 Bank Accounts
Schedule 3.20 Adverse Restrictions
Schedule 3.22 Personal Injury/Property Claims
Schedule 3.23(a) Environmental Compliance
Schedule 3.23(b) Spills and Releases
Schedule 3.23(c) Storage Tanks
Schedule 3.23(e) Use of Hazardous Materials
Schedule 3.23(f) Generated Hazardous Materials
Schedule 3.23(g) Site Assessments
Schedule 3.29 Information for Financing
Schedule 3.30 Predecessor Companies; Certain Transactions
Schedule 4.4 Title to Shares
Schedule 4.5 No Conflict; Required Filings and Consents
Schedule 6.5(b) Conduct of Business Between Signing and Closing
Schedule 6.17 Distributions and Liens to be Made or Released
Schedule 6.21 Allocation of Aggregate Merger Consideration
Schedule 7.2(q) Related Transactions to Survive Closing
Schedule 7.2(t) List of Continuing Key Employees and Terms of Employment
Exhibit 1.6 Certificate of Incorporation of Surviving Corporation
Exhibit 1.7 Bylaws of Surviving Corporation
Exhibit 6.2(c) Key Employee Non-Compete
Exhibit 7.2(b) Seller's Opinion
Exhibit 7.2(d) Non Comp Agreement (principal shareholder not signing
7.2(s))
Exhibit 7.2(n) Release by Shareholder
Exhibit 7.2(s) Robin Fisher Employment Agreement
Exhibit 7.2(t) Employment Agreements
Exhibit 7.3(b) MODL Opinion
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EXHIBIT 2.16
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
VIALOG CORPORATION
BETTER ACQUISITION CORPORATION
AND
A BETTER CONFERENCE, INC.
AND
PATRICIA A. CRANFORD
AND
OTIS CRANFORD
AND
MATTHEW CRANFORD
DATED AS OF DECEMBER 19, 1998
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
ARTICLE 1 THE MERGER............................................................ 2
SECTION 1.1 The Merger.................................................... 2
SECTION 1.2 Action by Stockholders........................................ 2
SECTION 1.3 Closing....................................................... 3
SECTION 1.4 Effective Time................................................ 3
SECTION 1.5 Effect of the Merger.......................................... 3
SECTION 1.6 Certificate of Incorporation.................................. 3
SECTION 1.7 By-laws....................................................... 4
SECTION 1.8 Directors and Officers........................................ 4
ARTICLE 2 CONVERSION OF SECURITIES AND EXCHANGE OF CERTIFICATES................. 4
SECTION 2.1 Conversion of Securities...................................... 4
SECTION 2.2 Exchange of Certificates; Exchange Agent and
Exchange Procedures........................................... 5
SECTION 2.3 Stock Transfer Books.......................................... 6
SECTION 2.4 Option Securities and Convertible Securities.................. 6
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY......................... 7
SECTION 3.1 Organization and Business; Power and Authority; Etc......... 7
SECTION 3.2 Financial and Other Information............................. 9
SECTION 3.3 Changes in Condition........................................ 10
SECTION 3.4 Liabilities................................................. 10
SECTION 3.5 Title to Properties; Leases................................. 11
SECTION 3.6 Compliance with Private Authorizations...................... 12
SECTION 3.7 Compliance with Governmental Authorizations and
Applicable Law.............................................. 12
SECTION 3.8 Intangible Assets........................................... 14
SECTION 3.9 Related Transactions........................................ 14
SECTION 3.10 Insurance................................................... 14
SECTION 3.11 Tax Matters................................................. 15
SECTION 3.12 Employee Retirement Income Security Act of 1974............. 16
SECTION 3.13 Absence of Sensitive Payments............................... 19
SECTION 3.14 Inapplicability of Specified Statutes....................... 19
SECTION 3.15 Authorized and Outstanding Capital Stock.................... 19
SECTION 3.16 Employment Arrangements..................................... 19
SECTION 3.17 Material Agreements......................................... 21
SECTION 3.18 Ordinary Course of Business................................. 21
SECTION 3.19 Bank Accounts; Etc.......................................... 23
SECTION 3.20 Adverse Restrictions........................................ 23
SECTION 3.21 Broker or Finder............................................ 23
</TABLE>
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<TABLE>
<S> <C>
SECTION 3.22 Personal Injury or Property Damage; Warranty Claims; Etc.... 24
SECTION 3.23 Environmental Matters....................................... 24
SECTION 3.24 Materiality................................................. 26
SECTION 3.25 Solvency.................................................... 26
SECTION 3.26 Compliance with Regulations Relating to Securities Credit... 26
SECTION 3.27 Certain State Statutes Inapplicable......................... 26
SECTION 3.28 Continuing Representations and Warranties................... 26
SECTION 3.29 Financing Document.......................................... 27
SECTION 3.30 Predecessor Status; Etc..................................... 27
SECTION 3.31 Systems Performance......................................... 27
SECTION 3.32 Year 2000 Compliance........................................ 27
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF THE
PRINCIPAL STOCKHOLDER..................................................... 28
SECTION 4.1 Organization................................................ 28
SECTION 4.2 Power and Authority......................................... 28
SECTION 4.3 Enforceability.............................................. 28
SECTION 4.4 Title to Shares............................................. 29
SECTION 4.5 No Conflict; Required Filings and Consents.................. 29
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF VIALOG AND
VIALOG MERGER SUBSIDIARY.................................................. 29
SECTION 5.1 Organization and Qualification.............................. 29
SECTION 5.2 Power and Authority......................................... 30
SECTION 5.3 No Conflict; Required Filings and Consents.................. 30
SECTION 5.4 Financing................................................... 30
SECTION 5.5 Broker or Finder............................................ 31
SECTION 5.6 Prior Activities of Vialog Merger Subsidiary................ 31
SECTION 5.7 Capitalization of Vialog Merger Subsidiary.................. 31
SECTION 5.8 Financing Document.......................................... 31
SECTION 5.9 Financing Commitment........................................ 31
SECTION 5.10 Continuing Representations and Warranties................... 31
ARTICLE 6 ADDITIONAL COVENANTS................................................. 32
SECTION 6.1 Access to Information; Confidentiality...................... 32
SECTION 6.2 Agreement to Cooperate...................................... 33
SECTION 6.3 Assignment of Contracts and Rights.......................... 34
SECTION 6.4 Audited Financial Statements................................ 35
SECTION 6.5 Conduct of Business......................................... 35
SECTION 6.6 No Solicitation............................................. 36
SECTION 6.7 Directors' and Officers' Indemnification and Insurance...... 36
SECTION 6.8 Notification of Certain Matters............................. 37
</TABLE>
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<TABLE>
<S> <C>
SECTION 6.9 Public Announcements........................................ 37
SECTION 6.10 Conveyance Taxes............................................ 38
SECTION 6.11 This Section Intentionally Left Blank....................... 38
SECTION 6.12 Employee benefits; Severance Policy......................... 38
SECTION 6.13 Certain Actions Concerning Business Combinations............ 38
SECTION 6.14 Termination of Option Securities and Convertible Securities. 39
SECTION 6.15 Tax Returns................................................. 39
SECTION 6.16 This Section Intentionally Left Blank....................... 39
SECTION 6.17 Distributions; Liabilities; Etc............................. 39
SECTION 6.18 Release From Personal Guarantees............................ 40
SECTION 6.19 Financing Document.......................................... 40
ARTICLE 7 Closing Conditions................................................... 40
SECTION 7.1 Conditions to Obligations of Each Party to Effect the Merger 40
SECTION 7.2 Conditions to Obligations of Vialog and Vialog Merger
Subsidiary.................................................. 41
SECTION 7.3 Conditions to Obligations of the Company.................... 45
ARTICLE 8 TERMINATION, AMENDMENT AND WAIVER..................................... 46
SECTION 8.1 Termination................................................. 46
SECTION 8.2 Effect of Termination....................................... 48
SECTION 8.3 Amendment................................................... 49
SECTION 8.4 Waiver...................................................... 49
SECTION 8.5 Fees, Expenses and Other Payments........................... 49
SECTION 8.6 Effect of Investigation..................................... 49
ARTICLE 9 ARBITRATION.......................................................... 49
SECTION 9.1 Best Efforts to Settle Disputes............................. 49
SECTION 9.2 Arbitration................................................. 50
ARTICLE 10 INDEMNIFICATION..................................................... 51
SECTION 10.1 Indemnification............................................. 51
SECTION 10.2 Procedures Concerning Claims by Third Parties;
Payment of Damages; Etc..................................... 52
SECTION 10.3 Access to Books and Records................................. 54
SECTION 10.4 Exclusivity................................................. 54
ARTICLE 11 General Provisions.................................................. 54
SECTION 11.1 Effectiveness of Representations; Etc....................... 54
SECTION 11.2 Notices..................................................... 55
</TABLE>
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<TABLE>
<S> <C>
SECTION 11.3 Headings.................................................... 56
SECTION 11.4 Severability................................................ 56
SECTION 11.5 Entire Agreement............................................ 56
SECTION 11.6 Assignment.................................................. 56
SECTION 11.7 Parties in Interest......................................... 57
SECTION 11.8 Governing Law............................................... 57
SECTION 11.9 Enforcement of the Agreement................................ 57
SECTION 11.10 Counterparts................................................ 57
SECTION 11.11 Disclosure Letter and Supplements........................... 57
ARTICLE 12 DEFINITIONS......................................................... 58
</TABLE>
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AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION dated as of December 19, 1998 among
VIALOG Corporation, a Massachusetts corporation ("VIALOG"), Better Acquisition
Corporation, a Delaware corporation and wholly owned subsidiary of VIALOG
("VIALOG Merger Subsidiary"), A BETTER CONFERENCE, INC., a California
corporation (the "Company"), and PATRICIA A. CRANFORD, OTIS CRANFORD and MATTHEW
CRANFORD (the "Principal Stockholders"). Capitalized terms used but not
otherwise defined herein shall have the meanings ascribed thereto in Article 12
hereof.
PREAMBLE
1. The Company and VIALOG Merger Subsidiary have agreed to carry
out a business combination transaction upon the terms and subject to the
conditions of this Agreement and in accordance with the California Corporations
Code (the "CCC") and the General Corporation Law of the State of Delaware (the
"DBCL"), pursuant to which the VIALOG Merger Subsidiary will merge with and into
the Company (the "Merger") and the Principal Stockholders and other Persons
holding equity interests in the Company (the "Stockholders") will convert their
holdings into cash determined in accordance with Section 2.1(a).
2. Pursuant to the Underwriting Agreement, VIALOG will issue and sell
VIALOG stock in a firm commitment offering (the "Financing") in accordance with
the requirements of the Securities Act of 1933, as amended (the "Securities
Act").
3. The Board of Directors of the Company has unanimously determined that
the Merger is fair to, and in the best interests of, the Company and the
Stockholders and has approved and adopted this Agreement and the Merger as a
convenient means to accomplish a cash reverse merger pursuant to the Internal
Revenue Code of 1986, as amended (the "Code") and a convenient means to cause
all of the Stockholders to transfer their capital stock of the Company to
VIALOG, has approved this Agreement, the Merger and the Transactions and has
recommended approval and adoption of this Agreement, the Merger and the
Transactions by the Stockholders.
4. The Board of Directors of VIALOG has approved and adopted this
Agreement and has approved the Merger and the Transactions as the sole
stockholder of VIALOG Merger Subsidiary and the Board of Directors of VIALOG
Merger Subsidiary has approved and adopted this Agreement.
1
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AGREEMENT
In consideration of the foregoing and the respective representations,
warranties, covenants and agreements set forth in this Agreement, the parties
agree as follows:
ARTICLE
1
THE MERGER
1.1 The Merger.
----------
(a) Upon the terms and subject to the conditions set forth in this
Agreement, and in accordance with the CCC and the DBCL at the Effective Time the
VIALOG Merger Subsidiary will be merged with and into the Company. As a result
of the Merger, the separate existence of the VIALOG Merger Subsidiary will cease
and the Company will continue as the surviving corporation of the Merger (the
"Surviving Corporation").
(b) The Company represents that, at a meeting duly called and held at
which a quorum was present and acting throughout, its Board of Directors has
unanimously (i) determined that this Agreement, the Merger and the Transactions
are fair to and in the best interest of the Stockholders, (ii) approved this
Agreement, the Merger and the Transactions, which approval satisfies in full the
requirements of the CCC and California law, and (iii) resolved to recommend
approval and adoption by the Stockholders of this Agreement, the Merger and the
Transactions to the extent required and in a manner permitted by Applicable Law.
1.2 Action by Stockholders.
----------------------
(a) The Company, acting through its Board of Directors, will, in
accordance with Applicable Law and its Organizational Documents: (i) as soon as
practicable and after consultation with VIALOG, duly call, give notice of,
convene and hold a special meeting of, or to the extent permitted by Applicable
Law submit for approval and adoption by written consent by, the Stockholders for
the purpose of adopting and approving this Agreement, the Merger and the
Transactions (the "Special Meeting"); (ii) include in any proxy statement the
conclusion and recommendation of the Board of Directors to the effect that the
Board of Directors, having determined that this Agreement, the Merger and the
Transactions are in the best interests of the Company and the Stockholders, has
approved this Agreement, the Merger and the Transactions and recommends that the
Stockholders vote in favor of the approval and adoption of this Agreement, the
Merger and the Transactions; and (iii) use its reasonable best efforts to obtain
the necessary approval and adoption of this Agreement, the Merger and the
Transactions by the Stockholders.
2
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(b) The approvals required by Sections 1.2(a) will occur prior to the
closing of the Merger (the "Merger Closing") or any filing required by state law
and in any event within 30 days of the date hereof.
1.3 Closing. Unless this Agreement is terminated pursuant to Section
-------
8.1 and the Merger and the Transactions have been abandoned, and subject to the
satisfaction or, if possible, waiver of conditions set forth in Article 7, the
Merger Closing will take place one day prior to the Effective Date, at the
offices of Mirick, O'Connell, DeMallie & Lougee, llp, unless another date, time
or place is agreed to in writing by the Parties to this Agreement. Counsel for
the Parties to this Agreement will hold a pre-closing at least one day prior to
the Merger Closing, at the offices of Mirick, O'Connell, DeMallie & Lougee, llp,
for the purpose of finalizing all documents to be signed at the Merger Closing.
All certificates, legal opinions and other instruments required to be delivered
in order to satisfy the conditions to the obligations of the Parties to effect
the Merger set forth in Article 7 below shall be delivered at the Merger
Closing, and each such certificate, legal opinion or other instrument shall,
except to the extent otherwise provided in Article 7, be dated as of the
anticipated Financing Closing Date as hereafter defined, which is expected to
occur no later than three business days following the date of Merger Closing.
All such certificates, legal opinions and other instruments shall be held in
escrow by Mirick, O'Connell, DeMallie & Lougee, llp between the Merger Closing
and the Financing Closing Date and shall be released from escrow on the
Financing Closing Date. In the event that the Financing Closing Date occurs on a
date other than the third business day following the Merger Closing, all such
certificates, legal opinions and instruments shall be re-dated as of the
Financing Closing Date. The Company, the Principal Stockholders, VIALOG and
VIALOG Merger Subsidiary shall use their respective best efforts to cause each
of the conditions set forth in Article 7 reasonably capable of being satisfied
prior to the Merger Closing, to be satisfied prior to the Merger Closing.
1.4 Effective Time. On the Financing Closing Date, the Parties will cause
--------------
the Merger to be consummated by filing articles or certificates of merger, as
the case may be, with the Secretary of State of California and with the
Secretary of State of Delaware, and by making any related filings required under
the CCC and the DBCL. The Merger will become effective at such time (but not
prior to the Financing Closing Date) as such articles or certificates, as the
case may be, are duly filed with the Secretary of State of California and the
Secretary of State of Delaware, respectively (the "Effective Time").
1.5 Effect of the Merger. From and after the Effective Time, the Surviving
--------------------
Corporation will possess all the rights, privileges, powers and franchises and
be subject to all of the restrictions, disabilities and duties of the Company
and VIALOG Merger Subsidiary, and the Merger will otherwise have the effects,
all as provided under the CCC and the DBCL.
1.6 Certificate of Incorporation. From and after the Effective Time, the
----------------------------
Certificate of Incorporation of the Surviving Corporation will be substantially
in the form attached as Exhibit 1.6 until amended in accordance with Applicable
-----------
Law, and the name of the Surviving Corporation will be the name of the Company
or such other name as VIALOG may select.
3
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1.7 By-laws. From and after the Effective Time, the by-laws of the
-------
Surviving Corporation will be in the form attached as Exhibit 1.7, until amended
in accordance with Applicable Law.
1.8 Directors and Officers. From and after the Effective Time, until
----------------------
successors are duly elected or appointed and qualified (or their earlier
resignation or removal) in accordance with Applicable Law (a) the directors of
VIALOG Merger Subsidiary at the Effective Time will be the directors of the
Surviving Corporation and (b) the officers of the Company at the Effective Time
will be the officers of the Surviving Corporation.
ARTICLE
2
CONVERSION OF SECURITIES AND EXCHANGE OF CERTIFICATES
2.1 Conversion of Securities. At the Effective Time, by virtue of the
------------------------
Merger and without any action on the part of VIALOG Merger Subsidiary, the
Company or the holders of any of the following securities:
(a) Each share of common stock of the Company (the "Company Stock")
issued and outstanding or issuable upon the election to exercise or convert
outstanding Option Securities and Convertible Securities immediately prior to
the Effective Time (other than any shares of Company Stock to be canceled
pursuant to Section 2.1(b)) will be converted into the right to receive cash
(the "Merger Consideration") pursuant to the following formula:
Aggregate Merger Consideration = $6,200,000
Merger Consideration = Aggregate Merger Consideration
------------------------------
Aggregate Equity
At the Effective Time, all issued and outstanding shares of Company Stock (the
"Shares") will no longer be outstanding and will automatically be canceled and
retired and will cease to exist, and certificates previously evidencing any such
Shares (each a "Certificate") will thereafter represent the right to receive,
upon the surrender of such Certificate in accordance with the provisions of
Section 2.2, cash equal to the number of Shares represented by such Certificate
multiplied by the Merger Consideration. A holder of more than one Certificate
will have the right to receive cash equal to the Merger Consideration multiplied
by the number of Shares represented by all such Certificates (the "Exchange
Merger Consideration"). The holders of Certificates previously evidencing
Shares outstanding immediately prior to the Effective Time will cease to have
any rights with respect to such Shares except as otherwise provided in this
Agreement or by Applicable Law.
(b) Each Share held in the treasury of the Company or by any direct
or indirect wholly-owned Subsidiary of the Company immediately prior to the
Effective Time will
4
<PAGE>
automatically be canceled and extinguished without conversion, and no payment
will be made with respect to such Share.
(c) Each share of common stock of the VIALOG Merger Subsidiary
outstanding immediately prior to the Effective Time will be converted into and
become one share of common stock of the Surviving Corporation with the same
rights, powers and privileges as the shares so converted and will constitute the
only outstanding shares of capital stock of the Surviving Corporation.
2.2 Exchange of Certificates; Exchange Agent and Exchange Procedures.
----------------------------------------------------------------
(a) On the Financing Closing Date, VIALOG will deliver to the
holders of Shares for exchange in accordance with this Article by wire transfer
of immediately available funds to the bank accounts designated by the respective
Stockholders, an amount equal to the Merger Consideration multiplied by the
number of shares issued and outstanding immediately prior to the Effective Time
(other than Shares to be canceled pursuant to Section 2.1(b)) in exchange for
all of the outstanding Shares (collectively the "Exchange Fund").
(b) Upon surrender of a Certificate for cancellation to VIALOG or to
such other agent or agents as may be appointed by VIALOG together with such
letter of transmittal, duly executed, and such other customary documents as may
be reasonably required pursuant to such instructions (collectively, the
"Transmittal Documents"), the holder of such Certificate will become entitled to
receive, as of the Effective Time, in exchange therefor the Exchange Merger
Consideration which such holder has the right to receive pursuant to Section
2.1(a), and the Certificate so surrendered will be canceled. Until surrendered
as contemplated by this Section, each Certificate will be deemed at any time
after the Effective Time to evidence only the right to receive, upon such
surrender, the Exchange Merger Consideration, without interest.
(c) If any Certificate is lost, stolen or destroyed, upon the making
of an affidavit of that fact by the Person claiming such Certificate to be lost,
stolen or destroyed and subject to such other conditions as VIALOG may impose,
the Surviving Corporation will issue in exchange for such lost, stolen or
destroyed Certificate the Exchange Merger Consideration deliverable in respect
thereof as determined in accordance with Section 2.1(a). VIALOG may, in its
discretion and as a condition precedent to authorizing the issuance thereof by
the Surviving Corporation, require the owner of such lost, stolen or destroyed
Certificate to provide a bond or other surety to VIALOG and the Surviving
Corporation in such sum as VIALOG may reasonably direct as indemnity against any
claim that may be made against VIALOG, VIALOG Merger Subsidiary or the Surviving
Corporation (and their Affiliates) with respect to the Certificate alleged to
have been lost, stolen or destroyed.
(d) None of VIALOG, VIALOG Merger Subsidiary, the Company or the
Surviving Corporation will be liable to any holder of Shares for any cash from
the Exchange Fund delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law.
5
<PAGE>
(e) Each of VIALOG and the Surviving Corporation will be entitled to
deduct and withhold from the consideration otherwise payable pursuant to this
Agreement to any holder of Shares such amounts as VIALOG or the Surviving
Corporation is required to deduct and withhold with respect to the making of
such payment under the Code, or any provision of state, local or foreign tax
law. If any holder of Shares who has the right under the Code (or other
Applicable Law) to elect to receive the Exchange Merger Consideration without
any deduction or withholding therefrom, notifies VIALOG of such election to do
so and the form and content of the election is reasonably acceptable to VIALOG,
neither VIALOG nor the Surviving Corporation will deduct or withhold any amount
from the consideration payable to any such holder of Shares. To the extent that
amounts are so withheld by VIALOG or the Surviving Corporation, such withheld
amounts will be treated for all purposes of this Agreement as having been paid
to the holder of the Shares in respect of which such deduction and withholding
was made by VIALOG or the Surviving Corporation.
2.3 Stock Transfer Books. At the Merger Closing Date, the stock
---------------------
transfer books of the Company will be closed, and there will be no further
registration of transfers of Shares thereafter on the records of the Company
other than to VIALOG. On or after the Effective Time, any Certificate presented
to the Exchange Agent or the Surviving Corporation will be converted into the
Exchange Merger Consideration.
2.4 Option Securities and Convertible Securities. At the Effective Time:
--------------------------------------------
(a) Each outstanding Option Security and each outstanding
Convertible Security exercisable or convertible to purchase Shares as of
immediately prior to the Effective Time, will be canceled and the holder thereof
will be entitled to receive, and will receive, upon payment of the consideration
required to exercise or convert, or debit of such consideration against the
Merger Consideration otherwise due, and termination of such holder's rights to
exercise or convert, as the case may be, all other Option Securities or
Convertible Securities issued to such holder, Merger Consideration in the form
of cash payable with respect to the number of Shares issuable pursuant to such
Option Security or Convertible Security so exercised or converted, as the case
may be, as provided in Section 2.1(a).
(b) Each Option Security outstanding not then exercisable or
exercised and the conversion rights of each Convertible Security outstanding not
then convertible or converted will be canceled.
(c) VIALOG shall grant to those persons set forth in Section 2.4 of
the Disclosure Letter options for an aggregate of 75,000 shares of VIALOG Stock
as constituted on the date hereof exercisable at the fair market value at the
Effective Time as determined by the VIALOG Board of Directors in its reasonable
and good faith judgment, which such options shall become exercisable as set
forth in Section 2.4 of the Disclosure Letter.
6
<PAGE>
ARTICLE
3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents, warrants and covenants to, and agrees with, VIALOG
and VIALOG Merger Subsidiary as set forth below. To the extent that any
representation and warranty or an exception to a representation and warranty
would manifestly apply to more than one section of the Agreement, the Disclosure
Letter need only identify an exception to the representations and warranties one
time.
3.1 Organization and Business; Power and Authority; Etc.
---------------------------------------------------
(a) The Company:
(i) is a corporation duly organized, validly existing and in
good standing under the laws of California.
(ii) has all requisite power and authority (corporate and other)
to own or hold under lease its properties and to conduct its
business as now conducted and as presently proposed to be
conducted, and has in full force and effect all Governmental
Authorizations and Private Authorizations and has made all
Governmental Filings, to the extent required for such
ownership and lease of its property and conduct of its
business, except to the extent the failure to have in full
force and effect all governmental authorizations and Private
Authorizations and the failure to make all governmental
filings would not have an Adverse Effect, and
(iii) has duly qualified and is authorized to do business and is
in good standing as a foreign corporation in each
jurisdiction (a true and correct list of which is set forth
in Section 3.1(a) of the Disclosure Letter as hereafter
defined) in which the character of its property or the
nature of its business or operations requires such
qualification or authorization, except to the extent the
failure so to qualify or to maintain such authorizations
would not have an Adverse Effect.
(b) The Company has all requisite power and authority (corporate and
other) and has in full force and effect all Governmental Authorizations and
Private Authorizations in order to enable it to execute and deliver, and to
perform its obligations under, this Agreement and each Collateral Document
executed or required to be executed by it pursuant hereto or thereto and to
consummate the Merger and the Transactions. The execution, delivery and
performance of this Agreement and each Collateral Document executed or required
to be executed pursuant hereto or thereto have been duly authorized by all
requisite corporate or other action (other than that of the Stockholders). This
Agreement has been duly executed and delivered by the
7
<PAGE>
Company and constitutes, and each Collateral Document executed or required to be
executed pursuant hereto or thereto or to consummate the Merger and the
Transactions, when executed and delivered by the Company or an Affiliate of the
Company will constitute, legal, valid and binding obligations of the Company or
such Affiliate, enforceable in accordance with their respective terms. The
affirmative vote or action by written consent of 51% of the votes the holders of
the outstanding shares of the Company are entitled to cast is the only vote of
the holders of any class or series of the capital stock of the Company necessary
to approve this Agreement, the Merger and the Transactions under Applicable Law
and the Company's Organizational Documents.
(c) Except as set forth in Section 3.1(c) of the Disclosure Letter,
neither the execution and delivery of this Agreement or any Collateral Document
executed or required to be executed pursuant hereto or thereto, nor the
consummation of the Transactions, nor compliance with the terms, conditions and
provisions hereof or thereof by the Company or any of the other parties hereto
or thereto which is Affiliated with the Company:
(i) will conflict with, or result in a breach or violation
of, or constitute a default under, the Certificate of
Incorporation, Bylaws or any Applicable Law on the part
of the Company or any Subsidiary or will conflict with,
or result in a breach or violation of, or constitute a
default under, or permit the acceleration of any
obligation or liability in, or but for any requirement
of giving of notice or passage of time or both would
constitute such a conflict with, breach or violation
of, or default under, or permit any such acceleration
in, any Contractual Obligation of the Company or any
Subsidiary,
(ii) will result in or permit the creation or imposition
of any Lien (except to the extent set forth in Section
3.1(c) of the Disclosure Letter) upon any property now
owned or leased by the Company or any such other party, or
(iii) will require any Governmental Authorization or
Governmental Filing or Private Authorization, except for
filing requirements under Applicable Law in connection
with the Merger and the Transactions and as the Securities
Act and applicable state securities laws may apply to
compliance by the Company with the provisions of this
Agreement relating to the Merger and registration rights
provided for hereunder and except pursuant to the HSR Act.
(if applicable).
(d) The Company does not have any Subsidiaries other than those listed
on Section 3.1(d) of the Disclosure Letter. Each Subsidiary so listed is wholly-
owned, is a corporation which is duly organized, validly existing and in good
standing under the laws of the respective state of incorporation set forth
opposite its name on Section 3.1(d) of the Disclosure
8
<PAGE>
Letter, and is duly qualified and in good standing as a foreign corporation in
each other jurisdiction (as shown in Section 3.1(d) of the Disclosure Letter) in
which the character of its property or the nature of its business or operations
requires such qualification or authorization, with full power and authority
(corporate and other) to carry on the business in which it is engaged. Each
Subsidiary has in full force and effect all Governmental Authorizations and
Private Authorizations and has made all Governmental Filings, to the extent
required for such ownership and lease of its property and conduct of its
business. The Company owns all of the outstanding capital stock (as shown on
Section 3.1(d) of the Disclosure Letter) of each Subsidiary, free and clear of
all Liens (except to the extent set forth in Section 3.1(d) of the Disclosure
Letter), and all such stock has been duly authorized and validly issued and is
fully paid and non-assessable. There are no outstanding Option Securities or
Convertible Securities, or agreements or understandings with respect to any of
the foregoing, of any nature whatsoever relating to the authorized and unissued
or the outstanding capital stock of any Subsidiary.
3.2 Financial and Other Information.
-------------------------------
(a) The Company has furnished to VIALOG copies of the financial
statements of the Company and its Subsidiaries listed in Section 3.2(a) of the
Disclosure Letter (the "Financial Statements"). The Financial Statements,
including in each case the notes thereto, have been prepared in accordance with
GAAP applied on a consistent basis throughout the periods covered thereby,
except as otherwise noted therein, are materially true, correct and complete, do
not contain any untrue statement of a material fact or omit to state a material
fact required by GAAP to be stated therein or necessary in order to make any
statements contained therein not misleading, and fairly present the financial
condition and results of operations of the Company and its Subsidiaries, on the
bases therein stated, as of the respective dates thereof, and for the respective
periods covered thereby subject, in the case of unaudited financial statements
to normal nonmaterial year-end audit adjustments and accruals.
(b) Neither the Disclosure Letter, the Financial Statements, this
Agreement nor any Collateral Document executed or required to be executed by or
on behalf of the Company or the Stockholders pursuant hereto or thereto or to
consummate the Merger and the Transactions, contains or will contain any untrue
statement of a material fact or omits or will omit to state a material fact
required to be stated in such document by its terms or necessary in order to
make the statements contained herein or therein not misleading and all such
Collateral Documents are and will be true, correct and complete in all material
respects; provided that:
(i) with respect to projections contained or referred to in
the Disclosure Letter, the Company represents and warrants
only that such projections were prepared in good faith on the
basis of the past business of the Company and other
information and assumptions which the Company and the
Principal Stockholders believe to be reasonable,
9
<PAGE>
(ii) each such Collateral Document will not be deemed
misleading by virtue of the absence of factual recitations or
references not germane thereto and necessary to the purpose
thereof, and
(iii) responses to due diligence requests will not be subject to
this Section 3.2(b) except to the extent that, to the
Company's knowledge, such response is materially misleading.
(c) The Company does not own any capital stock or equity or proprietary
interest in any other Entity or enterprise, however organized and however such
interest may be denominated or evidenced, except as set forth in Sections 3.1(d)
or 3.2(c) of the Disclosure Letter. None of the Entities, if any, so set forth
in Section 3.2(c) of the Disclosure Letter is a Subsidiary of the Company except
as so set forth. The Company owns all of the outstanding capital stock or equity
or proprietary interests (as shown on Section 3.2(c) of the Disclosure Letter)
of each such Entity or other enterprise, free and clear of all Liens (except to
the extent set forth in Section 3.2(c) of the Disclosure Letter), and all of
such stock or equity or proprietary interests have been duly authorized and
validly issued and are fully paid and non-assessable. There are no outstanding
Option Securities or Convertible Securities, or agreements or understandings
with respect to any of the foregoing, of any nature whatsoever, except as
described in Section 3.2(c) of the Disclosure Letter.
3.3 Changes in Condition. Since the date of the most recent financial
--------------------
statements forming part of the Financial Statements, except to the extent
specifically described in Section 3.3 of the Disclosure Letter, there has been
no Adverse Change in the Company or the Company and its Subsidiaries taken as a
whole. There is no Event known to the Company which Adversely Affects, or in
the future might (so far as the Company or the Principal Stockholders can now
reasonably foresee) Adversely Affect, the Company or the Company and its
Subsidiaries taken as a whole, or the ability of the Company to perform any of
the obligations set forth in this Agreement or any Collateral Document executed
or required to be executed pursuant hereto or thereto except for changes in
general economic conditions and to the extent set forth in Section 3.3 of the
Disclosure Letter.
3.4 Liabilities. At the date of the most recent balance sheet forming part of
-----------
the Financial Statements, neither the Company nor any Subsidiary had any
obligations or liabilities, past, present or deferred, accrued or unaccrued,
fixed, absolute, contingent or other, except as disclosed in such balance sheet,
or the notes thereto, and since such date neither the Company nor any Subsidiary
has incurred any such obligations or liabilities, other than obligations and
liabilities incurred in the ordinary course of business consistent with past
practice of the Company and its Subsidiaries, which do not and, to the Company's
knowledge, will not, in the aggregate, Adversely Affect the Company or the
Company and its Subsidiaries taken as a whole except to the extent set forth in
Section 3.4 of the Disclosure Letter.
Neither the Company nor any Subsidiary has Guaranteed or is otherwise
primarily or secondarily liable in respect of any obligation or liability of any
other Person material to the Company or the Company and its Subsidiaries, except
for endorsements of negotiable
10
<PAGE>
instruments for deposit in the ordinary course of business or as disclosed in
the most recent balance sheet, or the notes thereto, forming part of the
Financial Statements or in Section 3.4 of the Disclosure Letter.
3.5 Title to Properties; Leases.
---------------------------
(a) Each of the Company and its Subsidiaries has good legal and
insurable title, with respect to all real property leased by Company reflected
as an asset on the most recent balance sheet forming part of the Financial
Statements, or held by the Company or any of its Subsidiaries for use in its
business if not so reflected, and good indefeasible and merchantable title to
all other assets, tangible and intangible (excluding leased property), reflected
on such balance sheet, or held by the Company or any of its Subsidiaries for use
in its business if not so reflected, or purported to have been acquired by the
Company or any of its Subsidiaries since such date, except inventory sold or
depleted, or property, plant and other equipment used up or retired, since such
date, in each case in the ordinary course of business consistent with past
practice of the Company and its Subsidiaries, free and clear of all Liens,
except such as are reflected in the most recent balance sheet, or the notes
thereto, forming part of the Financial Statements or set forth in Section 3.5(a)
of the Disclosure Letter. Except for financing statements evidencing Liens
referred to in the preceding sentence (a true, correct and complete list and
description of which is set forth in Section 3.5(a) of the Disclosure Letter),
to the Company's knowledge, no financing statements under the Uniform Commercial
Code and no other filing which names the Company or any of its Subsidiaries as
debtor or which covers or purports to cover any of the property of the Company
or any of its Subsidiaries is on file in any state or other jurisdiction, and
neither the Company nor any Subsidiary has signed or agreed to sign any such
financing statement or filing or any agreement authorizing any secured party
thereunder to file any such financing statement or filing. Each Lease or other
occupancy or other agreement under which the Company or any of its Subsidiaries
holds real or personal property has been duly authorized, executed and delivered
by the Company or Subsidiary, as the case may be, and, to the Company's
knowledge, by each of the parties thereto. Each such Lease is a legal, valid and
binding obligation of the Company or a Subsidiary, as the case may be, and, to
the Company's knowledge, of each other party thereto, enforceable in accordance
with its terms. Each of the Company and its Subsidiaries has a valid leasehold
interest in and enjoys peaceful and undisturbed possession under all Leases
pursuant to which it holds any real property or tangible personal property, none
of which contains any provision which would impair the Company's ability to use
such property as it is currently used by the Company, except as described in
Section 3.5(a) of the Disclosure Letter. All of such Leases are valid and
subsisting and in full force and effect. Neither the Company nor any of its
Subsidiaries nor, to the Company's knowledge, any other party thereto, is in
default in the performance, observance or fulfillment of any obligation,
covenant or condition contained in any such Lease, except to the extent any such
default would not have an Adverse Effect.
(b) Section 3.5(b) of the Disclosure Letter contains a true, correct
and complete description of all real estate owned or leased by the Company or
any of its Subsidiaries and all Leases and an identification of all material
items of fixed assets and machinery and equipment with a value in excess of
$1,000.00. None of the fixed assets and machinery and equipment is
11
<PAGE>
subject to contracts of sale, and none is held by the Company or any of its
Subsidiaries as lessee or as conditional sales venue under any Lease or
conditional sales contract and none is subject to any title retention agreement,
except as set forth in Section 3.5(b) of the Disclosure Letter. The real
property (other than land), fixtures, fixed assets and machinery and equipment
are in a state of good repair and maintenance and are in good operating
condition, reasonable wear and tear excepted.
