<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 10, 1998.
FILE NO. 333-44041
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 1 TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
VIALOG CORPORATION (ISSUER)
TELEPHONE BUSINESS MEETINGS, INC.
CONFERENCE SOURCE INTERNATIONAL, INC.
CALL POINTS, INC.
KENDALL SQUARE TELECONFERENCING, INC.
AMERICAN CONFERENCING COMPANY, INC.
AND
COMMUNICATION DEVELOPMENT CORPORATION (GUARANTORS)
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
---------------
MASSACHUSETTS 04-3305282
DELAWARE 52-1555751
GEORGIA 58-1982276
DELAWARE 04-3346499
MASSACHUSETTS 04-2956637
DELAWARE 04-3345059
CONNECTICUT 4813 06-1327493
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (IRS EMPLOYER
JURISDICTION CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
OF INCORPORATION OR
ORGANIZATION)
10 NEW ENGLAND BUSINESS CENTER, SUITE 302
ANDOVER, MA 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
10 NEW ENGLAND BUSINESS CENTER, SUITE 302
ANDOVER, MA 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. CADWALADER, WICKERSHAM & TAFT
MIRICK, O'CONNELL, DEMALLIE & LOUGEE, 100 MAIDEN LANE
LLP NEW YORK, NEW YORK 10038
1700 BANKBOSTON TOWER (212) 504-6000
100 FRONT STREET
WORCESTER, MASSACHUSETTS 01608-1477
(508) 791-8500
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after the Registration Statement becomes
effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) 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(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. [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER UNIT OFFERING PRICE REGISTRATION FEE
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
12 3/4% Senior Notes due
2001.................. $75,000,000 100% $75,000,000 $22,728(1)
- ---------------------------------------------------------------------------------------
Guarantees(2).......... -- -- -- --
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) Previously filed.
(2) Guarantees by subsidiaries of the Registrant of the payment of the
principal and interest on the 12 3/4% Senior Notes due 2001. Pursuant to
Rule 457(n), no additional fee is required.
---------------
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
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 SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<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. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED FEBRUARY 10, 1998
PROSPECTUS
LOGO
OFFER TO EXCHANGE
$75,000,000 12 3/4% SENIOR NOTES DUE 2001, SERIES B
FOR
$75,000,000 12 3/4% SENIOR NOTES DUE 2001, SERIES A
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M. NEW YORK CITY TIME, ON MARCH 26,
1998, UNLESS EXTENDED
THE 12 3/4% SENIOR NOTES DUE 2001, SERIES B WILL BE FULLY AND UNCONDITIONALLY
GUARANTEED ON A JOINT AND SEVERAL BASIS BY THE SUBSIDIARIES OF VIALOG
CORPORATION
-----------
VIALOG Corporation, a Massachusetts corporation (the "Company"), is hereby
offering (the "Offering"), upon the terms and subject to the conditions set
forth in this Prospectus and the accompanying letter of transmittal (the
"Letter of Transmittal," and together with this Prospectus, the "Exchange
Offer"), to exchange $1,000 principal amount of its 12 3/4% Senior Notes due
2001, Series B (the "Exchange Notes"), the offer and sale of which have been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
pursuant to a Registration Statement (defined below) of which this Prospectus
constitutes a part, for each $1,000 principal amount of its outstanding 12 3/4%
Senior Notes due 2001, Series A (the "Old Notes"), of which $75,000,000 in
principal amount are outstanding. 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. The Exchange Notes will evidence the same debt as the Old Notes
and will be issued under and be entitled to the benefits of the Indenture
(defined below). The Exchange Notes and the Old Notes are collectively referred
to as the "Notes."
(Cover continued on next page)
-----------
SEE "RISK FACTORS" BEGINNING ON PAGE 14 OF THIS PROSPECTUS FOR A DISCUSSION
OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
-----------
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.
-----------
THE DATE OF THIS PROSPECTUS IS , 1998.
<PAGE>
----------------
VIALOG Group Communications is a service mark of VIALOG Corporation.
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.
<PAGE>
The Notes will be senior unsecured obligations of the Company, ranking pari
passu in right of payment with all Senior Indebtedness (defined below) of the
Company and senior to all future Subordinated Indebtedness (defined below) of
the Company. The Notes will be unconditionally and fully guaranteed (the
"Subsidiary Guarantees") on a senior unsecured basis by the Company's
principal operating subsidiaries, which comprise all of the Company's direct
and indirect subsidiaries (the "Subsidiary Guarantors"), and the Subsidiary
Guarantees will rank pari passu in right of payment with all Senior
Indebtedness of the Subsidiary Guarantors and senior to all future
Subordinated Indebtedness of the Subsidiary Guarantors. The Subsidiary
Guarantees may be released only in the event of a sale or disposition (whether
by merger, stock purchase, asset sale or otherwise) of a particular Subsidiary
Guarantor to an entity which is not a subsidiary of the Company. The Notes and
Subsidiary Guarantees will be effectively subordinated to Secured Indebtedness
of the Company and the Subsidiary Guarantors, respectively, to the extent of
any security interest in assets of the Company and Subsidiary Guarantors,
including any Indebtedness under the Senior Credit Facility (defined below),
which is secured by liens on substantially all of the assets of the Company
and the Subsidiary Guarantors. At September 30, 1997, giving pro forma effect
to the Acquisitions (defined below) and the related financings (but not giving
effect to the financing under the Senior Credit Facility), the Notes and the
Subsidiary Guarantees would have been effectively subordinated to
approximately $1.3 million of Secured Indebtedness of the Company and the
Subsidiary Guarantors. The indenture governing the Notes (the "Indenture")
will permit the Company and its subsidiaries to incur additional Indebtedness
in the future, subject to certain limitations. In the event of a Change of
Control, the Company will be required, subject to certain conditions, to make
an offer to purchase all of the Notes at 101% of the principal amount thereof,
plus accrued and unpaid interest thereon to the date of purchase. 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 to repurchase the Notes. See "Description
of Notes--Ranking and Guarantees," "--Change of Control" and "--Certain
Definitions."
The Company will accept for exchange any and all Old Notes that are validly
tendered on or prior to 5:00 p.m., New York City time, on the date the
Exchange Offer expires, which will be March 26, 1998, unless the Exchange
Offer is extended. See "The Exchange Offer--Expiration Date; Extensions;
Amendments." Tenders of Old Notes may be withdrawn at any time prior to 5:00
p.m., New York City time, on the business day prior to the Expiration Date
(defined below), unless previously accepted for exchange. The Exchange Offer
is not conditioned upon any minimum principal amount of Old Notes being
tendered for exchange. However, the Exchange Offer is subject to certain
conditions which may be waived by the Company and to the terms and provisions
of the Registration Rights Agreement (defined below). Old Notes may be
tendered only in denominations of $1,000 principal amount and integral
multiples thereof. The Company has agreed to pay the expenses of the Exchange
Offer. See "The Exchange Offer."
The Exchange Notes will bear interest at the rate of 12 3/4% per annum,
payable semi-annually on May 15 and November 15 of each year, commencing May
15, 1998. Holders of Exchange Notes of record on May 1, 1998 will receive
interest on May 15, 1998 from the date of the exchange of the Exchange Notes
for the Old Notes, plus an amount equal to the accrued interest on the Old
Notes from the date of issuance of the Old Notes (November 12, 1997) to the
date of exchange thereof. Interest on the Old Notes accepted for exchange will
cease to accrue upon issuance of the Exchange Notes.
The Old Notes were sold by the Company on November 12, 1997 to the Initial
Purchaser (defined below) in a transaction not registered under the Securities
Act in reliance upon Section 4(2) of the Securities Act. The Old Notes were
thereupon offered and sold by the Initial Purchaser only to "qualified
institutional buyers" (as defined in Rule 144A under the Securities Act) and
to a limited number of institutional "accredited investors" (as defined in
Rule 501(a) (1), (2), (3) or (7) under the Securities Act), each of whom
agreed to comply with certain transfer restrictions and other conditions.
Accordingly, the Old Notes may not be offered, resold or otherwise transferred
unless registered under the Securities Act or unless an applicable exemption
from the registration requirements of the Securities Act is available. The
Exchange Notes are being offered hereunder in order to satisfy the obligations
of the Company under the Registration Rights Agreement entered into with the
i
<PAGE>
Initial Purchaser in connection with the offering of the Old Notes. See "The
Exchange Offer," "Description of Notes," and "Registration Rights; Additional
Interest."
Based on no-action letters issued by the staff of the Securities and
Exchange Commission (the "Commission" or "SEC") to third parties, including
Exxon Capital Holdings Corporation, SEC No-Action Letter (available May 13,
1988), Morgan Stanley & Co. Inc., SEC No-Action Letter (available June 5,
1991) (the "Morgan Stanley Letter") and Mary Kay Cosmetics, Inc., SEC No-
Action Letter (available June 5, 1991), the Company believes that the Exchange
Notes issued pursuant to the Exchange Offer may be offered for resale, resold
and otherwise transferred by the respective holders thereof (other than a
"Restricted Holder," being (i) a broker-dealer who purchased Old Notes
exchanged for such Exchange Notes directly from the Company to resell pursuant
to Rule 144A or any other available exemption under the Securities Act or (ii)
a person that is an affiliate of the Company within the meaning of Rule 405
under the Securities Act), without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such
Exchange Notes are acquired in the ordinary course of such holder's business
and such holder is not participating in, and has no arrangement with any
person to participate in, the distribution (within the meaning of the
Securities Act) of such Exchange Notes. Eligible holders wishing to accept the
Exchange Offer must represent to the Company that such conditions have been
met. Holders who tender Old Notes in the Exchange Offer with the intention to
participate in a distribution of the Exchange Notes may not rely upon the
Morgan Stanley Letter or similar no-action letters. See "The Exchange Offer--
General." Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. A broker-
dealer that delivers such a prospectus to purchasers in connection with such
resales will be subject to certain of the civil liability provisions under the
Securities Act and will be bound by the provisions of the Registration Rights
Agreement (including certain indemnification rights and obligations). This
Prospectus, as it may be amended or supplemented from time to time, may be
used by a broker-dealer in connection with resales of Exchange Notes received
in exchange for Old Notes where such Old Notes were acquired by such broker-
dealer as a result of market-making activities or other trading activities.