(c) Except as set forth in Section 3.5(c) of the Disclosure Letter all
real property owned or leased by the Company or any of its Subsidiaries conforms
to and complies with all applicable title covenants, conditions, restrictions
and reservations and all applicable zoning, wetlands, land use and other
Applicable Law.
3.6 Compliance with Private Authorizations. Section 3.6 of the Disclosure
--------------------------------------
Letter sets forth a true, correct and complete list and description of each
Private Authorization which individually is material to the Company or the
Company and its Subsidiaries taken as a whole, all of which are in full force
and effect. Each of the Company and each Subsidiary has obtained all Private
Authorizations which are necessary for the ownership by the Company or each
Subsidiary of its properties and the conduct of its business as now conducted or
as presently proposed to be conducted or which, if not obtained and maintained,
could, singly or in the aggregate, Adversely Affect the Company or the Company
and its Subsidiaries taken as a whole. Neither the Company nor any Subsidiary is
in breach or violation of, or is in default in the performance, observance or
fulfillment of, any Private Authorization, and no Event exists or has occurred,
which constitutes, or but for any requirement of giving of notice or passage of
time or both would constitute, such a breach, violation default, under any
Contractual Obligation or Private Authorization, except for such defaults,
breaches or violations, as do not and, to the Company's knowledge, will not have
individually any Adverse Effect on the Company or the Company and its
Subsidiaries or the ability of the Company to perform any of the obligations set
forth in this Agreement or any Collateral Document executed or required to be
executed pursuant hereto or thereto or to consummate the Merger and the
Transactions. No Private Authorization is the subject of any pending or, to the
Company's knowledge, threatened attack, revocation or termination.
3.7 Compliance with Governmental Authorizations and Applicable Law.
--------------------------------------------------------------
(a) Section 3.7(a) of the Disclosure Letter contains a description of:
(i) all Legal Actions which are pending or, other than
those finally adjudicated or settled on or before December 31,
1997, in which the Company or any of its Subsidiaries, or any
of its officers or directors, is, or at any time during the
last three calendar years ending on December 31, 1997 has
been, engaged, or which involves, or at any time during such
period involved, the business, operations or properties of the
Company or any of its Subsidiaries or, to the Company's
knowledge, which is threatened or contemplated against, or in
any other manner relating Adversely to,
12
<PAGE>
the Company or any of its Subsidiaries or the business,
operations or properties, or the officers or directors, or any
of them in connection therewith; and
(ii) each Governmental Authorization to which the Company or any
Subsidiary is subject and which relates to the business,
operations, properties, prospects, condition (financial or
other), or results of operations of the Company or the Company
and its Subsidiaries taken as a whole, all of which are in
full force and effect.
(b) Each of the Company and each of its Subsidiaries has obtained all
Governmental Authorizations which are necessary for the ownership or uses of its
properties and the conduct of its business as now conducted by the Company or
which, if not obtained and maintained, could singly or in the aggregate, have
any Adverse Effect on the Company or the Company and its Subsidiaries taken as a
whole. No Governmental Authorization is the subject of any pending or, to the
Company's knowledge, threatened attack, revocation or termination. Neither the
Company nor any Subsidiary nor any officer or director (in connection with the
business, operations and properties of the Company or any Subsidiary) is or at
any time since December 31, 1992 has been, or is or has during such time been
charged with, or to the knowledge of the Company, is threatened or under
investigation with respect to any material breach or violation of, or in default
in the performance, observance or fulfillment of, any Governmental Authorization
or any Applicable Law, and no Event exists or has occurred, which constitutes,
or but for any requirement of giving of notice or passage of time or both would
constitute, such a breach, violation or default, under
(i) any Governmental Authorization or any Applicable Law,
except for such breaches, violations or defaults as do not
and, to the Company's knowledge, will not have in the
aggregate any Adverse Effect on the Company or the Company and
its Subsidiaries taken as a whole or the ability of the
Company to perform any of the obligations set forth in this
Agreement or any Collateral Document executed or required to
be executed pursuant hereto or thereto, or to consummate the
Merger and the Transactions, or
(ii) any requirement of any insurance carrier, applicable to
its business, operations or properties,
except as otherwise specifically described in Section 3.7(b) of the Disclosure
Letter.
(c) With respect to matters, if any, of a nature referred to in
Sections 3.7(a) or 3.7(b) of the Disclosure Letter, all such information and
matters set forth in the Disclosure Letter, individually and in the aggregate,
if adversely determined against the Company or any Subsidiary, will not
Adversely Affect the Company or the Company and its Subsidiaries taken as a
whole, or the ability of the Company to perform its obligations under this
Agreement or any
13
<PAGE>
Collateral Documents or required to be executed pursuant hereto or thereto or to
consummate the Merger and the Transactions.
3.8 Intangible Assets.
-----------------
(a) Each of the Company and each Subsidiary owns or possesses or
otherwise has the right to use all Intangible Assets necessary for the present
and planned future conduct of its business, without any known conflict with the
rights of others. The present and planned future conduct of business by the
Company and each Subsidiary is not dependent upon any one or more, or all, of
such Intangible Assets or rights with respect to any of the foregoing, except as
set forth in Section 3.8(a) of the Disclosure Letter.
(b) Section 3.8(b) of the Disclosure Letter sets forth a true,
correct and complete description of all of such Intangible Assets or rights with
respect thereto, including without limitation the nature of the Company's and
each Subsidiary's interest in each and the extent to which the same have been
duly registered in the offices as indicated therein.
3.9 Related Transactions. Section 3.9 of the Disclosure Letter sets
--------------------
forth a true, correct and complete description of any Contractual Obligation or
transaction, not fully discharged or consummated, as the case may be, on or
before the beginning of the Company's current fiscal year, between the Company
or any of its Subsidiaries and any of its officers, directors, employees,
stockholders, or any Affiliate of any thereof (other than reasonable
compensation for services as officers, directors and employees and reimbursement
for out-of-pocket expenses reasonably incurred in support of the Company's
business), now existing or which, at any time since December 31, 1994, existed
or occurred, including without limitation any providing for the furnishing of
services to or by, providing for rental of property, real, personal or mixed, to
or from, or providing for the lending or borrowing of money to or from or
otherwise requiring payments to or from, any officer, director, stockholder or
employee, or any Affiliate of any thereof. All such Contractual Obligations and
transactions were and are on terms and conditions not materially different to
the Company or any of its Subsidiaries than would be customary for such between
Persons who are not Affiliates or upon terms and conditions on which similar
Contractual Obligations and transactions with Persons who are not Affiliates
could fairly and reasonably be expected to be entered into, except as otherwise
set forth in Section 3.9 of the Disclosure Letter.
3.10 Insurance.
---------
(a) Section 3.10(a) of the Disclosure Letter lists all insurance
policies maintained by the Company or any Subsidiary and includes insurers'
names, policy numbers, expiration dates, risks insured against, amounts of
coverage, the annual premiums, exclusions, deductibles and self-insured
retention.
(b) Neither the Company nor any Subsidiary is in material breach
or violation of or in default under any such policy. All premiums due on each
such policy have been paid, and each such policy or a comparable replacement
policy will continue to be in force and effect up to and including the Financing
Closing Date. The insurance policies so listed and identified
14
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are of a nature and scope and in amounts sufficient to prevent the Company or
any Subsidiary from becoming a coinsurer within the terms of such policies.
Except as set forth in Section 3.10(a) of the Disclosure Letter, neither the
Company nor any Subsidiary has, within the past five (5) years, been refused
insurance by any insurance carrier to which it has applied for insurance.
3.11 Tax Matters.
------------
(a) Each of the Company and each Subsidiary has in accordance with
all Applicable Laws filed all Tax Returns which are required to be filed, and
has paid, or made adequate provision for the payment of, all Taxes which have or
may become due and payable pursuant to said Returns and all other governmental
charges and assessments received to date. The Tax Returns of the Company and
each Subsidiary have been prepared in accordance with all Applicable Laws and
generally accepted principles applicable to taxation consistently applied. All
Taxes which the Company and each Subsidiary are required by law to withhold and
collect have been duly withheld and collected and have been paid over, in a
timely manner, to the proper Authorities to the extent due and payable. Neither
the Company nor any Subsidiary has executed any waiver to extend, or otherwise
taken or failed to take any action that would have the effect of extending, the
applicable statute of limitations in respect of any Tax liabilities of the
Company or any Subsidiary for the fiscal year prior to and including the most
recent fiscal year. Adequate provision has been made on the most recent balance
sheet forming part of the Financial Statements for all Taxes of any kind,
including interest and penalties in respect thereof, whether disputed or not,
and whether past, current or deferred, accrued or unaccrued, fixed, contingent,
absolute or other, and to the knowledge of the Company there are no transactions
or matters or any basis which might or could result in additional Taxes of any
nature to the Company or any Subsidiary for which an adequate reserve has not
been provided on such balance sheet. Each of the Company and each Subsidiary has
at all times been taxable as a Subchapter C corporation under the Code, except
as otherwise set forth in Section 3.11(a) of the Disclosure Letter. Neither the
Company nor any Subsidiary has ever been a member of any consolidated group
(other than exclusively with the Company and its Subsidiaries) for Tax purposes,
except as set forth in Section 3.11(a) of the Disclosure Letter.
(b) Each of the Company and each Subsidiary has paid all Taxes
which have become due pursuant to its Returns and has paid all installments (to
the extent required to avoid material underpayment penalties) of estimated Taxes
due and payable.
(c) From the end of its most recent fiscal year to the date hereof
neither the Company nor any Subsidiary has made any payment on account of any
Taxes except regular payments required in the ordinary course of business with
respect to current operations or property presently owned.
(d) The information shown on the federal income Tax Returns of the
Company and its Subsidiaries for the calendar years 1994, 1995, 1996 and 1997
(true, correct and complete copies of which have been furnished by the Company
to VIALOG) is true, correct and complete and fairly and accurately reflects the
information purported to be shown. Federal and state
15
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income Tax Returns of the Company and its Subsidiaries have been audited by the
IRS or applicable state Authority for the taxable periods set forth in Section
3.11(d) of the Disclosure Letters, and neither the Company nor any Subsidiary
has been notified regarding any pending audit, except as shown in Section
3.11(d) of the Disclosure Letter.
(e) Neither the Company nor any Subsidiary is a party to any tax sharing
agreement or arrangement, except as set forth in Section 3.11(e) of the
Disclosure Letter.
(f) Neither the Company nor any Subsidiary has ever (i) filed a consent
under Section 341(f) of the Code concerning collapsible corporations or (ii)
undergone an "ownership change" within the meaning of Section 382(g) of the
Code, except as set forth in Section 3.11(f) of the Disclosure Letter.
3.12 Employee Retirement Income Security Act of 1974.
-----------------------------------------------
(a) Section 3.12(a) of the Disclosure Letter sets forth a list of all Plans
and Benefit Arrangements maintained by the Company and any of its Subsidiaries
(which for purposes of this Section 3.12 will include any ERISA Affiliate with
respect to any Plan subject to Title IV of ERISA). As to all such Plans and
Benefit Arrangements, and except as disclosed in such Section 3.12(a) of the
Disclosure Letter:
(i) all Plans and Benefit Arrangements comply currently, and have
complied in the past, in all material respects both as to form
and operation, with their terms and with all Applicable Laws, and
neither the Company nor any of its Subsidiaries has received any
outstanding notice from any Authority questioning or challenging
such compliance,
(ii) all necessary governmental approvals for each Plan and Benefit
Arrangement have been obtained; the Internal Revenue Service has
issued a favorable determination as to the tax qualified status
of each Plan intended to comply with section 401(a) of the Code
and each amendment thereto, and a recognition of exemption from
federal income taxation under Section 501(a) of the Code of each
Plan which constitutes a funded welfare plan as defined in
Section 3(1) of ERISA; and nothing has occurred since the date of
each such determination or recognition that would adversely
affect such qualification.
(iii) no Plan which is subject to Part 3 of Subtitle B of Title 1 of
ERISA or Section 412 of the Code had an accumulated funding
deficiency (as defined in Section 302(a)(2) of ERISA and Section
412 of the Code), whether or not waived, as of the last day of
the most recently completed fiscal year of such Plan,
16
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(iv) there are no "prohibited transactions" (as described in Section
406 of ERISA or Section 4975 of the Code) with respect to any
Plan for which the Company or any of its Subsidiaries has any
liability, nor are any of the assets of any Plan invested in
employer securities or employer real property,
(v) no Plan is subject to Title IV of ERISA, or if subject, there
have been no "reportable events" (as described in Section 4043 of
ERISA) as to which there is any material risk of termination of
such Plan,
(vi) no material liability to the PBGC has been or is expected by the
Company to be incurred by the Company or any of its Subsidiaries
with respect to any Plan, and there has been no event or
condition which presents a material risk of termination of any
Plan by the PBGC,
(vii) with respect to each Plan subject to Title IV of ERISA, the
amount for which Company or any of its Subsidiaries would be
liable pursuant to the provisions of Sections 4062, 4063 or 4064
of ERISA would be zero if such Plans terminated on the date of
this Agreement,
(viii) no notice of intent to terminate a Plan has been filed with, nor
has any Plan been terminated pursuant to the provisions of
Section 4041 of ERISA,
(ix) the PBGC has not instituted proceedings to terminate (or
appointed a trustee to administer) a Plan and no event has
occurred or condition exists which might constitute grounds under
the provisions of Section 4042 of ERISA for the termination of
(or the appointment of a trustee to administer) any such Plan,
(x) no Plan or Benefit Arrangement covers any employee or
former employee of the Company or any of its Subsidiaries that
could give rise to the payment of any amount that would not be
deductible pursuant to the terms of section 280G of the Code,
(xi) there are no Claims (other than routine claims for benefits)
pending or threatened involving any Plan or Benefit Arrangement
or any of the assets thereof,
(xii) except as set forth in Section 3.12(a) of the Disclosure Letter
(which entry, if applicable, will indicate the present value of
accumulated plan liabilities calculated in a manner consistent
with FAS 106 and the actual annual expense for such benefits for
each
17
<PAGE>
of the last two (2) years) and pursuant to the provisions of
COBRA, neither the Company nor any of its Subsidiaries maintains
any Plan that provides benefits described in Section 3(1) of
ERISA to any former employees or retirees of the Company or any
of its Subsidiaries,
(xiii) all reports, returns and similar items required to be filed with
any Authority or distributed to employees and/or Plan
participants in connection with the maintenance or operation of
any Plan or Benefit Arrangement have been duly and timely filed
and distributed, and there have been no acts or omissions by the
Company or any of its Subsidiaries, which have given rise to or
may reasonably be expected to give rise to fines, penalties,
taxes or related charges under Sections 502(c), 502(i) or 4071 or
ERISA or Chapter 43 or Section 6039D of the Code for which the
Company or any of its Subsidiaries may be liable,
(xiv) neither the Company nor any of its Subsidiaries nor any of its
respective directors, officers or employees has committed, nor to
the best of the Company's knowledge has any other fiduciary
committed, any breach of the fiduciary responsibility standards
imposed by ERISA that would subject the Company or any of its
Subsidiaries or any of its respective directors, officers or
employees to liability under ERISA,
(xv) to the extent that the most recent balance sheet forming part of
the Financial Statements does not include a pro rata amount of
the contributions which would otherwise have been made in
accordance with past practices for the Plan years which include
the Financing Closing Date, such amounts are set forth in Section
3.12(a) of the Disclosure Letter,
(xvi) the Company has furnished to VIALOG a copy of the three most
recently filed annual reports (IRS Form 5500) series and
accountant's opinion, if applicable, for each Plan (and the three
most recent actuarial valuation reports for each Plan, if any,
that is subject to Title IV of ERISA), and all information
provided by the Company to any actuary in connection with the
preparation of any such actuarial valuation report was true,
correct and complete in all material respects,
(b) Neither the Company nor any of its Subsidiaries is or ever has been
a party to any Multiemployer Plan or made contributions to any such plan.
18
<PAGE>
(c) Section 3.12(c) of the Disclosure Letter sets forth the basis of
funding, and the current status of, any past service liability with respect to
each Employment Arrangement to which the same is applicable.
3.13 Absence of Sensitive Payments. The Company has not, nor has any
-----------------------------
Subsidiary, or, to the Company's knowledge, any of its or any Subsidiary's
officers, directors, employees or Representatives, (a) made any contributions,
payments or gifts to or for the private use of any governmental office, employee
or agent where either the payment or the purpose of such contribution, payment
or gift is illegal under the laws of the United States or the jurisdiction in
which made, (b) established or maintained any unrecorded fund or asset for any
purpose or made any false or artificial entries on its books, or (c) made any
payments to any person with the intention or understanding that any part of such
payment was to be used for any purpose other than that described in the
documents supporting the payment.
3.14 Inapplicability of Specified Statutes. Neither the Company nor any
-------------------------------------
Subsidiary is a "holding company", or a "subsidiary company" or an "affiliate"
or a "holding company", as such terms are defined in the Public Utility Holding
Company Act of 1935, as amended, or an "investment company" or a company
"controlled" by or acting on behalf of an "investment company", as defined in
the Investment Company Act of 1940, as amended.
3.15 Authorized and Outstanding Capital Stock.
----------------------------------------
(a) The authorized and outstanding capital stock of the Company is as
set forth in Section 3.15(a) of the Disclosure Letter. All of such outstanding
capital stock has been duly authorized and validly issued, is fully paid and
non-assessable and is not subject to any preemptive or similar rights. Except as
set forth in Section 3.15(a) of the Disclosure Letter, (i) there is neither
outstanding nor has the Company or any Subsidiary agreed to grant or issue any
shares of its capital stock or any Option Security or Convertible Security, and
(ii) neither the Company nor any Subsidiary is a party to or is bound by any
agreement or commitment pursuant to which it is obligated to purchase, redeem or
otherwise acquire any shares of capital stock or any Option Security or
Convertible Security. Between the date of this Agreement and the Effective Time,
the Company will not, and will not permit any Subsidiary to, issue, sell or
purchase or agree to issue, sell or purchase any capital stock or any Option
Security or Convertible Security of the Company or any Subsidiary. As of the
Effective Time, the rights of the holders of all Option Securities and
Convertible Securities issued by the Company to exercise or convert such
Securities will have been terminated pursuant to the terms thereof.
(b) All of the outstanding capital stock of the Company is owned by the
Stockholders as set forth in Section 3.15(b) of the Disclosure Letter, and is,
to the Company's knowledge, free and clear of all Liens, except as set forth in
Section 3.15(b) of the Disclosure Letter. To the Company's knowledge, no Person,
and no group of Persons acting in concert, owns as much as five percent (5%) of
the Company's outstanding Common Stock, and the Company is not controlled by any
other Person, except as set forth in Section 3.15(b) of the Disclosure Letter.
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3.16 Employment Arrangements.
-----------------------
(a) Neither the Company nor any Subsidiary has any obligation or
liability, contingent or other, under any Employment Arrangement (whether or not
listed in Section 3.12(a) of the Disclosure Letter), other than those listed or
described in Section 3.16(a) of the Disclosure Letter. Neither the Company nor
any Subsidiary is now or during the past five (5) years has been subject to or
involved in or, to the Company's knowledge, threatened with any election for the
certification of a bargaining representative for any employees, petitions
therefor or other organizational activities, including but not limited to
voluntary requests for recognition as a bargaining representative, or
organizational campaigns of any nature, except as described in Section 3.16(a)
of the Disclosure Letter. None of the employees of the Company or any Subsidiary
are now, or during the past five (5) years have been, represented by any labor
union or other employee collective bargaining organization. Neither the Company
nor any Subsidiary are parties to any labor or other collective bargaining
agreement, and there are no pending grievances, disputes or controversies with
any union or any other employee collective bargaining organization of such
employees, or, to the Company's knowledge, threats of strikes, work stoppages or
slowdowns or any pending demands for collective bargaining by any union or other
such organization. The Company and each Subsidiary have performed all
obligations required to be performed under all Employment Arrangements and are
not in breach or violation of or in default or arrears under any of the terms,
provisions or conditions thereof.
(b) Except as set forth in Section 3.16(b) of the Disclosure Letter,
no employee will accrue or receive additional benefits, service or accelerated
rights to payments of benefits under any Employment Arrangement, including the
right to receive any parachute payment, as defined in Section 280G of the Code,
or become entitled to severance, termination allowance or similar payments as a
direct result of the transactions contemplated by this Agreement.
(c) The Company considers its and each Subsidiary's relationships with
employees to be appropriate, and except as set forth in Section 3.16(c) of the
Disclosure Letter, neither the Company nor any Subsidiary has experienced a work
slowdown or stoppage due to labor problems. Neither the Company nor any
Subsidiary has received notice of any claim that it has failed to comply with
any federal or state law, or is the subject of any investigation by any federal
or state agency to determine compliance with any federal or state law, relating
to the employment of labor, including any provisions relating to wages, hours,
collective bargaining, the payment of taxes, discrimination, equal employment
opportunity, employment discrimination, worker injury and/or occupational
safety, nor to the knowledge of the Company is there any basis for such a claim.
(d) Neither the Company nor any Subsidiary has conducted, and on or
prior to the Effective Time will not conduct, a "plant closing" or "mass layoff"
of employees of the Company or any Subsidiary as defined by the Worker
Adjustment and Retraining Notification Act of 1988 ("the WARN Act"), 29 U.S.C.
2101-2109 as amended, or discharge, layoff, or reduce the hours of work, of
employees in a sufficient number or manner to trigger any state or local law or
regulation conditioning or regulating in any manner the discharge, layoff, or
reduction in hours of employees or the closing of a facility, plant, workplace,
division or
20
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department, from the date hereof or through the Effective Time or during the
twelve-month period immediately prior thereto.
3.17 Material Agreements.
-------------------
(a) Listed on Section 3.17(a) of the Disclosure Letter are all
Material Agreements relating to the ownership or operation of the business and
property of the Company or any Subsidiary presently held or used by the Company
or any Subsidiary or to which the Company or any Subsidiary is a party or to
which it or any of its property is subject or bound. True, complete and correct
copies of each of the Material Agreements have been furnished by the Company to
VIALOG (or true, complete and correct descriptions thereof have been set forth
in Section 3.17(a) of the Disclosure Letter, if any such Material Agreements are
oral). All of the Material Agreements are valid, binding and legally enforceable
obligations of the parties thereto, and the Company or one of its Subsidiaries
is validly and lawfully operating its business and owning its property under
each of the Material Agreements. The Company and each Subsidiary have duly
complied with all of the material terms and conditions of each Material
Agreement and have not done or performed, or failed to do or perform (and there
is no pending or, to the knowledge of the Company, threatened Claim that the
Company or any Subsidiary has not complied, done and performed or failed to do
and perform) any act the effect of which would be to invalidate or provide
grounds for the other party thereto to terminate (with or without notice,
passage of time or both) such Material Agreement or materially impair the rights
or benefits, or materially increase the costs, of the Company or any Subsidiary,
under any of the Material Agreements.
(b) To the best of the Company's knowledge based upon the information
available to it at the time of executing this Agreement each Material Agreement,
if any, set forth in Section 3.17(a) of the Disclosure Letter calling for the
delivery of goods or merchandise or the performance of services can with the
exercise of prudent business practices and judgment given the size and nature of
the business of Company as currently conducted be satisfied or performed by the
Company or one of its Subsidiaries at margins providing an operating profit,
except as set forth in Section 3.17(b) of the Disclosure Letter.
3.18 Ordinary Course of Business.
---------------------------
(a) The Company and each Subsidiary, from the earlier of the date of
the most recent balance sheet forming part of the Financial Statements or
December 31, 1997 to the date of this Agreement, and until the Effective Time,
except as may be described in Section 3.18 of the Disclosure Letter or as may be
required or permitted expressly by the terms of this Agreement or as may be
approved in writing by VIALOG:
(i) has operated, and will continue to operate, its business in
the normal, usual and customary manner in the ordinary and
regular course of business, consistent with prior practice,
(ii) has not sold or otherwise disposed of, or contracted to
sell or otherwise dispose of, and will not sell or
otherwise dispose of
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or contract to sell or otherwise dispose of, any of its
properties or assets, other than in the ordinary course of
business,
(iii) except in each case in the ordinary course of
business or as detailed as transactions not in the ordinary
course in the Company's business plan set forth as Section
3.18(a) of the Disclosure Letter, and except as expressly
otherwise contemplated hereby,
(A) has not incurred and will not incur any obligations
or liabilities in excess of $5,000,000 (fixed,
contingent or other),
(B) has not entered and will not enter into any
commitments, with a monetary obligation in excess of
$5,000.00, and
(C) has not canceled and will not cancel any debts or
claims,
(iv) has not made or committed to make, and will not make
or commit to make, any additions to its property or any
purchases of machinery or equipment with cost in excess of
$5,000.00, except for normal maintenance and replacements,
(v) has not discharged or satisfied, and will not discharge or
satisfy, any Lien and has not paid and will not pay any
obligation or liability (absolute or contingent) other than
current liabilities or obligations under contracts then
existing or thereafter entered into in the ordinary course
of business, and commitments under Leases existing on that
date or incurred since that date in the ordinary course of
business, or as is necessary to avoid a default under said
contractual obligation or this Agreement.
(vi) except in the ordinary course, has not increased and will
not increase the compensation payable or to become payable
to any of its directors, officers, employees, advisers,
consultants, salesmen or agents or otherwise alter, modify
or change the terms of their employment or engagement,
(vii) has not suffered any material damage, destruction or loss
(whether or not covered by insurance) or any acquisition or
taking of property by any Authority,
(viii) has not waived, and will not waive, any rights of material
value without fair and adequate consideration,
(ix) has not experienced any work stoppage,
22
<PAGE>
(x) has not entered into, amended or terminated and will not
enter into, amend or terminate any Lease, Governmental
Authorization, Private Authorization, Material Agreement,
Employment Arrangement, Contractual Obligation or
transaction with any Affiliate, except for terminations in
the ordinary course of business in accordance with the
terms thereof, and except for terminations of personnel as
are necessary to continue the business in its customary and
usual manner,
(xi) has not amended or terminated and will not amend or
terminate, and has kept and will keep in full force and
effect including without limitation renewing to the extent
the same would otherwise expire or terminate, all insurance
policies and coverage,
(xii) has not entered into, and will not enter into, any other
transaction or series of related transactions which
individually or in the aggregate constitutes a material
change in the operation of the business outside of the
ordinary course of business, and
(xiii) has not, nor has any affiliate (as defined in Section
517.021(1) of the Florida Statutes), transacted business
with the government of Cuba or with any person or affiliate
located in Cuba.
(b) From the end of its most recent fiscal year to the date of this
Agreement, except as described in Section 3.18(b) of the Disclosure Letter,
neither the Company nor any Subsidiary has, or on or prior to the Financing
Closing Date will have, declared, made or paid, or agreed to declare, make or
pay, any Distribution.
3.19 Bank Accounts; Etc. A true and correct and complete list as of the
-------------------
date of this Agreement of all banks, trust companies, savings and loan
associations and brokerage firms in which the Company or any Subsidiary has an
account or a safe deposit box and the names of all Persons authorized to draw
thereon, to have access thereto, or to authorize transactions therein, the names
of all Persons, if any, holding powers of attorney from the Company or any
Subsidiary and a summary statement as to the terms thereof has been previously
delivered to VIALOG.
3.20 Adverse Restrictions. Neither the Company nor any Subsidiary is a
--------------------
party to or subject to, nor is any of its property subject to, any Applicable
Law, Governmental Authorization, Contractual Obligation, Employment Arrangement,
Material Agreement or Private Authorization, or any other obligation or
restriction of any kind or character, or any aggregation thereof, which impairs
the Company's or any Subsidiary's ability to conduct its business as it is
currently being conducted or which could have any Adverse Effect on the Company
or the Company and its Subsidiaries taken as a whole, except as set forth in
Section 3.20 of the Disclosure Letter.
23
<PAGE>
3.21 Broker or Finder. No Person assisted in or brought about the
----------------
negotiation of this Agreement, the Merger or the subject matter of the
Transactions in the capacity of broker, agent or finder or in any similar
capacity on behalf of the Company or any Stockholder.
3.22 Personal Injury or Property Damage; Warranty Claims; Etc. Except as
--------------------------------------------------------
set forth in Section 3.22 of the Disclosure Letter, neither the Company nor any
Subsidiary or any Person acting for or on behalf of the Company or any
Subsidiary, including without limitation any insurance carrier, has at any time
since December 31, 1997, paid, and there is not now pending or, to the knowledge
of the Company, threatened any Claim (or any basis for any such Claim) relating
to, any damages to any third party for injuries to Persons or damage to
property, or for breach of warranty, which, in the case of pending or threatened
Claims, if determined Adversely to the Company or any Subsidiary, individually
or in the aggregate (taking into account unasserted Claims of similar nature),
could have any Adverse Effect on the Company or the Company and its Subsidiaries
taken as a whole.
3.23 Environmental Matters.
---------------------
(a) Except as set forth in Section 3.23(a) of the Disclosure Letter,
the Company and each Subsidiary:
(i) is in compliance in all material respects with all
Environmental Laws and has not been notified that it is
liable or potentially liable, has not received any
request for information or other correspondence
concerning any site or facility, and is not a
"responsible party" or "potentially responsible party"
under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, the
Resource Conservation Recovery Act of 1976, as amended,
or any similar state law,
(ii) has not entered into or received any consent decree,
compliance order, or administrative order relating to
Environmental Requirements,
(iii) is not a party in interest or in default under any
judgment, order, writ, injunction or decree or any final
order relating to Environmental Requirements, and
(iv) has obtained all material Governmental Authorizations and
Private Authorizations (including without limitation all
Environmental Permits) and made all Governmental Filings
which are required to be filed by the Company and each
Subsidiary for the ownership of its property, facilities
and assets and the operation of its businesses under all
Environmental Laws, is and at all times since its
organization has been in material compliance with the terms
and conditions of all such required Governmental and
Private Authorizations and all Environmental Requirements,
and is not the
24
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subject of or, to the Company's knowledge, threatened with
any Legal Action involving a demand for damages or any
other potential liability with respect to violations or
breaches of any Environmental Requirement.
(b) Except as set forth in Section 3.23(b) of the Disclosure
Letter:
(i) no spill, disposal, release, burial or placement of
Hazardous Materials in the soil, air or water has
occurred on any property or facility owned, leased,
operated or occupied by the Company or any Subsidiary
during the period that such facilities and properties
were owned, leased, operated or occupied by it or, to the
knowledge of the Company, at any other time or at any
other facility or site to which Hazardous Materials from
or generated by the Company or any Subsidiary may have
been taken at any time in the past,
(ii) there has been no spill, disposal, release, burial or
placement of Hazardous Materials, in the soil, air or
water on any property which could reasonably be expected
to result or has resulted in contamination of or beneath
any properties or facilities owned, leased, operated or
occupied by the Company or any Subsidiary during the
period that such facilities and properties were owned,
leased, operated or occupied by it (or, to the knowledge
of the Company, at any other time), and
(iii) no notice has been received by the Company or any
Subsidiary and no Lien has arisen on its or any
Subsidiary's properties or facilities under Environmental
Law.
(c) Except as set forth in Section 3.23(c) of the Disclosure Letter,
neither the Company nor any Subsidiary has any above-ground or underground
tanks on property owned, leased, operated or occupied by it for the storage
of Hazardous Materials.
(d) There has not been, and on or prior to the Effective Time, there
will not be, any past or present Events or plans of the Company or any
Subsidiary or any of its predecessors, which, individually or in the aggregate,
constitute a breach of any Environmental Requirements or which, individually or
in the aggregate, may interfere with or prevent continued compliance with all
Environmental Requirements, or which, individually or in the aggregate, may give
rise to any common law, statutory or other legal liability, or otherwise form
the basis of any Claim, assessment or remediation cost, fine, penalty or
assessment based on or related to the transportation, transmission, gathering,
processing, distribution, use, treatment, storage, disposal or handling, or the
emission, discharge, release or threatened release into the environment, of any
Hazardous Material with respect to the Company or any Subsidiary or any of its
predecessors or its or any of their business, operations or property which could
have any Adverse Effect on the Company or the Company and its Subsidiaries taken
as a whole.
25
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(e) Except as set forth in Section 3.23(e) of the Disclosure Letter,
neither the Company nor any Subsidiary has used any Hazardous Materials in the
conduct of its business. To the extent that any Hazardous Materials are so set
forth, Section 3.23(e) of the Disclosure Letter also sets forth (i) a
description of Hazardous Materials used, (ii) the annual volume of each of the
Hazardous Materials used, (iii) the years during which each of the Hazardous
Materials used occurred, and (iv) the Persons to whom such Hazardous Materials
were transferred and/or transported after such use.
(f) Section 3.23(f) of the Disclosure Letter contains a complete and
correct description of all Hazardous Materials generated by the Company or any
Subsidiary which are not set forth in Section 3.23(e), the approximate annual
volumes of each of the Hazardous Materials, and all Persons to whom such
Hazardous Materials have been transferred and/or transported.
(g) No site assessment, audit, study, test or other investigation has
been conducted by or on behalf of the Company or any Subsidiary, nor has the
Company received any notice from any governmental agency, or financial
institution as to environmental matters at any property owned, leased, operated
or occupied by the Company or any Subsidiary, except as set forth in Section
3.23(g) of the Disclosure Letter.
3.24 Materiality. The matters and items excluded from the
-----------
representations and warranties set forth in this Article by operation of the
materiality exceptions and materiality qualifications contained in such
representations and warranties, in the aggregate for all such excluded matters
and items, are not and could not reasonably be expected to be Adverse to the
Company or the Company and its Subsidiaries taken as a whole.
3.25 Solvency. As of the execution and delivery of this Agreement, the
--------
Company and the Company and its Subsidiaries taken as a whole are and, as of the
Effective Time, will be solvent as determined by the Company's books and records
as of that date.
3.26 Compliance with Regulations Relating to Securities Credit. None of
---------------------------------------------------------
the borrowings, if any, of the Company were incurred or used for the purpose of
purchasing or carrying any security which at the date of its acquisitions was,
or any security which now is, margin stock or other margin security within the
meaning of Regulations T of the Margin Rules or a "security that is publicly
held," within the meaning of the Margin Rules, and the cash portion of the
proceeds from the consummation of the Transactions will not be used for the
purpose of purchasing or carrying any margin stock or other margin security, or
a "security that is publicly held", or any security issued by VIALOG, or in any
way which would involve the Company in any violation of the Margin Rules, and
neither the Company nor any Subsidiary owns any margin stock or other margin
security, or a "security that is publicly held", and neither the Company nor any
Subsidiary has any present intention of acquiring any margin stock or other
margin security, or any "security that is publicly held".
3.27 Certain State Statutes Inapplicable. The provisions of applicable
-----------------------------------
state takeover laws, if any, will not apply to this Agreement, the Merger or the
Transactions.
26
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3.28 Continuing Representations and Warranties. Except for those
-----------------------------------------
representations and warranties which speak as of a specific date, all of the
representations and warranties of the Company set forth in this Article will be
true and correct in all material respects at the Effective Time with the same
force and effect as though made on and as of that date and those, if any, which
speak as a specific date will be true and correct in all material respects as of
such date.
3.29 Financing Document. All information furnished by or on behalf of
------------------
the Company or any Stockholder in writing for use in the Financing Document is
set forth in Section 3.29 of the Disclosure Letter and all information relating
to the Company in the Financing Document (a copy of which shall be provided by
VIALOG to the Company and Principal Stockholders for their review) is true,
correct and complete and does not contain any untrue statement of material fact
or omit to state any material fact necessary to make such statements, in the
light of the circumstances in which they were made, not misleading. In the event
any such information, through the occurrence or nonoccurrence of any event or
events between the date of this Agreement and the Effective Time, ceases to be
true, correct and complete or contains any untrue statement of material fact or
omits to state any material fact necessary to make such statements, in the light
of the circumstances in which they were made, not misleading, the Company, upon
discovery thereof will provide VIALOG, in writing, sufficient information to
correct such untrue statement or omission.
3.30 Predecessor Status; Etc. Set forth in Section 3.30 of the
------------------------
Disclosure Letter is a listing of all names of all predecessor companies of the
Company and the names of any Entities from which, since December 31, 1992, the
Company previously acquired material properties or assets. Except as disclosed
in Section 3.30 of the Disclosure Letter, the Company has never been a
Subsidiary or division of another Entity, nor a part of an acquisition which was
later rescinded. None of the Company, the Principal Stockholders or any
Subsidiary has ever owned any capital stock of VIALOG nor, except as set forth
in Section 3.30 of the Disclosure Letter, has there been, since December 31,
1992, any sale or spin-off of material assets by the Company or any Subsidiary
other than in the ordinary course of business.
3.31 Systems Performance.
--------------------
(a) To the Company's knowledge, Section 3.31 of the Disclosure
Letter is a true, complete and correct list of all Systems.
(b) The Systems used by the Company and each of its Subsidiaries
are adequate for the conduct of their business as presently
conducted and as proposed to be conducted and there are no
requirements for Systems integration, upgrade or replacement,
except as otherwise disclosed, and there are no inadequacies
that could reasonably be expected to have an adverse effect on
the future business operations of the Surviving Corporation.
To the Company's knowledge, the Systems perform in accordance
with the written specifications therefor. The Systems'
components are capable of interconnecting or interfacing with
each other, and they deliver the functionality needed to
satisfy the information system requirements of the business of
the Company and each Subsidiary as it is presently conducted.
3.32 Year 2000 Compliance.
--------------------
27
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(a) The software and hardware operated by the Company are capable of
providing or are being adapted or replaced to provide uninterrupted millennium
functionality to record, store, process and present calendar dates falling on or
after January 1, 2000 and Date Data in substantially the same manner and with
the same functionality as such software records, stores, processes and presents
such calendar dates and Date Data as of the date hereof, except for the failure
to have such capability which would not, individually or in the aggregate, be
reasonably likely to have an Adverse Effect on the Company. Section 3.32(a) of
the Disclosure Letter describes actions taken by the Company and each Subsidiary
to address potential Year 2000 compliance issues.
(b) The Company and each Subsidiary have made written inquiries of their
Key Suppliers, Vendors and Customers as to whether such persons are or will be
Year 2000 Compliant. Section 3.32(b) of the Disclosure Letter lists all Key
Suppliers, Vendors and Customers and includes a form of letter inquiring into
their preparations and status for becoming Year 2000 Compliant and their
response to the Company's inquiry. To the best of the Company's knowledge, these
Key Suppliers, Vendors and Customers are Year 2000 Compliant or will be Year
2000 Compliant in a timely manner except as set forth in Section 3.32(b) of the
Disclosure Letter.
ARTICLE
4
REPRESENTATIONS AND WARRANTIES OF
THE PRINCIPAL STOCKHOLDER
Each of the Principal Stockholders represents, warrants and covenants to,
and agrees with, VIALOG and VIALOG Merger Subsidiary as follows:
4.1 Organization. Each of the Principal Stockholders (if other than an
------------
individual) is an Entity duly organized, validly existing and in good standing
under the laws or its jurisdiction of organization.
4.2 Power and Authority. Each of the Principal Stockholders (if other than
-------------------
an individual) has adequate power and authority (corporate, partnership, trust
or other) and all necessary Governmental Authorizations and Private
Authorizations in order to enable it to execute and deliver, and to perform its
obligations under, this Agreement and each other Collateral Document executed or
required to be executed pursuant hereto or thereto. The execution, delivery and
performance of this Agreement and each other Collateral Document executed or
required to be executed pursuant hereto or thereto have, to the extent
applicable, been duly authorized by all requisite corporate, partnership, trust
or other action, including that, if required, each of the Principal
Stockholders' stockholders or partners.
4.3 Enforceability. This Agreement has been duly executed and delivered by
--------------
each of the Principal Stockholders and constitutes, and each Collateral Document
executed or required to
28
<PAGE>
be executed by each of the Principal Stockholders pursuant hereto or thereto
when executed and delivered by such Principal Stockholder will constitute legal,
valid and binding obligations of such Principal Stockholder, enforceable in
accordance with their respective terms.
4.4 Title to Shares. Except as set forth in Section 4.4 of the Disclosure
---------------
Letter (all of which exceptions will be removed, satisfied or discharged no
later than the Merger Closing), each of the Principal Stockholders owns and has
good and merchantable title to those Shares owned by such Principal Stockholder
and to be exchanged pursuant to this Agreement, free and clear or all Liens.
4.5 No Conflict; Required Filings and Consents. Neither the execution and
------------------------------------------
delivery of this Agreement or any Collateral Document executed or required to be
executed pursuant hereto or thereto, nor the consummation of the Merger and the
Transactions, nor compliance with the terms, conditions and provisions hereof or
thereof by each of the Principal Stockholders:
(a) will materially conflict with, or result in a breach or violation
of, or constitute a default under, any Applicable Law on the part of such
Stockholder or will conflict with, or result in a material breach or violation
of, or constitute a material default in the performance, observance or
fulfillment of, or a material default under, or permit the acceleration of any
obligation or liability in, or, but for any requirements of notice or passage of
time or both, would constitute such a conflict with, breach or violation of, or
default under, or permit any such acceleration in, any Contractual Obligation of
such Principal Stockholder,
(b) will result in or permit the creation or imposition of any Lien
upon any property or asset of such Principal Stockholder used or now
contemplated to be used by the Company, or
(c) will require any Governmental Authorization or Governmental Filing
or Private Authorization, except for filing requirements in connection with the
Merger and the Transactions and as the Securities Act or applicable state
securities laws may apply to compliance by such Principal Stockholder with the
provisions of this Agreement relating to the Financing, pursuant to the HSR Act
(if applicable) or as set forth in Section 4.5 of the Disclosure Letter.
ARTICLE
5
REPRESENTATIONS AND WARRANTIES OF VIALOG
AND VIALOG MERGER SUBSIDIARY
VIALOG and VIALOG Merger Subsidiary, jointly and severally, represent,
warrant and covenant to, and agree with, the Company as follows:
5.1 Organization and Qualification. VIALOG is a corporation duly
------------------------------
incorporated, validly existing and in good standing under the laws of
Massachusetts. VIALOG Merger
29
<PAGE>
Subsidiary is a corporation duly incorporated, validly existing and in good
standing under the laws of Delaware.
5.2 Power and Authority. Except for such consents of Authorities as may be
-------------------
necessary in connection with change-of-control transactions with respect to
Governmental Authorities listed in Section 3.1(c) of the Disclosure Letter, each
of VIALOG and VIALOG Merger Subsidiary has all requisite power and authority
(corporate and other) and has in full force and effect all Governmental
Authorizations and Private Authorizations in order to enable it to execute and
deliver, and to perform its obligations under, this Agreement and each
Collateral Document executed or required to be executed pursuant hereto or
thereto and to consummate the Merger and the Transactions. The execution,
delivery and performance of this Agreement and each Collateral Document executed
or required to be executed pursuant hereto or thereto have been duly authorized
by all requisite corporate or other action. This Agreement has been duly
executed and delivered by each of VIALOG and VIALOG Merger Subsidiary and
constitutes, and each Collateral Document executed or required to be executed
pursuant hereto or thereto when executed and delivered by it will constitute,
legal, valid and binding obligations of VIALOG and VIALOG Merger Subsidiary,
respectively, enforceable in accordance with their respective terms.
5.3 No Conflict; Required Filings and Consents. Except for such consents
------------------------------------------
of Authorities as may be necessary in connection with change-of-control
transactions with respect to Governmental Authorities listed in Section 3.1(c)
of the Disclosure Letter, neither the execution and delivery of this Agreement
or any Collateral Document executed or required to be executed pursuant hereto
or thereto, nor the consummation of the Transactions, nor compliance with the
terms, conditions and provisions hereof or thereof by each of VIALOG and VIALOG
Merger Subsidiary:
(a) will conflict with, or result in a breach or violation of, or
constitute a default under the Articles of Organization or Certificate of
Incorporation, Bylaws or any Applicable Law on the part of VIALOG or VIALOG
Merger Subsidiary or will conflict with, or result in a breach or violation of,
or constitute a default under, or permit the acceleration of any obligation or
liability in, or but for any requirement of giving of notice or passage of time
or both would constitute such a conflict with, breach or violation of, or
default under, or permit any such acceleration in, any Contractual Obligation of
VIALOG or VIALOG Merger Subsidiary, or
(b) will require any Governmental Authorization or Governmental Filing
or Private Authorization, except for filing requirements under Applicable Law in
connection with the Merger and the Transactions and as the Securities Act and
applicable state securities laws may apply to compliance by VIALOG with the
provisions of this Agreement relating to the Financing and except pursuant to
the HSR Act (if applicable).
5.4 Financing. On the Financing Closing Date VIALOG will have sufficient
---------
funds or available financing to enable the Surviving Corporation to pay the
Aggregate Merger Consideration for all Shares of the Company Stock as provided
in Section 2.1(a), the
30
<PAGE>
consideration for each Option Security and each Convertible Security
as provided in Section 2.4, and all fees and expenses related to the Merger.
5.5 Broker or Finder. Except for the Underwriter, the fees and expenses of
----------------
which (other than pursuant to the Underwriting Agreement) are solely the
responsibility of VIALOG, no Person assisted in or brought about the negotiation
of this Agreement or the subject matter of the Transactions in the capacity of
broker, agent or finder or in any similar capacity on behalf of VIALOG or VIALOG
Merger Subsidiary.
5.6 Prior Activities of VIALOG Merger Subsidiary. VIALOG Merger Subsidiary
--------------------------------------------
has not incurred any liabilities or Contractual Obligations, except those
incurred in connection with its organization and ordinary course business
operations, the negotiation of this Agreement and the performance of this
Agreement, the proposed Financing, and the performance of all other Governmental
Filings.
5.7 Capitalization of VIALOG Merger Subsidiary. All shares of common stock
------------------------------------------
of VIALOG Merger Subsidiary held by VIALOG have been duly authorized and validly
issued to VIALOG and are fully paid and non-assessable and are not subject to
any preemptive or similar rights.
5.8 Financing Document. The Financing Document and any amendments thereto
------------------
will comply when the Financing Document becomes effective in all material
respects with the provisions of the Securities Act and will not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not misleading.
The Financing Document will not as of the issue date thereof contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading, except that the representations and
warranties contained in this Section 5.8 will not apply to statements or
omissions in the Financing Document based on information relating to the
Underwriter furnished to VIALOG in writing by the Underwriter, or based on
information relating to any of the Other Participating Companies or its
stockholders furnished to VIALOG in writing by such Participating Company or any
of its stockholders, or the Company or the Stockholders furnished to VIALOG in
writing by the Company or any of the Stockholders. VIALOG will furnish the
Company with a copy of the Financing Document and of each amendment thereto
until the Merger Closing and thereafter will furnish each of the Principal
Stockholders with each amendment thereto and any final Financing Document.
5.9 Financing Commitment. The Financing shall be a firm commitment
--------------------
financing.
5.10 Continuing Representations and Warranties. Except for those
-----------------------------------------
representations and warranties which speak as a specific date, all of the
representations and warranties of VIALOG and the VIALOG Merger Subsidiary set
forth in this Article will be true and correct in all material respects on the
Financing Closing Date with the same force and effect as though made on and as
of that date, and those, if any, which speak as of a specific date will be true
and correct in all material respects as of such date.
31
<PAGE>
ARTICLE
6
ADDITIONAL COVENANTS
6.1 Access to Information; Confidentiality.
---------------------------------------
(a) The Company will afford to VIALOG and the Representatives of
VIALOG full access during normal business hours throughout the period prior to
the Effective Time to all of its (and its Subsidiaries') properties, books,
contracts, commitments and records (including without limitation Tax Returns)
and, during such period, will furnish promptly upon request (i) a copy of each
report, schedule and other document filed or received by any of them pursuant to
the requirements of any Applicable Law (including without limitation federal or
state securities laws) or filed by any of them with any Authority in connection
with the Transactions or which may have a material effect on their respective
businesses, operations, properties, prospects, personnel, condition (financial
or other), or results of operations, (ii) to the extent not provided for
pursuant to the preceding clause, (A) all financial records, ledgers, workpapers
and other sources of financial information processed or controlled by the
Company or its accountants deemed by the Accountants necessary or useful for the
purpose of performing an audit of the Company and the Company and its
Subsidiaries taken as a whole and certifying financial statements and financial
information and (B) all other information relating to the Company, its
Subsidiaries and Stockholders that VIALOG or its Representatives requires, in
either case for inclusion in or in support of the Financing Document, and (iii)
such other information concerning any of the foregoing as VIALOG will reasonably
request. Subject to the terms and conditions of the Confidentiality Letter (as
defined below), which are expressly incorporated in this Agreement by reference
for the benefit of the parties hereto, VIALOG will hold and will use
commercially reasonable efforts to cause the Representatives of VIALOG to hold,
in strict confidence all non-public documents and information furnished (whether
prior or subsequent hereto) to VIALOG as the case may be, in connection with the
Transactions. The cost of performing such due diligence shall be the
responsibility of VIALOG.
(b) VIALOG will afford to the Company and the Representatives of the
Company full access during normal business hours throughout the period prior to
the Effective Time to all of its (and its Subsidiaries') properties, books,
contracts, commitments and records (including without limitation Tax Returns)
and, during such period, will furnish promptly upon request (i) a copy of each
report, schedule and other document filed or received by any of them pursuant to
the requirements of any Applicable Law (including without limitation federal or
state securities laws) or filed by any of them with any Authority in connection
with the Transactions or which may have a material effect on their respective
businesses, operations, properties, prospects, personnel, condition (financial
or other), or results of operations, (ii) to the extent not provided for
pursuant to the preceding clause, (A) all financial records, ledgers, workpapers
and other sources of financial information processed or controlled by VIALOG or
its accountants and (B) all other information relating to VIALOG and its
Subsidiaries that the Company or its
32
<PAGE>
Representatives requires, and (iii) such other information concerning any of the
foregoing as the Company will reasonably request. Subject to the terms and
conditions of the Confidentiality Letter (as defined below), which are expressly
incorporated in this Agreement by reference for the benefit of the parties
hereto, the Company will hold and will use commercially reasonable efforts to
cause the Representatives of the Company to hold in strict confidence all non-
public documents and information furnished (whether prior or subsequent hereto)
to the Company in connection with the Transactions. The cost of performing such
due diligence shall be the responsibility of the Stockholders.
(c) Subject to the terms and conditions of the Confidentiality Letter,
VIALOG and the Company may disclose such information as may be necessary in
connection with seeking all Governmental and Private Authorizations or that is
required by Applicable Law to be disclosed. In the event that this Agreement is
terminated in accordance with its terms, VIALOG and the Company will each
promptly redeliver all non-public written material provided pursuant to this
Section or any other provision of this Agreement or otherwise in connection with
the Merger and the Transactions and will not retain any copies, extracts or
other reproductions in whole or in part of such written material other than one
copy thereof which will be delivered to independent counsel for such party.
(d) The Company and VIALOG acknowledge that the Company and VIALOG
executed one or more Confidential Disclosure Agreements (collectively, the
"Confidentiality Letter"), which separately and as incorporated in this
Agreement will remain in full force and effect after and notwithstanding the
execution and delivery of this Agreement, and that information obtained from the
Company by VIALOG, or its Representatives or by the Company or its
Representatives from VIALOG pursuant to Section 6.1(a), the Confidentiality
Letter or otherwise will be subject to the provisions of the Confidentiality
Letter.
(e) No investigation pursuant to this Section 6.1 will affect any
representation or warranty in this Agreement of any party or any condition to
the obligations of the parties.
6.2 Agreement to Cooperate.
-----------------------
(a) Each of the Parties will use good faith best efforts to take, or
cause to be taken, all actions and to do, or cause to be done, all things
necessary, proper or advisable under Applicable Law to consummate the Merger and
make effective the Transactions, including using good faith best efforts (i) to
prepare and file with the applicable Authorities as promptly as practicable
after the execution of this Agreement all requisite applications and amendments
thereto, together with related information, data and exhibits, necessary to
request issuance of orders approving the Merger and the Transactions by all such
applicable Authorities, each of which must be obtained or become final in order
to satisfy the conditions applicable to it set forth in Section 7, (ii) to
obtain all necessary or appropriate waivers, consents and approvals, (iii) to
effect all necessary registration, filings and submissions (including without
limitation the Financing Document, any filings under the Securities Act or the
HSR Act and any other submissions required or requested by any Authority, and
(iv) to lift any injunction or other legal bar to the Merger and the
Transactions (and, in such case, to proceed with the Merger and the
33
<PAGE>
Transactions as expeditiously as possible), subject, however, to the requisite
votes of the Stockholders. Each of the Parties recognizes that the consummation
of the Merger and the Transactions may be subject to the pre-merger notification
requirements of the HSR Act. Each agrees that, to the extent required by
Applicable Law to consummate the Merger, it will file with the Antitrust
Division of the Department of Justice and the Federal Trade Commission a
Notification and Report Form in a manner so as to constitute substantial
compliance with the notification requirements of the HSR Act. Each covenants and
agrees to use good faith best efforts to achieve the prompt termination or
expiration of any waiting period or any extensions thereof under the HSR Act.
(b) Each of the Parties agrees to take such actions as may be necessary
to obtain any Governmental Authorizations legally required for the consummation
of the Merger and the Transactions, including the making of any Governmental
Filings, publications and requests for extensions and waivers.
(c) The Company will use good faith best efforts on or prior to the
Financing Closing Date (i) to obtain the satisfaction of the conditions
specified in Sections 7.1 and 7.2; (ii) if requested by VIALOG, to seek the
consents (to the extent required) to the continued existence in accordance with
its then-stated terms of all long-term debt of each of the Company and each of
its Subsidiaries; and (iii) to attempt to cause those key employees of the
Company and its Subsidiaries designated by VIALOG that are not Stockholders to
execute and deliver non-competition agreements substantially conforming in form
and substance to the non-competition agreements currently maintained by VIALOG
with its key employees in the form attached as Exhibit 6.2(c) subject to any
--------------
variations required by applicable law. Each of VIALOG and VIALOG Merger
Subsidiary will use its best efforts on or prior to the Financing Closing Date
to obtain the satisfaction of the conditions applicable to it specified in
Sections 7.1 and 7.3. The Principal Stockholders will use good faith best
efforts to obtain the satisfaction of the conditions applicable to the Principal
Stockholders in Section 7.2.
(d) The Company agrees that, except as set forth in Section 3.19 of the
Disclosure Letter, prior to the Financing Closing Date it will not make or
permit to be made any material change affecting any bank, trust company, savings
and loan association, brokerage firm or safe deposit box or in the names of the
Persons authorized to draw thereon, to have access thereto or to authorize
transactions therein or in such powers of attorney, or open any additional
accounts or boxes or grant any additional powers of attorney, without in each
case obtaining the prior written consent of VIALOG, which consent VIALOG will
not unreasonably withhold.
(e) The Company will take such steps as are necessary and appropriate
to obtain, and will promptly obtain, satisfaction and discharge of all Liens set
forth in Section 3.15(b) of the Disclosure Letter.
6.3 Assignment of Contracts and Rights. Anything in this Agreement to the
-----------------------------------
contrary notwithstanding, this Agreement will not constitute an agreement to
assign any Claim, Contractual Obligation, Governmental Authorization, Lease,
Private Authorization, commitment, sales, service or purchase order, or any
claim, right or benefit arising thereunder or resulting
34
<PAGE>
therefrom, if the Merger or the Transactions would be deemed an attempted
assignment thereof without the required consent of a third party thereto and
would constitute a breach thereof or in any way affect the rights of VIALOG,
VIALOG Merger Subsidiary or the Company thereunder. If such consent is not
obtained, or if consummation of the Merger and the Transactions would affect the
rights of the Company thereunder so that the Surviving Corporation would not in
fact receive all such rights, the Company will cooperate with VIALOG in any
arrangement designed to provide for the benefits thereof to the Surviving
Corporation, including subcontracting, sub-licensing or subleasing to the
Surviving Corporation or enforcement for the benefit of the Surviving
Corporation of any and all rights of the Company or its Subsidiaries against a
third party thereto arising out of the breach or cancellation by such third
party or otherwise. Any assumption by the Surviving Corporation of the Company's
rights thereunder by operation of law in connection with the Merger which will
require the consent or approval of any third party will be made subject to such
consent or approval being obtained.
6.4 Audited Financial Statements. The Company agrees to allow VIALOG's
----------------------------
Accountants access to the Company's business as is necessary for the Accountant
to perform and update an audit of the Company's Financial Statements for the
three years ended December 31, 1997 and any interim statements for the periods
ending prior to the Financing Closing Date (the "Audit"). The Company agrees to
promptly prepare such financial statements and update and deliver them to
VIALOG's Accountants. VIALOG shall instruct VIALOG's auditor to promptly audit
such financial statements at VIALOG's expense.
6.5 Conduct of Business.
-------------------
(a) Prior to the Effective Time or the date, if any, on which this
Agreement is earlier terminated, the Company and its Subsidiaries will (i) use
their best efforts to preserve intact their respective business organizations
and good will, keep available the services of their respective officers and
employees as a group and maintain satisfactory relationships with suppliers,
distributors, customers and others having business relationships with them, (ii)
confer on a regular and frequent basis with one or more representatives of
VIALOG to report operational matters of Materiality and the general status of
ongoing operations, and (iii) notify VIALOG of any emergency or other change in
the normal course of their business and of any governmental complaints,
investigations or hearings (or communications indicating that the same may be
contemplated) if such emergency, change, complaint, investigation or hearing
would be Material to the business, operations or financial condition of the
Company and its Subsidiaries, taken as a whole.
(b) Except as set forth in Section 6.5(b) of the Disclosure Letter or
with the written permission of VIALOG, the Company agrees further that the
Company (i) will not make, declare or pay any non cash dividends or other non
cash distributions on any shares except as permitted pursuant to Section 6.17
hereof or the stock of the Company's Subsidiaries or redeem or repurchase or
otherwise acquire any Shares (except cancellation of options and warrants as
required in this Agreement), (ii) will not enter into or terminate any
Employment Arrangement with any director or officer, (iii) will not incur any
obligation or liability in excess of $5,000.00 (absolute or contingent), except
current liabilities incurred, and obligations under contracts
35
<PAGE>
entered into, in the ordinary course of business, (iv) will not discharge or
satisfy any Lien or Encumbrance or pay any obligation or liability (absolute or
contingent) other than current liabilities shown on its Financial Statements,
and current liabilities incurred since those dates in the ordinary course of
business, (v) will not mortgage, pledge, create a security interest in, or
subject to Lien or other Encumbrance any of its assets, tangible or intangible,
(vi) will not sell or transfer any of its tangible assets or cancel any debts or
claims except in each case in the ordinary course of business, (vii) will not
sell, assign, or transfer any trademark, trade name, patent, or other Intangible
Asset, (viii) will not waive any right of any substantial value, (ix) will not
make any material change in the tax procedures or practices followed by the
Company or any of its Subsidiaries, (x) will not make any change in credit terms
offered by the Company or any of its Subsidiaries, (xi) will not make any
capital expenditure or Material Commitment for any additions or improvements to
its or any of its Subsidiary's property, plant or equipment in excess of
$5,000.00, (xii) will not amend its capitalization, or issue any stocks, bonds
or other securities, except that the Company may issue shares pursuant to
outstanding Option Securities and Convertible Securities, (xiii) will not enter
into, modify or extend, or promise any bonus or incentive compensation program
that was not in place prior to December 31, 1997 and (xiv) will otherwise
conduct its operation and the operations of its Subsidiaries according to their
ordinary and usual course of business.
6.6 No Solicitation. During the term of this Agreement the Company will
not, nor will it permit any Subsidiary, or any of the Company's or any
Subsidiary's Representatives (including, without limitation, any investment
banker, attorney or accountant retained by it) to, initiate, or solicit,
directly or indirectly, any inquiries or the making of any proposal with respect
to an Other Transaction, engage in negotiations concerning, or provide to any
other person any information or data relating to it or any Subsidiary for the
purposes of, or otherwise cooperate in any way with or assist or participate in,
the making of any proposal which constitutes, or may reasonably be expected to
lead to, a proposal to seek or effect an Other Transaction, or agree to or
endorse any Other Transaction. Nothing contained in this Section will prohibit
the Company or its Board of Directors from making any disclosure to Stockholders
that, in the reasonable judgment of its Board of Directors in accordance with,
and based upon the written advice of outside counsel, is required under
Applicable Law. During the term of this Agreement the Company will promptly
advise VIALOG of, and communicate the material terms of, any proposal it may
receive, or any inquires it receives which may reasonably be expected to lead to
such a proposal relating to an Other Transaction, and the identity of the Person
making it. The Company will further advise VIALOG of the status and changes in
the material terms of any such proposal or inquiry (or any amendment to any of
them) if any such changes or amendments occur during the term hereof. During the
term of this Agreement, the Company will not enter into any agreement oral or
written, and whether or not legally binding, with any Person that provides for,
or in any way facilitates an Other Transaction, or affects any other obligation
of the Company under this Agreement.
6.7 Directors' and Officers' Indemnification and Insurance.
------------------------------------------------------
(a) From and after the Effective Time, VIALOG and the Surviving
Corporation will indemnify, defend and hold harmless the present and former
officers and directors of the
36
<PAGE>
Company against all Claims or amounts that are paid in settlement of, with the
approval of the Surviving Corporation, or otherwise in connection with any Claim
based in whole or in part on the fact that such Person is or was a director or
officer of the Company and arising out of actions or omissions occurring at or
prior to the Effective Time (including, without limitation, the Merger and the
Transactions), in each case to the fullest extent permitted under the CCC or the
DBCL or the laws of the Commonwealth of Massachusetts whichever governs and
affords the greatest protection (and will pay any expenses in advance of the
final disposition of any such action or proceeding to each such Person to the
fullest extent permitted under the CCC or the DBCL or the laws of the
Commonwealth of Massachusetts, upon receipt from the Person to whom expenses are
advanced of an undertaking to repay such advances to the extent required under
such laws. VIALOG will cause the Surviving Corporation to, and the Surviving
Corporation will observe and comply with the Company's obligations pursuant to
the indemnification agreements, if any, listed in Section 3.9 of the Disclosure
Letter.
(b) This Section 6.7 is intended to be for the benefit of, and will be
enforceable by, the current and former officers and directors of the Company,
their heirs and personal representatives and will be binding on the Surviving
Corporation and its respective successors and assigns.
(c) VIALOG will apply for directors and officers insurance in the amount
of $2,000,000 for the benefit of the directors and officers of VIALOG and the
Surviving Corporations.
(d) The Surviving Corporation will not amend or change its Articles or
Certificate of Incorporation or By-Laws to adopt a lesser standard of
indemnification.
6.8 Notification of Certain Matters. The Company will give prompt notice to
-------------------------------
VIALOG, and VIALOG will give prompt notice to the Company, of (a) the occurrence
or non-occurrence of any Event the occurrence or non-occurrence of which would
be likely to cause in any material respect (i) any representation or warranty of
the Company or VIALOG, as the case may be, contained in this Agreement to be
untrue or inaccurate, or (ii) in the case of the Company or the Principal
Stockholders, any change to be made in the Disclosure Letter and (b) any failure
of the Company or VIALOG, as the case may be, to comply with or satisfy, or be
able to comply with or satisfy, any material covenant, condition or agreement to
be complied with or satisfied by it under this Agreement. The delivery of any
notice pursuant to this Section 6.8 will not limit or otherwise affect the
remedies available hereunder to the Party receiving such notice.
6.9 Public Announcements. Until the earlier of the Effective Time or the
--------------------
termination of this Agreement the Company will consult with VIALOG before
issuing any press release or otherwise making any public statements with respect
to this Agreement, the Merger or any Transaction (including the Participating
Mergers or the termination of this Agreement in such event) and will not issue
any such press release or make any such public statement without the prior
consent of VIALOG. The Company acknowledges and agrees that VIALOG may, without
the prior consent of the Company, issue such press release or make such public
statement as in
37
<PAGE>
the reasonable opinion of counsel to VIALOG may be required by Applicable Law or
any listing agreement or arrangement to which VIALOG is a party with a national
securities exchange or the National Association of Securities Dealers, Inc.
6.10 Conveyance Taxes. The Parties will cooperate with one another in the
----------------
preparation, execution and filing of all Returns, questionnaires, applications,
or other documents regarding any real property transfer or gains, sales, use,
transfer, value added, stock transfer and stamp Taxes, any transfer, recording,
registration and other fees, and any similar Taxes which become payable in
connection with the Transactions that are required or permitted to be filed on
or before the Effective Time.
6.11 This Section Intentionally Left Blank.
-------------------------------------
6.12 Employee Benefits; Severance Policy. VIALOG will cause the Surviving
-----------------------------------
Corporation to maintain for a period ending 90 days after the Effective Time:
(a) employee incentive compensation and fringe benefits that are
substantially equivalent to those provided to employees of the Company and its
Subsidiaries as in effect on the date of this Agreement, subject to the right of
VIALOG and the Surviving Corporation to amend or terminate such programs in
accordance with their terms, provided that after any such amendment or
termination the resulting programs continue to be substantially equivalent to
the existing programs, and
(b) employee severance pay and benefits that are substantially
equivalent to the applicable severance programs of the Company and its
Subsidiaries as in effect on the date hereof, subject to the right of VIALOG and
the Surviving Corporation to amend or terminate such programs in accordance with
their terms, provided that after any such amendment or termination, the
resulting programs continue to be substantially equivalent to the existing
programs.
Notwithstanding the foregoing, as soon as convenient after such period, the
Surviving Corporation may, in its sole discretion, substitute employee
compensation, benefit and severance programs for those of the Company as are
consistent with the programs provided to VIALOG's employees and the employees of
VIALOG's Subsidiaries.
6.13 Certain Actions Concerning Business Combinations.
------------------------------------------------
(a) Neither the Principal Stockholders nor any Representative thereof
will, during the period commencing on the date hereof and ending with the
earlier to occur of the Merger Closing or the termination of this Agreement in
accordance with its terms, directly or indirectly (i) solicit or initiate the
submission of proposals or offers from any Person or, (ii) participate in any
negotiations pertaining to, or (iii) furnish any information to any Person other
than VIALOG relating to, any acquisition or purchase of all or a material amount
of the assets of, or any equity interest in, the Company or a merger,
consolidation or business combination of the Company or any Subsidiary (other
than the Merger).
38
<PAGE>
(b) The Company will not apply, and will not take any action resulting
in the application of, or otherwise elect to apply, the provisions of applicable
state takeover laws, if any, with respect to or as a result of the Merger or the
Transactions.
6.14 Termination of Option Securities and Convertible Securities. The
-----------------------------------------------------------
Company will take all action necessary to terminate the exercise rights of all
outstanding Option Securities and the conversion rights of all Convertible
Securities issued by the Company as of the Effective Time to the extent such
option and conversion rights are not exercised prior to the Merger Closing, and
to provide timely notice to all holders of Option Securities and Convertible
Securities notifying them of such termination. Without the prior written consent
of VIALOG, except as set forth in Section 3.15(a) of the Disclosure Letter, (a)
such termination or notice will not cause an acceleration of the exercise,
conversion or vesting schedule of any Option Security or of any Convertible
Security, and (b) the Company will not otherwise accelerate, or cause an
acceleration of, the exercise, conversion or vesting schedule of any Option
Security or Convertible Security. Prior to the Merger Closing, the Company will
issue Certificates to all holders of properly exercised Option Securities and
properly converted Convertible Securities. Such Certificates will accurately
represent the number of Shares to which such holder is entitled by virtue of
such exercise or conversion and the Company will amend Section 3.15(b) of the
Disclosure Letter accordingly.
6.15 Tax Returns. The Principal Stockholders will cause all Tax Returns of
-----------
the Company and its Subsidiaries with respect to taxable periods ending on or
before the Effective Time to be prepared in a manner consistent with past
practices and pay all taxes due thereon and VIALOG will file such Tax Returns
promptly upon receipt thereof from the Principal Stockholders or the Company. At
least thirty days before the due date (including any extensions) for any such
Tax Returns, the Principal Stockholders or the Company will provide drafts of
such Tax Returns to VIALOG for its review and comment (which reasonable comments
will be incorporated into the final Tax Returns), and VIALOG will cooperate with
the Principal Stockholders and provide the Principal Stockholders with access to
any books and records reasonably necessary for their preparation of such draft
Tax Returns. VIALOG will file no amended Tax Returns with respect to the Company
and the Subsidiaries for any taxable period ending on or before the Effective
Time if the Principal Stockholders reasonably objects thereto and furnishes
VIALOG with indemnification satisfactory in form and substance to it, including
without limitation, indemnification for all interest, penalties and Expenses
resulting from the failure to amend such Tax Returns and all proceedings in
connection therewith.
6.16 This Section Intentionally Left Blank.
-------------------------------------
6.17 Distributions, Liabilities, Etc.
-------------------------------
(a) The Company and the Principal Stockholders acknowledge and agree
that (i) prior to the Merger Closing the Company will make no Distributions to
Stockholders, employees of and consultants to the Company, (ii) no later than
Merger Closing, the Company will cause certain Liens to be discharged in their
entirety (with financing statement terminations properly recorded), and (iii) as
of Merger Closing, the Principal Stockholders will indemnify
39
<PAGE>
VIALOG for certain liabilities (except to the extent obligees with respect
thereto release the Company and its Affiliates therefrom), in each case as set
forth in the Disclosure Letter. Section 6.17 of the Disclosure Letter lists each
such Distribution, Lien and liability, if any;
(b) The Company agrees that Distributions not permitted pursuant to
Section 3.18 will be made by the Company (or VIALOG or the Surviving Company if
after the Effective Time) only to the extent provided in Section 6.17 of the
Disclosure Letter; and
(c) The Company and the Principal Stockholders further agree that,
notwithstanding anything to the contrary in Section 10.1, they will indemnify
VIALOG and VIALOG Merger Subsidiary against all Claims and Expenses incurred by
VIALOG and VIALOG Merger Subsidiary (or either of them) by virtue of any failure
on the Company's part to secure the discharges from Liens contemplated by
Section 6.17 of the Disclosure Letter or any damage or harm attributable to a
liability to be indemnified against as contemplated by Section 6.17 of the
Disclosure Letter.
6.18 Release from Personal Guarantees. On or prior to the Effective Time,
--------------------------------
VIALOG will either obtain releases of the personal guarantees of the
Stockholders of Indebtedness or discharge or arrange for the discharge of such
Indebtedness as soon thereafter as practicable but in no event more than 30 days
after the Effective Time. VIALOG will either obtain releases of the personal
guarantees of the Stockholders of Contractual Obligations which extend beyond
the Effective Time or indemnify, defend and hold the Stockholders harmless from
such personal guarantees.
6.19 Financing Document.
------------------
(a) At the request of VIALOG, the Company and the Principal
Stockholders will furnish to VIALOG all necessary information concerning the
Company and the Principal Stockholders for VIALOG to prepare the Financing
Document.
(b) The Company and the Principal Stockholders have reviewed or have
had reviewed on their behalf, and will be familiar with the information
concerning the Company and the Stockholders (or any of them) in the Financing
Document, which will be furnished to them by VIALOG for their review, and will
have no knowledge of any material fact, condition or information concerning the
Company and the Stockholders misstated or not disclosed in the Financing
Document.
ARTICLE
7
CLOSING CONDITIONS
7.1 Conditions to Obligations of Each Party to Effect the Merger. The
------------------------------------------------------------
respective obligations of each Party to effect the Merger will be subject to the
satisfaction at or prior to the
40
<PAGE>
Effective Time of the following conditions, any or all of which may be waived,
in whole or in part, to the extent permitted by Applicable Law:
(a) This Agreement, the Merger and the Transactions shall have been
approved and adopted in accordance with the CCC by the affirmative vote, or to
the extent permitted by Applicable Law, by written consent, of the Stockholders
holding at least the minimum number of shares of the Company Stock then issued
and outstanding as are required by Applicable Law and the Company's
Organizational Documents for such approval and adoption,
(b) No proceeding before any Authority or Claim by any Person shall be
pending, challenging or seeking to make illegal, to delay materially or
otherwise directly or indirectly to restrain or prohibit the consummation of the
Merger or the Financing, or seeking material damages or imposing any Adverse
conditions in connection therewith,
(c) Other than the filing of merger documents in accordance with the
CCC and the DBCL, all authorizations, consents, waivers, orders or approvals
required to be obtained, and all filings, submissions, registrations, notices or
declarations required to be made, by VIALOG or VIALOG Merger Subsidiary and the
Company prior to the consummation of the Merger and the Transactions shall have
been obtained from, and made with, all required Authorities, except for such
authorizations, consents, waivers, orders, approvals, filings, registrations,
notices or declarations the failure to obtain or make would not, assuming
consummation of the Merger, have an Adverse Effect on the Company and the
Company and its Subsidiaries taken as a whole,
(d) (i) The Financing Document shall contain no untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading, (ii) the securities
of VIALOG offered in the Financing shall have been sold and purchased subject
only to consummation of the Merger, the Participating Mergers and the
Transactions, (iii) every condition to closing the Financing shall have been
satisfied or properly waived.