The Company has agreed that it will make this Prospectus and any amendment or
supplement to this Prospectus available to any broker-dealer for use in
connection with any such resale for a period of up to 180 days after
consummation of the Exchange Offer. See "Plan of Distribution."
The Company will not receive any proceeds from the Exchange Offer.
The Exchange Notes will constitute a new issue of securities with no
established trading market, and there can be no assurance as to the liquidity
of any markets that may develop for the Exchange Notes or as to the ability of
or price at which the holders of Exchange Notes would be able to sell their
Exchange Notes. Future trading prices of the Exchange Notes will depend on
many factors, including, among others, prevailing interest rates, the
Company's operating results and the market for similar securities. The Company
does not intend to apply for listing of the Exchange Notes on any securities
exchange. Jefferies & Company, Inc. (the "Initial Purchaser") has informed the
Company that it currently intends to make a market for the Exchange Notes.
However, it is not so obligated, and any such market making may be
discontinued at any time without notice. Accordingly, no assurance can be
given that an active public or other market will develop for the Exchange
Notes or as to the liquidity of or the trading market for the Exchange Notes.
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF OLD NOTES IN ANY JURISDICTION IN
WHICH THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE
WITH THE SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND ONE TO
US.
ii
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-4 (which term shall encompass any amendment thereto) under the Securities
Act, for the registration of the Exchange Notes 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 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.
As a result of this Exchange Offer the Company will be subject to the
periodic reporting and other informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and in accordance
therewith will file reports and other information with the Commission. As long
as the Company is subject to such periodic reporting and informational
requirements, it will furnish all reports and other information required
thereby to the Commission and pursuant to the Indenture will furnish copies of
such reports and other information to the Trustee (defined below) and the
holders of Notes.
The Company has agreed that, whether or not it is required to do so by the
rules and regulations of the SEC (and within 15 days of the date that is or
would be prescribed thereby), for so long as any of the Notes remain
outstanding, it will furnish to the holders of Notes (excluding exhibits which
will be available upon request) and file with the SEC (unless the SEC will not
accept such a filing) (i) all quarterly and annual financial information that
would be required to be contained in a filing with the SEC on Forms 10-Q and
10-K if the Company were required to file such forms, including a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and, with respect to the annual information only, a report thereon
by the Company's certified independent accountants, and (ii) all reports that
would be required to be filed with the SEC on Form 8-K if the Company were
required to file such reports. In addition, for so long as any of the Notes
remain outstanding, the Company has agreed to make available, upon request, to
any prospective purchaser of the Notes and beneficial owner of the Notes in
connection with any sale thereof the information required by Rule 144A(d)(4)
under the Securities Act. Information may be obtained from the Company at 10
New England Business Center, Suite 302, Andover, Massachusetts 01810
(telephone number: (978) 975-3700), Attention: Corporate Treasurer.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN
THIS PROSPECTUS AND THE ACCOMPANYING LETTER OF TRANSMITTAL AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR THE EXCHANGE AGENT. NEITHER THE DELIVERY OF
THIS PROSPECTUS OR THE ACCOMPANYING LETTER OF TRANSMITTAL, OR BOTH TOGETHER,
NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF. NEITHER THIS PROSPECTUS NOR
iii
<PAGE>
THE ACCOMPANYING LETTER OF TRANSMITTAL, OR BOTH TOGETHER, CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED
HEREBY 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.
iv
<PAGE>
PROSPECTUS SUMMARY
On November 12, 1997, VIALOG Corporation acquired, in separate transactions
(the "Acquisitions"), six private conference service bureaus (each, an
"Acquired Company" and, collectively, the "Acquired Companies") in exchange for
cash and shares of its Common Stock. Unless otherwise indicated, (i) all
information in this Prospectus gives effect to the Acquisitions and the
transactions described under "Organization and Acquisition of the Acquired
Companies"; (ii) all references to "VIALOG Corporation" mean VIALOG Corporation
as a stand alone entity and (iii) all references to "VIALOG" or the "Company"
refer to VIALOG Corporation and include its consolidated subsidiaries. The
following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and the pro forma combined and
individual historical financial statements, including the notes thereto,
appearing elsewhere in this Prospectus. Unless otherwise indicated, all share,
per share and financial information set forth in this Prospectus has been
adjusted to give effect to the Acquisitions. Investors are urged to read this
Prospectus in its entirety, including, without limitation, the information set
forth under "Risk Factors."
THE COMPANY
VIALOG is a leading independent provider of electronic group communications
services, consisting primarily of operator-assisted audio teleconferencing, as
well as video, data and unattended audio teleconference services. The Company
has one of the largest and most geographically diverse networks of sales and
operations centers focused solely on the electronic group communications
market, and has approximately 6,500 ports of teleconferencing capability (one
"port" is required for each conference participant) and state-of-the-art
digital conferencing technology. The Company believes it differentiates itself
from its competitors by providing superior customer service and support, as
well as an extensive range of enhanced and customized communications solutions.
Combining these capabilities with targeted marketing and relationship selling
has allowed the Company to capitalize on the growth in the developing
teleconferencing services industry and to build a large, stable client base of
approximately 5,000 customers representing what the Company estimates to be
over 30,000 accounts. The Company's customer base is diverse, ranging from
Fortune 500 companies to medium and small businesses and institutions.
Customers also include certain major long distance telecommunications providers
which have outsourced their teleconferencing services to VIALOG.
The Company facilitates effective teleconferences through a combination of
technology, enhanced services and superior customer service. Operator-assisted
audio teleconferencing is the cornerstone of the Company's business and the
principal service which builds customer loyalty. The Company also offers
enhanced services such as digital replay of teleconferences, broadcast fax and
fulfillment services such as follow-up mailings or calls. Additionally, the
Company offers customized communications solutions, which include event
planning, auction formats, coaching and event rehearsal services. The Company
derived approximately 97% and 3% of its 1996 net revenues from audio
teleconference services and related customized and enhanced services,
respectively.
The Acquired Companies had a combined compound annual growth rate in net
revenues of 27.3% during the three-year period ended December 31, 1996 and pro
forma combined net revenues of $28.3 million in 1996. The Company believes that
the combination of the Acquired Companies offers a number of significant
synergies that will contribute to VIALOG's continued growth in net revenues and
cash flow. These synergies include operating efficiencies such as reduced costs
for long distance charges, equipment and employee benefits. The Company also
expects to benefit from significantly enhanced marketing power by creating the
critical mass necessary to develop a brand name effectively, implement a
national selling strategy and offer a wide range of teleconference services.
The Company intends to establish its brand, VIALOG, as synonymous with superior
electronic group communications services. The Company also intends to
capitalize on strong industry
1
<PAGE>
fundamentals by leveraging its service capabilities, targeted selling approach
and unique industry position to continue to increase penetration of its
existing customer base and to attract new customers, including those long
distance service providers that decide to outsource their teleconferencing
services. In addition to internal growth, the Company believes there is
substantial opportunity to consolidate the industry further through future
acquisitions.
The Company's executive offices are located at 10 New England Business
Center, Suite 302, Andover, Massachusetts 01810, and its telephone number is
(978) 975-3700.
INDUSTRY OVERVIEW
According to estimates from industry sources, the market for domestic audio
teleconferencing services was approximately $1.7 billion in 1996, having more
than doubled in size from $700 million in 1992. Prior to 1984, audio
teleconferencing was generally considered ineffective because only one person
could speak at a time. With the introduction of Multipoint Control Unit ("MCU"
or "bridge") technology in 1984, the industry then began to develop rapidly.
Demand for audio teleconferencing has continued to grow due to technological
advances that have increased the quality and number of available conferencing
features, the globalization of business operations and the increased acceptance
of audio teleconferencing as an effective business tool. Audio teleconferencing
remains the most effective method to facilitate multiparty communications with
participants in different locations, particularly since the only hardware
required of consumers is the telephone.
A future driver of industry growth is expected to be video and data
teleconferencing. According to industry sources, total video and data
teleconferencing service revenues were estimated to be $99 million and $150
million, respectively, in 1996. The adoption of new international standards,
rapid deployment of new technology and hardware, increased availability of
bandwidth and introduction of new Internet applications are all expected to
drive significant growth in these markets.
Competitors in the teleconferencing services industry include (i) the inter-
exchange carriers ("IXCs"), or long distance telephone companies, which are the
largest service providers in the industry and do not generally market
teleconferencing services separately, but rather offer such services in
conjunction with long distance service sales, (ii) approximately 25 private
conference service bureaus ("PCSBs") (excluding the Acquired Companies), which
are generally smaller companies that focus on audio teleconferencing, and (iii)
the independent local exchange carriers ("LECs") which, like the IXCs, offer
teleconferencing as one of many services. The IXCs have generally been de-
emphasizing operator-assisted services and are increasingly implementing
automated systems. The Company believes this trend offers opportunity for those
companies which are focused solely on teleconferencing and which can obtain
lower labor costs and offer higher levels of customer service.
In addition, it is expected that certain or all of the Regional Bell
Operating Companies ("RBOCs") will be allowed to provide long distance services
under the Telecommunications Act of 1996. The Company believes that the entry
of the RBOCs represents a significant opportunity for VIALOG's outsourcing
business as these companies may choose to outsource their teleconferencing
requirements in order to gain rapid market entry and to avoid development of
internal teleconferencing capabilities. The Company has received requests for
proposals from four of the five RBOCs and believes that it is well-positioned
to be competitive in obtaining outsourced teleconferencing business since it
(i) is not a competitor with IXCs or LECs in the long distance markets or with
the RBOCs, (ii) has the capacity and resources to handle significant
teleconferencing volume, and (iii) already has experience in providing services
on an outsourced basis.
2
<PAGE>
COMPETITIVE STRENGTHS
The Company believes that several characteristics differentiate it from many
of its competitors, including:
Diverse and stable customer base. The Company has a diverse base of customers
that numbered approximately 5,000 in 1996, with only one customer (at less than
11%) representing greater than 10% of net revenues and the Company's top ten
customers representing less than 28% of net revenues. The Company believes that
it has created strong customer loyalty for its services through its emphasis on
superior customer service and the importance of such service to its clients.