7.2 Conditions to Obligations of VIALOG and VIALOG Merger Subsidiary. The
----------------------------------------------------------------
obligations of VIALOG and VIALOG Merger Subsidiary to effect the Merger will be
subject to the satisfaction at or prior to the Effective Time of the following
conditions, any or all of which may be waived, in whole or in part, to the
extent permitted by Applicable Law:
(a) The Company shall have complied in all material respects with its
agreements contained in this Agreement, the certificates to be furnished to
VIALOG pursuant to this Section shall be true, correct and complete, all
Collateral Documents shall be reasonably satisfactory in form, scope and
substance to VIALOG and its counsel, and VIALOG and its counsel shall have
received all information and copies of all documents, including records of
corporate proceedings, which they may reasonably request in connection
therewith, such documents where appropriate to be certified by proper corporate
officers,
(b) The Company shall have furnished VIALOG and the Underwriters with
the favorable opinion, dated the Financing Closing Date of Best Best & Krieger
LLP, California in the form attached as Exhibit 7.2(b).
--------------
41
<PAGE>
(c) The representations, warranties, covenants and agreements of the
Company contained in this Agreement or otherwise made in writing by it or on its
behalf pursuant to this Agreement or otherwise made in connection with the
Merger and the Transactions shall be true and correct in all material respects
at and as of the Financing Closing Date with the same force and effect as though
made on and as of such date except those which speak as of a certain date which
shall continue to be true and correct in all material respects as of such date
and the Financing Closing Date, each and all of the agreements and conditions to
be performed or satisfied by the Company under this Agreement at or prior to the
Financing Closing Date shall have been duly performed or satisfied in all
material respects, and the Company shall have furnished VIALOG with such
certificates and other documents evidencing the truth of such representations,
warranties, covenants and agreements and the performance of such agreements or
conditions as VIALOG shall have reasonably requested,
(d) Otis Cranford shall have executed and delivered to VIALOG a
noncompetition agreement, substantially in the form attached as Exhibit 7.2(d),
(e) No Legal Action or other Claim shall be pending or threatened at
any time prior to or on the Financing Closing Date before or by any Authority or
by any other Person seeking to restrain or prohibit, or damages or other relief
in connection with, the execution and delivery of this Agreement or the
consummation of the Merger and the Transactions or which is in an amount in
excess of $10,000.00 and which might in the reasonable good faith judgment of
VIALOG have any Adverse Effect on the Company or the Company and its
Subsidiaries taken as a whole or, assuming consummation of the Merger and the
Participating Mergers, VIALOG and its Subsidiaries taken as a whole,
(f) The filing and waiting period requirements (if applicable) under
the HSR Act relating to the consummation of the Merger and the Participating
Mergers shall have been complied with,
(g) All actions taken by the Stockholders to approve and adopt this
Agreement, the Merger and the Transactions shall comply in all respects with and
shall be legal, valid, binding, enforceable and effective under the Law of the
jurisdiction of incorporation of the Company, its Organizational Documents and
all Material Agreements to which it or any of its Subsidiaries is a party or by
which it or any of them or any of its or any of their property or assets is
bound,
(h) The Company shall have obtained consents to the assignment and
continuation of all Material Agreements which, in the reasonable judgment of
VIALOG or its counsel, require such consents, including appropriate binders or
consents as to policies of insurance to be assigned to VIALOG or the Surviving
Corporation under this Agreement. The Company shall have obtained satisfaction
of and taken all actions reasonably necessary to discharge all Liens set forth
in Section 3.15(b) of the Disclosure Letter, it being understood that if a
lienholder fails to release its lien after receiving satisfaction of the same
that such failure will not be grounds for terminating the Transaction. The
Company shall have obtained, on terms and conditions reasonably satisfactory to
VIALOG, all Governmental Authorizations and Private
42
<PAGE>
Authorizations, and all modifications of Contractual Obligations relating to
Indebtedness, which VIALOG deems, reasonably necessary or desirable in order to
own and operate and conduct the business of the Surviving Corporation,
substantially on the basis heretofore owned, operated and conducted by the
Company and proposed to be owned, operated and conducted by VIALOG,
(i) Between the date of this Agreement and the Effective Time, there
shall not have occurred and be continuing any Adverse Change affecting the
Company or the Company and its Subsidiaries taken as a whole from the condition
thereof (financial and other) reflected in the Financial Statements or in the
audited financial statements prepared by the Accountants as contemplated by
Section 6.4 or in the most recent financial statements set forth in the
Financing Document,
(j) VIALOG shall have received from its Accountants, a certificate or
letter, dated the Financing Closing Date, to the effect that, on the basis of a
limited review in accordance with the standards for such reviews promulgated by
the American Institute of Certified Public Accountants as outlined in Statement
of Standards of Accounting and Review Services No. 1, they have no reason to
believe that the unaudited financial statements set forth in the Financing
Document were not prepared in accordance with GAAP and practices consistent with
those followed in the preparation of the audited financial statements audited by
the Accountants as contemplated by Section 6.4, or that any material
modifications of such unaudited financial statements are required for a fair
presentation of the financial position or results of operations or changes in
financial position of the Company or that during the period from the last day
covered by the most recent financial statements set forth in the Financing
Document prepared by the Accountants as contemplated by Section 6.1(a) to a date
not more than five (5) days prior to the Financing Closing Date, there has been
any Adverse Change in the financial position or results of the operations of the
Company or the Company and its Subsidiaries taken as a whole which is not
described in the Financing Document,
(k) No Law shall have been enacted or made by or on behalf of any
Authority nor shall any legislation have been introduced and favorably reported
for passage to either House of Congress by any committee, nor shall any Legal
Action by any Authority have been commenced or threatened, nor shall any
decision, order or other action of any Authority have been rendered or taken,
which in VIALOG's reasonable judgment, could have any Adverse Effect on the
Company or the Company and its Subsidiaries taken as a whole, or could restrain,
prevent or change the Merger or the Transactions or Adversely Affect the ability
of the Principal Stockholders to perform its obligations under this Agreement,
or Adversely Affect the ability of VIALOG to continue to own, operate and
conduct the business of the Surviving Corporation, substantially on the basis
heretofore owned, operated and conducted by the Company and as proposed to be
owned, operated and conducted by the Surviving Corporation,
(l) VIALOG shall have received copies of any environmental audits the
Company has received in respect of all real property owned or leased by the
Company or any of its Subsidiaries. VIALOG, in its sole discretion and at its
sole expense, may engage an independent environmental engineer to perform such
audits and the results thereof shall not be materially inconsistent with the
representations and warranties set forth in Section 3.23,
43
<PAGE>
(m) Each of the directors of the Company and each of its Subsidiaries
and each trustee under each Plan shall have submitted his or her unqualified
written resignation, dated as of the Financing Closing Date,
(n) Each of the Principal Stockholders shall have delivered to VIALOG
an agreement, substantially in the form attached as Exhibit 7.2(n), dated the
---------------
Financing Closing Date, releasing the Company and its Subsidiaries from any and
all Claims against them (other than Claims arising from such Principal
Stockholder having acted as a director or officer of the Company or such
Subsidiary as contemplated by Section 6.7),
(o) VIALOG shall have received a letter from its Accountants to the
effect that the Merger and the Transactions qualify as a cash reverse merger
pursuant to the Code and will not result in any taxable income or gain or
deductible loss to the Company, VIALOG or VIALOG Merger Subsidiary.
(p) The Company shall not have suffered any material damage,
destruction or loss (whether or not covered by insurance) or any material
acquisition or taking of property by any Authority, nor shall it have
experienced any material work stoppage,
(q) Except for such leases and other Contractual Obligations as are set
forth on Section 7.2(q) of the Disclosure Letter and are executed, delivered and
effective as of the Effective Time, all Contractual Obligations set forth in
Section 3.9 of the Disclosure Letter shall have been satisfied and discharged as
of the Financing Closing Date,
(r) The representations, warranties, covenants and agreements of the
Principal Stockholders contained in this Agreement or otherwise made in writing
by or on behalf of the Principal Stockholders pursuant to this Agreement or
otherwise made in connection with the Merger and the Transactions shall be true
and correct in all material respects at and as of the Financing Closing Date
with the same force and effect as though made on and as of such date except
those which speak as of a certain date which shall continue to be true and
correct in all material respects as of such date and on the Financing Closing
Date. Each and all of the agreements and conditions to be performed or satisfied
by the Principal Stockholders under this Agreement at or prior to the Financing
Closing Date, including without limitation the provisions set forth in Section
6.19, shall have been duly performed or satisfied in all material respects, and
the Principal Stockholders shall have furnished VIALOG with such certificates
and other documents evidencing the truth of such representations, warranties,
covenants and agreements and the performance of such agreements or conditions as
VIALOG or its counsel shall have reasonably requested,
(s) Patricia A. Cranford shall have executed and delivered to VIALOG an
employment and noncompetition agreement, substantially in the form attached as
Exhibit 7.2(s), and
- --------------
(t) Matthew Cranford shall have executed and delivered to VIALOG an
Employment Arrangement substantially in the form attached as Exhibit 7.2(t).
44
<PAGE>
7.3 Conditions to Obligations of the Company. The obligations of the
----------------------------------------
Company to effect the Merger will be subject to the satisfaction at or prior to
the Effective Time of the following conditions, any or all of which may be
waived, in whole or in part to the extent permitted by Applicable Law:
(a) Each of VIALOG and VIALOG Merger Subsidiary shall have complied
in all material respects with its agreements contained in this Agreement, and
the certificates to be furnished to the Company pursuant to this Section shall
be true, correct and complete. All Collateral Documents shall be reasonably
satisfactory in form, scope and substance to the Company and its counsel, and
the Company and its counsel shall have received all information and copies of
all documents, including records of corporate proceedings, which they may
reasonably request in connection therewith, such documents where appropriate to
be certified by proper corporate officers,
(b) VIALOG shall have furnished the Company and the Principal
Stockholders with the favorable opinion dated the Financing Closing Date of
Mirick, O'Connell, DeMallie & Lougee, llp, counsel to VIALOG and VIALOG Merger
Subsidiary in the form attached as Exhibit 7.3(b).
--------------
(c) The representations, warranties, covenants and agreements of
each of VIALOG and VIALOG Merger Subsidiary contained in this Agreement or
otherwise made in writing by it or on its behalf pursuant to this Agreement or
otherwise made in connection with the Merger and the Transactions shall be true
and correct in all material respects at and as of the Financing Closing Date
with the same force and effect as though made on and as of such date except
those which speak as of a certain date which shall continue to be true and
correct in all material respects as of such date and on the Financing Closing
Date; each and all of the agreements and conditions to be performed or satisfied
by each of VIALOG and VIALOG Merger Subsidiary under this Agreement at or prior
to the Financing Closing Date shall have been duly performed or satisfied in all
material respects; and each of VIALOG and VIALOG Merger Subsidiary shall have
furnished the Company with such certificates and other documents evidencing the
truth of such representations, warranties, covenants and agreements and the
performance of such agreements or conditions as the Company shall have
reasonably requested,
(d) If executed and delivered to VIALOG by the Merger Closing, the
employment agreements contemplated by Section 7.2(s) and for those persons
listed in Section 7.2(t) of the Disclosure Letter shall have been executed by
the Surviving Corporation and delivered by VIALOG to the indicated person,
(e) No Legal Action or other Claim shall be pending or threatened
at any time prior to or on the Financing Closing Date before or by any Authority
or by any other Person seeking to restrain or prohibit, or damages or other
relief in connection with, the execution and delivery of this Agreement or the
consummation of the Merger and the Transactions or which is in an amount in
excess of $10,000.00 and which might in the reasonable judgment of the Company
have any Adverse Effect on VIALOG and its Subsidiaries or the Company and its
45
<PAGE>
Subsidiaries taken as a whole or, assuming consummation of the Merger and the
Participating Agreements, VIALOG and its Subsidiaries taken as a whole, and
(f) The filing and waiting period requirements (if applicable)
under the HSR Act relating to the consummation of the Merger and the
Participating Mergers shall have been complied with,
(g) VIALOG shall have obtained the insurance set forth in Section
6.7(c), and
(h) The Company shall have received a letter from the Accountants
to the effect that the Merger and the Transactions qualify as a cash reverse
merger pursuant to the Code.
ARTICLE
8
TERMINATION, AMENDMENT AND WAIVER
8.1 Termination. This Agreement may be terminated at any time prior to the
-----------
Effective Time, whether before or after approval of this Agreement, the Merger
and the Transactions as follows:
(a) by mutual consent of the Company and VIALOG.
(b) by either VIALOG or the Company,
(i) if any permanent injunction, decree or judgment by any
Authority preventing the consummation of the Merger or the
Financing shall have become final and nonappealable, or if the
terminating party determines in its reasonable discretion that
the Merger has become inadvisable or impracticable by reason
of the institution by any Authority of other Person of
material Legal Action, or
(ii) if the Merger Closing shall not occur on or before the
Termination Date,
(c) by the Company:
(i) in the event of a breach of this Agreement by VIALOG or VIALOG
Merger Subsidiary that has not been cured, or if any
representation or warranty of VIALOG or VIALOG Merger
Subsidiary shall have become untrue in any material respect,
in either case such that such breach or untruth is incapable
of being cured by the Merger Closing or will prevent or delay
consummation of the Merger beyond the Termination Date, or
46
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(d) by VIALOG:
(i) if the Merger and the Transactions fail to receive the
approval required by Applicable Law, by vote (or to the extent
permitted by Applicable Law, by consent) of the Stockholders,
or if any Stockholder entitled to vote (or entitled to
appraisal rights) with respect to the Merger dissents from the
Merger and the Transactions,
(ii) if it shall determine in its reasonable discretion that
the Merger or the Transactions has or have become inadvisable
or impracticable by reason of the threat by any Authority, or
any other Person of material Legal Action or proceedings which
is likely to result in material harm to either or both of the
Company and VIALOG (or VIALOG Merger Subsidiary, or a
Subsidiary of any of them), it being understood and agreed that
a written request by governmental authorities (other than the
SEC) for information with respect to the Transactions, which
information could be used in connection with such Legal Action
or proceedings, may be deemed by VIALOG to be a threat of
material Legal Action or proceedings,
(iii) if arrangements reasonably satisfactory to VIALOG cannot be
made for (A) the assumption by the Surviving Corporation
substantially on the terms and conditions in effect as of the
date of this Agreement, or for the prepayment without premium,
or with penalty provided the same is deducted from the
consideration hereunder of all outstanding Indebtedness of the
Company for borrowed money, or (B) the Financing,
(iv) if the business, assets, prospects, management, condition
(financial or other) or results of operation of the Company or
the Company and its Subsidiaries taken as a whole shall have
been Adversely Affected, whether by reason of changes or
developments in the economy or industry generally or operations
in the ordinary course of business or otherwise,
(v) if the Company shall not have received, without the imposition
of any burdensome condition or material cost, all Governmental
Authorizations and Private Authorizations, or if any Authority
or other Person shall withdraw any such Governmental
Authorizations or Private Authorizations,
(vi) if the terms of this Agreement shall not have been approved by
the Underwriter,
47
<PAGE>
(vii) if the Company shall have suffered any material damage,
destruction or loss (whether or not covered by insurance) or
any material acquisition or taking of property by any
Authority, or if it or any of its Subsidiaries shall have
suffered a material work stoppage,
(viii) in the event of a material breach of this Agreement by the
Company or either of the Principal Stockholders that has not
been cured, or if any representation or warranty of the Company
or either of the Principal Stockholders shall have become
untrue in any material respect, so that such breach or untruth
is incapable of being substantially cured by the Merger Closing
or will prevent or delay consummation of the Merger by or
beyond the Termination Date, or if any condition to VIALOG's
obligation to close under this Agreement shall not have been
satisfied,
(ix) if the Board of Directors of the Company shall withdraw, modify
or change its recommendation so that it is not in favor of this
Agreement, the Merger or the Transactions, or shall have
resolved to do any of the foregoing (it being agreed and
understood that nothing in this clause, obliges the Company to
effect the Merger if the conditions set forth in Section 7.1
and Section 7.3 are not satisfied or limits the rights of the
Company to consent to terminate this Agreement pursuant to
Section 8.1(a) or to terminate the Agreement pursuant to
Section 8.1(b) or Section 8.1(c)),
(x) if the Board of Directors of the Company shall have recommended
or resolved to recommend to the Stockholders an Other
Transaction,
(xi) if the Company, the Board of Directors of the Company or either
of the Principal Stockholders shall have taken any action in
contravention of Sections 6.6 or 6.13, or
(xii) if either of the Principal Stockholders shall fail to vote to
approve and adopt this Agreement, the Merger and the
Transactions.
8.2 Effect of Termination. Except as provided in Sections 2.2(a), 2.2(d)
---------------------
6.1(c), 6.1(d), 8.5, 11.2 through 11.10 and Article 12, in the event of the
termination of this Agreement pursuant to Section 8.1, this Agreement shall
forthwith become void, there shall be no liability on the part of any Party, or
any of their respective officers or directors, to the other and all rights and
obligations of any Party shall cease; provided, however, that such termination
will not relieve any Party from liability for the willful breach of any of its
representations, warranties, covenants or agreements set forth in this
Agreement.
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8.3 Amendment. This Agreement may be amended by the Parties by action
---------
taken by or on behalf of their respective Boards of Directors and by the
Principal Stockholders at any time prior to the Effective Time; provided,
however, that, after approval of this Agreement and the Merger by the
Stockholders, no amendment, which under Applicable Law may not be made without
the approval of the Stockholders, may be made without such approval. This
Agreement may not be amended to impose any additional material obligation on a
Party or to burden or limit a material right of such Party except by an
agreement in writing signed by the Party so affected.
8.4 Waiver. At any time prior to the Effective Time, except to the extent
-------
Applicable Law does not permit, either VIALOG or VIALOG Merger Subsidiary and
the Company may (a) extend the time for the performance of any of the
obligations or other acts of the other, subject, however, to the terms and
conditions of Section 8.1, (b) waive any inaccuracies in the representations and
warranties of the other contained in this Agreement or in any document delivered
pursuant to this Agreement and (c) waive compliance by the other with any of the
agreements, covenants or conditions contained in this Agreement. Any such
extension or waiver shall be valid only if set forth in an agreement in writing
signed by the Party or Parties to be bound thereby.
8.5 Fees, Expenses and Other Payments. All costs and expenses incurred by
----------------------------------
the Parties in connection with this Agreement, the Merger and the Transactions
and in connection with compliance with Applicable Law and Contractual
Obligations as a consequence hereof and thereof, including fees and
disbursements of counsel, financial advisors and accountants, will be borne
solely and entirely by the Party which has incurred such costs and expenses
(with respect to such Party, its "Expenses"). Each of the Principal Stockholders
acknowledges and agrees for himself and on behalf of the other Stockholders that
the Company has disclosed that it is obligated and will become further obligated
for Expenses (including fees and expenses of its counsel, its independent
accountants, and its financial advisor) incurred by it in connection with this
Agreement, the Merger and the Transactions and such expenses will not be paid by
the Company or become a liability of the Surviving Company if the Merger is
consummated but will be paid by the Stockholders on a pro-rata basis based on
their ownership of the Company Stock and the Shares outstanding. VIALOG
acknowledges that its Expenses also include the costs of the Audit and
Financing.
8.6 Effect of Investigation. The right of any Party to terminate this
------------------------
Agreement pursuant to Section 8.1 will remain operative and in full force and
effect regardless of any investigation made by or on behalf of any Party, any
Person controlling any such Party or any of their respective Representatives
whether prior to or after the execution of this Agreement.
ARTICLE
9
ARBITRATION
9.1 Best Efforts to Settle Disputes. In the event any dispute, claim,
--------------------------------
question or difference (a "Dispute") arises with respect to this Agreement or
its performance, enforcement,
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breach, termination or validity, the Parties shall use their best efforts to
settle the Dispute. To this end, they shall consult and negotiate with each
other, in good faith and understanding of their mutual interests, to reach a
just and equitable solution satisfactory to all Parties.
9.2 Arbitration. Except as is expressly provided in this Agreement, if the
------------
Parties do not reach a solution pursuant to Section 9.1 within a period of
fifteen (15) business days following the first notice of the Dispute by any
Party to any other Party, then upon written notice by any such Party to the
other Parties, the Dispute shall be finally settled by arbitration in effect on
the date of this Agreement, except with respect to a Dispute related to any
Principal Stockholder complying with the terms of the non-competition provisions
set forth in such Principal Stockholder's Employment Agreement or other
agreement executed by any such Principal Stockholder in connection with this
Agreement, the Merger or the Other Transactions. Any arbitration invoked
hereunder will be in accordance with the provisions of the Commercial
Arbitration Rules of the American Arbitration Association in effect on the date
of this Agreement. Any arbitration invoked hereunder will be based on the
following:
(a) the arbitration tribunal shall consist of one arbitrator appointed
by mutual agreement of the Parties, or in the event of failure to agree within
ten (10) business days following delivery of the written notice to arbitrate,
then each of the Parties shall appoint one arbitrator and the two nominated
shall in turn choose one-third arbitrator. If arbitrators chosen by the Parties
cannot agree on a choice of the third arbitrator within a period of 10 business
days after their nomination, then any Party may apply to any judge of the United
States District Court for the Central District of Massachusetts to appoint the
third arbitrator. The arbitrators shall be qualified by education and training
to pass upon the particular matter to be decided;
(b) the arbitrator shall be instructed that time is of the essence in
the arbitration proceeding and, in any event, the arbitration award must be made
within sixty (60) days of the submission of the Dispute to arbitration;
(c) after written notice is give to refer any Dispute to arbitration,
the Parties will meet within fifteen (15) business days of delivery of the
notice and will negotiate in good faith any changes in these arbitration
provisions or the rules of arbitration which are herein adopted, in an effort to
expedite the process and otherwise ensure that the process is appropriate given
the nature of the Dispute and the values at risk;
(d) the arbitration shall take place in Boston, Massachusetts;
(e) the arbitration shall be conducted pursuant to such procedures and
schedule for discovery, preparation and filing of pre-hearing briefs, hearing,
preparation and filing of post-hearing briefs and such other matters as the
arbitrator (or, if there is more than one (1), a majority of the arbitrators)
shall determine to be necessary and shall be fixed by the arbitrator or
arbitrators after consultation with the Parties, for such purpose, with the
understanding and agreement of the Parties that all matters pertaining to the
arbitration shall be expedited to the maximum extent possible; provided,
however, that any necessary discovery shall be conducted pursuant to the Federal
Rules of Civil Procedure in effect at the time of such proceeding.
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(f) the arbitration award shall be given in writing and shall be final
and binding on the Parties, not subject to any appeal, and shall deal with the
question of costs of arbitration and all related matters;
(g) judgment upon any award may be entered in any court having
jurisdiction or application may be made to such court for a judicial recognition
of the award of an order of enforcement, as the case may be; and
(h) all Disputes referred to arbitration (including the scope of the
agreement to arbitrate, any statute of limitations, set-off claims, conflict of
laws rules, tort claims and interest claims) shall be governed by the
substantive law of Delaware except to the extent California law may be
applicable to the Merger and except as otherwise provided in Section 9.1(e)
hereof.
ARTICLE
10
INDEMNIFICATION
10.1 Indemnification.
----------------
(a) Except as provided in Section 11.1, each of the Principal
Stockholders agrees to make whole, indemnify and hold VIALOG, VIALOG Merger
Subsidiary, the Surviving Corporation, the Underwriters and their respective
Affiliates, agents, successors and assigns (collectively, the "VIALOG
Indemnified Parties") harmless as a result of, from or against:
(i) any and all Claims of the VIALOG Indemnified Parties or other
Persons based upon, attributable to or resulting from any
material inaccuracy in or material breach of any
representation or warranty on the part of any one or more of
the Company or the Stockholders under this Agreement or any
Collateral Document;
(ii) any and all Claims of the VIALOG Indemnified Parties or other
Persons based upon, attributable to or resulting from the
material breach of any covenant or other agreement on the part
of any one or more of the Company or the Stockholders under
this Agreement or any Collateral Document; and
(iii) any and all other material Claims of the VIALOG Indemnified
Parties or other Persons incident to the foregoing or to the
enforcement of this Section.
(b) Except as provided in Section 11.1, VIALOG agrees to make whole,
indemnify and hold the Principal Stockholders and their respective Affiliates,
agents, heirs,
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successors and assigns (collectively, the "Company Indemnified Parties")
harmless as a result of, from or against:
(i) any and all Claims of the Company Indemnified Parties or
other Persons based upon, attributable to or resulting from
any material inaccuracy in or material breach of any
representation or warranty on the part of VIALOG or VIALOG
Merger Subsidiary under this Agreement or any Collateral
Document;
(ii) any and all Claims of the Company Indemnified Parties or
other Persons based upon, attributable to or resulting from
the material breach of any covenant or other agreement on
the part of VIALOG or VIALOG Merger Subsidiary; and
(iii) any and all other material Claims of the Company Indemnified
Parties or other Persons incident to the foregoing or to the
enforcement of this Section.
(c) No one of the Stockholders will be required to pay to the VIALOG
Indemnified Parties for damages an aggregate amount in excess of 50% of the cash
received by such Stockholder as the Merger Consideration pursuant to Section
2.1(a). VIALOG will not be required to pay any Company Indemnified Party for
damages an aggregate amount in excess of the amount of cash delivered to such
Company Indemnified Party pursuant to Section 2.1(a). No Claim for
indemnification may be commenced beyond the period applicable to such Claim set
forth in Section 11.1.
(d) Notwithstanding the foregoing, (i) the Stockholders will not be
required to pay any amount for indemnification to the VIALOG Indemnified Parties
except to the extent that the aggregate amount of Claims under this Section 10.1
asserted collectively against the Stockholders exceeds $100,000, (ii) VIALOG
will not be required to pay any amount for indemnification to the Company
Indemnified Parties until the aggregate amount of claims under this Section 10.1
asserted collectively against VIALOG exceeds $100,000, and (iii) in each case
under (i) or (ii) above after giving effect to the provisions of subsection (e).
(e) The claims of the Parties for indemnification shall be reduced by
tax benefits or insurance proceeds available to such Party, and no multiplier
shall be used for calculation of Claims for damages.
10.2 Procedures Concerning Claims by Third Parties; Payment of Damages;
------------------------------------------------------------------
Etc.
- ---
(a) If any Claim is instituted or asserted by any person other than
such indemnified party in respect of which payment may be sought hereunder, the
indemnified party will reasonably and promptly cause written notice of the
assertion of any Claim of which it has knowledge which is covered by the
indemnities under Section 10.1 to be forwarded to the indemnifying party within
10 days of learning of the event giving rise to the indemnity. In such event,
the indemnifying party will have the right, at its sole option and expense, to
be represented
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<PAGE>
by counsel of its choice, which must be reasonably satisfactory to the
indemnified party, and to defend against, negotiate, settle or otherwise deal
with any Claim instituted or asserted by any Person other than such indemnified
party and indemnified against hereunder; provided, however, that no settlement
thereof will be made without the prior written consent of the indemnified party,
which consent will not be unreasonably withheld, conditioned or delayed. If the
indemnifying party elects to defend against, negotiate, settle or otherwise deal
with any Claim, it will within five (5) days of receipt of said notice (or
sooner, if the nature of the Claim so requires) notify in writing the
indemnified party of its intent to do so. If the indemnifying party elects not
to defend against, negotiate, settle or otherwise deal with any Claim, fails to
notify the indemnified party of its election as herein provided or contests its
obligation to indemnify the indemnified party for such Claim under this
Agreement, the indemnified party may defend against, negotiate, settle or
otherwise deal with such Claim. If the indemnified party defends any Claim, then
the indemnifying party will reimburse the indemnified party for reasonable
Claims incurred in defending such Claim upon a final determination that the
indemnified party was entitled to indemnity hereunder. Neither the indemnifying
party nor the indemnified party may settle any Claim without the prior written
consent of the other party, which consent will not be unreasonably withheld,
conditioned or delayed. If the indemnifying party will assume the defense of any
Claim instituted or asserted by any Person other than an indemnified party, the
indemnified party may participate, at such party's own expense, in the defense
of such Claim.
(b) After any final judgment or award will have been rendered by a
court, arbitration board (which may be engaged upon the consent of each of the
indemnifying party and the indemnified parties) or administrative agency of
competent jurisdiction and the expiration of the time in which to appeal
therefrom, or a settlement will have been consummated, or the indemnified party
and the indemnifying party will have arrived at a mutually binding agreement
with respect to a Claim hereunder, the indemnifying party will pay all of the
sums due and owing to the indemnified party by wire transfer of immediately
available funds, within five business days after the date of notice of such
judgment or award conditioned, however, on the indemnifying party having been
finally determined by the parties' agreement or by final court or arbitration
that the indemnifying party is obligated hereunder to make said payment and
subject to the provisions of this Article 10.
(c) The failure of the indemnified party to give reasonably prompt
notice of any Claim instituted or asserted by any Person other than such
indemnified party and indemnified against hereunder will not release, waive or
otherwise affect the indemnifying party's obligations with respect thereto
except to the extent that the indemnifying party can demonstrate actual loss or
material prejudice as a result of such failure.
(d) No action to enforce a Claim for indemnity will be stayed or
dismissed for failure to join one or more indemnifying parties or to permit an
indemnifying party to cross-claim against another indemnifying party, nor will
the failure to join as indemnifying party be deemed grounds for preventing a
separate or subsequent Legal Action to enforce a Claim for indemnification
against such party, each such Legal Action being deemed a separate and
independent Claim for indemnification. A Legal Action to enforce a Claim for
indemnity may
53
<PAGE>
be instituted in the Commonwealth of Massachusetts, or the jurisdiction to which
each Party consents, or any other state having jurisdiction with respect
thereto.
10.3 Access to Books and Records. In the event of any claim for indemnity
----------------------------
under Section 10.1 or 10.2, VIALOG agrees to give the Stockholders and their
Representatives reasonable access to all files, documents, instruments, papers,
books and records relating to the Company or the Stockholders, and to all
employees of the Company in connection with the matters for which
indemnification is sought to the extent the Stockholders reasonably deem
necessary in connection with their rights and obligations under this Article 10.
10.4 Exclusivity. After the Financing Closing Date, to the extent
------------
permitted by Law, the indemnities set forth in this Article 10 shall be the
exclusive remedies of the VIALOG Indemnified Parties and the Company Indemnified
Parties for any misrepresentation, breach of warranty or nonfulfillment or
failure to be performed of any covenant or agreement contained in this
Agreement, and the parties shall not be entitled to any further indemnification
rights or claims of any nature whatsoever in respect thereof, all of which the
parties hereto hereby waive.
ARTICLE
11
GENERAL PROVISIONS
11.1 Effectiveness of Representations; Etc.
--------------------------------------
(a) Regardless of any investigation made by or on behalf of any other
party hereto, any Person controlling such party or any of their respective
Representatives whether prior to or after the execution and consummation of this
Agreement, the representations, warranties, covenants and agreements contained
in Article 3, Article 4 and Article 5 will survive the Merger and remain
operative and in full force and effect as follows:
(i) Section 3.12, Section 3.21 and Section 4.4 until sixty (60)
days after the applicable statute of limitations, as the same
may be extended from time to time, has terminated;
(ii) Section 3.11, until four (4) years following the Effective
Time, and;
(iii) all other Sections, until March 31, 2000.
(b) Except as set forth in Section 8.2, as limited by Section 11.1(a)
hereof, the representations, warranties, covenants and agreements of each Party
will survive and remain operative and in full force and effect, regardless of
any investigation made by or on behalf of any other Party, any Person
Controlling any such Party or any of their respective Representatives whether
such investigation was prior to or after the execution and consummation of this
Agreement.
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11.2 Notices. All notices and other communications given or made pursuant to
--------
this Agreement will be in writing and will be deemed to have been duly given or
made as of the date delivered or transmitted, and will be effective upon
receipt, if delivered personally or by recognized national overnight delivery
service, mailed by certified mail (postage prepaid, return receipt requested) to
the Parties at the following addresses or sent by electronic transmission to the
fax number specified below:
(a) If to VIALOG or VIALOG Merger Subsidiary:
Glenn Bolduc, President
VIALOG Corporation
35 New England Business Center
Suite 160
Andover, MA 01810
Fax: (781) 639-8549
with a copy to:
Mirick, O'Connell, DeMallie & Lougee, llp
Attention: David L. Lougee, Esq.
1700 BankBoston Tower
Worcester, MA 01608
Fax: (508) 791-8502
(b) If to the Company:
A Better Conference, Inc.
255 N. LelCielo
Suite 260
Palm Springs, CA 92262
with a copy to:
Best Best & Krieger LLP
Attention: Robert L. Patterson, Esq.
39700 Bob Hope Drive, Suite 312
Rancho Mirage, CA 92270
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<PAGE>
(c) If to the Principal Stockholders:
Patricia A. Cranford
Otis Cranford
Matthew Cranford
A Better Conference, Inc.
255 N. LelCielo
Suite 260
Palm Springs, CA 92262
with a copy to:
Best Best & Krieger LLP
Attention: Robert L. Patterson, Esq.
39700 Bob Hope Drive, Suite 312
Rancho Mirage, CA 92270
Any address for notice as herein above provided may be changed by the party
or person for whom the change is made by giving notice of said change in the
manner provided in this Section.
11.3 Headings. The headings contained in this Agreement are for reference
---------
purposes only and will not affect in any way the meaning and interpretation of
this Agreement.
11.4 Severability. If any term or other provision of this Agreement is
-------------
invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other conditions and provisions of this Agreement will nevertheless
remain in full force and effect so long as the economic or legal substance of
the Transactions is not affected in any manner Adverse to any Party. Upon such
determination that any term or other provisions is invalid, illegal or incapable
of being enforced, the Parties will negotiate in good faith to modify this
Agreement so as to effect the original intent of the Parties as closely as
possible to the fullest extent permitted by Applicable Law in an acceptable
manner to the end that the Transactions are fulfilled to the extent possible.
11.5 Entire Agreement. This Agreement (together with the Disclosure
-----------------
Letter, the Confidentiality Agreement and the other Collateral Documents
delivered in connection herewith), constitutes the entire agreement of the
Parties and supersedes all prior agreements (other than the Confidentiality
Agreement) and undertakings, both written and oral, between the Parties, or any
of them, with respect to the subject matter hereof.
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11.6 Assignment. This Agreement may not be assigned by operation of law or
-----------
otherwise and any purported assignment will be null and void, provided that
VIALOG may cause a wholly owned Subsidiary of VIALOG or Holding Company to be
substituted for VIALOG or VIALOG Merger Subsidiary as the party to the Merger
and may, in addition, assign the other rights, but not its obligations,
including, without limitation, its obligation for payment of the Aggregate
Merger Consideration, under this Agreement to such Subsidiary or Holding
Company.
11.7 Parties in Interest. This Agreement will be binding upon and inure
--------------------
solely to the benefit of each Party, and nothing in this Agreement, express or
implied (other than the provisions of Section 6.7, which provisions are intended
to benefit and may be enforced by the beneficiaries thereof), is intended to or
will confer upon any Person any right, benefit or remedy of any nature
whatsoever under or by reason of this Agreement.
11.8 Governing Law. Except to the extent that California Law may be
--------------
applicable to the Merger, this Agreement will be governed by, and construed in
accordance with, the substantive laws of the State of Delaware governing
contracts made and to be performed in such jurisdiction, regardless of the laws
that might otherwise govern under applicable principles of conflicts of law.
11.9 Enforcement of the Agreement. Each Party recognizes and agrees that
-----------------------------
each other Party's remedy at law for any breach of the provisions of this
Agreement would be inadequate and agrees that for breach of such provisions,
such Party will, in addition to such other remedies as may be available to it at
law or in equity or as provided in this Agreement, be entitled to seek
injunctive relief and to enforce its rights by an action for specific
performance to the extent permitted by Applicable Law. Each party hereby waives
any requirement for security or the posting of any bond or other surety in
connection with any temporary or permanent award of injunctive, mandatory or
other equitable relief. Nothing herein contained will be construed as
prohibiting a Party from pursuing any other remedies available to such Party for
any breach or threatened breach hereof or failure to take or refrain from any
action as required hereunder to consummate the Merger and carry out the
Transactions.
11.10 Counterparts. This Agreement may be executed in one or more
-------------
counterparts, and by the different Parties hereto in separate counterparts, each
of which when executed will be deemed to be an original but all of which taken
together will constitute one and the same agreement.