This loyalty is demonstrated by VIALOG's record of attracting and retaining
significant clients, with low customer turnover. The Company estimates that it
experienced a "churn" rate of less than 3% during 1995 and 1996 and that
approximately 65% of its revenue growth in 1996 came from existing customers.
Unique industry position. VIALOG believes that it is positioned as one of the
largest and most geographically diverse companies in the industry which focuses
solely on electronic group communications. The Company's largest competitors
are long distance service providers for whom teleconferencing represents only a
small fraction of their total revenues. Therefore, VIALOG can focus its
capabilities and resources solely on teleconferencing, including its
information systems, capital equipment, hiring practices, training and
marketing. The Company believes this focus offers significant flexibility and
competitive advantages in responding to the needs of customers. VIALOG is also
well situated to obtain future outsourcing contracts from long distance service
providers which the Company believes are reluctant to outsource to a long
distance service competitor, and would prefer to outsource to a larger,
independent group communications company with experience in managing the
outsourcing process.
Superior customer service capabilities. The Company believes that it has a
core competency in its customer service capabilities, which stress operator
training, personalized service and anticipation of customer needs. VIALOG has
developed and refined the technological capabilities, procedures and management
information systems necessary to provide superior customer service, a factor
that is critical to both customer retention and new business. An example of
these capabilities is the Company's proprietary billing system for outsourced
services. The Company believes that no competitor can currently match the
flexibility of this system in meeting customer needs.
Broad range of services. The Company believes that it offers the most
comprehensive selection of audio, video and data teleconferencing services in
its industry, providing it with significant marketing advantages. VIALOG offers
the features and pricing options to meet a wide variety of customer needs. The
Company intends to remain at the forefront of the electronic group
communications industry by continuing to augment its existing service offerings
through the development and introduction of additional enhanced services and
customized communications solutions.
Experienced management team. VIALOG has one of the most experienced
management teams in the teleconferencing industry. The top 10 managers of the
Company have on average 14 years of experience within the
teleconferencing/telecommunications industry. This experience is critical to
the Company's ability to implement its business strategy, respond to industry
trends and to identify and consummate acquisition opportunities.
STRATEGY
The Company's objective is to build upon its position as a leading
independent provider of electronic group communications services. Management
plans to achieve this goal by implementing the following initiatives:
Create a national brand identity. The Company intends to establish its brand,
VIALOG, as synonymous with expertise in, and a focus on, electronic group
communications. The Company intends to distinguish its brand
3
<PAGE>
from those of the IXCs and other competitors through the Company's responsive
customer service, focused service offerings and selling strategy.
Establish a national sales network. VIALOG's regional salesforce and targeted
selling approach have been very successful and the Company believes that
substantial opportunity exists to develop new accounts and increase usage at
existing accounts through expanded coverage and establishment of a new national
accounts group. The Company intends to expand its current salesforce to
establish a national sales network of approximately 40 salespeople to be
deployed throughout the United States. The Company also intends to leverage
this salesforce to market its services vertically within select industries,
such as pharmaceutical, finance, and technology, in order to capitalize on its
industry-specific knowledge.
Capitalize on opportunities to provide outsourced services. The Company
intends to expand its customer base for outsourced services to include
additional IXCs and independent LECs. VIALOG currently provides outsourcing
services for several long distance providers and believes the broad trend among
long distance providers generally to outsource services such as telemarketing
and billing is likely to extend to teleconferencing as these companies continue
to move away from labor-intensive activities due to their relatively high labor
costs. Additionally, management intends to capitalize on its outsourcing
experience, service capabilities and position as an independent service
provider to obtain outsourcing contracts from the RBOCs should they become long
distance providers.
Expand through acquisitions. One element of the Company's strategy is to
continue consolidating the electronic group communications services industry in
order to increase market share, broaden geographic coverage and add new service
offerings. The Company will seek to acquire companies that provide high quality
service, have a significant customer base and utilize high quality technology.
The Company believes its acquisition experience and its knowledge of the
industry will be instrumental in identifying and successfully negotiating
additional acquisitions.
Capitalize on consolidation benefits. The Company expects to capitalize on
the benefits of its increased size, the combined experience of the Acquired
Companies and its diverse customer base. The Company believes the combination
will offer significant marketing benefits by creating a critical mass that will
enhance the Company's capacity and appeal to customers. The Company believes
that its increased size will also result in stronger bargaining power in areas
such as long distance telecommunications, equipment, employee benefits and
marketing. The Company intends to improve allocation of personnel and equipment
and to streamline internal practices through coordination among the Acquired
Companies. Management also intends to cross-market, maximize capacity
utilization and integrate pricing strategies.
There can be no assurance that the Company will achieve its objective or be
successful in integrating the operations of the Acquired Companies. See "Risk
Factors."
4
<PAGE>
THE ACQUISITIONS
On November 12, 1997, VIALOG acquired (i) by merger, all of the issued and
outstanding stock of five Acquired Companies, and (ii) by purchase, the assets
of one Acquired Company. The aggregate consideration paid by VIALOG Corporation
for the Acquisitions was 559,330 shares of Common Stock, approximately
$53.0 million in cash and approximately $925,000 in cash related to tax
reimbursements.
THE PRIVATE PLACEMENT AND USE OF PROCEEDS
The Old Notes were sold by the Company on November 12, 1997 to the Initial
Purchaser (the "Private Placement") and were thereupon offered and sold by the
Initial Purchaser only to certain qualified buyers. The $72.0 million net
proceeds received by the Company in connection with the sale of the Old Notes
and warrants (the "Warrants") to purchase an aggregate of 756,645 shares of the
Company's common stock, $.01 par value ("Common Stock") were used to finance
the cash portion of the purchase price for the Acquisitions and certain related
expenses, to repay outstanding indebtedness, make capital expenditures and
provide working capital for the Company. The Warrants have an exercise price of
$.01 per share, and are exercisable at any time prior to the maturity date of
the Notes. The Warrants are not being registered in the Exchange Offer, but are
subject to a registration rights agreement. See "Private Placement,"
"Capitalization" and "Description of Capital Stock and Warrants." The Company
has accepted a proposal for a commitment for senior bank financing consisting
of a revolving credit, term loan and capital expenditures facility in the
aggregate principal amount of $15.0 million (the "Senior Credit Facility"), the
terms of which are presently under negotiation. The Senior Credit Facility will
be used to provide liquidity and fund future working capital requirements of
the Company. See "Description of Senior Credit Facility."
5
<PAGE>
THE EXCHANGE OFFER
The Exchange Offer relates to the exchange of up to $75.0 million principal
amount of Exchange Notes for up to $75.0 million principal amount of Old Notes.
The form and terms of the Exchange Notes are identical in all material respects
to the form and terms of the Old Notes except that the Exchange Notes have been
registered under the Securities Act and will not contain certain transfer
restrictions and hence are not entitled to registration rights. The Exchange
Notes will evidence the same debt as the Old Notes and will be issued under and
be entitled to the benefits of the Indenture governing the Old Notes. See
"Description of Notes."
The Exchange Offer.......... Pursuant to a registration rights agreement (the
"Registration Rights Agreement") by and among the
Company, the Subsidiary Guarantors and the Ini-
tial Purchaser, the Company agreed to (i) file a
registration statement with the Commission (the
"Exchange Offer Registration Statement") with re-
spect to an offer to exchange the Old Notes (the
"Exchange Offer") for senior debt securities of
the Company with terms substantially identical to
the Old Notes (the "Exchange Notes") (except that
the Exchange Notes generally will not contain
terms with respect to transfer restrictions)
within 60 days after the date of original issu-
ance of the Old Notes and (ii) use its best ef-
forts to cause such registration statement to be-
come effective under the Securities Act within
120 days after such issue date. The Registration
Statement of which this Prospectus is a part con-
stitutes such Exchange Offer Registration State-
ment. If applicable law or interpretations of the
staff of the Commission do not permit the Company
to consummate the Exchange Offer, or if certain
holders of the Old Notes notify the Company that
they are not permitted to participate in, or
would not receive freely tradable Notes pursuant
to, the Exchange Offer, the Company will use its
best efforts to cause to become effective a reg-
istration statement (the "Shelf Registration
Statement") with respect to the resale of the Old
Notes and to keep the Shelf Registration State-
ment effective until three years after the date
of original issuance of the Old Notes. The inter-
est rate on the Old Notes is subject to increase
under certain circumstances if the Company is not
in compliance with its obligations under the Reg-
istration Rights Agreement. See "Registration
Rights; Additional Interest."
Each $1,000 principal amount of Exchange Notes
will be issued in exchange for each $1,000 prin-
cipal amount of outstanding Old Notes. As of the
date hereof, $75.0 million principal amount of
Old Notes are issued and outstanding. The Company
will issue the Exchange Notes to tendering hold-
ers of Old Notes on or promptly after the Expira-
tion Date.
Resale...................... The Company believes that the Exchange Notes is-
sued pursuant to the Exchange Offer generally
will be freely transferable by the holders
thereof without registration or any prospectus
delivery requirement under the Securities Act.
See "The Exchange Offer--General" and "Plan of
Distribution."
The Old Notes were not registered under the Secu-
rities Act and unless so registered many not be
offered or sold except pursuant to
6
<PAGE>
an exemption from, or in a transaction not sub-
ject to, the registration requirements of the Se-
curities Act. See "Transfer Restrictions on the
Old Notes".
Expiration Date.............
5:00 p.m., New York City time, on March 26, 1998,
unless the Exchange Offer is extended, in which
case the term "Expiration Date" means the latest
date to which the Exchange Offer is extended. See
"The Exchange Offer--Expiration Date; Extensions;
Amendments."
Procedures for Tendering Each holder of Old Notes wishing to accept the
Old Notes.................. Exchange Offer must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, in
accordance with the instructions contained herein
and therein, and mail or otherwise deliver such
Letter of Transmittal, or such facsimile, to-
gether with the Old Notes to be exchanged and any
other required documentation to the Exchange
Agent at the address set forth herein and there-
in. Certain brokers, dealers, commercial banks,
trust companies and other nominees may effect
tenders by book-entry transfer, including an
Agent's Message (defined below) in lieu of a Let-
ter of Transmittal. See "The Exchange Offer--Pro-
cedures for Tendering."
Special Procedures for
Beneficial Holders......... Any beneficial holder whose Old Notes are regis-
tered in the name of a broker, dealer, commercial
bank, trust company or other nominee and who
wishes to tender in the Exchange Offer should
contact such registered holder promptly and in-
struct such registered holder to tender on bene-
ficial holder's behalf. If such beneficial holder
wishes to tender directly, such beneficial holder
must, prior to completing and executing the Let-
ter of Transmittal and delivering the Old Notes,
either make appropriate arrangements to register
ownership of the Old Notes in such holder's name
or obtain a properly completed bond power from
the registered holder. The transfer of record
ownership may take considerable time. See "The
Exchange Offer--Procedures for Tendering."
Guaranteed Delivery Holders of Old Notes who wish to tender their Old
Procedures................. Notes and whose Old Notes are not immediately
available or who cannot deliver their Old Notes
and a properly completed Letter of Transmittal or
any other documents required by the Letter of
Transmittal to the Exchange Agent prior to the
Expiration Date, or who cannot complete the pro-
cedure for book-entry transfer on a timely basis,
must tender their Old Notes according to the
guaranteed delivery procedures set forth in "The
Exchange Offer--Guaranteed Delivery Procedures."
Withdrawal Rights........... Tenders of Old Notes may be withdrawn at any time
prior to 5:00 p.m., New York City time, on the
business day prior to the Expiration Date, unless
previously accepted for exchange. See "The Ex-
change Offer--Withdrawal of Tenders."
Termination of the Exchange The Company may terminate the Exchange Offer if
Offer...................... it determines that the Exchange Offer violates
any applicable law or interpretation of the staff
of the SEC. Holders of Old Notes will have cer-
tain rights
7
<PAGE>
against the Company under the Registration Rights
Agreement should the Company fail to consummate
the Exchange Offer. See "The Exchange Offer--Ter-
mination" and "Registration Rights; Additional
Interest."
Acceptance of Old Notes and
Delivery of Exchange Subject to certain conditions (as summarized
Notes...................... above in "Termination of the Exchange Offer" and
described more fully in "The Exchange Offer--Ter-
mination"), the Company will accept for exchange
any and all Old Notes which are properly tendered
in the Exchange Offer prior to 5:00 p.m., New
York City time, on the Expiration Date. The Ex-
change Notes issued pursuant to the Exchange Of-
fer will be delivered promptly following the Ex-
piration Date. See "The Exchange Offer--General."
Exchange Agent.............. State Street Bank and Trust Company is serving as
exchange agent (the "Exchange Agent") in connec-
tion with the Exchange Offer. The mailing and
hand delivery address of the Exchange Agent is:
State Street Bank and Trust Company, Corporate
Trust Department, Two International Place, Boston
Massachusetts 02110 Attention: Sandy Wong. For
information with respect to the Exchange Offer,
the telephone number for the Exchange Agent is
(617) 664-5665 and the facsimile number for the
Exchange Agent is (617) 664-5150. See "The
Exchange Offer--Exchange Agent."
Use of Proceeds............. There will be no cash proceeds payable to the
Company from the issuance of the Exchange Notes
pursuant to the Exchange Offer. See "Use of Pro-
ceeds." For a discussion of the use of the net
proceeds received by the Company from the sale of
the Old Notes, see "Private Placement."
THE NOTES:
Maturity Date............... November 15, 2001
Interest Rate and Payment The Notes will bear interest at the rate of 12
Dates...................... 3/4% per annum. Interest will accrue from the Is-
sue Date and will be payable semi-annually in
cash on May 15 and November 15 of each year, com-
mencing on May 15, 1998.
Holders of Exchange Notes of record on May 1,
1998 will receive interest on May 15, 1998 from
the date of the exchange of the Exchange Notes
for the Old Notes, plus an amount equal to the
accrued interest on the Old Notes from the date
of issuance of the Old Notes (November 12, 1997)
to the date of exchange thereof. Consequently,
assuming the Exchange Offer is consummated prior
to the record date in respect of the May 15, 1998
interest payment for the Old Notes, holders who
exchange their Old Notes for Exchange Notes will
receive the same interest payment on May 15, 1998
that they would have received had they not ac-
cepted the Ex-
8
<PAGE>
change Offer. Interest on the Old Notes accepted
for exchange will cease to accrue upon issuance
of the Exchange Notes. See "The Exchange Offer--
Interest on the Exchange Notes."
Optional Redemption......... The Notes will be redeemable, in whole or in
part, at the option of the Company at any time on
or after November 15, 1999 at the redemption
prices set forth herein, plus accrued and unpaid
interest thereon, if any, to the redemption date.
Prior to November 15, 1999, the Company may re-
deem up to 35% of the aggregate principal amount
of Notes originally issued, in whole or in part,
from time to time, at 112.75% of the principal
amount thereof, plus accrued and unpaid interest
thereon to the redemption date, with the net pro-
ceeds of a Public Equity Offering; provided that
at least 65% in aggregate principal amount of
Notes originally issued remains outstanding imme-
diately after such redemption. In addition, at
any time prior to November 15, 1999, the Company
may, at its option, redeem the Notes, in whole or
in part, at a redemption price equal to 100% of
the principal amount of the Notes plus the appli-
cable premium. See "Description of Notes--Op-
tional Redemption."
Change of Control........... In the event of a Change of Control, each Holder
of the Notes will have the right to require the
Company, subject to certain conditions, to make
an offer to purchase all or any part (equal to
$1,000 or an integral multiple thereof) of the
Notes at 101% of the principal amount thereof,
plus accrued and unpaid interest thereon to the
date of repurchase. See "Description of Notes--
Change of Control."
Ranking and Guarantees...... The Notes will be senior unsecured obligations of
the Company that will rank senior in right of
payment to all Subordinated Indebtedness (defined
below) of the Company. The Notes will rank pari
passu in right of payment to all existing and fu-
ture Senior Indebtedness (defined below) of the
Company. The Notes are unsecured, and holders of
secured Indebtedness of the Company or its Sub-
sidiaries will effectively rank prior to Holders
of the Notes with respect to the assets securing
such Indebtedness. The Notes will be uncondition-
ally guaranteed on a senior basis by each of the
Company's Subsidiary Guarantors. The guarantee of
each such Subsidiary Guarantor will rank pari
passu in right of payment to all existing and fu-
ture Senior Indebtedness of such Subsidiary Guar-
antor. The Indenture will permit the Company and
its subsidiaries to incur additional indebtedness
under certain circumstances. See "Description of
Notes--Ranking and Guarantees" and "Description
of Senior Credit Facility."
The Subsidiary Guarantees may be released under
the following circumstances: A Subsidiary Guaran-
tee may be terminated upon the sale or disposi-
tion (whether by merger, stock purchase, asset
sale or otherwise) of a Subsidiary Guarantor to
an entity which is not a subsidiary of the Compa-
ny, provided that (i) such transaction complies
with the Indenture (including, without limita-
tion, provi-
9
<PAGE>
sions relating to asset sales, and sale leaseback
transactions, and additional subsidiary guaran-
tees) and (ii) such termination shall occur only
to the extent that all obligations of such Sub-
sidiary Guarantor under all of its guarantees of,
and under all of its pledges of assets or other
security interests which secure, any other in-
debtedness of the Company shall also terminate
upon such release, sale or transfer. See "De-
scription of Notes--Ranking and Guarantees" and
"--Certain Definitions."
Certain Covenants...........
The Indenture contains certain covenants that,
among other things, limit the ability of the Com-
pany and its Subsidiaries to pay dividends or
make distributions with respect to the Company's
capital stock or make certain other restricted
payments, to incur Indebtedness, to create liens,
to issue and sell capital stock of Subsidiaries,
to sell assets, to permit restrictions on divi-
dends and other payments by subsidiaries to the
Company, to consolidate, merge or sell all or
substantially all of its assets, to engage in
transactions with affiliates, or to engage in
certain businesses. See "Description of Notes--
Certain Covenants."
Original Issue Discount..... The Notes will be issued with original issue dis-
count for federal income tax purposes. See "Cer-
tain Federal Income Tax Consequences."
RISK FACTORS
An investment in the Notes involves certain risks that should be considered
by a potential investor. See "Risk Factors."
10
<PAGE>
SUMMARY PRO FORMA FINANCIAL DATA
On November 12, 1997, VIALOG Corporation consummated agreements to acquire
the six Acquired Companies simultaneously with and as a condition to the
consummation of the Private Placement. The following summary unaudited pro
forma financial data presents certain data for the Company, as adjusted for (i)
the effects of the Acquisitions on an historical basis, (ii) the effects of
certain pro forma adjustments to the historical financial statements, and (iii)
the consummation of the Private Placement. The pro forma combined statement of
earnings data and the pro forma combined balance sheet data assume that the
Acquisitions occurred on January 1, 1996 and September 30, 1997, respectively,
and are not necessarily indicative of the results the Company would have
obtained had these events actually then occurred or of the Company's future
results. The pro forma combined financial information (i) is based on
preliminary estimates, available information and certain assumptions that
management deems appropriate and (ii) should be read in conjunction with the
other financial statements and notes thereto included elsewhere in this
Prospectus. See "Selected Financial Data" and the Unaudited Pro Forma Combined
Financial Statements and the notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
PRO FORMA
----------------------------------------
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1996 SEPTEMBER 30, 1997
----------------- ----------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA (UNAU-
DITED) (1):
Net revenues......................... $ 28,298 $26,351
Gross profit (2)..................... 13,487 12,655
Selling, general and administrative
expenses (3)........................ 9,425 10,635
Amortization of intangible assets
(4)................................. 2,809 2,107
-------- -------
Operating income (loss).............. 1,253 (87)
Interest expense, net................ (12,637) (9,596)
-------- -------
Loss before income taxes............. (11,384) (9,683)
Income tax benefit................... (540) --
-------- -------
Net loss............................. $(10,844) $(9,683)
======== =======
OTHER FINANCIAL DATA (UNAUDITED):
EBITDA(5)............................ $ 6,036 $ 3,825
Ratio of earnings to fixed charges
(6)................................. 0.10x N/A
<CAPTION>
PRO FORMA
SEPTEMBER 30, 1997 (7)
----------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA (UNAUDITED):
Cash and cash equivalents.............................. $11,829
Working capital........................................ 10,641
Total assets........................................... 84,016
Total debt, including current portion (8).............. 71,906
Stockholders' equity (8)............................... 5,674
</TABLE>
- --------
(1) Computed on the basis described in Notes 4 and 5 to the Unaudited Pro Forma
Combined Financial Statements. The pro forma statement of operations data
does not include a one-time charge of approximately $8.0 million for in-
process research and development expense.