11.11 Disclosure Letter and Supplements. From time to time prior to the
----------------------------------
Financing Closing Date, the Company will promptly supplement or amend the
Disclosure Letter delivered in connection with this Agreement, with respect to
any matter which, if existing, occurring or known at the date of this Agreement,
would have been required to be set forth or described in such Disclosure Letter
or which is necessary to correct any information in such Disclosure Letter which
has been rendered inaccurate thereby; provided, however, that no supplement or
amendment to the Disclosure Letter that constitutes or reflects a Material
Adverse Change to the Company may be made without the prior written consent of
VIALOG.
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ARTICLE
12
DEFINITIONS
As used in this Agreement, unless the context otherwise requires, the
following terms (or any variant in the form thereof) have the following
respective meanings. Terms defined in the singular will have a comparable
meaning when used in the plural, and vice versa, and the reference to any gender
will be deemed to include all genders. Any reference to any statutory or
regulatory provision will be deemed to be a reference to any successor statutory
or regulatory provision. Unless otherwise defined or the context otherwise
clearly requires, terms for which meanings are provided in this Agreement will
have such meanings when used in the Disclosure Letter and each Collateral
Document, notice, certificate, communication, opinion, or other document
executed or required to be executed pursuant hereto or thereto or otherwise
delivered, from time to time, pursuant hereto or thereto.
Accountants means KPMG Peat Marwick, LLP.
Adverse, Adversely, when used alone or in conjunction with other terms
(including without limitation "Affect," "Change" and "Effect") means, with
respect to the Company or any of its Subsidiaries, VIALOG or VIALOG Merger
Subsidiary, as the case may be, any Event which could reasonably be expected to
(a) adversely affect the validity or enforceability of this Agreement in a
material degree or any Collateral Document in a material degree executed or
required to be executed pursuant hereto or thereto, or (b) adversely affect the
business, operations, management, properties or the condition, (financial or
other), or results of operation of the Company in a material degree or the
Company and its Subsidiaries taken as a whole, VIALOG or VIALOG Merger
Subsidiary, as the case may be, or (c) impair the Company's, or VIALOG's or
VIALOG Merger Subsidiary's ability to fulfill its obligations under the terms of
this Agreement or any Collateral Document executed or required to be executed
pursuant hereto or thereto, or (d) adversely affect the aggregate rights and
remedies of VIALOG or the Company under this Agreement or any Collateral
Document executed or required to be executed pursuant hereto or thereto, in all
cases, unless otherwise specifically set forth, in a material respect or manner
or to a material degree.
Affiliate or Affiliated means, with respect to any Person, (a) any other
Person at the time directly or indirectly controlling, controlled by or under
direct or indirect common control with such Person, (b) any other Person of
which such Person at the time owns, or has the right to acquire, directly or
indirectly, twenty percent (20%) or more of any class of the capital stock or
beneficial interest, (c) any other Person which at the time owns, or has the
right to acquire, directly or indirectly, twenty percent (20%) or more of any
class of the capital stock or beneficial interest of such Person, (d) any
executive officer or director of such Person, (e) with respect to any
partnership, joint VIALOG or similar Entity, any general partner thereof, and
(f) when used with respect to an individual, will include any member of such
individual's immediate family or a family trust.
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Aggregate Equity means such number of shares of Company Stock as shall
equal the aggregate of (a) the Shares, and (b) all shares of Company Stock
otherwise issuable based upon the affirmative election to exercise or convert
outstanding Option Securities and/or Convertible Securities pursuant to Section
2.4.
Aggregate Merger Consideration will have the meaning given to it in Section
2.1(a).
Agreement means this Agreement as originally in effect, including unless
the context otherwise specifically requires, all schedules, including the
Disclosure Letter and exhibits to this Agreement, and as the same may from time
to time be supplemented, amended, modified or restated in the manner herein or
therein provided.
Applicable Law means any Law of any Authority, whether domestic or foreign,
including without limitation all federal and state securities laws and
Environmental Laws, to or by which a Person or to any of its business or
operations is subject or any of its property or assets is bound.
Authority means any governmental or quasi-governmental authority, whether
administrative, executive, judicial, legislative or other, or any combination
thereof, including without limitation any federal, state, territorial, county,
municipal or other government or governmental or quasi-governmental agency,
arbitrator, authority, board, body, branch, bureau, central bank or comparable
agency or Entity, commission, corporation, court, department, instrumentality,
master, mediator, panel, referee, system or other political unit or subdivision
or other Entity of any of the foregoing, whether domestic or foreign.
Benefit Arrangement means any material benefit arrangement that is not a
Plan, including (a) any employment or consulting agreement, (b) any arrangement
providing for insurance coverage or workers' compensation benefits, (c) any
incentive bonus or deferred bonus arrangement, (d) any arrangement providing
termination allowance, severance or similar benefits, (e) any equity
compensation plan, (f) any deferred compensation plan, and (g) any compensation
policy and practice.
CCC will have the meaning given to it in the Preamble.
Certificate will have the meaning given to it in Section 2.1(a).
Claims means any and all Tax Claims, debts, liabilities, obligations,
losses, damages, deficiencies, assessments and penalties, together with all
Legal Actions, pending or threatened, claims and judgments of whatever kind and
nature relating thereto, and all reasonable fees, costs, expenses and
disbursements (including without limitation attorneys' fees, costs and expenses)
relating to any of the foregoing.
COBRA means the Consolidated Omnibus Budget Reconciliation Act of 1985, as
amended, as set forth in Section 4980B of the Code and Part 6 of Title I of
ERISA.
Code will have the meaning given to it in the Preamble.
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Collateral Document means any agreement, instrument, certificate, opinion,
memorandum, schedule or other document delivered by a Party or a Stockholder
pursuant to this Agreement or in connection with the Merger and the
Transactions. For purposes of the representations, warranties, covenants and
agreements of the Company and the Principal Stockholders, on the one hand, or
VIALOG and VIALOG Merger Subsidiary on the other, under this Agreement and with
respect to opinions to be delivered pursuant to this Agreement, except to the
extent of a Party's actual knowledge, the Company and the Principal Stockholders
or VIALOG and VIALOG Merger Subsidiary, as the case may be, assume no
responsibility for the authority of or genuineness of signatures relating to the
others as counterparts or their representations, warranties, covenants and
agreements.
Company will have the meaning given to it in the Preamble.
Company Indemnified Parties will have the meaning given to it in Section
10.1(b).
Company's knowledge (including the term "to the knowledge of the Company")
means the knowledge, information or belief of any Company director, executive
officer or the Principal Stockholders; and that such director, executive officer
or Principal Stockholders, after reasonable investigation, will have reason to
believe and will believe that the subject representation or warranty is true and
accurate as stated.
Company Stock will have the meaning given to it in Section 2.1(a).
Confidentiality Letter will have the meaning given to it in Section 6.1(c).
Contract or Contractual Obligation means any term, condition, provision,
representation, warranty, agreement, covenant, undertaking, commitment,
indemnity or other obligation set forth in the Organizational Documents of the
obligee or which is outstanding or existing under any instrument, contract,
lease or other contractual undertaking (including without limitation any
instrument relating to or evidencing any Indebtedness) to which the obligee is a
party or by which it or any of its business is subject or property or assets is
bound.
Control (including the terms "controlled," "controlled by" and "under
common control with") means the possession, directly or indirectly or as trustee
or executor, of the power to direct or cause the direction of the management or
policies of a Person, or the disposition of such Person's assets or properties,
whether through the ownership of stock, equity or other ownership, by contract,
arrangement or understanding, or as trustee or executor, by contract or credit
arrangement or otherwise.
Convertible Securities means any evidences of indebtedness, shares of
capital stock (other than common stock) or other securities directly or
indirectly convertible into or exchangeable for Shares, whether or not the right
to convert or exchange thereunder is immediately exercisable or is conditioned
upon the passage of time, the occurrence or non-occurrence or existence or non-
existence of some other Event, or both.
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Date Data means any data, formula, algorithm, process, input or output,
that includes, calculates, or processes a date, day or time, a reference to a
date, day or time, or a representations of a date, day or time.
DBCL will have the meaning given to it in the Preamble.
Disclosure Letter shall mean a separate letter entitled Disclosure Letter
prepared by the Company and the Principal Stockholders.
Distribution means, with respect to the Company or any of its Subsidiaries:
(a) the declaration or payment of any dividend (except dividends payable in
common stock of the Company) on or in respect of any shares of any class of
capital stock of the Company or any shares of capital stock of any Subsidiary
owned by a Person other than the Company or a Subsidiary, (b) the purchase,
redemption or other retirement of any shares of any class of capital stock of
the Company or any shares of capital stock of any Subsidiary owned by a Person
other than the Company or a Subsidiary, and (c) any other distribution on or in
respect of any shares of any class of capital stock of the Company or any shares
of capital stock of any Subsidiary owned by a Person other than the Company or a
Subsidiary.
Effective Date means the effective date of the Registration Statement and
commencement of the Financing.
Effective Time will have the meaning given to it in Section 1.4.
Employment Arrangement means, with respect to any Person, any employment,
consulting, retainer, severance or similar contract, agreement, plan,
arrangement or policy (exclusive of any which is terminable within thirty (30)
days without liability, penalty or payment of any kind by such Person or any
Affiliate), or providing for severance, termination payments, insurance coverage
(including any self-insured arrangements), workers compensation, disability
benefits, life, health, medical dental or hospitalization benefits, supplemental
unemployment benefits, vacation or sick leave benefits, pension or retirement
benefits or for deferred compensation, profit-sharing, bonuses, stock options,
stock purchase or appreciation rights or other forms of incentive compensation
or post-retirement insurance, compensation or benefits, or any collective
bargaining or other labor agreement, whether or not any of the foregoing is
subject to the provisions of ERISA.
Encumber means to suffer, accept, agree to or permit the imposition of a
Lien.
Entity means any corporation, firm, unincorporated organization,
association, partnership, limited liability company, trust (inter vivos or
testamentary), estate of a deceased, insane or incompetent individual, business
trust, joint stock company, joint VIALOG or other organization, entity or
business, whether acting in an individual, fiduciary or other capacity, or any
Authority.
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Environmental Laws means any Law relating to or otherwise imposing
liability or standards of conduct concerning pollution or protection of the
environment or occupational health and safety, including without limitation Laws
relating to emissions, discharges, releases or threatened releases of Hazardous
Materials or other pollutants, contaminants, chemicals, noises, odors or
industrial, toxic or hazardous substances, materials or wastes, whether as
matter or energy, into the environment (including, without limitation, ambient
air, surface water, ground water, mining or reclamation or mined land, land
surface or subsurface strata) or otherwise relating to the manufacture,
processing, generation, distribution, use, treatment, storage, disposal,
cleanup, transport or handling of pollutants, contaminants, chemicals or
industrial, toxic or hazardous substances, materials or wastes. Environmental
Laws include the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 (42 U.S.C. Section 9601 et seq.), the Hazardous Material
-- ---
Transportation Act (49 U.S.C. Section 1801 et seq.), the Resource Conservation
-- ---
and Recovery Act of 1976 (42 U.S.C. Section 6901 et seq.), the Federal Water
-- ---
Pollution Control Act (33 U.S.C. Section 1251 et seq.), the Clean Air Act (42
-- ---
U.S.C. Section 7401 et seq.), the Toxic Substances Control Act (15 U.S.C.
-- ---
Section 2601 et seq.), the Occupational Safety and Health Act of 1970 (29 U.S.C.
-- ---
Section 651 et seq.), the Federal Insecticide, Fungicide, and Rodenticide Act (7
-- ---
U.S.C. Section 136 et seq.), and the Surface Mining Control and Reclamation Act
-- ---
of 1977 (30 U.S.C. Section 1201 et seq.), and any analogous future federal, or
-- ---
present or future state, local or foreign, Laws, and the rules and regulations
promulgated thereunder all as from time to time in effect, and any reference to
any statutory or regulatory provision will be deemed to be a reference to any
successor statutory or regulatory provision.
Environmental Permit means any Governmental Authorization required by or
pursuant to any Environmental Law.
Environmental Requirements means all applicable present and future
Governmental Authorizations, Private Authorizations or other requirements
(including without limitation those pertaining to reporting, licensing and
permitting) relating to or required by or pursuant to any Environmental Law,
including without limitation all requirements pertaining or relating to:
(a) the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of, or the remediation, emission,
discharge or release into the air, surface water, groundwater or land
of, Hazardous Materials;
(b) the protection of the health and safety of employees or the public;
(c) the reclamation or restoration of land; and
(d) the ownership or operation of underground storage tanks.
ERISA means the Employee Retirement Security Act of 1974, and the rules and
regulations thereunder, all as from time to time in effect, or any successor
law, rules or regulations, and any reference to any statutory or regulatory
provision will be deemed to be a reference to any successor statutory or
regulatory provision.
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ERISA Affiliate means any Person that is treated as a single employer with
the Company or any of its Subsidiaries under Sections 414(b), (c), (m) or (o) of
the Code or Section 4001(b)(1) of ERISA.
Event means the occurrence or existence of any act, action, activity,
circumstance, condition, event, fact, failure to act, omission, incident or
practice, or any set or combination of any of the foregoing.
Exchange Merger Consideration will have the meaning given to it in Section
2.1(a).
Expenses will have the meaning set forth in Section 8.5.
Financing means the sale of VIALOG securities or borrowings from financial
institutions necessary to raise the cash so as to enable VIALOG to pay the
Aggregate Merger Consideration.
Financing Closing Date means the date on which the Financing is closed.
Financing Document means the offering document furnished to potential
investors or financial institutions in connection with the Financing and any
securities of VIALOG issued to consummate the Financing.
Final Determination (a) means with respect to federal Taxes, a
"determination" as defined in Section 1313(a) of the Code or execution of an IRS
Form 870AD and, with respect to Taxes other than federal Taxes, any final
determination of liability in respect of a Tax which, under Applicable Law, is
not subject to further appeal, review or modification through proceedings or
otherwise, including without limitation the expiration of a statute of
limitations or a period for the filing of claims for refunds, amended returns or
appeals from adverse determinations; and (b) will include the payment of Tax by
the Company or whichever Party is responsible for payment of such Tax under
Applicable Law, with respect to any item disallowed or adjusted by a Taxing
Authority, provided that the other party is notified of such payment and the
party that is responsible for such Tax under this Agreement determines that no
action should be taken to recoup such payment from such Taxing Authority.
Financial Statements will have the meaning given to it in Section
3.2(a).
GAAP means generally accepted accounting principles as in effect from
time to time in the United States of America.
Governmental Authorizations means all approvals, concessions,
consents, franchises, licenses, permits, plans, registrations and other
authorizations of each applicable Authority.
Governmental Filings means all filings, including franchise and
similar Tax filings, and the payment of all fees, assessments, interest and
penalties associated with such filings, with each applicable Authority.
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Guaranty or Guaranteed means any agreement, undertaking or arrangement
by which the Company or any of its Subsidiaries, VIALOG or VIALOG Merger
Subsidiary, as the case may be, guarantees, endorses or otherwise becomes or is
liable, directly or indirectly, upon any Indebtedness of any other Person
including without limitation the payment of amounts drawn down by beneficiaries
of letters of credit (other than by endorsements of negotiable instruments for
deposit or collection in the ordinary course of business). The amount of the
obligor's obligation under any Guaranty will be deemed to be the outstanding
amount (or maximum permitted amount, if larger) of the Indebtedness directly or
indirectly guaranteed thereby (subject to any limitation set forth therein).
Hazardous Materials means any substance (in whatever state or matter):
(a) the presence of which requires investigation or remediation under any
Environmental Law; (b) that is defined as a "hazardous waste", "hazardous
material" or "hazardous substance" under any Environmental Law; (c) that is
toxic, explosive, corrosive, pollutive, contaminating, flammable, infectious,
radioactive, carcinogenic, mutagenic or otherwise hazardous and is regulated by
any Authority; (d) that contains or consists of petroleum or petroleum products,
or (e) that contains or consists of PCBs, asbestos, or urea formaldehyde foam
insulation.
Holding Company means a corporation established by or on behalf of
VIALOG into which VIALOG merges or assigns its rights and obligations hereunder
if the Accountants so advise for purpose of a tax free incorporation of all
parties provided the relative ownership rights of all parties remain the same.
HSR Act means the Hart-Scott-Rodino Antitrust Improvement Act of 1976,
and the rules and regulations thereunder, all as from time to time in effect, or
any successor law, rules or regulations, and any reference to any statutory or
regulatory provision will be deemed to be a reference to any successor statutory
or regulatory provision.
Indebtedness means, with respect to the Company or any of its
Subsidiaries or VIALOG or VIALOG Merger Subsidiary, as the case may be, (a) all
items, except items of capital stock or of surplus or of general contingency or
deferred tax reserves or any minority interest in any Subsidiary to the extent
such interest is treated as a liability with indeterminate term on the
consolidated balance sheet of the Company or VIALOG, which in accordance with
GAAP would be included in determining total liabilities as shown on the
liability side of a balance sheet of the Company or such Subsidiary or VIALOG or
VIALOG Merger Subsidiary, (b) all obligations secured by any Lien to which any
property or asset owned or held by the Company or any Subsidiary or VIALOG or
any VIALOG Merger Subsidiary is subject, whether or not the obligation secured
thereby will have been assumed, and (c) to the extent not otherwise included,
all Contractual Obligations of the Company or any Subsidiary or VIALOG or any
VIALOG Merger Subsidiary constituting capitalized leases and all obligations of
the Company or any Subsidiary or VIALOG or any VIALOG Merger Subsidiary with
respect to Leases constituting part of a sale and leaseback arrangement.
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Intangible Assets means all assets and property lacking physical
properties the evidence of ownership of which must customarily be maintained by
independent registration, documentation, certification, recordation or other
means.
Key Suppliers, Vendors and Customers means those suppliers, vendors,
including landlords and building managers, and customers of the Company and each
Subsidiary the business failure of which would with reasonable probability
result in an Adverse change in the Company's and each Subsidiary's business
condition (financial or otherwise), operations or properties.
Law means any (a) administrative, judicial, legislative or other
action, code, consent decree, constitution, decree, directive, enactment,
finding, guideline, law, injunction, interpretation, judgment, order, ordinance,
policy statement, proclamation, promulgation, regulation, requirement, rule,
rule of law, rule of public policy, settlement agreement, statute, or writ of
any Authority, domestic of foreign; (b) the common law, or other legal or quasi-
legal precedent; or (c) arbitrator's, mediator's or referee's award, decision,
finding or recommendation; including, in each such case or instance, any
interpretation, directive, guideline or request, whether or not having the force
of law including, in all cases, without limitation any particular section, part
or provision thereof.
Lease means any lease of property, whether real, personal or mixed,
and all amendments thereto.
Legal Action means any litigation or legal or other actions,
arbitrations, counterclaims, investigations, proceedings, requests for material
information by or pursuant to the order of any Authority, or suits, at law or in
arbitration, equity or admiralty commenced by any Person, whether or not
purported to be brought on behalf of a party hereto affecting such party or any
of such party's business, property or assets.
Lien means any of the following: mortgage, lien (statutory or other);
preference, priority or other security agreement, arrangement or interest;
hypothecation, pledge or other deposit arrangement; assignment; charge; levy;
executory seizure; attachment; garnishment; encumbrance (including any easement,
exception, variance, reservation or limitation, right of way, zoning
restriction, building to use restriction, and the like); conditional sale, title
retention or other similar agreement, arrangement, device or restriction;
preemptive or similar right; any financing lease involving substantially the
same economic effect as any of the foregoing; the filing of any financing
statement under the Uniform Commercial Code or comparable law of any
jurisdiction; restriction on sale, transfer, assignment, disposition or other
alienation; or any option, equity, claim or right of or obligation to, any other
Person, of whatever kind and character.
Margin Rules means Regulations G, T, U or X of the Board of Governors
of the Federal Reserve System, 12 C.F.R., parts 207, 220, 221 and 224, as now in
effect.
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Material or Materiality for the purposes of this Agreement, will,
unless specifically stated to the contrary, be determined without regard to the
fact that various provisions of this Agreement set forth specific dollar
amounts.
Material Agreement or Material Commitment means, with respect to the
Company or any of its Subsidiaries, or VIALOG or VIALOG Merger Subsidiary any
Contractual Obligation which (a) was not entered into in the ordinary course of
business, (b) was entered into in the ordinary course of business which (i)
involves the purchase, sale or lease of goods or materials or performance of
services aggregating more than Twenty-Five Thousand Dollars ($25,000), (ii)
extends for more than three (3) months, or (iii) is not terminable on thirty
(30) days or less notice without penalty or other payment, (c) involves
Indebtedness for money borrowed in excess of One Hundred Thousand Dollars
($100,000), (d) is or otherwise constitutes a written agency, dealer, license,
distributorship, sales representative or similar written agreement, or (e) would
account for more than five percent (5%) of purchases or sales made by the
Company and its Subsidiaries for the year ended December 31, 1997.
Merger will have the meaning given to it in the Preamble.
Merger Closing will have the meaning given to it in Section 1.3.
Merger Closing Date means the date on which the Merger is closed.
Merger Consideration will have the meaning given to it in Section
2.1(a).
Multiemployer Plan means a "multiemployer plan" within the meaning of
Section 4001(a)3 of ERISA.
Net Shares will have the meaning given to it in Section 2.2(a).
Option Securities means all rights, options and warrants, all calls or
commitments evidencing the right, to subscribe for, purchase or otherwise
acquire Shares or Convertible Securities, whether or not the right to subscribe
for, purchase or otherwise acquire is immediately exercisable or is conditioned
upon the passage of time, the occurrence or non-occurrence or the existence or
non-existence of some other Event.
Organizational Documents means, with respect to a Person which is a
corporation, its charter, its by-laws, and all stockholder agreements, voting
trusts and similar arrangements applicable to any of its capital stock, and,
with respect to a Person which is a partnership, its agreement and certificate
of partnership, any agreement among partners, and any management and similar
agreements between the partnership and any general partners (or any Affiliate
thereof).
Other Participating Companies mean those companies or entities engaged
in the teleconferencing business who execute agreements and plans of
reorganization, stock purchase
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agreements or asset purchase agreements with VIALOG which agreements close
contemporaneously with this Agreement.
Other Transaction means a transaction or series of related
transactions (other than the Merger) resulting in (a) any change in control of
the Company, (b) any merger or consolidation of the Company or any of its
Subsidiaries, regardless of whether the Company or such Subsidiary is the
surviving Entity, (c) any tender offer or exchange offer for, or any acquisition
of, any securities of the Company, or (d) any sale or other disposition of
assets of the Company or any Subsidiary not otherwise permitted under Section
3.18.
Participating Companies will mean the Company and the Other
Participating Companies.
Participating Mergers means the mergers of each of the Other
Participating Companies with a Subsidiary of VIALOG pursuant to a Participating
Agreement.
Party means any natural individual or any Entity that has executed
this Agreement.
PBGC means the Pension Benefit Guaranty Corporation and any Entity
succeeding to any or all of its functions under ERISA.
Person means any natural individual or any Entity.
Plan means any "employee benefit plan" as defined in Section 3(3) of
ERISA (whether or not terminated) which is (or was in the case of a frozen or
terminated plan) maintained by the Company or any Subsidiary or VIALOG or VIALOG
Merger Subsidiary, and with respect to which the Company, such Subsidiary or
VIALOG or VIALOG Merger Subsidiary or, in the case of any such plan subject to
Title IV of ERISA, an ERISA Affiliate is (or, if such plan were terminated at
such time, would under Section 4069 of ERISA be deemed to be) an "employer" as
defined in Section 3(5) of ERISA, other than a Multiemployer Plan.
Principal Stockholders will have the meaning given to it in the
Preamble.
Private Authorizations means all approvals, concessions, consents,
franchises, licenses, permits, and other authorizations of all Persons (other
than each Authority) including without limitation those with respect to patents,
trademarks, service marks, trade names, copyrights, computer software programs,
technology and know-how.
Representatives of a Party means the officers, directors, employees,
accountants, counsel, financial advisors, consultants and other representatives
of such Party.
SEC means the Securities and Exchange Commission of the United States
or any successor Authority.
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Securities Act means the Securities Act of 1933, and the rules and
regulations of the Commission thereunder, all as from time to time in effect, or
any successor law, rules or regulations.
Shares will have the meaning given to it in Section 2.1(a).
Software means all software computer programs, codes, applications and
interfaces used by the Company and each Subsidiary in their business or
operations, including software licensed from third parties or custom computer
programming developed internally or by a third party for the Company or a
Subsidiary.
Special Meeting will have the meaning given to it in Section 1.2(a).
Stockholders means the Principal Stockholders and all other Persons
entitled to Merger Consideration (or who would be entitled thereto but for their
dissent from the Merger) pursuant to Sections 2.1(a) or (to the extent Persons
holding Option Securities or Convertible Securities exercise their rights to
acquire Shares prior to the Effective Time, from and after the time they acquire
such Shares) Section 2.4.
Subsidiary means, with respect to a Person, any Entity a majority of
the capital stock ordinarily entitled to vote for the election of directors of
which, or if no such voting stock is outstanding, a majority of the equity
interests of which, is owned directly or indirectly, legally or beneficially, by
such Person or any other Person controlled by such Person.
Surviving Corporation will have the meaning given to it in Section
1.1.
Systems means Software, Hardware, and other related technology
systems, equipment or operations used by the Company and each of its
Subsidiaries.
Tax (and "Taxable", which means subject to Tax), means with respect to
the Company or any of its Subsidiaries or VIALOG or any VIALOG Merger
Subsidiary, (a) all taxes (domestic or foreign), including without limitation
any income (net, gross or other including recapture of any tax items such as
investment tax credits), alternative or add-on minimum tax, gross income, gross
receipts, gains, sales, use, leasing, lease, user, ad valorem, transfer,
recording, franchise, profits, property (real or personal, tangible or
intangible), fuel, license, withholding on amounts paid to or by the Company or
any of its Subsidiaries, or VIALOG or any VIALOG Merger Subsidiary, payroll,
employment, unemployment, social security, excise severance, stamp, occupation,
premium, environmental or windfall profit tax, custom, duty or other tax,
governmental fee or other like assessment or charge of any kind whatsoever,
together with any interest, levies, assessments, charges, penalties, addition to
tax or additional amount imposed by any Taxing Authority, (b) any joint or
several liability of the Company or any of its Subsidiaries or VIALOG or any
VIALOG Merger Subsidiary with any other Person for the payment of any amounts of
the type described in (a), and (c) any liability of the Company or any of its
Subsidiaries or VIALOG or any VIALOG Merger Subsidiary for the payment of any
amounts of the type described in (a) as a result of any express or implied
obligation to indemnify any other Person.
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Tax Claim means any Claim which relates to Taxes, including without
limitation the representations and warranties set forth in Section 3.11.
Tax Return or Returns means all returns, consolidated or otherwise
(including without limitation information returns), required to be filed with
any Authority with respect to Taxes.
Taxing Authority means any Authority responsible for the imposition of
any Tax.
Termination Date means (a) February 28, 1999, unless the SEC has not
issued an order declaring the Registration Statement effective in which event
the Termination Date will be March 31, 1999 or (b) such date after March 31,
1999 as to which the parties mutually agree in writing.
Transactions means the other transactions contemplated by this
Agreement or the Merger or by any Collateral Document executed or required to be
executed in connection herewith or therewith, but will not include the
Participating Mergers, the sale of VIALOG securities pursuant to the Financing
Document or any credit facilities between VIALOG and any bank described in the
Financing Document.
Transmittal Documents will have the meaning given to it in Section
2.2(b).
Underwriter means any underwriter placement agent, sales agent or
other entity by whatever name known, who assists VIALOG either as agent or for
its own account in selling VIALOG's securities pursuant to the Financing
Document.
Underwriting Agreement means the agreement between VIALOG and the
Underwriter.
VIALOG will have the meaning given to it in the Preamble.
VIALOG Indemnified Parties will have the meaning given to it in
Section 10.1(a).
VIALOG Merger Subsidiary will have the meaning given to it in the
Preamble.
VIALOG Stock will have the meaning given to it in the Preamble.
Year 2000 Compliant means the ability of all Systems to provide the
following functions, without human intervention, individually and in combination
with other products or systems: (i) consistently, correctly and accurately
handle, record, store, interpret, process, calculate, and present dates and Date
Data before, during and after January 1, 2000, in whatever form, including, but
not limited to, accepting date output; (ii) experience no loss of functional
ability and function accurately in accordance with the published specifications
and without interruption, when processing any Date Data before, during and after
January 1, 2000 (including leap year computations) without any adverse change in
operation associated with the advent of the year 2000; (iii) respond to two-
digit or four-digit dates and Date Data in a way that resolves any
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ambiguity as to the year 2000 in a disclosed, defined and predetermined manner,
and store and provide output of dates and Date Data in ways that are ambiguous
as to the year 2000; and (v) suitably interact and communicate with other
software, related hardware and other systems in a way which does not compromise
its year 2000 compliance capability and resolves any ambiguities as to century
in a properly defined manner.
[THIS SPACE IS INTENTIONALLY LEFT BLANK.]
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IN WITNESS WHEREOF, VIALOG, VIALOG Merger Subsidiary, the Company and
the Principal Stockholders have caused this Agreement to be executed as of the
date first written above by their respective officers thereunto duly authorized.
Vialog Corporation
BY: /s/ Glenn D. Bolduc
-------------------------
Name: Glenn D. Bolduc
Title: President
BETTER ACQUISITION CORPORATION
BY: /s/ Glenn D. Bolduc
-------------------------
Name: Glenn D. Bolduc
Title: President
A Better Conference, Inc.
BY: /s/ Patricia A. Cranford
-------------------------
Name:Patricia A. Cranford
Title:President
Principal Stockholders:
/s/ Patricia A. Cranford
----------------------------
Name: Patricia A. Cranford
/s/ Otis Cranford
----------------------------
Name: Otis Cranford
/s/ Matthew Cranford
----------------------------
Name: Matthew Cranford
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THE FOLLOWING IS AN INDEX OF INFORMATION PROVIDED IN THE DISCLOSURE SCHEDULES
AND EXHIBITS OF THE AGREEMENT AND PLAN OF REORGANIZATION BY AND AMONG VIALOG
CORPORATION AND A BETTER CONFERENCE, INC. FURTHER INFORMATION WILL BE FURNISHED
UPON REQUEST.
<TABLE>
<CAPTION>
<S> <C>
Schedule 2.4 Options
Schedule 3.1(a) Jurisdictions
Schedule 3.1(c) Conflicts, Breaches, Defaults and Resulting Liens, Authorizations
Schedule 3.1(d) Subsidiaries, Jurisdictions and Ownership
Schedule 3.2(a) Financial Statements
Schedule 3.2(c) Other Equity Ownership
Schedule 3.3 Adverse Change
Schedule 3.4 Other Company or Subsidiary Liabilities
Schedule 3.5(a) Liens; Financing Statements; Leasehold Interests
Schedule 3.5(b) Description of Owned and Leased Property
Schedule 3.5(c) Compliance with Certain Laws
Schedule 3.6 Private Authorizations
Schedule 3.7(a) Litigation, Permits and Licenses
Schedule 3.7(b) Violations of Certain Governmental Authorizations/Laws
Schedule 3.8(a) Exceptions to Title to Intangible Assets
Schedule 3.8(b) Description of Tangible Assets
Schedule 3.9 Related Transactions
Schedule 3.10(a) Insurance
Schedule 3.11(a) Tax Matters
Schedule 3.11(d) Tax Audits
Schedule 3.11(e) Tax Sharing Agreements
Schedule 3.11(f) Consent Under Code Section 341(f)
Schedule 3.12(a) Employee Plans and Benefits
Schedule 3.12(c) Past Service Liabilities
Schedule 3.15(a) Capitalization
Schedule 3.15(b) Stockholders and Liens on Stock
Schedule 3.16(a) Employment Arrangements
</TABLE>
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<TABLE>
<S> <C>
Schedule 3.16(b) Certain Employment Arrangement Payments
Schedule 3.16(c) Employee Relations; Work Stoppages
Schedule 3.17(a) Material Agreements
Schedule 3.17(b) Margins Under Certain Material Agreements
Schedule 3.18(a) Exceptions to Ordinary Course
Schedule 3.18(b) Distributions
Schedule 3.19 Bank Accounts
Schedule 3.20 Adverse Restrictions
Schedule 3.22 Personal Injury/Property Claims
Schedule 3.23(a) Environmental Compliance
Schedule 3.23(b) Spills and Releases
Schedule 3.23(c) Storage Tanks
Schedule 3.23(e) Use of Hazardous Materials
Schedule 3.23(f) Generated Hazardous Materials
Schedule 3.23(g) Site Assessments
Schedule 3.29 Information for Financing
Schedule 3.30 Predecessor Companies; Certain Transactions
Schedule 3.31 Systems
Schedule 3.32 Year 2000 Compliance
Schedule 4.4 Title to Shares
Schedule 4.5 No Conflict; Required Filings and Consents
Schedule 6.5(b) Conduct of Business Between Signing and Closing
Schedule 6.17 Distributions and Liens to be Made or Released
Schedule 7.2(q) Related Transactions to Survive Closing
Exhibit 1.6 Certificate of Incorporation of Surviving Corporation
Exhibit 1.7 Bylaws of Surviving Corporation
Exhibit 2.4 Optionee Names/Option Terms
Exhibit 6.2(c) Employee Non-Compete
Exhibit 7.2(b) Seller's Opinion
Exhibit 7.2(d) Non Comp Agreement (Otis Cranford to Sign)
Exhibit 7.2(n) Release by Shareholder
Exhibit 7.2(s) Patricia A. Cranford Employment Agreement
Exhibit 7.2(t) Employment Agreement (Matthew Cranford)
Exhibit 7.3(b) MODL Opinion
</TABLE>
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EXHIBIT 10.35
LEASE AGREEMENT
---------------
THIS LEASE AGREEMENT ("Lease") made as of the 14th day of October , 1998,
by and between Executive Park, T.I.C. ("Landlord") and VIALOG Corporation, a
Corporation ("Tenant").
W I T N E S S E T H:
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THAT, FOR AND IN CONSIDERATION of the mutual covenants and agreements
herein contained, Landlord and Tenant do hereby covenant and agree as follows:
ARTICLE I
DEFINITIONS AND ATTACHMENTS
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SECTION 1.1. CERTAIN DEFINED TERMS.
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As used herein, the term:
A. "LAND" means that certain parcel of land owned or controlled by
Landlord situated in the City of Montgomery, County of Montgomery, State of
Alabama, known generally as 2388, 2368 and 2863 Fairlane Drive, on which
the Building and Common Areas are located.
B. "BUILDING" means the structure or structures constructed on the
Land, as the same may be altered, reduced, expanded or replaced from time
to time.
C. "PREMISES" means Tenant's portion of the Building, having a
Rentable Area of approximately 7865 square feet - 2388 Fairlane Drive, 7831
square feet - 2368 Fairlane Drive and 7870 square feet - 2863 Fairlane
Drive and is depicted and identified on the floor plan attached as Exhibit
"A".
D. "COMMON AREAS" or "COMMON AREA" means and includes all areas and
facilities which may be furnished by Landlord in or near the Building or on
the Land for the non-exclusive general common use of tenants of the
Building, their officers, agents, employees or customers including, without
limitation, all parking areas, private access roads, employee parking
areas, delivery areas, driveways, delivery passages, sidewalks, ramps,
landscaped and planted areas, retaining walls, stairways, elevator lobbies,
corridors, restrooms, mechanical rooms, electrical rooms, and telephone
closets, and other similar areas, facilities or improvements, as said
Common Areas may exist from time to time.