(2) Reflects a reduction of approximately $1.0 million and $1.1 million for the
year ended December 31, 1996 and the nine months ended September 30, 1997,
respectively, in long distance charges as a result of
(footnotes continued on following page)
11
<PAGE>
contracts currently available or recently entered into by certain of the
Acquired Companies as if such contracts had been in effect as of January 1,
1996.
(3) Reflects certain reductions of approximately $586,000 and $247,000 for the
year ended December 31, 1996 and the nine months ended September 30, 1997
in compensation for the owners and certain key employees and consultants
of the Acquired Companies to specified amounts that the individuals agreed
to accept subsequent to the Acquisitions. Additionally, the nine month
period ended September 30, 1997 includes a non-recurring charge of
approximately $2.2 million related to an offering of Common Stock which
was terminated in early 1997.
(4) Reflects amortization of intangible assets to be recorded as a result of
the Acquisitions over periods ranging from 6 to 20 years and computed on
the basis described in Notes 3, 4(b) and 5(f) to the Unaudited Pro Forma
Combined Financial Statements.
(5) EBITDA represents income from continuing operations before income taxes,
depreciation and amortization. EBITDA is frequently used by securities
analysts and is presented here to provide additional information about the
Company's operations. 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.
(6) For purposes of determining the ratio of earnings to fixed charges,
earnings are defined as earnings from continuing operations before income
taxes and fixed charges. Fixed charges consist of interest expense.
Earnings were not sufficient on a pro forma basis for the year ended
December 31, 1996 and the nine months ended September 30, 1997 to cover
fixed charges. The deficiencies were $11.4 million and $9.7 million for
the year ended December 31, 1996 and the nine months ended September 30,
1997, respectively.
(7) Computed on the basis described in Notes 3 and 4 to the Unaudited Pro
Forma Combined Financial Statements.
(8) Under generally accepted accounting principles, approximately $4.4 million
of the proceeds from the Private Placement has been allocated to the fair
value of the Warrants and approximately $70.6 million has been allocated
to the Notes. In addition, $1.7 million of the total estimated fair value
of certain warrants issued in connection with the Private Placement have
been allocated to debt issuance costs.
12
<PAGE>
SUMMARY HISTORICAL INDIVIDUAL COMPANY FINANCIAL DATA
The following table presents summary statement of financial data for VIALOG
Corporation and each of the Acquired Companies (see "The Company" for the
complete names of each).
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
-------------------- -------------
1994 1995 1996 1996 1997
------ ------ ------ ------ ------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
VIALOG CORPORATION
Net revenues.............................. $ N/A $ N/A $ -- $ -- $ --
Gross profit.............................. N/A N/A -- -- --
Selling, general and administrative ex-
penses................................... N/A N/A 1,308 703 3,898
ACCESS
Net revenues.............................. $5,114 $6,508 $9,073 $6,606 $9,261
Gross profit.............................. 2,291 3,089 5,002 3,629 4,679
Selling, general and administrative ex-
penses................................... 1,745 2,582 3,455 2,255 2,990
CSI
Net revenues.............................. $2,331 $3,808 $5,868 $4,483 $4,790
Gross profit.............................. 868 1,934 3,088 2,456 2,780
Selling, general and administrative ex-
penses................................... 735 940 1,049 888 686
CALL POINTS
Net revenues.............................. $8,537 $6,852 $7,509 $5,606 $6,230
Gross profit.............................. 2,397 1,521 1,611 1,214 1,467
Selling, general and administrative ex-
penses................................... 2,035 1,820 1,873 1,377 1,160
TCC
Net revenues.............................. $1,515 $2,329 $3,396 $2,501 $3,003
Gross profit.............................. 699 1,200 1,583 1,150 1,353
Selling, general and administrative ex-
penses................................... 510 889 1,329 969 1,015
AMERICO
Net revenues.............................. $ 772 $1,227 $1,679 $1,210 $1,581
Gross profit.............................. 437 602 825 579 530
Selling, general and administrative ex-
penses................................... 345 514 889 593 840
CDC
Net revenues.............................. $1,121 $1,131 $1,480 $1,080 $1,486
Gross profit.............................. 412 366 594 465 720
Selling, general and administrative ex-
penses................................... 337 377 655 411 442
</TABLE>
13
<PAGE>
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus contains "forward-looking" statements within the meaning of
Section 27A of the Securities Act, and Section 21E of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"). Such forward-looking statements
involve known and unknown risks, uncertainties and other important factors
that could cause the actual results, performance or achievements of the
Company to differ materially from any future results, performance or
achievements expressed or implied by such forward-looking statements.
Investors are cautioned that all forward-looking statements involve risks and
uncertainty. Such risks, uncertainties and other important factors include,
among others, general economic and business conditions; industry trends;
competition; costs, ability to develop markets, changes in business strategy
or development plans, availability of qualified personnel, changes in
government regulations and other factors referenced in this Prospectus. Such
forward-looking statements are only as of the date of this Prospectus.
Discussions containing such forward-looking statements may be found in the
material set forth under "Summary," "Risk Factors," "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources," "Business," and "Description of Notes", as well as
elsewhere in this Prospectus. Although the Company believes that the
assumptions underlying the forward-looking statements contained herein are
reasonable, any of the assumptions could be inaccurate, and therefore, there
can be no assurance that the forward-looking statements included in this
Prospectus will prove to be accurate. Important factors that could cause
actual results to differ materially from the Company's expectations are
disclosed in this Prospectus. In light of the significant uncertainties
inherent in the forward-looking statements included herein, the inclusion of
such information should not be regarded as a representation by the Company or
any other person that the objectives and plans of the Company will be
achieved. Moreover, the Company expressly disclaims any obligation or
undertaking to disseminate any updates or revisions to any forward-looking
statement contained in this Prospectus to reflect any change in the Company's
expectations with regard thereto or any change in events, conditions or
circumstances on which any such statement is based. The reader should note
that initial public offerings are excluded from Section 27A of the Securities
Act and Section 21E of the Exchange Act.
RISK FACTORS
Prospective investors should carefully consider the following risk factors,
as well as the other information contained in this Prospectus. This Prospectus
contains certain forward-looking statements. Actual results could differ
materially from those projected in the forward-looking statements as a result
of any number of factors, including the risk factors set forth below and
factors described elsewhere in this Prospectus.
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, 1997,
after giving pro forma effect to the Acquisitions and the sale of the Notes,
the total non-subordinated Indebtedness of the Company would have been
approximately $1.3 million. In addition, the Company has accepted a proposal
for a commitment for the Senior Credit Facility (a revolving credit, term loan
and capital expenditures facility in the aggregate principal amount of $15.0
million). See "--Senior Credit Facility; Effective Subordination,"
"Description of Senior Credit Facility," and "Description of Notes--Certain
Covenants."
The Acquired Companies have historically operated at substantially lower
levels of debt than that at which the Company currently operates. 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
Company's Indenture or the Senior Credit Facility will require the Company to
meet certain financial tests, and other restrictions will 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 will substantially increase its vulnerability to adverse changes
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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, including the Notes, to sell selected assets, or
to reduce or delay planned capital expenditures. There can be no assurance
that any such 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.
SENIOR CREDIT FACILITY; EFFECTIVE SUBORDINATION
Following completion of the Offering, the Company anticipates entering into
the Senior Credit Facility to provide additional liquidity. The Company has
accepted a proposal for a commitment for the Senior Credit Facility (a
revolving credit, term loan and capital expenditures facility in the aggregate
principal amount of $15.0 million). However, the Company has not yet entered
into a binding agreement and, accordingly, there can be no assurance that the
Company will be able to obtain the Senior Credit Facility described in this
Prospectus, or any similar credit facility. As of the date of this Prospectus
the Company is negotiating the terms of such agreement. If the Company is
unable to obtain the Senior Credit Facility, it may be required to postpone
and/or change significant elements of its business strategy. The terms of the
proposed commitment for the Senior Credit Facility require a pledge of
substantially all of the assets of the Company and the Subsidiary Guarantors.
Accordingly, the Notes and Subsidiary Guarantees will be effectively
subordinated to the extent of the collateral used to secure such bank
indebtedness. In the event of a default on the Notes, or a bankruptcy,
liquidation or reorganization of the Company, such assets will be available to
satisfy obligations with respect to the indebtedness secured thereby before
any payment therefrom could be made on the Notes. See "Description of Senior
Credit Facility."
ABSENCE OF CONSOLIDATED OPERATING HISTORY; DIFFICULTY OF INTEGRATING THE
ACQUIRED COMPANIES
VIALOG Corporation was founded on January 1, 1996 and has only conducted
operations and generated revenues since November 12, 1997, the date of the
Acquisitions. The Acquired Companies operated as separate, independent
businesses prior to the closing of the Acquisitions. Additionally, the Company
has used the purchase method of accounting to record the Acquisitions.
Consequently, the pro forma combined financial information contained in this
Prospectus may not be indicative of the Company's future operating results and
financial condition. The successful and timely integration of the operations
of the Acquired Companies is critical to the Company's future financial
performance. To date, the Acquired Companies have used different accounting
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 Acquired Companies. The Company has only
very recently established systems and controls at the parent company level
and, prior to the Private Placement, had not attempted to prepare financial
statements that consolidated the operations of the six Acquired Companies.