E. "RENTABLE AREA" means (a) as to each floor of the Building on
which the entire space rentable to tenants is or will be leased to one
tenant (hereinafter referred to as "Single Tenant Floor"), the entire floor
area
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computed by measuring to the inside finished surface of the Dominant
Portion (as hereinafter defined) of the permanent outer Building walls on
such floor, including all areas, herein constituting a portion of the
Common Areas, such as those used for elevator lobbies, corridors,
restrooms, mechanical rooms, electrical rooms, and telephone closets
without deductions for columns or other structural portions of the Building
or vertical penetrations that are included for the special use of Tenant
but excluding the area contained within the exterior walls of the Building
such as stairways, fire stair towers, vertical ducts, elevator shafts,
flues, vents, stacks, and pipe shafts; and (b) as to each floor of the
Building on which space is or will be leased to more than one tenant
(hereinafter referred to as "Multi-Tenant Floor"), the Rentable Area shall
be the total of (i) entire floor area included within the leased premises,
being the floor area bounded by the inside surface of the Dominant Portion
(as hereinafter defined) of the permanent outer Building walls or if the
leased premises are not bounded on all sides by exterior walls, then such
floor of the Building bounding such premises, as depicted on Exhibit "A";
the finished surface of the exterior of all interior walls separating such
premises from any public corridors, other public or common areas, or
building core on such floor; and the center-line of all walls separating
such Premises from other area leased, or to be leased, to other tenants on
such floor; and (ii) a pro rata portion of the Common Area of such Multi-
Tenant floor. (For purposes of this Lease, the "Dominant Portion" shall
mean that portion of the inside finished surface of the permanent out wall
of the Building which is fifty percent (50%) or more of the vertical floor
to ceiling dimension.) The floor area computation described herein
complies with A.N.S.I.Z65.1-1980 (revision of A.N.S.I.Z65.1-1972) approved
July 31, 1980 by the American National Standards Institute, Inc.
F. "TERM" means a period of five (5) Rental Years, as further defined
in Section 3.1.
(i) "COMMENCEMENT DATE" means as to 2388 Fairlane Drive - January
1, 1999, as to 2368 Fairlane Drive - January 1, 1999 and as to 2863
Fairlane Drive - March 15, 1999.
(ii) "TERMINATION DATE" means 11:59 p.m. on the 31st day of
December, 2004.
G. "PERMITTED USE" means use for general business office and not for
any other use or purpose. Any variation or deviation from the Permitted
Use expressly set forth herein shall be deemed an Event of Default of this
Lease.
H. "BASE RENTAL" means an annual base rental for each Rental Year
(subject to adjustment as provided in Section 5.1.) as follows:
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(i) Rental Years 1 thru 5, Two Hundred Eighty Eight Thousand Six
Hundred Eighty Four and NO/100 Dollars ($288,684.00).
I. "BASE RENTAL ADJUSTMENT" means the adjustment to Base Rental as
provided in Section 5.4.
J. "BASE YEAR" means the calendar year immediately preceding the
calendar year in which this Lease is executed.
K. "ADVANCE RENTAL" means the sum of N/A, See Section 5.6.
L. "OPERATING EXPENSES" means all expenses and costs (but not
specified costs that are separately billed to and paid by specific tenants)
of every kind and nature that Landlord shall pay or become obligated to pay
because of or in connection with the operation of the Building and the
Land, including the Common Areas, and all facilities used in the operation
of the Building and the Land, including the Common Areas, and such
additional facilities now and in the future as may be determined by
Landlord to be necessary to the Building and the Land, including the Common
Areas, including, but not limited to, the following:
(a) Wages and salaries of all employees engaged in the daily operation and
maintenance of the Building, employer's social security taxes,
unemployment taxes or insurance, and any other taxes that may be
levied on such wages and salaries, the cost of disability and
hospitalization insurance, pension or retirement benefits, and any
other fringe benefits for such employees;
(b) All supplies and materials used in the operation and maintenance of
the Building;
(c) Cost of all utilities, including telephone, cable television (if
provided by Landlord), water, sewer, steam, electricity, gas and fuel
oil used by the Building and not charged directly to another tenant,
and other utilities that may be available from time to time;
(d) Cost of customary Building management to be capped at five (5%),
janitorial services, clerical, accounting and legal services (other
than services attributable solely to a particular tenant), trash and
garbage removal, servicing and maintenance of all systems and
equipment including, but not limited to, elevators, plumbing, heating,
air conditioning, ventilating, lighting, electrical, security and fire
alarms, fire pumps, fire
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extinguishers and hose cabinets, mail chutes, guard service, painting,
window cleaning, mowing, landscaping and gardening;
(e) Cost of all insurance, including but not limited to fire, casualty,
liability and rental abatement insurance applicable to the Building,
the Land and Landlord's personal property used in connection
therewith;
(f) Cost of repairs, replacements and general maintenance (excluding
repairs and general maintenance paid by proceeds of insurance or by
Tenant or other third parties and not reimbursed by Landlord, and
alterations attributable solely to tenants of the Building other than
Tenant);
(g) Any and all maintenance costs related to the Building and the Land,
including but not limited to Common Areas and public areas of the
Building;
(h) Amortization of capital improvements made to the Building subsequent
to the Commencement Date of this Lease that are intended to improve
the operating efficiency or security of the Building or that may
required by a regulatory body having jurisdiction; and
(i) All "Taxes", which shall mean all impositions, taxes, assessments
(special or otherwise), water and sewer charges and rents, and other
governmental liens or charges of any and every kind, nature and sort
whatsoever (except only those taxes of the following categories: any
inheritance, estate, succession, transfer or gift taxes imposed upon
Landlord, or any income taxes specifically payable by Landlord without
regard to Landlord's income source as arising out of or from the
Building and/or the Land) attributable in any manner to the Building,
the land on which the Building is located, or the rents (however the
term may be defined) receivable therefrom or any part thereof, or any
facility located therein or thereon or used in conjunction therewith
or any charge or other payment required to be paid to any governmental
authority, whether or not any of the foregoing shall be designated
"real estate tax", "rental tax", "excise tax", "business tax" or
designated in any other manner.
Notwithstanding the foregoing, Operating Expenses shall not include any
costs of:
(i) painting, repainting, decoration and redecoration for any
occupants in the Building;
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(ii) except as specified in (h) above, any repair or replacement items
or items of equipment (whether moveable or stationary) which are, or by
GAAP or other sound accounting practices should be, capitalized on the
books of Landlord;
(iii) any charges for interest and principal payments on any
indebtedness, or other financing charges or rents paid or incurred by
Landlord, or any penalty, late charge or other amount assessed as a result
of Landlord's failure to pay timely any property taxes, insurance premiums
or other obligations.
(iv) any real estate commissions and/or finders fees; and
(v) any amounts of Operating Expenses reimbursed by other Tenants in
the Building.
Operating Expenses for any calendar year shall be computed on an
accrual basis and shall be determined in accordance with generally accepted
accounting principles, which shall be consistently applied.
Notwithstanding any other provision herein to the contrary, it is agreed
that in the event the Building is not fully occupied during any partial
year or any full calendar year, the Operating Expenses for such period
shall be the amount reasonably estimated by Landlord that the Operating
Expenses would have been had the Building been fully occupied.
M. "OPERATING EXPENSES BASE" means Tenant's prorata share of
Operating Expenses over the Base Year; which amount shall be adjusted
proportionately in the event that the Operating Payment calculation does
not include Operating Expenses for a full calendar year.
N. "OPERATING PAYMENT" means the payment to be made by Tenant
pursuant to Section 10.3.
O. "DEFAULT RATE" means any annual rate of interest equal to the
lesser of (i) the maximum rate of interest for which Tenant may lawfully
contract in the State in which the Building is situated, or (ii) eighteen
(18%) percent per annum.
P. "TENANT'S PROPORTIONATE SHARE" means the fraction which has the
number of square feet of the Rentable Area of the Premises as the numerator
and the number of square feet of Rentable Area of the Building as the
denominator.
Q. "FISCAL YEAR" means a twelve (12) month period beginning and
ending on dates as designated by Landlord from time to time. The Landlord
reserves the right to change the Fiscal Year at any time during the Term of
this Lease, in which event any and all payments of Additional Rent which
are based upon said Fiscal Year shall be adjusted and prorated accordingly
and paid by Tenant.
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R. GUARANTOR: N/A
S. GUARANTOR'S ADDRESS: N/A
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Section 1.2. ADDITIONAL DEFINED TERMS.
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The following additional terms are defined in the places in this Lease
noted below:
Term Section
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"Additional Rental" 5.1
"Casualty" 12.1
"Event of Default" 15.1
"Mortgage" 16.1
"Mortgagee" 16.1
"Base Rental" 5.2
"Rental Year" 5.3
"Landlord's Work" 7.1
SECTION 1.3. ATTACHMENTS.
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The following documents are attached hereto, and such documents, as well as
all drawings and documents prepared pursuant thereto, shall be deemed to be a
part hereof:
Exhibit "A" - Floor Plan
Exhibit "B" - Description of Landlord's Work and Tenant's Work
Exhibit "C" - Sign Criteria
Exhibit "D" - Guaranty of Lease
Exhibit "E" - Rules and Regulations
ARTICLE II
PREMISES
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SECTION 2.1. DEMISE.
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Landlord hereby leases and demises to Tenant, and Tenant hereby rents and
leases from Landlord, the Premises having approximately the Rentable Area as set
forth in Section 1.1.C. hereof.
SECTION 2.2. QUIET ENJOYMENT
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Landlord covenants that Landlord is the fee owner of the Premises, has full
right, power and authority to make this Lease, and that Tenant shall peaceably
and quietly have, hold and enjoy the Premises during the Lease Term, provided
Tenant complies with its obligations herein contained. To the best of Landlord's
knowledge, the Premises complies with zoning ordinances in Montgomery, Alabama.
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ARTICLE III
TERM
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SECTION 3.1. TERM.
----
The Term of this Lease shall commence on the earlier to occur of (a) the
Commencement Date, or (b) the date Tenant commences business operations from the
Premises, and shall be for the number of Rental Years set forth in Section
1.1.F. Landlord and Tenant agree, upon demand of the other, to execute a
declaration, in recordable form, expressing the Commencement and Termination
Dates of the Term if the Commencement Date has not been determined.
SECTION 3.2. TERMINATION.
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This Lease shall terminate on the Termination Date or at the end of any
extension or renewal thereof, in the event the Term of this Lease is extended
pursuant to any option granted to Tenant hereunder, without the necessity of any
notice from either Landlord or Tenant to terminate the same, and Tenant hereby
waives notice to vacate or quit the Premises and agrees that Landlord shall be
entitled to the benefit of all provisions of law respecting the summary recovery
of possession of the Premises from a Tenant holding over to the same extent as
if statutory notice had been given. Tenant hereby agrees that if it fails to
surrender the Premises at the end of Term, or any renewal thereof, in the event
the Term of this Lease is renewed pursuant to any option granted to Tenant
hereunder, Tenant will be liable to Landlord for any and all damages which
Landlord shall suffer by reason thereof, and Tenant shall indemnify Landlord
against all claims and demands made by any succeeding tenants against Landlord,
founded upon delay by Landlord in delivering possession of the Premises to such
succeeding tenant, as the result of Tenant's failure to surrender the Premises
as aforesaid.
For the period of six (6) months prior to the expiration of the Term, or
any renewal or extension thereof, Landlord shall have the right to show the
Premises and all parts thereof to prospective tenants both during and after
normal business hours. Landlord, where practicable, shall provide reasonable
prior oral notice to Tenant at the Premises for the purpose of showing the
Premises in connection with this Section.
SECTION 3.3. HOLDING OVER.
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If Tenant shall be in possession of the Premises after the Termination
Date, in the absence of any written agreement extending the Term hereof, then
and in such event, the Landlord and Tenant agree in addition to and not in
limitation of Tenant's liability for Landlord's damages sustained as a result of
the holdover (as provided in Section 3.2.), the tenancy under this Lease shall
become one from month-to-month, terminable by either party on thirty (30) days
prior written notice, at a monthly rental equal to twice the sum of the monthly
installment of Base Rental payable during the last month of the Term. Tenant
shall also pay all other charges payable under the terms of the Lease, prorated
for each month during which Tenant remains in possession. Such month-to-month
tenancy shall also be subject to all other conditions, provisions and
obligations of this Lease, except that during the period of any such holding
over, Tenant shall not have the right to exercise any options conferred upon
Tenant under this Lease. Tenant shall not interpose any
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counterclaim or counterclaims in a summary proceeding or other action based on
holdover. Landlord's acceptance of any rental after the Termination Date shall
not constitute a waiver by Landlord of any of its rights under this Lease and
shall not constitute an acknowledgement or agreement by Landlord that the Term
of this Lease has been extended.
ARTICLE IV
USE
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The Tenant recognizes that as a material inducement for Landlord to enter
into this Lease, it is Landlord's understanding that Tenant's use of the
Premises will be for the Permitted Use and will compliment Landlord's leasing
program and general appearance of the Building. Therefore, Tenant agrees
(without which agreement Landlord would not be willing to enter into this Lease)
that Tenant shall occupy the Premises upon commencement of the Term and,
thereafter, will use the Premises during the Term for the Permitted Use and for
no other purpose or use whatsoever.
ARTICLE V
RENTAL
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SECTION 5.1. RENTALS PAYABLE.
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Tenant covenants and agrees to pay to Landlord as rental ("Rental") for the
Premises, the following:
(a) the Base Rental specified in Section 1.1.H.; plus
(b) all other sums, charges and amounts of whatever nature to be
paid by Tenant to Landlord in accordance with the provisions of this Lease
(herein collectively referred to as "Additional Rental");
provided, however, that the Base Rental shall be adjusted proportionately for
any Rental Year of more or less than twelve (12) calendar months (prorated on a
per diem basis for any period of less than a full calendar month).
SECTION 5.2. BASE RENTAL.
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Base Rental shall be due and payable without prior demand, deduction or
offset in equal monthly installments in advance on the first day of each full
calendar month during the Term. If the Term does not commence on the first day
of a calendar month, then any prorated Base Rental for the period from the date
of the commencement of the Term to the first day of the first full calendar
month in the Term shall be paid within seven (7) days after the Term commences.
SECTION 5.3. "RENTAL YEAR" DEFINED.
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"Rental Year" shall consist of successive periods of twelve (12) calendar
months. The first Rental Year shall commence on the Commencement Date and shall
end at the close of the twelfth (12th) full calendar month following the
Commencement Date. Any
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portion of the Term remaining at the end of the last full Rental Year shall
constitute the final Rental Year and all Rental shall be apportioned therefor.
SECTION 5.4. "BASE RENTAL ADJUSTMENT". [INTENTIONALLY OMITTED].
------------------------
SECTION 5.5. PAYMENT OF RENTAL.
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Tenant shall pay all Rental when due and payable without any setoff,
deduction or prior demand therefor whatsoever. If Tenant shall fail to pay any
Rental within seven (7) days after the same is due, in addition to interest
thereon until paid at the Default Rate, Tenant shall be obligated to pay a late
payment charge equal to the greater of One Hundred and No/100 ($100.00) Dollars
or ten (10%) percent of any Rental payment not paid when due to reimburse
Landlord for its additional administrative costs. In addition, any Rental which
is not paid within seven (7) days after the same is due shall bear interest at
the Default Rate from the first day due until paid. Any Additional Rental which
shall become due shall be payable, unless otherwise provided herein, with the
next installment of Base Rental. Rental and statements required of Tenant shall
be paid and delivered to Landlord at the address of Landlord as set forth herein
between the hours of 9:00 a.m. and 5:00 p.m. Monday through Friday or at such
other place and reasonable time as Landlord may, from time to time, designate in
a notice to Tenant. Any payment by Tenant or acceptance by Landlord of a lesser
amount than shall be due from Tenant to Landlord shall be treated as a payment
on account and shall not be treated as an accord and satisfaction. The
acceptance by Landlord of a check for a lesser amount with an endorsement or
statement thereon or upon any letter accompanying such check that such lesser
amount is payment in full shall be given no effect, and Landlord may accept such
check without prejudice to any other rights or remedies which Landlord may then
or thereafter have against Tenant.
SECTION 5.6. ADVANCE RENTAL.
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Landlord acknowledges receipt from Tenant of an amount equal to the Advance
Rental as set forth in Section 1.1.K., the same to be held on deposit as
security for the performance by Tenant of all obligations imposed under this
Lease which Tenant is required to perform prior to the commencement of the Term.
If Tenant shall fail to perform such obligations, Landlord shall be entitled to
apply the Advance Rental, pro tanto, against any damages which it may sustain by
reason of Tenant's failure to perform such obligations, but such application
shall not preclude Landlord from recovering greater damages if the same can be
established. Otherwise, if Tenant shall faithfully perform all such
obligations, then the Advance Rental shall be applied, pro tanto, by Landlord
against the Rental first becoming due hereunder.
No right or remedy available to Landlord as provided in this Section 5.6.
shall preclude or extinguish any other right or remedy to which Landlord may now
or hereafter be entitled under this Lease or at law or in equity.
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ARTICLE VI
TAXES
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SECTION 6.1. TENANT'S TAXES.
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Tenant shall pay to the appropriate agency or governmental authority any
and all sales, excise, rental and other taxes levied, imposed or assessed by the
state in which the Building is situated, or any political subdivision thereof,
or other taxing authority upon any Rental payable hereunder. Tenant shall also
be solely responsible for, and shall pay within the time provided by law, all
taxes imposed on its inventory, furniture, trade fixtures, apparatus, leasehold
improvements (installed by or on behalf of Tenant), equipment and any other of
Tenant's personal or other property.
ARTICLE VII
IMPROVEMENTS
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SECTION 7.1. WORK TO PREMISES.
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7.1(a) Tenant's Work: Tenant shall be in charge of demolishing the existing
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tenant improvements within the Premises and finishing out the Premises to
Tenant's specifications ("Tenant's Work") subject to the provisions hereof.
Except for the Improvement Allowance (as defined in Paragraph 7.1(b) below),
Tenant shall complete Tenant's Work at its own expense. Landlord shall provide
Tenant with reasonable access to the Building to the extent required by Tenant
in order to perform Tenant's Work.
7.1(b) Improvement Allowance: Landlord shall provide Tenant with an allowance
----------------------
toward the construction of Tenant's Work in the amount of Six and No/100 Dollars
($6.00) per rentable square foot of the Premises ("Improvement Allowance"),
according to the schedule and procedure set forth on Exhibit "B" attached hereto
and made a part hereof.
7.1(c) Design: Tenant shall, prior to commencement of Tenant's Work, submit
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plans and specifications for Tenant's Work to Landlord for its approval, which
shall not be unreasonably withheld, conditioned or delayed. Landlord shall have
a period of fifteen (15) days within which either to approve such plans and
specifications or to make reasonable comments and changes thereon. If Landlord
responds with comments as described above, Tenant shall revise the plans and
specifications taking into consideration Landlord's comments and resubmit them
to Landlord for approval within thirty (30) days from the date of receipt of
such comments. Landlord shall then have ten (10) days to approve such revised
plans and specifications.
7.1(d) Ownership: All alterations and improvements made to the Premises that
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are part of Tenant's Work or any additional improvements performed by Tenant
(excepting the furniture, trade fixtures and equipment installed by Tenant)
shall become Landlord's property at the end of the Term or upon early
termination of this Lease, and shall remain in and as a part of the Premises
without compensation to or from Tenant. All furniture, trade fixtures and
equipment installed by Tenant in the Premises shall be considered personal
property and shall remain the property of the Tenant, and may, at Tenant's
option, be removed by the Tenant at any time; provided, however, that if Tenant
elects to remove such property, Tenant at its own cost and expense shall repair
any damage to the Premises
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caused by such removal; and, provided further, that if Tenant elects not to
remove such property at the end of the Term or upon early termination of this
Lease, such property shall become Landlord's property and may remain in the
Premises without compensation to or from Tenant.
7.1(e) Quality of Tenant's Work, Liens: Tenant's Work, and all other
--------------------------------
alterations and improvements performed by Tenant shall be made in a good and
workmanlike manner and in compliance with all applicable laws and regulations of
any governmental agency having jurisdiction over the Premises and shall not
interfere with the operations of other tenants of the Building. Tenant shall
hold the Landlord and the Premises harmless against all claims and demands of
every kind and character which may result from or arise out of making such
alterations and improvements. Tenant will not cause or permit to stand any
mechanic's, laborer's, materialman's or other liens against the Premises or
improvements thereon in connection with the work of any character performed or
material furnished to the Premises by or at the direction or sufferance of
Tenant.
SECTION 7.2. EFFECT OF OPENING FOR BUSINESS.
------------------------------
By opening for business, Tenant shall be deemed to have: (a) accepted the
Premises, (b) acknowledged that the same are in condition called for hereunder,
and (c) agreed that the obligations of Landlord, if any, set forth in Exhibit
"B", or elsewhere imposed hereunder, have been fully performed.
SECTION 7.3. MECHANIC'S LIENS.
----------------
No work performed by Tenant pursuant to this Lease, whether in the nature
of erection, construction, remodeling, alteration or repair, shall be deemed to
be for the immediate use and benefit of Landlord so that no mechanic's lien or
other lien shall be allowed against the property or estate of Landlord by reason
of any consent given by Landlord to Tenant to improve the Premises nor shall
Landlord's interest in the Premises be subject to any liens for improvements of
any kind made by or at the direction of the Tenant and Tenant agrees to so
notify all its contractors. Tenant shall pay promptly all persons furnishing
labor, materials or equipment with respect to any work performed by Tenant or
its contractor on or about the Premises. In the event any mechanic's lien or
other lien shall at any time be filed against the Premises by reason of work,
labor, services, equipment or materials performed or furnished, or alleged to
have been performed or furnished, to Tenant or to anyone holding the Premises
through or under Tenant, Tenant shall forthwith cause the same to be discharged
of record or bonded to the satisfaction of Landlord. If Tenant shall fail to
cause such lien forthwith to be so discharged or bonded within ten (10) days
after being notified of the filing thereof then, in addition to any other right
or remedy of Landlord, Landlord may, at any time thereafter, bond or discharge
the same by paying the amount claimed to be due, and the amount so paid by
Landlord including but not limited to reasonable attorney's fees incurred by
Landlord either defending against such lien or in procuring the discharge of
such lien, together with interest thereon at the Default Rate, shall be due and
payable by Tenant to Landlord as Additional Rental.
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SECTION 7.4. TENANT'S FIXTURES.
-----------------
Landlord shall have, and Tenant hereby grants to Landlord, a Landlord's
lien and a security interest in any and all furnishings, equipment, fixtures,
accounts receivable and other personal property of any and every kind belonging
to Tenant, or the equity of Tenant therein, on or in the Premises. The security
interest is granted for the purpose of securing the payment of, all rental and
other charges, assessments, penalties and damages herein covenanted, to be paid
by Tenant hereunder. Upon Tenant's default or breach of any covenants of this
Lease, Landlord shall have all the remedies available under the laws of the
state wherein the Building is situated including, but not limited to, the right
to take possession of the above-mentioned property, without liability for
trespass or conversion, and sell the same at public or private sale, with or
without having such property at the sale, after giving Tenant reasonable notice
at Tenant's last known address of the time and place of any public sale or of
the time after which any private sale is to be made, at which sale the Landlord
or its assigns may purchase it. The proceeds from any such disposition, less
any and all expenses connected with the taking of possession, holding and
selling of the property, shall be applied as a credit against the indebtedness
secured by the security interest granted in this Section 7.4. Any surplus shall
be paid to Tenant or as otherwise required by law; the Tenant shall pay any
deficiencies forthwith. Upon request by Landlord, Tenant agrees to execute and
deliver to the Landlord a financing Statement in form sufficient to perfect the
security interest of Landlord in the aforementioned property and proceeds
thereof under the provisions of the Uniform Commercial Code. Any applicable
-----------------------
statutory lien for rent is not herein waived, the security interest herein
granted being in addition and supplementary thereto.
ARTICLE VIII
OPERATIONS
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SECTION 8.1. OPERATIONS BY TENANT.
--------------------
In regard to the use and occupancy of the Premises, Tenant will at its
expense: (a) comply with all laws, ordinances, rules and regulations of
governmental authorities and all recommendations of Landlord's fire insurance
rating organization now or hereafter in effect; (b) comply with and observe all
the rules and regulations attached as Exhibit "E" and any other reasonable rules
and regulations established by Landlord from time to time which apply generally
to all tenants in the Building; and (c) conduct its business in all respects in
a dignified manner and in accordance with high standards of office use.
In regard to the use and occupancy of the Premises and the Common Areas,
Tenant will not: (d) place, maintain, or permit any trash, refuse or other
articles in any vestibule or entry of the Premises, on the footwalks or
corridors adjacent thereto or elsewhere on the exterior of the Premises so as to
obstruct any corridor, footwalk, stairway or any other Common Area; (e) use or
permit the use of any sound amplifiers, reception of radio or television
broadcasts within the Premises, which is in any manner audible or visible
outside of the Premises; (f) permit undue accumulations of or burn garbage,
trash, rubbish or other refuse within or without the Premises; (g) cause or
permit objectionable odors to emanate or to be dispelled from the Premises; (h)
solicit business in the parking area or any other Common Area; (i) distribute
handbills or other advertising matter to, in or upon any motor vehicles parked
in the parking areas or in any other Common Area; (j) permit the parking of
vehicles so as to interfere with the use of any driveway, service court,
corridor, footwalk, parking area or other Common Area; (k) use or permit the use
of any portion of the
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Premises for any unlawful purpose or for any activity of a type which is not
generally considered appropriate for similar office buildings conducted in
accordance with good and generally accepted standards of operation, or (l) place
a load upon any floor which exceeds the floor load which the floor was designed
to carry.
SECTION 8.2. SIGNS AND ADVERTISING.
---------------------
Tenant will not place or suffer to be placed or maintained on the exterior
of the Premises any sign, advertising matter or any other thing of any kind, and
will not place or maintain any decoration, letter or advertising matter on the
glass of any window or door of the Premises, without first obtaining Landlord's
prior written approval and any such sign must be in accordance with Exhibit "C".
Under no circumstances shall Tenant be permitted to place hand-lettered
advertising within the interior or on the exterior of the Premises or any door
or window of the Premises.
SECTION 8.3. HAZARDOUS MATERIALS.
-------------------
A. Definitions. As used in this Section, the following terms are hereby
defined as follows:
(i) The term "Hazardous Materials" shall mean and refer to any
substance (a) the presence of which requires special handling, storage,
investigation, identification, notification, monitoring or remediation
under any Environmental Law (as hereinafter defined), (b) which is toxic,
explosive, corrosive, erosive, flammable, infectious, radioactive,
carcinogenic, mutagenic or otherwise hazardous, (c) which is or becomes
regulated by any Governmental Authority (as hereinafter defined), or (d)
the presence of which causes or threatens to cause a nuisance to the
Building or the Premises or to any adjacent properties or premises.
(ii) The terms "Governmental Authority" and "Governmental
Authorities" shall mean and include any and all federal, state and local
governmental entities, agencies, departments, boards, courts, judicial or
quasi-judicial bodies and legislative or quasi-legislative bodies, present
and future, which now or hereafter have or exercise any jurisdiction or
authority with respect to any Hazardous Materials or any Environmental
Laws.
(iii) The terms "Environmental Law" and "Environmental Laws" shall
mean and include any and all existing and future federal, state and local
laws, statutes, codes, ordinances, rules, rulings, regulations, orders and
interpretations relating to (a) emissions, discharges, spills, releases or
threatened releases of any Hazardous Materials onto land or ambient air,
surface water, ground water, water courses, publicly or privately owned
treatment works, drains, sewer systems, wet lands or septic systems, (b)
the use, treatment, storage, disposal, handling, manufacturing,
transportation or shipment of Hazardous Materials or (c) the protection of
human health or the environment.
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B. Tenant's Obligations. Tenant covenants, warrants and represents that
--------------------
it shall not use, generate, place, store, release or otherwise dispose of, nor
permit any of the Tenant Parties (as hereinafter defined) to use, generate,
place, store, release or otherwise dispose of, any Hazardous Materials in, on,
under or about the Premises or the Building except that ordinary and necessary
quantities of lawful cleaning supplies may be kept and used in the Premises in a
safe and lawful manner provided that same are kept and used solely for the
purpose intended and in strict compliance with all applicable Environmental
Laws. Tenant agrees at its expense to immediately remediate and remove in
strict compliance with all Environmental Laws any and all Hazardous Materials at
any time introduced in, on, under, from or about the Premises, the Building or
any adjacent properties by the Tenant, its successors or assigns, or its or
their subtenants or licensees, or any of its or their contractors, agents,
servants, employees or invitees (collectively referred to herein as the "Tenant
Parties"). To the fullest extent permitted by law, the Tenant agrees to
indemnify and hold harmless the Landlord, and its property management agent,
and their respective successors and assigns, and its or their officers,
directors, stockholders, partners, members, agents, servants and employees, from
and against any and all liability, claims of liability, suits, actions,
proceedings, judgments, penalties, fines, losses, damages, costs and expenses
(including without limitation any and all sums paid for settlement of claims,
attorneys' fees, consultants' fees and expert fees) arising from or in
connection with or as the result of (i) the presence, suspected presence, use,
generation, storage, release or disposal of any Hazardous Materials in, on,
under, from or about the Premises, the Building, or any adjacent properties at
any time caused by or as the result of any acts or omissions of the Tenant or
any of the other Tenant Parties, or (ii) any repair, cleanup, removal,
remediation, detoxification or restoration of any such Hazardous Materials in,
on, under, from or about the Premises, the Building, or any adjacent properties
at any time caused by or as the result of any acts or omissions of the Tenant or
any of the other Tenant Parties.
C. Landlord's Obligations. To the best of Landlord's actual knowledge,
----------------------
there exists no Hazardous Materials on the Premises which are in violation of
applicable Environmental Laws. If any Hazardous Materials in violation of
applicable Environmental Laws are discovered in the Premises (other than as may
be the responsibility of Tenant under Subparagraph B of this Section 8.3), and
the existence of such Hazardous Materials results in a closure of the Premises
or any part thereof mandated by any Governmental Authority having jurisdiction
thereof, then and in such event the Landlord shall have the right (but not the
obligation) to remediate or remove such Hazardous Materials, and (i) if such
Hazardous Materials are discovered prior to the commencement of the Term, then
the date for commencement of the Lease Term shall be delayed by the same number
of days as required for completion of such remediation or removal; and (ii) if
such Hazardous Materials are discovered after the commencement of the Term, the
Tenant's rent will be abated as is fair and equitable under the circumstances
for as long as the Premises or any portion thereof is required to be closed as
the result of such Hazardous Materials. In the event the Landlord declines to
undertake or fails to complete such remediation or removal as may be required by
applicable Environmental Laws within a period of twelve (12) months following
the closure of the Premises by such governmental authority as the result of such
Hazardous Materials, then and in such event the Tenant shall have the right and
option, as its sole remedy (except as and to the extent provided in the next
sentence of this subparagraph C), to terminate this Lease by written notice
delivered to Landlord at any time following the expiration of said twelve (12)
month period but prior to the completion
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of such remediation or removal. In addition, Landlord agrees to indemnify and
hold harmless the Tenant from and against any and all liability, claims of
liability, suits, actions, proceedings, judgments, penalties and fines paid or
incurred by Tenant to any third parties or to any Governmental Authorities
(hereinafter referred to as the "Third Party Environmental Liabilities"),
together with any and all costs and expenses incurred by Tenant in defending
against said Third Party Environmental Liabilities (including without limitation
attorneys' fees, consultants' fees and expert fees), which may be asserted
against the Tenant as the result of any Hazardous Materials introduced into the
Premises in violation of applicable Environmental Laws by the Landlord or its
agents, servants or employees acting within the line and scope of their
authority; provided, however, notwithstanding anything to the contrary provided
herein, the Landlord shall not have any liability for any Hazardous Materials
which are present or caused in whole or in part as the result of any negligence,
willful misconduct or other acts or omissions of (i) the Tenant or any of the
other Tenant Parties, (ii) any other tenants or occupants of the Building, (iii)
any of Landlord's predecessors in title to the Building or any part thereof or
interest therein, or (iv) any other third parties (other than Landlord's agents,
servants or employees acting within the line and scope of their authority).
D. Survival. The provisions of this Section 8.3 shall survive the
--------
expiration or earlier termination of this Lease.
SECTION 8.4 SERVICES TO PREMISES.
--------------------
The Landlord will provide access to Tenant to heating and cooling equipment
on a twenty four (24) hour - seven (7) day a week basis. Landlord will also
furnish a reasonable amount of electric light as the Landlord determines is
reasonable and appropriate for lighting the Premises and electricity adequate
for Tenant's normal business operation, but the Landlord shall, in no event, be
liable for damages for stoppage of heat, cooling, or lights, or for the
machinery or appliances breaking or getting out of order, or being out of
repair, or for any damage whatsoever arising out of any failure to furnish such
heating, cooling or light, or for any damage or injury to any person or property
caused by any defect in the equipment furnishing same. Tenant shall pay all
charges for consumption of electric services furnished to the Premises and
Building systems used in connection with the Premises during the Lease Term as
charged by the utility provider. Landlord also agrees to provide and pay the
cost for janitorial services to the Premises to be recouped from Tenant in the
Operating Payment defined herein.
ARTICLE IX
MAINTENANCE, REPAIRS AND ALTERATIONS
------------------------------------
SECTION 9.1. MAINTENANCE AND REPAIRS TO BE MADE BY LANDLORD.
----------------------------------------------
Landlord, at its expense, will make, or cause to be made, roof repairs,
structural repairs to exterior walls, structural repairs to columns and
structural floor (excluding floor coverings) which collectively enclose the
Premises and the Building systems (heating and cooling, plumbing, sprinkler and
electrical) serving the Premises; provided, Tenant shall give Landlord written
notice of the necessity for such repairs. Notwithstanding the foregoing, if the
necessity for such repairs shall have arisen from or shall have been caused by
the negligence or willful acts or omissions of Tenant, its agents,
concessionaires, officers,
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<PAGE>
employees, licensees, customers, invitees or contractors or by reason of
Tenant's failure to perform any of its obligations under this Lease, then
Landlord may make or cause the same to be made, but shall not be obligated to do
so, and Tenant agrees to pay to Landlord promptly upon Landlord's demand, as
Additional Rental, the cost of such repairs, if made, with interest thereon at
the Default Rate until paid. In the event Landlord elects not to make such
repairs caused by Tenant's negligent or willful acts or omissions or by reason
of Tenant's failure to perform any of its obligations under this Lease, then
Landlord may require Tenant to make such repairs at Tenant's sole cost and
expense.
SECTION 9.2. MAINTENANCE AND REPAIRS TO BE MADE BY TENANT.
--------------------------------------------
Any and all maintenance and repairs to the Premises or any installations,
equipment or facilities therein, other than janitorial services to be provided
by Landlord in Section 8.4 or those repairs required to be made by Landlord
pursuant to Section 9.1. or Section 13.1., shall be made by Tenant at its sole
cost and expense. Without limiting the generality of the foregoing, Tenant will
keep the interior of the Premises (other than janitorial services to be provided
by Landlord in Section 8.4 or items to be repaired by Landlord pursuant to
Section 9.1.), in good order and repair and will make all replacements from time
to time required thereto at its expense, and will surrender the Premises at the
expiration of the Term or at such other time as it may vacate the Premises in as
good condition as when received or as they may be put during the Term, excepting
depreciation caused by ordinary wear and tear, damage by Casualty (other than
such damage by Casualty which is caused by the negligent or willful acts or
omissions of Tenant, its agents, concessionaires, officers, employees,
contractors, licensees or invitees, and which is not wholly covered by
Landlord's hazard insurance policy), unavoidable accident or act of God. Tenant
will not overload the electrical wiring serving the Premises or within the
Premises, and will install at its expense, subject to the provisions of Section
9.4., any additional electrical wiring which may be required in connection with
Tenant's apparatus. Tenant shall be responsible for any damage or injury
sustained by any person because of any defect in, condition of or modification
of any mechanical, electrical, plumbing or any other equipment or installations,
whose maintenance and repair shall be the responsibility of Tenant and shall be
paid for by Tenant, and Tenant shall indemnify and hold Landlord harmless from
and against all claims, actions, damages and liability in connection therewith
including, but not limited to, attorney and other professional fees, and any
other cost which Landlord might reasonably incur.
SECTION 9.3. DAMAGE TO PREMISES.
------------------
Tenant will repair promptly at its expense any damage to the Premises and
upon demand, shall reimburse Landlord, as Additional Rental, for the cost of the
repair of any damage elsewhere in the Building or on the Land caused by or
arising from the installation or removal of property in or from the Premises,
regardless of fault or by whom such damage shall be caused (unless caused by
Landlord, its agents, employees or contractors). If Tenant shall fail to
commence such repairs within five (5) days after notice to do so from Landlord
or thereafter fails to diligently complete same, then and in either such event,
Landlord shall have the right, but shall not be obligated, to make or cause the
same to be made and Tenant agrees to pay to Landlord promptly upon Landlord's
demand, as Additional Rental, the cost thereof with interest thereon at the
Default Rate until paid.
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<PAGE>
SECTION 9.4. ALTERATIONS BY TENANT.