The integration of the operations of the Acquired Companies 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 senior management team has been in place for only a relatively short
period of time. 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
Acquired Companies. The Company also proposes to adopt certain new business
strategies, such as placing greater emphasis on face-to-face sales as opposed
to telephone sales, that may be ineffective or more costly than the Company
anticipates. There can be no assurance that the Company will be successful in
integrating any of the operations of the Acquired Companies or, if integrated,
that such combined operations will not demonstrate significant operating
inefficiencies. The
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failure of the Company to integrate the operations of the Acquired Companies
successfully could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business--Billing and
Management Information Systems".
RESTRICTIONS ON ABILITY TO MAKE FUNDAMENTAL CHANGES
The Acquisition agreements place limitations for a two-year period following
the closing of the Private Placement on the Company's ability to change the
location of the Acquired Company's facilities, physically merge the Acquired
Company's operations with another operation, change the position of those
employees who are to receive employment agreements pursuant to the 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. Such limitations could restrict the Company's
ability to integrate the operations of the Acquired Companies successfully and
could limit the Company's ability to respond to competitive pressures on its
labor costs. See "Organization and Acquisition of the Acquired Companies."
PRETAX LOSSES
One of the Acquired Companies, Americo (defined below), incurred a pretax
loss of approximately $323,000 for the nine months ended September 30, 1997.
Three of the Acquired Companies, Call Points, Americo and CDC (all defined
below), incurred aggregate pretax losses in 1996 of approximately $456,000.
Call Points and CDC incurred aggregate pretax losses in 1995 of approximately
$399,000. There can be no assurance that such Acquired Companies will achieve
profitability in 1997 or thereafter. The failure of such Acquired Companies to
achieve profitability will have a material adverse effect on the Company's
business, financial condition and results of operations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
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 Communications
Corporation ("MCI"), Sprint Corporation ("Sprint"), Frontier Corporation
("Frontier") and Cable & Wireless, Inc. ("Cable & Wireless"), and non-
facilities based long distance providers, such as Excel Communications, Inc.
("Excel"), (ii) independent LECs, such as GTE Corporation ("GTE") and Southern
New England Telephone Company ("SNET"), and (iii) other PCSBs. According to
estimates from industry sources, the IXCs serviced approximately 80% of the
audio teleconferencing market in 1995. 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 teleconferencing 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
teleconferencing.
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,
potential 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 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
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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
and results of operations.
The Company currently derives approximately 14% of its 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 these teleconferencing services
internally. There can be no assurance that the Company's current IXC and LEC
customers will not insource 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 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 and results of
operations.
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
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 and 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 and results of operations. See
"Business--Customers" and "Business--Competition."
POTENTIAL ACQUISITIONS
One element of the Company's business strategy is to acquire additional
electronic 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 recently 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 no binding
agreements to effect any acquisitions, although the Company is currently in
discussions with several acquisition candidates. During the course of
negotiating and planning the Acquisitions, VIALOG Corporation entered into
discussions with a number of PCSBs, including the Acquired Companies,
regarding their possible participation in the combination of the Acquired
Companies. Discussions with any company which did not participate in the
Acquisitions could resume at any time and one or more acquisitions could occur
within a short period of time thereafter. However, there can be no assurance
that any discussions will in fact resume or that there will be any additional
acquisitions. Except for the Acquisitions, the Company's management has
limited experience in identifying appropriate acquisitions and has yet to
attempt to integrate new businesses or operations into existing operations.
The identification, evaluation, negotiation and integration of any such
acquisition may divert the time, attention and resources of the Company,
particularly its management. There can be no assurance that the Company will
be able to identify, acquire or profitably manage additional businesses 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 and results of operations. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources," and "Business--Growth Strategy."
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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 teleconferencing calls
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 and results of operations. 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 and results of
operations. 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. 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 and results of operations. Certain of the
Company's existing contracts have remaining terms in excess of one year and
require the Company to pay premiums over current market rates for long
distance services. These contracts impose substantial monetary penalties for
early termination. Although the Company intends to attempt to renegotiate
these contracts to obtain more favorable rates, there can be no assurance that
the Company will be able to do so. The failure of the Company to renegotiate
these contracts will require the Company to continue to pay premiums over
current market rates for long distance services. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Business--
Suppliers."
RESTRICTIONS IMPOSED BY LENDERS
The Indenture contains, and the Senior Credit Facility will contain, a
number of covenants that will 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, and the
terms of the Company's Indebtedness would permit the holders of the Notes
and/or the lenders under the Senior Credit Facility, as the case may be, 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 its 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. See "Description of Notes" and "Description of
Senior Credit Facility."
FRAUDULENT CONVEYANCE CONSIDERATIONS
If a court, in a lawsuit brought by an unpaid creditor of the Company or a
representative of creditors, such as a trustee in bankruptcy, or the Company
as a debtor-in-possession, were to find under relevant federal or state
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fraudulent conveyance statutes that the Company did not receive fair
consideration or reasonably equivalent value for incurring debt, including the
Notes, and that, at the time of such incurrence, the Company: (i) was
insolvent; (ii) was rendered insolvent by reason of such incurrence; (iii) was
engaged in a business or transaction for which the assets remaining with the
Company constituted unreasonably small capital; or (iv) intended to incur, or
believed that it would incur, debts beyond its ability to pay such debts as
they matured, such court could void the Company's obligations under the Notes,
subordinate the Notes to other indebtedness of the Company or take other
action detrimental to the holders of the Notes.
The measure of insolvency for these purposes would vary depending upon the
law of the jurisdiction being applied. Generally, however, a company would be
considered insolvent for these purposes if the sum of such company's
liabilities (including a fair estimate of the likely amount payable in respect
of contingent liabilities) were greater than the fair saleable value of all
such company's property, or if the present fair saleable value of such
company's assets were less than the amount that would be required to pay its
probable liability on its existing debts as they become absolute and matured.
Moreover, regardless of solvency or the adequacy of consideration, a court
could void the Company's obligations under the Notes, subordinate the Notes to
other indebtedness of the Company or take other action detrimental to the
holders of the Notes if such court determined that the incurrence of debt,
including the Notes, was made with the actual intent to hinder, delay or
defraud creditors.
Various fraudulent conveyance laws enacted for the protection of creditors
may also apply to the Subsidiary Guarantors' issuance of the Subsidiary
Guarantees. To the extent that a court were to find that (x) a Subsidiary
Guarantee was incurred by a Subsidiary Guarantor with intent to hinder, delay
or defraud any present or future creditor or the Subsidiary Guarantor
contemplated insolvency with a design to prefer one or more creditors to the
exclusion in whole or in part of others or (y) a Subsidiary Guarantor did not
receive fair consideration or reasonably equivalent value for issuing its
Subsidiary Guarantee and such Subsidiary Guarantor (i) was insolvent, (ii) was
rendered insolvent by reason of the issuance of such Subsidiary Guarantee,
(iii) was engaged or about to engage in a business or transaction for which
the remaining assets of such Subsidiary Guarantor constituted unreasonably
small capital to carry on its business, or (iv) intended to incur, or believed
that it would incur, debts beyond its ability to pay such debts as they
matured, the court could avoid or subordinate such Subsidiary Guarantee in
favor of the Subsidiary Guarantor's creditors. Among other things, a legal
challenge of a Subsidiary Guarantee on fraudulent conveyance grounds may focus
on the benefits, if any, realized by the Subsidiary Guarantor as a result of
the Company's issuance of the Notes. The Indenture contains a savings clause,
which generally will limit the obligations of each Subsidiary Guarantor under
its Subsidiary Guarantee to the maximum amount as will, after giving effect to
all of the liabilities of such Subsidiary Guarantor, result in such
obligations not constituting a fraudulent conveyance. To the extent a
Subsidiary Guarantee of any Subsidiary Guarantor was avoided or limited as a
fraudulent conveyance or held unenforceable for any other reason, holders of
the Notes would cease to have any claim against such Subsidiary Guarantor and
would be creditors solely of the Company and any Subsidiary Guarantor whose
Subsidiary Guarantee was not avoided or held unenforceable. In such event, the
claims of the holders of the Notes against the issuer of an invalid Subsidiary
Guarantee would be subject to the prior payment of all liabilities (including
trade payables) of such Subsidiary Guarantor. There can be no assurance that,
after providing for all prior claims, there would be sufficient assets to
satisfy the claims of the holders of the Notes relating to any avoided
portions of any of the Subsidiary Guarantees.
The measure of insolvency for purposes of the foregoing considerations will
vary depending upon the law applied in any such proceeding. Generally,
however, a Subsidiary Guarantor may be considered insolvent either (i) if the
sum of its debts, including contingent liabilities, was greater than the fair
market value or fair saleable value of all of its assets at a fair valuation
or if the present fair market value or fair saleable value of its assets was
less than the amount that would be required to pay its total outstanding debts
and liabilities including its probable liability on its existing debts,
including contingent liabilities, as they become absolute and mature, or (ii)
if it is incurring debts beyond its ability to pay as such debts mature. Based
upon financial and other information, the Company and the Subsidiary
Guarantors believe that the Subsidiary Guarantees are being incurred for
proper purposes and in good faith and that the Company and each Subsidiary
Guarantor is solvent
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and will continue to be solvent after issuing its Subsidiary Guarantee, will
have sufficient capital for carrying on its business after such issuance and
will be able to pay its debts as they mature. There can be no assurance,
however, that a court passing on such standards would agree with the Company.
See "Description of Notes--Ranking and Guarantees."
PREFERENTIAL TRANSFER
The Indenture requires the Subsidiaries created or acquired after the issue
date of the Notes to guarantee the Notes. If bankruptcy or insolvency
proceedings were initiated by or against the Company or any Subsidiary
Guarantor within 90 days (or, in certain cases, one year) after any such
guarantee, or if any such guarantee were made in contemplation of insolvency,
such guarantee would be vulnerable to avoidance as a preferential transfer. In
addition, a court could require holders of the Notes to return any payments
made during the 90-day (or one-year) period.
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 electronic 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 electronic group
communications services. 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 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. There can be no assurance that the FCC or other government agencies
will not seek in the future to regulate the prices, conditions or other
aspects of the electronic 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. 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 and results of operations. 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."
LACK OF PUBLIC MARKET FOR THE NOTES; POSSIBLE VOLATILITY OF NOTE PRICE
The Exchange Notes will constitute a new issue of securities with no
established trading market. The Company does not intend to apply for listing
of the Exchange Notes on any securities exchange or to seek approval for
quotation through any automated quotation system.
There can be no assurance as to the development or liquidity of any market
for the Exchange Notes. If an active market does not develop, the market price
and liquidity of the Exchange Notes will be adversely affected. If such a
market were to develop, the Notes could trade at prices that may be higher or
lower than their initial offering price depending upon many factors, including
prevailing interest rates, the Company's operating results and the markets for
similar securities. Although the Initial Purchaser has informed the Company
that it currently intends to make a market in the Exchange Notes, the Initial
Purchaser is not obligated to do so and any such market-making activity may be
discontinued at any time without notice. Historically, the market for non-
investment grade debt has been subject to disruptions that have caused
substantial volatility in the prices of
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securities similar to the Notes. In addition, such market-making activity will
be subject to the limits imposed by the Securities Act and the Exchange Act
and may be limited during the Exchange Offer and the pendency of the Shelf
Registration Statement. See "Registration Rights; Additional Interest."
CONSEQUENCES OF FAILURE TO EXCHANGE
Untendered Old Notes not exchanged for Exchange Notes pursuant to the
Exchange Offer will remain subject to the existing restrictions upon transfer
of such Old Notes. See "Transfer Restrictions on Old Notes." Because the
Company anticipates that most holders of Old Notes will elect to exchange such
Old Notes for Exchange Notes, the Company anticipates that the liquidity of
the market for any Old Notes remaining after the consummation of the Exchange
Offer may be substantially limited. Additionally, holders (other than
Restricted Holders) of any Old Notes not tendered in the Exchange Offer prior
to the Expiration Date will not be entitled to require the Company to file the
Shelf Registration Statement and the stated interest rate on such Old Notes
will remain at its initial level of 12 3/4%.
CHANGE OF CONTROL
In the event of a Change of Control (as defined in the Indenture), the
Company may be required to repurchase all of the outstanding Notes at 101% of
the principal amount, as the case may be, of the Notes plus any accrued and
unpaid interest thereon, and Additional Interest, if any, to the date of
repurchase. The exercise by the holders of the Notes of their rights to
require the Company to offer to purchase 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. The Company's ability to pay cash to any of the
holders of Notes upon a repurchase may be limited by the Company's then
existing capital resources. 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 Notes. See
"Description of Notes--Change of Control."
ORIGINAL ISSUE DISCOUNT; POSSIBLE TAX AND OTHER LEGAL CONSEQUENCES FOR HOLDERS
OF NOTES AND THE COMPANY
The Notes were issued at a discount from their principal amount at maturity.
Original issue discount (i.e., the difference between the principal amount of
the Notes and the "issue price" of the Notes) will accrue from the issue date
of the Notes and will be included periodically in a holder's gross income for
federal income tax purposes in advance of receipts of the cash payments to
which the income is attributable. See "Certain Federal Income Tax
Consequences--Taxation of the Notes--Original Issue Discount." Similar results
may apply under state tax laws.
If a Registration Default occurs prior to the Expiration Date of the
Exchange Offer, the offer to exchange the Old Notes for the Exchange Notes
pursuant to the Exchange Offer may constitute a material modification of the
terms of the Old Notes, thereby causing the holders of the Old Notes to
recognize gain or loss on the exchange for federal income tax purposes. The
amount of the gain would equal the difference between the holder's basis in
the Old Notes prior to the exchange and the issue price of the Exchange Notes
received in the exchange. See "Certain Federal Income Tax Consequences--
Exchange Offer."
If a bankruptcy case were commenced by or against the Company under the
United States Bankruptcy Code after the issuance of the Notes, the claim of a
holder of the Notes with respect to the principal amount thereof may be
limited to an amount equal to the sum of (i) the initial offering price and
(ii) that portion of the original issue discount that is not deemed to
constitute "unmatured interest" for purposes of the United States Bankruptcy
Code. Any original issue discount that had not amortized as of the date of any
such bankruptcy filing could constitute "unmatured interest" for purposes of
the United States Bankruptcy Code.
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THE COMPANY
VIALOG Corporation was founded on January 1, 1996 with the intention of
becoming a leading provider of value-added electronic group communications
services. These services include audio, video and data teleconferencing. On
November 12, 1997, VIALOG Corporation consummated agreements to acquire the
six Acquired Companies, all of which became wholly-owned subsidiaries of
VIALOG Corporation. See "Organization and Acquisition of the Acquired
Companies." A brief description of each of the Acquired Companies is set forth
below.
TELEPHONE BUSINESS MEETINGS, INC. D/B/A ACCESS CONFERENCE CALL SERVICE
("ACCESS"): Access is headquartered and maintains its operations center in
Reston, Virginia. Founded in 1987, Access had net revenues of approximately
$9.1 million in 1996 and of approximately $9.3 million for the nine months
ended September 30, 1997. Access specializes in providing electronic group
communications services to numerous organizations, including financial
institutions, government agencies, trade associations and professional service
firms. Access is also a leader among the Acquired Companies in the development
of video teleconferencing services. As of June 30, 1997, Access had
approximately 95 employees and approximately 1,188 ports of teleconferencing
capability.
CONFERENCE SOURCE INTERNATIONAL, INC. ("CSI"): CSI is headquartered and
maintains its operations center in Atlanta, Georgia. Founded in 1992, CSI had
net revenues of approximately $5.9 million in 1996 and of approximately $4.8
million for the nine months ended September 30, 1997. CSI specializes in
providing electronic group communications services to certain facilities-based
carriers and non-facilities-based telecommunications providers. As of June 30,
1997, CSI had approximately 60 employees and approximately 1,440 ports of
teleconferencing capability.
CALL POINTS, INC. ("CALL POINTS"): Call Points is headquartered and
maintains its operations center in Montgomery, Alabama. Founded in 1988, Call
Points had net revenues of approximately $7.5 million in 1996 and of
approximately $6.2 million for the nine months ended September 30, 1997. Call
Points specializes in providing electronic group communications services to
the retail industry. As of June 30, 1997, Call Points had approximately 85
employees and approximately 2,432 ports of teleconferencing capability.
KENDALL SQUARE TELECONFERENCING, INC. D/B/A THE CONFERENCE CENTER
("TCC"): TCC is headquartered and maintains its operations center in
Cambridge, Massachusetts. Founded in 1987, TCC had net revenues of
approximately $3.4 million in 1996 and of approximately $3.0 million for the
nine months ended September 30, 1997. TCC services a general business
clientele. TCC is also a beta test site for a data teleconferencing system
which will allow remote sequential modification of shared data or documents
during a teleconference. As of June 30, 1997, TCC had approximately 40
employees and approximately 432 ports of teleconferencing capability.
AMERICAN CONFERENCING COMPANY, INC. D/B/A AMERICO ("AMERICO"): Americo is
headquartered and maintains its operations center in Oradell, New Jersey.
Founded in 1987, Americo had net revenues of approximately $1.7 million in
1996 and of approximately $1.6 million for the nine months ended September 30,
1997. Americo services a general business clientele. As of June 30, 1997,
Americo had approximately 35 employees and approximately 506 ports of
teleconferencing capability.
COMMUNICATION DEVELOPMENT CORPORATION ("CDC"): CDC is headquartered and
maintains its operations center in Danbury, Connecticut. Founded in 1990, CDC
had net revenues of approximately $1.5 million in 1996 and of approximately
$1.5 million for the nine months ended September 30, 1997. CDC specializes in
providing a range of electronic group communications services and customized
communications solutions to its clients, the majority of whom are in the
pharmaceutical industry. As of June 30, 1997, CDC had approximately 20
employees and approximately 248 ports of teleconferencing capability.
22
<PAGE>
PRIVATE PLACEMENT
On November 12, 1997, the Company completed the private sale to the Initial
Purchaser of units consisting of $75.0 million principal amount of the Old
Notes and the Warrants at a price of 96% of the principal amount of the Old
Notes in a transaction not registered under the Securities Act in reliance
upon Section 4(2) of the Securities Act. The Initial Purchaser thereupon
offered and resold such units only to qualified institutional buyers and a
limited number of institutional accredited investors at an initial price to
such purchasers of 100% of the principal amount of the Old Notes. The $72.0
million net proceeds received by the Company in connection with the sale of
the Old Notes and the Warrants were used to finance the cash portion of the
purchase price for the Acquisitions and certain related expenses, repay
outstanding indebtedness, make capital expenditures and provide working
capital for the Company.
USE OF PROCEEDS
The Company will not receive any cash proceeds from the issuance of the
Exchange Notes offered hereby. In consideration for issuing the Exchange Notes
as contemplated in this Prospectus, the Company will receive in exchange a
like principal amount of Old Notes, the terms of which are identical in all
material respects to the Exchange Notes. The Old Notes surrendered in exchange
for the Exchange Notes will be retired and canceled and cannot be reissued.
Accordingly, issuance of the Exchange Notes will not result in any change in
capitalization of the Company.
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 does not anticipate paying any cash dividends on its Common
Stock for the foreseeable future. Any 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.
23
<PAGE>
CAPITALIZATION
The following table sets forth at September 30, 1997, the cash, short-term
debt and capitalization of VIALOG Corporation and the Acquired Companies on a
pro forma combined basis to give effect to (i) the sale of the Old Notes and
the Warrants and the application of the net proceeds therefrom and (ii) the
issuance of $3.2 million of Common Stock in connection with the Acquisitions.
This table should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Unaudited Pro
Forma Combined Financial Statements" and the individual companies' Financial
Statements, including the notes thereto, included elsewhere herein.