---------------------
Tenant will not make any alterations, renovations, improvements or other
installations in, on or to the Premises or any part thereof (including, without
limitation, any alterations of the entryway or any cutting or drilling into any
part of the Premises or any securing of any fixture, apparatus, or equipment of
any kind to any part of the Premises) unless and until Tenant shall have caused
plans and specifications therefor to have been prepared, at Tenant's expense, by
an architect or other duly qualified person and shall have obtained Landlord's
written approval thereof where the work to be performed exceeds Five Thousand
and No/100 Dollars ($5,000.00). If such written approval is granted, Tenant
shall cause the work described in such plans and specifications to be performed,
at its expense, promptly, efficiently, competently and in good and workmanlike
manner by duly qualified and licensed persons or entities, using first grade
materials, without interference with or disruption to the operations of Tenant
or any other occupants of the Building. All such work shall comply with all
applicable governmental codes, rules, regulations and ordinances.
SECTION 9.5. CHANGES AND ADDITIONS TO THE BUILDING.
-------------------------------------
Landlord reserves the right at anytime and from time to time (a) to make or
permit changes or revisions in the Building or the Land including, but not
limited to, additions to, subtractions from, rearrangements of, alterations of,
modifications of or supplements to the building areas, walkways, parking areas,
driveways or other Common Areas; (b) to construct other buildings or
improvements in the Land and to make alterations thereof or additions thereto
and to build additional stories on any such building or buildings and to build
adjoining same; and (c) to demolish part or parts of buildings or other
improvements now or hereafter constructed on the Land. Landlord, where
practicable, shall provide reasonable prior oral notice to Tenant at the
Premises for the purpose of performing work to the Premises in connection with
this Section.
SECTION 9.6. EXTERIOR OF PREMISES.
--------------------
Landlord shall have the exclusive right (i) to use all or any part of the
exterior of the Premises for any purpose; (ii) to erect in connection with the
construction thereof temporary scaffolds and other aids to construction on the
exterior of the Premises, provided that access to the Premises shall not be
denied, and (iii) to install, maintain, use, repair and replace within the
Premises pipes, ducts, conduits, wires and all other mechanical equipment
serving other parts of the Building, the same to be in locations within the
Premises as will not unreasonably deny Tenant's use thereof. Landlord may make
any use it desires of the exterior walls of the Building, provided that such use
shall not encroach on the interior of the Premises. Tenant agrees to give
Landlord access to the Premises for the purposes of this Section 9.6. Landlord,
where practicable, shall provide reasonable prior oral notice to Tenant at the
Premises for the purpose of performing work to the Premises in connection with
this Section.
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ARTICLE X
COMMON AREAS
------------
SECTION 10.1. USE OF COMMON AREAS.
-------------------
Landlord agrees that Tenant and its agents, employees and customers shall
have a non-exclusive license to use the Common Areas (as may exist from time to
time) in common with others during the Term, subject to the exclusive control
and management thereof at all times by Landlord and subject, further, to the
rights of Landlord set forth in this Article X and Sections 9.5, and 18.21.
SECTION 10.2. MANAGEMENT AND OPERATION OF COMMON AREAS.
----------------------------------------
Landlord will operate and maintain, or will cause to be operated and
maintained, the Common Areas in a manner deemed by Landlord to be reasonable and
appropriate and in the best interests of the Building. Landlord will have the
right, and Tenant's use of the Common Areas is subject to Landlord's right, (i)
to establish, modify and enforce reasonable rules and regulations with respect
to the Common Areas; (ii) to enter into, modify and terminate easements and
other agreements pertaining to the use and maintenance of the parking areas and
other Common Areas; (iii) to close all or any portion of said parking areas or
other Common Areas to such extent as may, in the opinion of the Landlord, be
necessary to prevent a dedication thereof or the accrual of any rights to any
person or to the public therein; (iv) to close temporarily any or all portions
of the Common Areas; (v) to discourage non-customer parking; (vi) to designate
portions of the parking areas and/or other areas comprising the Common Areas as
"reserved" or designated for "limited" use, thereby limiting usage thereof to
only persons as may be authorized by Landlord; and (vii) to do and perform such
other acts in and to said areas and improvements as, in the exercise of good
business judgment, Landlord shall determine to be advisable.
SECTION 10.3. OPERATING PAYMENT.
-----------------
Tenant shall pay Landlord, as Additional Rental, an Operating Payment in an
amount equal to Tenant's Proportionate Share of the excess of (i) Operating
Expenses for each calendar year, over the (ii) Base Year (as defined in Section
1.1.J.), which Operating Payment shall be paid by Tenant in monthly installments
in such amounts as are estimated and billed by Landlord, each installment being
due in advance on the first day of each calendar month. Within one hundred
twenty (120) days, or a reasonable time thereafter (in Landlord's
determination), after the end of each calendar year Landlord shall deliver to
Tenant a statement of Operating Expenses for such calendar year and the monthly
installments paid or payable shall be adjusted between Landlord and Tenant, and
each party hereby agrees that Tenant shall pay Landlord or Landlord shall credit
Tenant's account (or, if such adjustment is at the end of the Term, reimburse
Tenant), within thirty (30) days of receipt of such statement, the amount of any
excess or deficiency in Operating Payment paid by Tenant to Landlord during such
calendar year. Upon reasonable notice, Landlord shall make available for
Tenant's inspection at Landlord's office, during normal business hours,
Landlord's records relating to the Operating Expense for such preceding calendar
year. Failure of Landlord to provide the statement called for hereunder within
the time prescribed shall not relieve Tenant from its obligations hereunder.
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<PAGE>
ARTICLE XI
INDEMNITY AND INSURANCE
-----------------------
SECTION 11.1(a) INDEMNITY BY TENANT.
-------------------
To the fullest extent permitted by law, Tenant shall indemnify, hold
harmless and defend Landlord from and against any and all claims, actions,
damages, liability and expense including, but not limited to, attorneys' and
other professional fees in connection with any death of or bodily or personal
injury to any person or persons or any damage to or loss or destruction of any
property arising or resulting from, out of or in connection with the occupancy
or use by Tenant of the Premises, or any part thereof, or any other part of the
Building, or occasioned wholly or in part by any act or omission of Tenant, its
officers, agents, servants, employees or invitees.
SECTION 11.1(b) INDEMNITY BY LANDLORD.
---------------------
To the fullest extent permitted by law, Landlord shall indemnify, hold
harmless and defend Tenant from and against any and all claims, actions,
damages, liability and expense including, but not limited to, attorneys' and
other professional fees in connection with any death of or bodily or personal
injury to any person or persons or any damage to or loss or destruction of any
property arising or resulting from, out of or in connection with the Premises,
or any part thereof, or any other part of the Building, or occasioned wholly or
in part by any act or omission of Landlord, its officers, agents, servants,
employees or invitees.
SECTION 11.2. RELEASE OF LANDLORD.
-------------------
Landlord shall not be responsible or liable to Tenant for any injury to or
death of Tenant or any other person or any damage to or loss or destruction of
any property of Tenant or any other person caused by or resulting from any cause
whatsoever including, without limitation, from the bursting, breakage or leakage
of any pipes or conduit, or from steam, snow or ice, or from running, backing
up, flooding, leakage, seepage, or overflow of water or sewage in any part of
the Premises or the Building, or for any injury or damage caused by or resulting
from acts of God or the elements, or for any injury or damage caused by or
resulting from any defect or negligence in the design, construction, occupancy,
operation or use of any part of the Premises or the Building or of any
machinery, apparatus or equipment now or hereafter situated thereon or therein.
Tenant shall store its property in, and shall use and occupy, the Premises at
its own risk, and, to the fullest extent permitted by law, Tenant hereby
releases Landlord and its property management agent, and its or their respective
officers, directors, partners, members, agents, servants and employees, from any
and all liability or claims of liability of any and every kind whatsoever
arising or resulting from or in connection with any loss of life, personal or
bodily injury or property damage, no matter when or to whom same occurs, even if
caused in whole or in part by the negligent acts or omissions of a party
released hereunder, without being limited by any other provision of this Lease.
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SECTION 11.3. TENANT'S INSURANCE.
------------------
At all times after the execution of this Lease, Tenant will carry and
maintain, at its expense, a non-deductible:
(a) Commercial General Liability insurance including, but not limited
to, insurance against assumed or contractual liability under this Lease
with respect to the premises/operations, personal and advertising injury,
products/completed operations, broad form property damage, and contractual
liability with combined single limits of liability of not less than
$1,000,000 for bodily injury and property damage per occurrence;
(b) all-risks property and casualty insurance, written at replacement
cost value and with replacement cost endorsement, covering all personal
property in the Premises which is owned by or in the care, custody or
control of Tenant (including, without limitation, trade fixtures, floor
coverings, furniture and other property removable by Tenant under the
provisions of this Lease), and all leasehold improvements installed in the
Premises by Tenant; and
(c) if and to the extent required by law, Workers' Compensation
insurance or similar insurance in form and amounts required by law.
SECTION 11.4. TENANT'S CONTRACTOR'S INSURANCE.
-------------------------------
Tenant shall require any and all contractors performing work on or in the
Premises to carry and maintain, at no expense to Landlord, a non-deductible:
(a) comprehensive general liability insurance including, but not
limited to, contractor's liability coverage, contractual liability
coverage, completed operations coverage, broad form property damage
endorsement and contractor's protective liability coverage, to afford
protection with limits, for each occurrence, of not less than One
Million Dollars ($1,000,000) with respect to bodily or personal injury
or death, and Five Hundred Thousand Dollars ($500,000) with respect to
property damage; and
(b) Workers' Compensation insurance or similar insurance in form
and amounts required by law.
SECTION 11.5. POLICY REQUIREMENTS.
-------------------
The company or companies writing any insurance which Tenant is required to
carry and maintain, or cause to be carried or maintained pursuant to Sections
11.3. and 11.4., as well as the form of such insurance, shall, at all times, be
subject to Landlord's approval, and any such company or companies shall be
licensed to do business in the State in which the Premises are located. Public
liability and all-risks property and casualty insurance policies evidencing such
insurance shall name Landlord or its designee as additional insured, shall be
primary to any other coverage which may be in effect, and shall also contain a
provision by which the insurer agrees that it shall give Landlord or its
designee thirty (30)
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days written notice prior to any cancellation, non-renewal or change in scope or
amount of coverage of such insurance. Each such policy, or a certificate
thereof, together with a duplicate copy of such policy, shall be deposited with
Landlord by Tenant promptly upon commencement of Tenant's obligation to procure
the same. If Tenant shall fail to perform any of its obligations under Sections
11.3., 11.4. or 11.5., Landlord may perform the same and the cost of same shall
be deemed Additional Rental, and shall be payable upon Landlord's demand.
SECTION 11.6. INCREASE IN INSURANCE PREMIUMS.
------------------------------
Tenant will not do, suffer or permit to be done, or keep, suffer or permit
to be kept, anything in, upon or about the Premises which will violate
Landlord's policies of hazard or liability insurance, or which will prevent
Landlord from procuring such policies in companies acceptable to Landlord. If
anything done, omitted to be done, or suffered by Tenant to be kept in, upon or
about the Premises shall cause the rate of fire or other insurance on the
Premises, or on the property of Landlord, or of others within the Building, to
be increased beyond the minimum rate from time to time applicable to the
Premises, or to any such property for the use or uses made thereof, Tenant will
pay, as Additional Rental, the amount of any such increase upon Landlord's
demand.
SECTION 11.7. WAIVER OF RIGHT OF SUBROGATION.
-------------------------------
Insofar as, and to the extent that, the following provisions may be made
effective without invalidating or making it impossible to secure insurance
coverage from responsible insurance companies doing business in the state where
the Building is located (even though an extra premium may result therefrom),
Landlord and Tenant hereby grant to each other on behalf of any insurer
providing any and all casualty insurance, liability insurance and other
insurance to either of them covering the Premises, its contents, Tenant's other
property or the other improvements in the Building, a waiver of any right of
subrogation which any such insurer may acquire against the other by virtue of
payment of any loss under such insurance.
ARTICLE XII
DAMAGE AND DESTRUCTION
----------------------
SECTION 12.1. LANDLORD'S OBLIGATION TO REPAIR AND RECONSTRUCT.
-----------------------------------------------
If the Premises shall be damaged by fire, the elements, accident, or other
casualty (any of such causes being referred to herein as a "Casualty"), but the
Premises shall not be thereby rendered wholly or partially untenantable,
Landlord shall, subject to the provisions of Section 12.2., promptly cause such
damage to be repaired, and there shall be no abatement of Rental. If, as the
result of Casualty, the Premises shall be rendered wholly or partially
untenantable then, subject to the provisions of Section 12.2., Landlord shall
cause such damage to be repaired and provided such damage is not caused by the
negligence of Tenant, its agents, concessionaires, officers, employees,
contractors, licensees or invitees, all rental (other any Additional Rental due
Landlord by reason of Tenant's failure to perform any of its obligations
hereunder), shall be abated proportionately as to the portion of the Premises
rendered untenantable during the period of such untenantability. All such
repairs shall be made at the expense of Landlord, subject to Tenant's
responsibilities set forth in this Lease.
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Landlord shall not be liable for interruption to Tenant's business, or for
damage to, or replacement, or repair of Tenant's personal property (including,
without limitation, inventory, trade fixtures, floor coverings, furniture,
equipment, and other property removable by Tenant under the provisions of this
Lease) or replacement of any leasehold improvements made by Tenant, all of which
damage, replacement, or repair shall be undertaken and completed by Tenant
promptly. Notwithstanding anything to the contrary provided in this Lease, any
obligation of Landlord hereunder to restore the Premises, or any other part of
the Building, shall be limited to such reconstruction as can be financed by such
insurance proceeds as shall actually be received by Landlord, free and clear
from collection by any Mortgagees and after deducting the cost and expense,
including attorneys' fees, if any, of settling with the insurer.
SECTION 12.2. LANDLORD'S OPTION TO TERMINATE LEASE.
------------------------------------
If the Premises are (a) rendered wholly untenantable, or (b) damaged as a
result of any cause which is not covered by Landlord's insurance, or (c) damaged
or destroyed in whole or in part during the last three (3) years of the Term, or
if the Building is damaged to the extent of fifty (50%) percent or more of
Rentable Area of the Building, as a result of any such casualty, then and, in
any of such events, Landlord may elect to terminate this Lease by giving to
Tenant notice of such election within one hundred twenty (120) days after the
occurrence of such event. If such notice is given, the rights and obligations
of the parties shall cease as of the date of such notice, and rental (other than
any Additional Rental due Landlord by reason of Tenant's failure to perform any
of its obligations hereunder) shall be adjusted as of the date of such
termination.
SECTION 12.3. INSURANCE PROCEEDS.
------------------
If Landlord does not elect to terminate this Lease pursuant to Section
12.2., Landlord shall, subject to the prior rights of any Mortgagee, disburse
and apply insurance proceeds received by Landlord as is necessary for the
restoration and rebuilding of the Building in accordance with Section 12.1.
hereof. All insurance proceeds payable with respect to the Premises (excluding
proceeds payable to Tenant pursuant to Section 11.3.) shall belong to and shall
be payable to Landlord, and Tenant shall, in no event, have any right to, or
make any claim against, such proceeds.
ARTICLE XIII
CONDEMNATION
------------
SECTION 13.1. EFFECT OF TAKING.
----------------
If the whole or any part of the Premises shall be taken under the power of
eminent domain, this Lease shall terminate as to the part so taken on the date
Tenant is required to yield possession thereof to the condemning authority.
Landlord shall make such repairs and alterations as may be necessary in order to
restore the part not taken to useful condition, and all rental (other than any
Additional Rental due Landlord by reason of Tenant's failure to perform any of
its obligations hereunder) shall be reduced in the same proportion as the
portion of the Rentable Area of the Premises so taken bears to the original
Rentable Area of the Premises. Notwithstanding anything to the contrary
provided in this Lease, any obligation of Landlord hereunder to restore the
Premises or any other part
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<PAGE>
of the Building shall be limited to such reconstruction as can be financed by
such condemnation award as shall actually be received by Landlord free and clear
from collection by any Mortgagees and after deducting the cost and expense
including attorney's fees, if any, of settling with the condemning authority. If
the aforementioned taking renders the remainder of the Premises unsuitable for
the Permitted Use, either party may terminate this Lease as of the date when
Tenant is required to yield possession by giving notice to that effect within
thirty (30) days after such date. If twenty (20%) percent or more of the Land is
taken as aforesaid, or if parking spaces in the Building are so taken thereby
substantially reducing the number of parking spaces in the Land, and Landlord
does not deem it reasonably feasible to replace such parking spaces with other
parking spaces on the portion of the Land not taken, then Landlord may elect to
terminate this Lease as of the date on which possession thereof is required to
be yielded to the condemning authority, by giving notice of such election within
ninety (90) days after such date. If any notice of termination is given pursuant
to this Section, this Lease, and the rights and obligations of the parties
hereunder, shall cease as of the date of such notice, and rental (other than any
Additional Rental due Landlord by reason of Tenant's failure to perform any of
its obligations hereunder) shall be adjusted as of the date of such termination.
SECTION 13.2. CONDEMNATION AWARDS.
-------------------
All compensation awarded for any taking of the Premises, or the Land, or
any interest in either, shall belong to and be the property of Landlord, Tenant
hereby assigning to Landlord all rights with respect thereto; provided, however,
nothing contained herein shall prevent Tenant from applying for reimbursement
from the condemning authority (if permitted by law) for moving expenses, or the
expense of removal of Tenant's trade fixtures, if and only if, such action shall
not reduce the amount of the award, or other compensation, otherwise recoverable
from the condemning authority by Landlord, or the owner of the fee simple estate
in the Land.
ARTICLE XIV
ASSIGNMENTS AND SUBLETTING
--------------------------
SECTION 14.1. LANDLORD'S CONSENT REQUIRED.
---------------------------
Tenant shall not assign this Lease, in whole or in part, nor sublet all or
any part of the Premises, nor license concessions, nor lease departments
therein, nor pledge or secure by mortgage or other instruments this Lease,
without first obtaining the written consent of Landlord, which consent may be
withheld in Landlord's sole and absolute determination including, without
limitation, the right to arbitrarily withhold such consent. The foregoing
prohibition includes, without limitation, (i) any subletting or assignment which
would otherwise occur by operation of law, merger, consolidation,
reorganization, transfer, or other change of Tenant's corporate or proprietary
structure; (ii) an assignment or subletting to or by a receiver or trustee in
any federal or state bankruptcy, insolvency, or other proceedings; (iii) the
sale, assignment or transfer of all, or substantially all, of the assets of
Tenant, with or without specific assignment of Lease, or (iv) the change in
control in a partnership, corporation, limited liability company or other
business entity (provided, however, that nothing herein shall be construed to
restrict transfers of shares of stock in any publicly traded corporation that is
listed on any National Stock Exchange). Consent by Landlord to any assignment
or subletting shall not constitute a waiver of the requirement
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<PAGE>
for such consent to any attempted subsequent assignment or subletting.
Notwithstanding any assignment or subletting, Tenant shall be and remain fully
liable hereunder and shall not be released from performing any of the terms or
provisions of this Lease. Should Landlord permit any assignment or subletting by
Tenant, and should the monies received as a result of such assignment or
subletting (when compared to the monies still payable by Tenant to Landlord) be
greater than would have been received hereunder had not Landlord permitted such
assignment or subletting, then the excess shall be payable by Tenant to Landlord
as additional rental, it being the parties' intention that Landlord, and not the
Tenant, shall be the party to receive any profit from any assignment or
subletting. Any such assignment or sublease shall be upon and subject to all the
terms and provisions of this Lease, including but not limited to the provisions
which limit the use of the premises or the Permitted Use specified in Section
1.1.G. hereof.
SECTION 14.2. ACCEPTANCE OF RENT FROM TRANSFEREE.
----------------------------------
The acceptance by Landlord of the payment of rental following any
assignment, sublease or other transfer prohibited by this Article shall not be
deemed to be a consent by Landlord to any such assignment or other transfer nor
shall the same be deemed to be a waiver of any right or remedy of Landlord
hereunder.
ARTICLE XV
DEFAULT
-------
SECTION 15.1. "EVENT OF DEFAULT" DEFINED.
--------------------------
Any one or more of the following as referred to herein shall be deemed an
"Event of Default":
(a) Failure of the Tenant to pay any Rental, or any other sum,
provided for in this Lease as and when the same become due, if such amount
shall remain unpaid for a period of ten (10) days after written notice of
such delinquency from Landlord; provided, however, Landlord shall not be
required to provide such notice more than two (2) times in any calendar
year during the term of the Lease.
(b) The removal, attempt to remove, or permitting to be removed, from
said Premises, except in the usual course of business, the furniture,
equipment, effects or other property of the Tenant, or any assignee, or
sub-tenant of the Tenant.
(c) The levy of an execution, or other legal process, upon the
furniture, equipment, effects, or other property owned or leased by the
Tenant, and brought on the Premises or upon the interest of the Tenant in
this Lease.
(d) The filing of a Petition in Bankruptcy, or a Petition for
Arrangement or Reorganization by or against the Tenant.
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<PAGE>
(e) The appointment of a receiver or trustee, or other court officer,
for the assets of the Tenant or the execution of any assignment for the
benefit of any creditors of the Tenant.
(f) The vacation or abandonment by the Tenant of the Premises, or the
use thereof for any purpose other than the permitted use for which the same
are hereby let.
(g) The assignment by Tenant of this Lease, or the reletting or
subletting by the Tenant of the Premises, or any part thereof, without the
written consent of the Landlord first had and obtained as required by
Section 14.1.
(h) The failure of the Tenant to execute and deliver to Landlord any
Subordination Agreement as provided in Section 16.1. or any Estoppel
Certificate as set forth in Section 18.1.
(i) Failure of the Tenant to continuously conduct the permitted
business in the Premises as required by this Lease.
(j) The violation by the Tenant of any of the terms, conditions or
covenants of this Lease (other than as set out in subparagraphs (a) through
(i) above) and the continued failure of the Tenant to remedy such violation
within ten (10) days after written notice thereof is given by the Landlord
to the Tenant; provided, however, if such violation cannot be cured within
such period then Tenant shall not be deemed in default hereunder if it
commences to cure such violation within said period and thereafter
diligently completes same within not more than twenty (20) days.
Upon the occurrence of an Event of Default, Landlord shall have the right,
at its option, then or at any time while such Event of Default shall continue,
to elect either (1) to cure such Event of Default at its own expense and without
prejudice to any other remedies which it might otherwise have, in which event
any payments made or expenses incurred by Landlord in curing such default with
interest thereon until paid at the Default Rate shall be and become Additional
Rent to be paid by Tenant with the next installment of Rental falling due
thereafter; or (2) to re-enter the Premises, without notice, and dispossess
Tenant and anyone claiming under Tenant by summary proceedings or otherwise and
remove their effects, and take complete possession of the Premises and either
(i) declare this Lease forfeited and the Term ended, or (ii) elect to continue
this Lease in full force and effect, but with the right at any time thereafter
to declare this Lease forfeited and the Term ended, or (3) to exercise any and
all other rights and remedies as provided hereunder or at law or in equity.
Should Landlord declare this Lease forfeited and the Term ended, the Landlord
shall be entitled to recover from Tenant an amount equal to the aggregate of the
following: (aa) all Rental and all other sums due and owing by Tenant to the
date of termination, (bb) the costs (if any) paid or incurred by Landlord in
order to cure any and all of the Tenant's defaults existing at or prior to the
date of termination, (cc) the unamortized amount of any and all leasehold
improvements to the Premises performed by Landlord pursuant to the terms of this
Lease, (dd) an amount equal to the then value of the excess, if any, of the
aggregate of all Rental and other charges reserved in this Lease for the balance
of the Term
-26-
<PAGE>
over the then reasonable rental value of the Premises for the balance of the
Term, and (ee) interest on all of the foregoing from the due date thereof until
paid in full at the Default Rate.
Should Landlord, following default as aforesaid, elect to continue this
Lease, Tenant shall remain liable for payment of all Rental and other charges
and costs imposed on Tenant herein, in the amounts, at the times and upon the
conditions as herein provided, together with interest thereon until paid at the
Default Rate; but, in the event Landlord relets the Premises, then from and
after such reletting, Landlord shall credit against any such liability of the
Tenant all, if any, amounts received by Landlord from any reletting after first
reimbursing itself for all costs incurred in curing Tenant's defaults and in re-
entering, preparing and refinishing the Premises for reletting, and reletting
the Premises, together with interest thereon as provided herein. The Tenant
shall be and remain liable for any rental deficiency remaining after crediting
the amounts received by Landlord from such reletting as aforesaid, but Tenant
shall not be entitled to receive any portions of any such amounts received by
Landlord from such reletting.
The Tenant agrees to pay Landlord, or on Landlord's behalf, a reasonable
attorney's fee in the event Landlord employs an attorney to collect any Rental,
or other sums due and payable by Tenant hereunder, or to enforce or attempt to
enforce any of the terms and provisions hereof, or to protect the interest of
Landlord in the event the Tenant is adjudged a bankrupt, or legal process is
levied upon the goods, furniture, effects or personal property of the Tenant
upon the said Premises, or upon the interest of the Tenant in this Lease or in
said Premises, or in the event the Tenant violates any of the terms, conditions
or covenants on the part of the Tenant herein contained. In order to further
secure the prompt payments of said Rentals, and other sums due hereunder, as and
when the same mature, and the faithful performance by the Tenant of all and
singular the terms, conditions and covenants on the part of the Tenant herein
contained, and all damages and costs that the Landlord may sustain by reason of
the violation of said terms, conditions and covenants or any of them, the Tenant
hereby expressly waives any and all rights to claim personal property as exempt
from levy and sale under the laws of the State where the Building is located or
of any other state in the United States.
SECTION 15.2. ASSIGNMENT IN BANKRUPTCY.
------------------------
In the event of an assignment by operation of law under the Federal
-------
Bankruptcy Code, or any state bankruptcy or insolvency law, and Landlord elects
- ---------------
not to terminate this Lease under Section 15.1., the assignee shall provide
Landlord with adequate assurance of future performance of all of the terms,
conditions and covenants of the Lease, which shall include, but which shall not
be limited to, assumption of all the terms, covenants and conditions of the
Lease by the assignee, and the making by the assignee of the following express
covenants to Landlord:
(i) that assignee has sufficient capital to pay the Rental and other
charges due under the Lease for the entire Term; and
(ii) that assumption of the Lease by the assignee will not cause
Landlord to be in violation or breach of any provision in any other lease,
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mortgage financing agreement or operating agreement or other agreement
relating to the Building, and
(iii) that such assignment and assumption by the assignee will not
substantially disrupt or impair any existing tenant mix in the Building.
ARTICLE XVI
SUBORDINATION AND ATTORNMENT
----------------------------
SECTION 16.1. SUBORDINATION.
-------------
Unless a Mortgagee (as hereinafter defined) shall otherwise elect as
provided in Section 16.2., Tenant's rights under this Lease are and shall remain
subject and subordinate to the operation and effect of:
(a) any lease to Landlord of land only or of land and buildings whether
pursuant to a ground Lease or similar Lease or a sale-leaseback
transaction involving the Building, the Land or any part or parts
thereof, or
(b) any mortgage, deed of trust, or other security instrument,
constituting a mortgage lien upon the Premises, Common Areas, or any
other part or parts of the Building and/or Land or any interest or
interests therein,
whether the same shall be in existence at the date hereof, or created hereafter,
any such lease, mortgage, deed of trust or other security instrument being
referred to herein as a "Mortgage" and the party or parties having the benefit
of the same, whether as lessor, mortgagee, trustee or noteholder, being referred
to herein as a "Mortgagee". Tenant's acknowledgment and agreement of
subordination provided for in this Section is self-operative and no further
instrument of subordination shall be required; however, Tenant shall execute
such further assurances thereof as shall be requisite, or as may be requested
from time to time by Landlord, or a Mortgagee. Tenant agrees it shall not pay
any Rental more than thirty (30) days in advance without the prior written
consent of both Landlord and each Mortgagee. Additionally, any request for
subordination of this Lease by Tenant will contain language that Mortgagee will
not terminate the Lease or disturb Tenant's quiet enjoyment so long as no event
of default exists.
SECTION 16.2. MORTGAGEE'S UNILATERAL SUBORDINATION.
------------------------------------
If a Mortgagee shall so elect, before or after foreclosure or deed in lieu
of foreclosure, by notice to Tenant or by the recording of a unilateral
declaration of subordination, this Lease and Tenant's rights hereunder shall be
superior and prior in right to the Mortgage of which such Mortgagee has the
benefit, with the same force and effect as if this Lease had been executed,
delivered and recorded prior to the execution, delivery and recording of such
Mortgage subject, nevertheless, to such conditions as may be set forth in any
such notice or declaration.
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<PAGE>
SECTION 16.3. ATTORNMENT.
----------
If any person shall succeed to all or part of Landlord's interest in the
Premises, whether by purchase, foreclosure, deed in lieu of foreclosure, power
of sale, termination of lease, or otherwise, and if so requested or required by
such successor-in-interest, the Tenant shall attorn to such successor in
interest and shall execute such agreement in confirmation of such attornment as
such successor-in-interest shall reasonably request and shall recognize such
successor-in-interest as Landlord under this Lease, provided that the Tenant
shall be entitled to continued possession of the Premises so long as Tenant
complies with all terms and provisions of this Lease.
ARTICLE XVII
NOTICES
-------
SECTION 17.1 SENDING OF NOTICES.
------------------
Any notice, request, demand, approval or consent given or required to be
given under this Lease shall be in writing and shall be deemed to have been
given as follows:
(i) If intended for Landlord, on the third (3rd) business day
following the day on which the same shall have been mailed by a national
overnight courier or by United States registered or certified mail, return
receipt requested, with all postage charges prepaid, addressed to Landlord,
c/o:
ARONOV REALTY MANAGEMENT, INC.
P. O. Box 235000
MONTGOMERY, ALABAMA 36123-5000
ATTENTION: LEGAL DEPARTMENT
(ii) If intended for Tenant, on the third (3rd) business day following
the day on which the same shall have been mailed by a national overnight
courier or by United States registered or certified mail, return receipt
requested, with all postal charges prepaid, addressed to Tenant at the
Tenant Notice Address.
Either party may, at anytime, change its Notice Address and for the above
purposes by sending a notice to the other party stating the change and setting
forth the new address.
SECTION 17.2. NOTICE TO MORTGAGEES.
--------------------
If any Mortgagee shall notify Tenant that it is the holder of a Mortgage
affecting the Premises, no notice, request, or demand thereafter sent by Tenant
to Landlord shall be effective unless and until a copy of the same shall also be
sent to such Mortgagee in the manner prescribed in Section 17.1. and to such
address as such Mortgagee shall designate.
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ARTICLE XVIII
MISCELLANEOUS
-------------
SECTION 18.1. ESTOPPEL CERTIFICATES.
---------------------
At any time and from time to time within ten (10) days after Landlord or
any Mortgagee shall request the same, Tenant will execute, acknowledge and
deliver to Landlord and to such Mortgagee or other party as may be designated by
Landlord, a certificate in the acceptable form with respect to the matters
required by such party and such other matters relating to this Lease, the status
of this Lease or the status of performance of obligations of the parties
hereunder, as may be reasonably requested by Landlord. In the event that Tenant
fails to provide such certificate within ten (10) days after request therefor by
Landlord, Tenant shall be deemed to have approved the contents of any such
certificate submitted to Tenant by Landlord and Landlord is hereby authorized to
so certify, and Tenant shall be deemed in default under this Lease Agreement.
SECTION 18.2. INSPECTIONS AND ACCESS BY LANDLORD.
----------------------------------
Tenant will permit Landlord, its agents, employees and contractors to enter
all parts of the Premises both during and after Tenant's business hours to
inspect the same and to enforce or carry out any provision of this Lease
including, without limitation, any access necessary for the making of any
repairs which are Landlord's obligation hereunder; provided that, in an
emergency situation, such access shall be at anytime upon Landlord's oral
request.
SECTION 18.3. MEMORANDUM OF LEASE.
-------------------
The parties hereby agree that, upon the request of either party, each will
execute, acknowledge and deliver a short form or memorandum of this Lease in
recordable form. Recording, filing and like charges and any stamp, charge for
recording, transfer or other tax shall be paid by the party desiring to record
such short form or memorandum of this Lease. In the event of expiration or
termination of this Lease, within thirty (30) days after written request from
Landlord, Tenant agrees to execute, acknowledge and deliver to Landlord an
agreement removing such short form or memorandum of Lease from record. If
Tenant fails to execute such agreement within said thirty (30) day period, or
fails to notify Landlord within said thirty (30) day period of its reasons for
refusing to execute such agreement, Landlord is hereby authorized to execute and
record such agreement removing the short form or memorandum of Lease from
record. This provision shall survive any expiration or termination of this
Lease.
SECTION 18.4. REMEDIES CUMULATIVE.
-------------------
No reference to any specific right or remedy shall preclude Landlord from
exercising any other right, or from having any other remedy, or from maintaining
any action to which it may otherwise be entitled at law or in equity. No
failure by Landlord to insist upon the strict performance of any agreement,
term, covenant or condition hereof, or to exercise any right or remedy
consequent upon a breach thereof, and no acceptance of full or partial rent
during the continuance of any such breach, shall constitute a waiver of any such
breach,
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agreement, term, covenant or condition. No waiver by Landlord of any breach by
Tenant under this Lease or of any breach by any other tenant under any other
lease of any portion of the Building shall affect or alter this Lease in anyway
whatsoever.
SECTION 18.5. SUCCESSORS AND ASSIGNS.
----------------------
This Lease and the covenants and conditions herein contained shall inure to
the benefit of and be binding upon Landlord, its or their heirs, personal
representatives, successors and assigns and shall be binding upon Tenant, its or
their heirs, personal representatives, successors and assigns, and shall inure
to the benefit of Tenant and only such assigns of Tenant to whom the assignment
of this Lease by Tenant has been consented to in writing by Landlord as required
hereby. Upon any sale or other transfer by Landlord of its interest in the
Premises, Landlord shall be relieved of any obligations under this Lease
occurring thereafter.
SECTION 18.6. COMPLIANCE WITH LAWS AND REGULATIONS.
------------------------------------
Tenant, at its sole cost and expense, shall comply with and shall cause the
Premises to comply with (a) all federal, state, county, municipal and other
governmental statutes, laws, rules, orders, regulations and ordinances affecting
the Premises or any part thereof, or the use thereof including, but not limited
to, those which require the making of any unforeseen or extraordinary changes,
whether or not any such statutes, laws, rules, orders, regulations or ordinances
which may be hereafter enacted involve a change of policy on the part of the
governmental body enacting the same, and (b) all directives, rules, orders and
regulations of the fire marshal, health officer, building inspector, or other
appropriate officers of governmental agencies having jurisdiction over the
Premises, and the National Board of Fire Underwriters, the National Fire
Protection Association, the National Electrical Code, the American Society of
------------------------
Heating and Air Conditioning Engineers, all carriers of insurance on the
Premises, any board of underwriters, rating bureau and similar bodies, the
Landlord's fire insurance rating organization and any and all other bodies
exercising similar functions in connection with the prevention of fire, or the
correction of hazardous conditions which apply to the Premises, or to the
Tenant's use and occupancy thereof.
SECTION 18.7. CAPTIONS AND HEADINGS.
---------------------
The Article and Section captions and headings are for convenience of
reference only and in no way shall be used to construe or modify the provisions
set forth in this Lease.
SECTION 18.8. JOINT AND SEVERAL LIABILITY.
---------------------------
If two or more individuals, corporations, partnerships or other business
associations (or any combination of two or more thereof) shall sign this Lease
as Tenant, the liability of each such individual, corporation, partnership or
other business association to pay rent and perform all other obligations
hereunder shall be deemed to be joint and several, and all notices, payments and
agreements given or made by, with or to any one of such individuals,
corporations, partnerships or other business associations shall be deemed to
have been given or made by, with or to all of them. In like manner, if Tenant
shall be a partnership or other business association, the members of which are,
by virtue of statute or
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federal law, subject to personal liability, the liability of each such member
shall be joint and several.
SECTION 18.9. BROKER'S COMMISSION.
-------------------
Except as set forth herein, each of the parties represent and warrant that
there are no claims for brokerage commissions or finders' fees in connection
with the execution of this Lease, and agree to indemnify the other against, and
hold it harmless from, all liability arising from any such claim including,
without limitation, the cost of counsel fees in connection therewith. It is
understood that Aronov Realty Management, Inc. has represented only the Landlord
in connection with the execution of this Lease, and Landlord shall be solely
responsible for paying any and all fees and expenses due Aronov Realty
Management, Inc. on account thereof.
SECTION 18.10. NO DISCRIMINATION.
-----------------
It is intended that the Building shall be developed so that all prospective
tenants thereof, and all customers, employees, licensees and invitees of all
tenants shall have the opportunity to obtain all the services, accommodations,
advantages, facilities and privileges of the Building without discrimination
because of race, creed, color, sex, age, national origin or ancestry. To that
end, Tenant shall not discriminate in the conduct and operation of its business
in the Premises against any person or group of persons because of the race,
creed, color, sex, age, national origin or ancestry of such person or group of
persons.
Section 18.11. NO JOINT VENTURE.
----------------
Any intention to create a joint venture or partnership relation between the
parties hereto is hereby expressly disclaimed. The relationship between the
parties is solely that of Landlord and Tenant.
SECTION 18.12. NO OPTION.
---------
The submission of this Lease for examination does not constitute a
reservation of or option for the Premises, and this Lease shall become effective
only upon execution and delivery thereof by both parties. Landlord reserves the
right to withdraw or modify this Lease at any time prior to the full execution
and delivery thereof by both Landlord and Tenant.
SECTION 18.13. NO MODIFICATION.
---------------
This writing is intended by the parties as a final expression of their
agreement and as a complete and exclusive statement of the terms thereof, all
negotiations, considerations and representations between the parties having been
incorporated herein. No course of prior dealings between the parties or their
officers, employees, agents or affiliates shall be relevant or admissible to
supplement, explain or vary any of the terms of this Lease. Acceptance of, or
acquiescence in, a course of performance rendered under this or any prior
agreement between the parties, or their affiliates, shall not be relevant or
admissible to determine the meaning of any of the terms of this Lease. No
representations, understandings, or agreements have been made or relied upon in
the making of this Lease
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other than those specifically set forth herein. This Lease can be modified only
by a writing signed by the party against whom the modification is enforceable.
SECTION 18.14. SEVERABILITY.
------------
If any term or provision, or any portion of any term or provision of this
Lease, or the application thereof to any person or circumstances, shall, to any
extent, be invalid or unenforceable, the remainder of this Lease and the
remaining portions of such term or provision, and the application of such term
or provision to persons or circumstances other than those as to which it is held
invalid or unenforceable, shall not be affected thereby, and each term and
provision of this Lease shall be valid and be enforced to the fullest extent
permitted by law.
SECTION 18.15. THIRD PARTY BENEFICIARY.
-----------------------
Nothing contained in this Lease shall be construed so as to confer upon any
other party the rights of a third party beneficiary, except rights contained
herein for the benefit of a Mortgagee.
SECTION 18.16. CORPORATE TENANTS.
-----------------
In the event Tenant is a corporation, partnership, limited liability
company or other entity, the person or persons executing this Lease on behalf of
the Tenant hereby covenant and warrant that: Tenant is a duly constituted
corporation, partnership, limited liability company or other entity (as the case
may be ) and is qualified to do business in the State in which the Building is
located; all of Tenant's franchise and corporate or other taxes have been paid
to date; all future forms, reports, fees and other documents necessary for
Tenant to comply with applicable laws will be filed by Tenant when due; and such
persons are duly authorized by the board of directors or other governing body of
Tenant of such corporation to execute and deliver this Lease on behalf of the
Tenant. Notwithstanding the preceding sentence, Landlord acknowledges Tenant is
not qualified to do business in Alabama; however, Tenant's affiliate, Call
Points, Inc., which will be operating from the Premises is qualified.
SECTION 18.17. APPLICABLE LAW.
--------------
This Lease, and the rights and obligations of the parties hereunder, shall
be construed in accordance with the laws of the State in which the Building is
located.
SECTION 18.18. PERFORMANCE OF LANDLORD'S OBLIGATIONS BY MORTGAGEE.
--------------------------------------------------
Tenant shall accept performance of any of Landlord's obligations hereunder
by any Mortgagee.
SECTION 18.19. WAIVER OF JURY TRIAL.
--------------------
To the fullest extent permitted by law, the parties hereto shall and they
hereby do waive trial by jury in any action, proceeding or counterclaim brought
by either of the parties hereto against the other on any matters whatsoever
arising out of or in any way connected
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with this Lease, the relationship of Landlord and Tenant, Tenant's use or
occupancy of the Premises or any claim of injury or damage.
SECTION 18.20. LIMITATION OF LIABILITY.
-----------------------
Anything contained in this Lease to the contrary notwithstanding, to the
fullest extent permitted by law, Tenant agrees that it shall look solely to the
estate and property of the Landlord in the lands and buildings comprising the
Land and the Building of which the Premises form a part for the collection of
any judgment, award, decree or other judicial process requiring the payment of
money by Landlord arising from or as the result of (a) any default or breach by
Landlord of any of its obligations or agreements under this Lease, or (b) any
acts or omissions by Landlord or its property management or leasing agent, or
its or their officers, directors, partners, members, agents, servants or
employees, in connection with or in any way relating to this lease or the
operation, management, leasing, construction, maintenance or repair of the
Premises or the Building; subject, however, in any and all such instances to
the rights of the holder of any existing or future Mortgage covering all or any
part of parts of the Building or any interest or interests therein which exists
at the time Tenant's right matures to the level of constituting a lien. To the
fullest extent permitted by law, the Tenant agrees that no other assets of the
Landlord, and no assets of the Landlords's property management or leasing agent
or of Landlord's or such agent's respective officers, directors, shareholders,
partners, members, agents, servants or employees, shall be subject to levy,
execution or other procedures for the satisfaction of any such judgment, award,
decree or claim. Nothing herein contained shall be construed as granting or
consenting to any equitable or other lien in or to the Landlord/s interest
hereunder or in or to the Land or the Building, and any lien of the Tenant or
rights of the Tenant with respect thereto shall arise only upon execution by
Tenant of a judgment obtained by it against Landlord and shall be subject and
subordinate to the rights of the holder of any existing or future Mortgage
covering all or any part of the Building, or the Land, or any interest or
interests therein.
SECTION 18.21. FUTURE BUILDINGS.
----------------
Tenant consents and agrees that (i) the Tenants or occupants of any and all
future buildings at any time or times erected on or adjacent to the Land, and
the customers and invitees thereof, may use the access drives to and from the
Land and going between their areas and the Land, and (ii) all other persons
authorized by Landlord, whether by public dedication or otherwise, may use all
the access drives and approaches to and through the Land and to and from any
adjoining right-of-way or land.
SECTION 18.22. LANDLORD'S APPROVAL.
-------------------
Tenant hereby covenants and agrees to pay to Landlord Three Hundred and
No/100 ($300.00) Dollars as partial reimbursement of Landlord's expense relative
to the review, approval or execution of any document requested by Tenant
pertaining to this Lease subsequent to the execution thereof. Payment of said
sum shall be made simultaneously with the request for review, approval or
execution of the requested document.
-34-
<PAGE>
SECTION 18.23. ATTORNEYS' FEES.
---------------
In the event that if, at anytime during the Term of this Lease or
thereafter, either Landlord or Tenant should institute any action or proceeding
against the other relating to the provisions of this Lease or any default
hereunder then, in that event, the unsuccessful party in such action, or
proceeding, agrees to reimburse the successful party for the reasonable expense
of attorneys' fees and disbursements incurred therein by the successful party.
This Section shall survive the expiration or termination of this Lease.
SECTION 18.24. SINGULAR AND PLURAL.
-------------------
As used in this Lease, pronouns which indicate the singular number shall be
deemed to include the plural pronouns which indicate the plural number shall be
deemed to include the singular, and pronouns which indicate any gender shall be
deemed to include all genders, where the context would so require or permit.
SECTION 18.25. AMERICANS WITH DISABILITIES ACT OF 1990.
---------------------------------------
1. Tenant shall, at its own cost and expense, make or cause to be made
all such non-structural alterations to the Premises as shall be
required for compliance with the Americans with Disabilities Act of
----------------------------------
1990, as now or hereafter amended, and the rules and regulations from
----
time to time promulgated thereunder.
2. All plans and specifications submitted to Landlord for alterations to
the Premises shall be in compliance with all applicable laws and
governmental and quasi-governmental rules and regulations including,
without limitation, the Americans with Disabilities Act of 1990, as
---------------------------------------
now or hereafter amended.
3. Tenant hereby agrees to indemnify and hold Landlord harmless from and
against any and all claims, demands, actions, damages, fines,
judgments, penalties, costs (including attorneys' fees and
consultants' fees), liabilities and losses resulting from Tenant's
failure to make non-structural alterations to the Premises or other
accommodations required to be made, as a result of Tenant's use of the
Premises, by the Americans with Disabilities Act of 1990, as now or
---------------------------------------
hereafter amended, and the rules and regulations from time to time
promulgated thereunder.
4. Landlord hereby agrees to indemnify and hold Tenant harmless from and
against any and all claims, demands, actions, damages, fines,
judgments, penalties, costs (including attorneys' fees and
consultants' fees), liabilities and losses as a result of Landlord's
failure to comply with the Americans with Disabilities Act of 1990, as
---------------------------------------
now or hereafter amended, and the rules and regulations promulgated
thereunder.
The provisions of this Section 18.25. shall survive the expiration or other
termination of this Lease.
-35-
<PAGE>
SECTION 18.26. FORCE MAJEURE.
-------------
Landlord and Tenant shall each be excused for the period of any delay and
shall not be deemed in default with respect to the performance of any of the
terms, covenants and conditions of this Lease (except for the payment of Rental)
when prevented from so doing by any fire, windstorm or other casualty, labor
disputes, civil commotion, governmental regulations or controls, inability to
obtain any material or services, (provided such material or services are timely
ordered), acts of God, or any other causes beyond the reasonable control of the
Landlord or the Tenant.
SECTION 18.27. DISCLOSURE OF RELATED PARTY INTERESTS BY REAL ESTATE LICENSEE
-------------------------------------------------------------
All of the parties to this Lease Agreement understand, acknowledge and
agree that one or more real estate brokers, sales persons or companies who are
licensed under the Alabama Real Estate License Law (the "Licensees"), and/or one
or more members of his, her or their immediate family or other individuals,
organizations or business entities in which one or more of said Licensees may
have a personal interest (said Licensees, immediate family members and other
such individuals, organizations or business entities are hereinafter referred to
collectively as the "Related Parties", whether one or more), may constitute or
own a direct or indirect interest in the Landlord under this Lease Agreement.
One or more of said Licensees or other Related Parties also owns a direct or
indirect interest in, and/or serves as an officer, director, member, manager,
partner, agent, servant or employee of Aronov Realty Management, Inc. or one or
more other licensed real estate companies that may have represented Landlord in
connection with this Lease Agreement. This disclosure is made solely for the
purpose of disclosing the related party interest of a real estate Licensee or
his or her other Related Parties in connection with this Lease Agreement.
Nothing herein contained shall be construed to make any such Licensee or other
Related Parties a party to this Lease Agreement, or to impose any direct or
indirect obligations or liabilities on any such Licensee or other Related
Parties in connection with this real estate transaction. All parties to this
Agreement acknowledge and agree that they have received timely disclosure of
said related party interests.
SECTION 18.28. FIBER OPTIC CARRIER
-------------------
Landlord acknowledges Tenant proposes to use a company called Espire for
its fiber optic service needs.
IN WITNESS WHEREOF, Landlord and Tenant have caused this Lease Agreement to
be executed as of the date first hereinabove written.
LANDLORD:
Executive Park, TIC
/s/ Unreadable By: Aronov Realty Management,Inc.
- ---------------- an Alabama corporation
WITNESS As Agent
By: /s/ Jake S. Aronov
--------------------
Its: President
--------------
-36-
<PAGE>
TENANT:
VIALOG Corporation, a corporation
/s/ Jennifer Critch BY: /s/ Glenn D. Bolduc
- --------------------- ---------------------
WITNESS Its: President
---------------
[ACKNOWLEDGEMENTS BEGIN ON NEXT PAGE]
-37-
<PAGE>
STATE OF ALABAMA )
:
COUNTY OF MONTGOMERY )
I, the undersigned, a Notary Public in and for said County in said State,
hereby certify that Jake F. Aronov, whose name as President of Aronov Realty
Management, Inc., an Alabama corporation, acting in the corporation's capacity
as a Agent for Executive Park, TIC, is signed to the foregoing instrument, and
who is known to me, acknowledged before me on this day, that being informed of
the contents of said instrument, he, as such officer, and with full authority,
executed the same voluntarily for and as the act of said corporation, acting in
its capacity as Agent of said Executive Park, TIC.
Given under my hand and official seal of office this 14th day of October,
1998.
/s/ Beverly J. Moody
--------------------
Notary Public
(SEAL) My Commission Expires: 9-17-00
STATE OF Massachusetts )
:
COUNTY OF Middlesex )
I, the undersigned, a Notary Public in and for said County in said State,
hereby certify that Glenn Bolduc, whose name as President of VIALOG Corporation,
a corporation, is signed to the foregoing instrument, and who is known to me,
acknowledged before me on this day, that being informed of the contents of said
instrument, he/she, as such officer, and with full authority, executed the same
voluntarily for and as the act of said corporation.
Given under my hand and official seal of office this 7th day of October,
1998.
/s/ Margaret M. Lukas
-----------------------
Notary Public Margaret M. Lukas
(SEAL) My Commission Expires: 4/19/2002
-38-
<PAGE>
EXHIBIT "A"
-----------
[MAP OF LOCATION OF FACILITY]
Building "D" 2388 Fairlane Drive
Building "E" 2368 Fairlane Drive
Building "F" 2863 Fairlane Drive
-39-
<PAGE>
EXHIBIT B
---------
LEASE BETWEEN EXECUTIVE PARK, T.I.C. ("LANDLORD")
AND VIALOG CORPORATION ("TENANT")
The Improvement Allowance set forth in Section 7.1, shall be paid by
Landlord to Tenant upon completion of the Tenant Work, issuance of certificate
of occupancy therefor by the City of Montgomery, Alabama and receipt by Landlord
of appropriate lien waivers. Upon completion of the Tenant Work and submission
of the aforementioned documentation to Landlord, Tenant shall notify the
Landlord in writing and the Landlord shall provide to Tenant a check in the
amount of the Improvement Allowance. The payment of this check by the Landlord
to the Tenant shall occur within ten (10) days of the Tenant's notification to
the Landlord that the Tenant's Work is completed. If the Landlord does not
provide the payment of the check to the Tenant as of the Rent Commencement Date,
then the Tenant may, at Tenant's option, offset the amount owing from the
Landlord to the Tenant against the Base Rent payments owing to the Landlord
under the terms of this Lease.
-40-
<PAGE>
EXHIBIT "C"
-----------
SIGN CRITERIA
Landlord reserves the right to approve in its sole discretion all interior
and exterior signage.
-41-
<PAGE>
EXHIBIT "D"
-----------
GUARANTY
None.
-42-
<PAGE>
EXHIBIT "E"
-----------
RULES AND REGULATIONS
1. The entries, passage halls, stairways, and elevators and escalators
shall not be obstructed or used for any purpose other than those of ingress and
egress.
2. No openings, sashes, sash-doors, windows or glass that admit or
reflect light into the halls or any part of the building shall be covered or
obstructed.
3. The water closets, wash basins, sinks, etc., and other apparatus,
shall not be used for any other purpose than those for which they were
constructed; and no sweepings, rubbish or other substances shall be thrown
therein, nor shall anything be thrown by the Tenant, its agents, or employees,
out of the windows, doors or other openings.
4. No nails, screws or other things shall be driven, screwed or otherwise
placed in the walls, or any part of the building. Nor shall any change,
defacement or alteration of any kind be made in any part of the building by the
Tenant, its agents or employees. No objection shall be taken to bulletin boards
and lightweight display items.
5. No signs, advertisements or notice of any kind shall be painted,
inscribed, or affixed on any part of the outside or inside of said building
except by the Landlord and the same shall be in such place and of such color,
style and size as is specified by Landlord.
6. No Tenant shall do or permit anything to be done in said premises or
bring or keep anything therein which will in any way increase the rate of fire
insurance on said building or on property kept therein, or obstruct or interfere
with the rights of other Tenants, or in any way injure or annoy them or conflict
with the laws relating to fires or with any insurance policy upon said building
or any part thereof.
7. No Tenant shall employ any person or persons, or permit any person or
persons other than the janitor or janitors of the Tenant (who will be provided
with pass keys into the office), to enter the leased premises for the purpose of
cleaning or taking charge of said premises.
8. Tenant, its clerks, or employees, shall maintain order in the
building.
9. No animals or birds, bicycle or other vehicle shall be allowed in the
building.
10. No additional locks shall be affixed to any door except by written
consent of Landlord and on termination of lease all keys for locks including
extra locks shall be delivered to Landlord. All glass, locks and trimmings in
or upon the doors and windows respectively belonging to the building shall be
kept whole, and when any part thereof shall be broken, the same shall be
immediately replaced and repaired and put in order under the direction and to
the satisfaction of the Landlord or its agents, at the expense of the Tenant,
and shall be left whole and in good repair together with the same number and
kind of keys as may be received by such Tenant on entering into possession of
any part of the building during tenancy.
-43-
<PAGE>
11. Tenant shall not permit the preparation of food for consumption in the
premises, nor the facilities for the preparation of food without written consent
of Landlord. Tenant shall not use the premises for housing, lodging, sleeping,
nor any immoral or illegal purpose.
12. Two (2) keys to the entrance door to the space occupied by Tenant
shall be furnished by Landlord. At the termination of this lease, Tenant shall
return all keys.
13. Night Watch. The Landlord, in its discretion may establish a night
watch, and, if established, after 7:00 P.M. the building is in charge of the
night watchman, and every person entering or leaving the building is subject to
be questioned by him as to his business in the building, if unknown to the
watchman.
14. Tenant shall not operate, or permit to be operated, any mechanical
machinery, steam engine, boiler, or stove without Landlord's written consent;
Tenant will not allow the use of oil, burning fluids, kerosene, gasoline or
other fuels to be used on the demised premises.
15. Tenants are not to injure, overload or deface the building, nor the
walls of their premises, not to carry on or upon the premises any noisome,
noxious or otherwise offensive business. Tenant shall not place equipment in
the Premises which will use more electricity than reasonably contemplated by the
parties. In the event Tenant desires to put additional electrical equipment in
the Premises, it must obtain Landlord's consent, in writing, which consent shall
not be withheld so long as it does not either overload the electrical capacity
of the Leased Premises and the Premises, or increase the electrical bill being
paid by Landlord as part of operating expense. Tenant shall not place signs,
advertisements or other displays in its windows.
16. Safes, furniture, fixtures, and supplies shall be brought into the
building only at reasonable times and in such manner as the Landlord or its
agents shall designate, and shall be removed from the building only at
reasonable times as the Landlord or its agents shall designate. The Landlord
retains the right to prescribe the weight and positions of all safes, and
prohibits safes of over a certain weight to be determined by Landlord or its
agents to be placed in said building. All safes in position shall stand upon
planks or other material of such character and thickness as the Landlord may
direct. Iron safes after delivery to entry of building are to be handled only
by the Landlord. A reasonable charge of 1,000 pounds or fractional part thereof
for placing safes will be made by the Landlord and paid by the Tenant. A like
charge will be made for re-delivery to entry of buildings, or for removal to any
portion of the building. The Tenant is to be responsible for all damage to the
premises, caused by moving in or out of the premises by the Tenant of furniture,
boxes or bulky articles.
17. The use of anything except electricity for lighting said premises is
prohibited.
18. No installation of electric apparatus, telephone or other apparatus
will be permitted except by the written consent of the Landlord, and under the
direction of the Landlord or its agents.
-44-
<PAGE>
19. Without the written consent of the Landlord, the Tenant shall not
install or use in said premises electric light bulbs of greater lighting
capacity than such as are specified by Landlord, and without written consent of
Landlord. The Tenant shall not connect any electric or other device operated by
or consuming electricity to the wiring of said building.
20. The Landlord reserves the right to make and enforce such other
reasonable rules and regulations as in its judgement may be deemed necessary or
advisable from time to time to promote the safety, care and cleanliness of the
premises and for the preservation of good order therein.
21. The Landlord reserves the right to alter, amend or modify these rules
and regulations and also to promulgate new and additional rules and regulations
at any time and in such event altered, modified, amended or new rules and
regulations shall become a part thereof and shall have the same force and effect
and be binding upon the Tenant to the same extent as if incorporated herein at
the time of execution of this lease.
-45-
<PAGE>
EXHIBIT 10.36
EMPLOYMENT AGREEMENT
--------------------
This Agreement is entered into as of August 3, 1998 by and between VIALOG
Corporation, a Massachusetts corporation (the "Company") and CLARISSA PETERSON
("Ms. Peterson").
FACTS
The Company desires to employ Ms. Peterson as Vice President of Human
Resources with the duties, responsibilities, rights and obligations set forth
below, and Ms. Peterson desires to be so employed.
In Ms. Peterson's capacity as Vice President of Human Resources of the
Company, Ms. Peterson will obtain access to, and be in a position to adversely
affect, the confidential information and good will of VIALOG and its
subsidiaries (VIALOG and the subsidiaries collectively and each individually
referred to as the "VIALOG Group").
AGREEMENT
In consideration of the foregoing and of the covenants and agreements set
forth in this Agreement, the Company and the Ms. Peterson agree as follows:
1. Term. The term of this Agreement commences on the date first written
----
above (the "Effective Date"), and will continue until terminated in accordance
with the provisions of Section 6 of this Agreement (the "Term").
2. Duties and Responsibilities. The Company agrees to employ Ms.
---------------------------
Peterson, and Ms. Peterson agrees to be employed, as Vice President of Human
Resources, and Ms. Peterson will perform all of the duties and responsibilities
of said office, subject to direction by the Chief Executive Officer and the
Board of Directors of the Company. In addition, Ms. Peterson will perform such
other specific tasks and responsibilities, consistent with Ms. Peterson's
position as Vice President of Human Resources, as may be assigned to Ms.
Peterson from time to time by the Chief Executive Officer and the Board of
Directors of the Company. The Company will have the right to reassign Ms.
Peterson to such other positions in the Company or within the VIALOG Group as
the Company may determine so long as such other positions involved a
substantially similar level of compensation, authority and responsibility as the
position of Vice President of Human Resources. Ms. Peterson will devote
substantially all of her business time, labor, skill and best efforts to
carrying out her duties and responsibilities under this Agreement. Ms. Peterson
may engage in side business activities so long as (i) Ms. Peterson does not
otherwise violate any other provision of this Agreement, and (ii) such side
business activities do not interfere with her ability to carry out the duties
and responsibilities under this Agreement.
<PAGE>
Ms. Peterson will travel to whatever extent may be reasonably necessary in the
conduct of the VIALOG Group's business and her duties and responsibilities under
this Agreement.
3. Compensation. Subject to Ms. Peterson's adherence to the
------------
responsibilities and obligations under this Agreement, the Company agrees to pay
Ms. Peterson a base compensation at the bi-weekly rate of four thousand four
hundred and twenty-three dollars and eight cents ($4,423.08). Ms. Peterson will
be eligible for such increases (but not decreases) in base compensation, and to
participate in such bonus and/or incentive compensation plans, as shall be made
available from time to time to similarly situated senior executives of the
Company.
4. Benefits, Vacation and Stock Options. Ms. Peterson will be eligible to
------------------------------------
participate in and/or receive such group retirement plans (qualified and non-
qualified), insurance plans, other fringe benefit plans and vacation as the
Company makes available to similarly situated senior executives. Subject to the
approval of the Board of Directors, Ms. Peterson will be granted an incentive
stock option to purchase 25,000 shares of the Company's Common Stock, which
option shall vest over three years pursuant to the provisions of an Incentive
Stock Option Agreement to be entered into between the Company and the Ms.
Peterson.
5. (A) Expense Reimbursement. Ms. Peterson will be entitled to
---------------------
reimbursement for business expenses incurred by Ms. Peterson connection with the
performance of Ms. Peterson's duties and responsibilities under this Agreement
upon submission of documentation in accordance with such procedures as the
Company may establish from time to time.
(B) Relocation Expenses. The Company will reimburse Ms. Peterson for
--------------------
reasonable and necessary expenses incurred in connection with her relocation in
a total amount not to exceed Twenty Thousand Dollars ($20,000.00). Ms. Peterson
acknowledges that she must submit all receipts or appropriate documentation
within six (6) months from the date of her employment in order to receive
reimbursement from the Company. Ms. Peterson further acknowledges that should
she leave her employment with the Company less than one (1) year from the date
of her employment with the Company, she will reimburse the Company the full
amount she has received under this Agreement; and, she hereby authorizes the
Company to deduct any monies owing to the Company for expenses reimbursed to Ms.
Peterson under this Agreement, from her final paycheck and severance payments if
applicable. She acknowledges that any amount remaining due to the Company shall
be a debt owed by her to the Company. Ms. Peterson further agrees that if any
taxing authority determines taxes, penalties or interest to be due or owing with
respect to any monies paid to Ms. Peterson under this Section, she will be
solely responsible for the payment of such taxes, and agrees further to
indemnify and hold harmless the Company in the event any such taxing authority
alleges that the Company should pay such taxes, penalties or interest.
6. Termination. The Company may terminate Ms. Peterson's employment at
-----------
any time during the Term for any reason as follows:
2
<PAGE>
(a) By the Company for Cause. The Company has the right to terminate Ms.
------------------------
Peterson's employment immediately for "Cause". For purposes of this Agreement
only, the term "Cause" means material breach of any provision of this Agreement;
misconduct in the performance of Ms. Peterson's duties or responsibilities;
nonperformance of Ms. Peterson's duties or responsibilities other than by reason
of disability; conviction of, or written admission to, a felony or other crime
involving moral turpitude; imprisonment for any crime constituting a felony; any
act involving theft, embezzlement or fraud; or a material violation of any
written policy of the Company. If Ms. Peterson's employment is terminated for
Cause, the Company will only be obligated to pay Executive's base compensation
through the date of such termination, together with such other benefits or
payments to which Ms. Peterson may be entitled (in the event of a Cause
termination) by law or pursuant to benefit plans of the Company then in effect.
Ms. Peterson will remain bound by Ms. Peterson's obligations under Sections 7, 8
and 9 of this Agreement.
(b) Disability. The Company has the right to terminate Ms. Peterson's
----------
employment if Ms. Peterson is prevented, by illness, accident, disability or any
other physical or mental condition, from substantially performing Ms. Peterson's
duties and responsibilities under this Agreement for one or more periods
totaling one hundred fifty (150) days in any (12) month period. If Ms.
Peterson's employment is terminated pursuant to this section, Ms. Peterson will
be entitled to receive such base compensation and comparable group insurance
benefits as Ms. Peterson would have received (at such times as Ms. Peterson
would have received them) during a period equal to one (1) year which amount
will be reduced by only the amount actually received by Ms. Peterson under any
disability plans maintained by the Company. Ms. Peterson will also be entitled
to receive such payments or benefits to which Ms. Peterson may be entitled by
law or pursuant to benefit plans of the Company then in effect. Ms. Peterson
will remain bound by Ms. Peterson's obligations under Sections 7, 8 and 9 of
this Agreement.
(c) Death. If Ms. Peterson dies during the Term, then the Company will pay
-----
to Ms. Peterson's estate, designated beneficiary, or legal representative such
base compensation and comparable group insurance benefits as Ms. Peterson would
have received (at such times as Ms. Peterson would have received them) during a
period equal to one (1) year, together with such other benefits or payments to
which Ms. Peterson may be entitled by law or pursuant to benefit plans of the
Company then in effect.
(d) Resignation and Termination by the Company Other than for Cause,
----------------------------------------------------------------
Disability or Death. The Company and Ms. Peterson each have the right to
- -------------------
terminate Ms. Peterson's employment upon thirty (30) days' prior written notice.
Ms. Peterson will in any event remain bound by Executive's obligations under
Sections 7, 8 and 9 of this Agreement. If Ms. Peterson's employment is
terminated by Ms. Peterson, then the Ms. Peterson will not be entitled to any
severance payments. If Ms. Peterson's employment is terminated by the Company
pursuant to this Section 6 (d): (i) Ms. Peterson will receive a severance
payment of one year's then current base salary, such severance payment to be
paid in twelve equal month installments commencing on the first day of the first
month following such termination; provided, however, that for each of the last
six monthly installments, the
3
<PAGE>
amount of such installment shall be reduced, but not below zero, by the amount
of compensation, if any, earned by the Ms. Peterson for service rendered to any
third party during such month; and (ii) to the extent permitted by law and by
the terms of any applicable insurance contract, the Company shall at its own
cost and expense continue to make available to, and to continue Ms. Peterson's
participation in, those group insurance plans and other fringe benefit plans in
which she was a participant as of the date of her termination by the Company for
the period commencing on the date of such termination of employment and ending
on the earlier of (A) twelve months from the date of the termination (the
"Severance Period") or (B) such time as Ms. Peterson obtains other employment.
7. Confidentiality. Ms. Peterson will not at any time, without the
---------------
Company's prior written consent, reveal or disclose to any person outside of the
VIALOG Group, or use for her own benefit or the benefit of any other person or
entity, any confidential information concerning the business or affairs of the
VIALOG Group, or concerning the customers, clients or employees of the VIALOG
Group ("Confidential Information"). For purposes of this Agreement,
Confidential Information includes, but is not limited to, financial information
or plans; sales and marketing information or plans; business or strategic plans;
salary, bonus or other personnel information of any type; information concerning
methods of operation; proprietary systems or software; legal or regulatory
information; cost and pricing information or policies; information concerning
new or potential products or markets; models, practices, procedures, strategies
or related information; research and/or analysis; and information concerning new
or potential investors, customers, or clients. Confidential Information does
not include Confidential Information already available to the public through no
act of Ms. Peterson's, nor does it include salary, bonus or other personnel
information specific to Ms. Peterson.
Ms. Peterson further understands and agrees that all Confidential
Information, however or whenever produced, will be the VIALOG Group's sole
property, and will not be removed by Ms. Peterson (or anyone acting at Ms.
Peterson's direction or on Ms. Peterson's behalf) from the VIALOG Group's
custody or premises without the Company's prior written consent. Upon the
termination of Ms. Peterson's employment, Ms. Peterson will promptly deliver to
the Company all copies of all documents, equipment, property or materials of any
type in Ms. Peterson's possession, custody or control, that belong to the VIALOG
Group, and/or that contain, in whole or in part, any Confidential Information.
8. Inventions. During the Term of this Agreement, Ms. Peterson will
----------
promptly disclose to the Company or any successor or assign, and grant to the
Company and its successors and assigns (without any separate remuneration or
compensation other than that received by Ms. Peterson in the course of
employment), Ms. Peterson's entire right, title and interest in and to any and
all inventions, developments, discoveries, models, or any other intellectual
property of any type or nature whatsoever ("Intellectual Property") developed
during the Term of this Agreement, whether developed by Ms. Peterson during or
after business hours, or alone or in connection with others, reasonably related
to the business of the Company, the Subsidiaries and their respective successors
or assigns, determined as such business is constituted at the time of the
invention. Ms. Peterson agrees, at the Company's expense, to take all steps
necessary or proper to vest title to all such Intellectual Property in the
4
<PAGE>
Company, its affiliates, successors, assigns, nominees or designees, and to
cooperate fully and assist the VIALOG Group in any litigation or other
proceedings involving any such Intellectual Property.
9. Restrictive Covenants. During the Restricted Period (defined below),
---------------------
Ms. Peterson will not, directly or indirectly, for Ms. Peterson's own account or
for or on behalf of any other person or entity, whether as an officer, director,
employee, partner, principal, joint venturer, consultant, investor, shareholder,
independent contractor or otherwise:
(a) engage in any business in competition with the then business of the
VIALOG Group, or in competition with any business that the VIALOG Group, to the
Ms. Peterson's knowledge, actively was planning to enter at the time of the
termination of Ms. Peterson's employment;
(b) solicit or accept business in competition with the VIALOG Group
from any (i) clients of the VIALOG Group who were clients of the VIALOG Group at
the time of the termination of Ms. Peterson's employment, or who were clients
during the one (1) year period preceding such termination, or (ii) any
prospective clients of the VIALOG Group who, within two (2) years prior to such
termination, had been solicited directly by Ms. Peterson or where Ms. Peterson
supervised or participated in such solicitation activities;
(c) hire or employ, or attempt to hire or employ, in any fashion
(whether as an employee, independent contractor or otherwise), any employee or
independent contractor of the VIALOG Group, or solicit or induce, or attempt to
solicit or induce, any of the VIALOG Group's employees, consultants, clients,
customers, vendors, suppliers, or independent contractors to terminate their
relationship with the VIALOG Group; or
(d) speak or act in any manner that is intended to, or does in fact,
damage the goodwill or the business or reputation of the VIALOG Group.
For purposes of this Agreement, the Restricted Period will be a period
beginning on the Effective Date and ending on the later of (i) two years after
the Closing Date or (ii) the first anniversary of the last day of the Severance
Period.
Ms. Peterson may own not more than 5 percent of any class of securities
registered pursuant to the Securities Exchange Act of 1934, as amended, of any
corporation engaged in competition with the VIALOG Group so long as Ms. Peterson
does not otherwise (i) participate in the management or operation of any such
business, or (ii) violate any other provision of this Agreement.
Ms. Peterson understands and agrees that, by virtue of Ms. Peterson's
position with the Company, Ms. Peterson will have substantial access to and
impact on the good will, confidential information and other legitimate business
interests of the VIALOG Group, and therefore will be in a position to have a
substantial adverse impact on the VIALOG Group's business interests should Ms.
Peterson engage in business in competition with the VIALOG Group. Ms. Peterson
acknowledges that
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Ms. Peterson's adherence to the restrictive covenants set forth in this Section
is an important and substantial part of the consideration that the Company is
receiving under this Agreement, and agrees that the restrictive covenants in
this Section are enforceable in all respects. Ms. Peterson consents to the entry
of injunctive relief to enforce such covenants, in addition to such other relief
to which the Company may be entitled by law.
10. Specific Performance. Ms. Peterson acknowledges that the VIALOG
--------------------
Group's remedy at law for breach of Sections 7, 8 and 9 of this Agreement would
be inadequate, and agrees that, for breach of such provisions, the VIALOG Group
is entitled to injunctive relief and to enforce its rights by an action for
specific performance.
11. Choice of Law. This Agreement, and all disputes arising under or
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related to it, will be governed by the law of the Commonwealth of Massachusetts.
12. Choice of Forum. All disputes arising under or out of this Agreement
---------------
will be brought in courts of competent jurisdiction located within the
Commonwealth of Massachusetts.
13. Assignment. This Agreement, and the rights and obligations of Ms.
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Peterson and the Company, inures to the benefit of and is binding upon, Ms.
Peterson, Ms. Peterson's heirs and representatives, and upon the Company, the
Subsidiaries and their respective successors and assigns. This Agreement may
not be assigned by Ms. Peterson. This Agreement may be assigned to any member
of the VIALOG Group.
14. Notices. All notices required by this Agreement will be in writing
-------
and will be deemed to have been duly delivered when delivered in person or when
mailed by certified mail, return receipt requested, or nationally recognized
next day delivery service, as follows:
(a) If to Ms. Peterson, to the address which appears below Ms.
Peterson's signature to this Agreement, and
(b) If to the Company, at:
Ten New England Business Center, Suite 302
Andover, MA 01810
or to such other address as a party specifies in writing given in accordance
with this Section.
15. Severability. If any one or more of the provisions of this Agreement
------------
is held to be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions will not in any way be affected or
impaired. Moreover, if any one or more of the provisions contained in this
Agreement is held to be excessively broad as to duration, activity or subject,
such provision will be construed by limiting or reducing it so as to be
enforceable to the maximum extent compatible with applicable law.
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16. Consultation with Counsel; No Representations. Ms. Peterson
---------------------------------------------
acknowledges that Ms. Peterson has had a full and complete opportunity to
consult with counsel of Ms. Peterson's own choosing concerning the terms,
enforceability and implications of this Agreement, and that the Company has made
no representations or warranties to Ms. Peterson concerning the terms,
enforceability or implications of this Agreement other than are as reflected in
this Agreement.
EMPLOYEE VIALOG CORPORATION
/s/ Clarissa Peterson By: /s/ Glenn D. Bolduc
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Clarissa Peterson Glenn D. Bolduc
President/CEO
46 Elm Street #2
- ----------------
Address:
Andover, MA 01810
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EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
VIALOG Corporation:
We consent to the use of our reports included herein and to the reference to
our firm under the heading "Experts," "Summary Historical and Pro Forma
Financial Data" and "Selected Financial Data" in the prospectus.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Boston, Massachusetts
December 31, 1998