<TABLE>
<CAPTION>
PRO FORMA
SEPTEMBER 30, 1997(1)
----------------------
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C>
Cash and cash equivalents................................ $11,829(2)
=======
Current maturities of long-term debt..................... $ 423
=======
LONG-TERM DEBT:
Senior Credit Facility(3).............................. $ --
Senior Notes due 2001(4)............................... 70,649
Other indebtedness(5).................................. 834
-------
Total long-term debt................................. $71,483
-------
STOCKHOLDERS' EQUITY:
Common stock........................................... $ 34
Additional paid-in capital(4).......................... 10,476
Accumulated deficit(6)................................. (4,836)
-------
Total stockholders' equity........................... 5,674
-------
Total capitalization................................. $77,157
=======
</TABLE>
- --------
(1) Computed on a basis described in Notes 3 and 4 to the Unaudited Pro Forma
Combined Financial Statements.
(2) Does not reflect S corporation distributions of approximately $751,000
made prior to or upon the consummation of the Acquisitions.
(3) The Company intends to obtain the Senior Credit Facility with availability
of $15.0 million following completion of the Offering. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources" and "Description of Senior Credit
Facility."
(4) In accordance with generally accepted accounting principles, approximately
$4.4 million of the proceeds of the Private Placement has been allocated
to the Warrants and approximately $70.6 million has been allocated to the
Notes. In addition, $1.7 million of the total estimated fair value of
certain warrants issued in connection with the Private Placement have been
allocated to debt issuance costs.
(5) Reflects existing indebtedness of the Acquired Companies consisting
primarily of capitalized lease obligations with varying terms and
conditions. See "Organization and Acquisition of the Acquired Companies."
(6) Changes to accumulated deficit do not include a write-off of in-process
research and development costs which is expected to occur during the first
quarter subsequent to the closing of the Acquisitions and, based on an
independent valuation, is expected to be $8.0 million. The pro forma
combined amounts include a valuation allowance of $1.6 million against
deferred tax assets.
24
<PAGE>
SELECTED FINANCIAL DATA
On November 12, 1997, VIALOG Corporation consummated agreements to acquire
the Acquired Companies simultaneously with and as a condition to the
consummation of the Private Placement. The following selected historical
financial data of VIALOG Corporation as of December 31, 1996 and September 30,
1997 and for the year ended December 31, 1996 and the nine months ended
September 30, 1997 have been derived from the audited financial statements of
VIALOG Corporation included elsewhere in this Prospectus. The following
selected unaudited pro forma combined financial data presents certain data for
the Company as of September 30, 1997 and for the year ended December 31, 1996,
and for the nine months ended September 30, 1997 as adjusted for (i) the
effects of the Acquisitions on an historical basis, (ii) the effects of
certain pro forma adjustments to the historical financial statements, and
(iii) the consummation of the Private Placement. See the Unaudited Pro Forma
Combined Financial Statements and the notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30,
DECEMBER 31, -------------------------
1996 1996 1997
------------ ----------------- -------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
VIALOG CORPORATION STATEMENT OF
OPERATIONS DATA:
Net revenues........................ $ -- $ -- $ --
Gross profit........................ -- -- --
Selling, general and administrative
expenses........................... 1,308 703 3,898
------- ------- -------
Operating loss...................... (1,308) (703) (3,898)
Interest income (expense), net...... 1 -- (110)
------- ------- -------
Loss before income taxes............ (1,307) (703) (4,008)
Income tax benefit.................. (522) (281) --
------- ------- -------
Net loss............................ $ (785) $ (422) $(4,008)
======= ======= =======
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -----------------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
VIALOG CORPORATION BALANCE SHEET DATA:
Working capital deficit............. $ (249) $(4,424)
Total assets........................ 1,263 996
Total debt, including current
portion ........................... -- 712
Stockholders' equity................ 287 (3,590)
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA
----------------------------------------
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1996 SEPTEMBER 30, 1997
----------------- ----------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA
(UNAUDITED)(1)(2):
Net revenues........................ $ 28,298 $26,351
Gross profit(3)..................... 13,487 12,655
Selling, general and administrative
expenses(4)........................ 9,425 10,635
Amortization of intangible
assets(5).......................... 2,809 2,107
-------- -------
Operating income (loss)............. 1,253 (87)
Interest expense, net............... (12,637) (9,596)
-------- -------
Loss before income taxes............ (11,384) (9,683)
Income tax benefit.................. (540) --
-------- -------
Net loss............................ $(10,844) $(9,683)
======== =======
OTHER FINANCIAL DATA (UNAUDITED):
EBITDA(6) .......................... $ 6,036 $ 3,825
Ratio of earnings to fixed
charges(7)......................... 0.10x N/A
<CAPTION>
PRO FORMA
SEPTEMBER 30, 1997(8)
---------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA (UNAUDITED)(1):
Cash and cash equivalents........... $11,829
Working capital..................... 10,641
Total assets........................ 84,016
Total debt, including current
portion(9)......................... 71,906
Stockholders' equity(9)............. 5,674
</TABLE>
- --------
(1) The pro forma combined statement of earnings data and the pro forma
combined balance sheet data assume that the Acquisitions occurred on
January 1, 1996 and September 30, 1997, respectively, and are not
necessarily indicative of the results the Company would have obtained had
these events actually then occurred or of the Company's future results.
The pro forma combined financial information (i) is based on preliminary
estimates, available information and certain assumptions that management
deems appropriate and (ii) should be read in conjunction with the other
financial statements and notes thereto included elsewhere in this
Prospectus.
(2) Computed on the basis described in Notes 4 and 5 to the Unaudited Pro
Forma Combined Financial Statements. The pro forma statement of operations
data does not include a one-time charge of approximately $8.0 million for
in-process research and development.
(3) Reflects a reduction of approximately $1.0 million and $1.1 million in
long distance charges for the year ended December 31, 1996 and the nine
months ended September 30, 1997, respectively, as a result of contracts
available or entered into by certain of the Acquired Companies as if such
contracts had been in effect as of January 1, 1996.
(4) Reflects certain reductions of approximately $586,000 and $247,000 million
in compensation for the year ended December 31, 1996 and the nine months
ended September 30, 1997, respectively, for the owners and certain key
employees and consultants of the Acquired Companies to specified amounts
that the individuals have agreed to accept subsequent to the Acquisitions.
Additionally, the nine month period ended September 30, 1997 includes a
non-recurring charge of approximately $2.2 million related to an offering
of Common Stock which was terminated in early 1997.
(5) Reflects amortization of intangible assets to be recorded as a result of
the Acquisitions over periods ranging from 6 to 20 years and computed on
the basis described in Notes 3, 4(b) and 5(f) to the Unaudited Pro Forma
Combined Financial Statements.
(footnotes continued on following page)
26
<PAGE>
(6) EBITDA represents income from continuing operations before income taxes,
depreciation and amortization. EBITDA is frequently used by securities
analysts and is presented here to provide additional information about the
Company's operations. 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.
(7) For purposes of determining the ratio of earnings to fixed charges,
earnings are defined as earnings from continuing operations before income
taxes and fixed charges. Fixed charges consist of interest expense.
Earnings were not sufficient on a pro forma basis for the year ended
December 31, 1996 and the nine months ended September 30, 1997 to cover
fixed charges. The deficiencies were $11.4 million and $9.7 million for
the year ended December 31, 1996 and the nine months ended September 30,
1997, respectively.
(8) Computed on the basis described in Notes 3 and 4 to the Unaudited Pro
Forma Combined Financial Statements.
(9) Under generally accepted accounting principles, approximately $4.4 million
of the proceeds from the Private Placement has been allocated to the fair
value of the Warrants and approximately $70.6 million has been allocated
to the Notes. In addition, $1.7 million of the total estimated fair value
of certain warrants issued in connection with the Private Placement have
been allocated to debt issuance costs.
27
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
VIALOG Corporation was founded on January 1, 1996 with the intention of
becoming a leading provider of value-added electronic group communications
services. These services include audio, video and data teleconferencing. On
November 12, 1997, VIALOG Corporation consummated agreements to acquire the
six Acquired Companies, all of which became wholly-owned subsidiaries of
VIALOG Corporation. Through the acquisition of six PCSBs, the Company
established one of the largest and most geographically diverse networks of
sales and operations centers focused solely on the electronic group
communications market. The Company intends to establish its brand, VIALOG, as
synonymous with superior electronic group communications services. The Company
believes it will increase its market share by continuing to emphasize superior
customer service, enhanced and customized services, targeted marketing and
relationship selling. The Company has approximately 6,500 ports of
teleconferencing capability and a skilled staff with which it services
customers, which include Fortune 500 companies and several telecommunications
providers as well as medium and small businesses and institutions.
The following discussion should be read in conjunction with the Financial
Statements and related notes thereto and "Selected Financial Data" and
"Summary--Historical Individual Company Financial Data" appearing elsewhere in
this Prospectus.
INTRODUCTION
The Company's net revenues are primarily derived from fees charged to
customers for audio and enhanced teleconferencing services. Cost of revenues
consists primarily of long distance telephone charges, salaries and benefits
for operators, and depreciation and maintenance of telephone bridging
equipment. Selling, general and administrative expenses consist primarily of
compensation and benefits to executive officers and certain employees,
marketing expenses, occupancy costs and professional fees.
The Acquired Companies have been managed throughout the periods presented 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 have agreed to reductions in their compensation
and benefits in connection with the organization of the Company and the
Acquisitions. The differential between the previous compensation and benefits
of these individuals and the compensation and benefits they have 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 pro forma
combined financial statements included elsewhere in this Prospectus. See
"Management--Employment and Noncompetition Agreements."
VIALOG Corporation, which has only conducted operations since November 12,
1997 (other than in connection with the sale of the Old Notes and the
Acquisitions), intends to integrate certain operations and administrative
functions of the Acquired Companies over a period of time. This integration
process may present opportunities to reduce costs through the elimination of
duplicative functions and through economies of scale, particularly from
expected reductions in long distance telephone charges as existing agreements
entered into by the Acquired Companies lapse and are replaced with new
contracts negotiated by the Company. The Company is currently unable to
quantify these savings. 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 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.
In conjunction with the Acquisitions, the Company arranged for the
performance of an independent valuation of intangible assets in order to
allocate the purchase price. Included in this valuation is a determination of
the value associated with research and development projects that were in
process. Under generally accepted
28
<PAGE>
accounting principles, the value associated with research and development
projects which are in process and which do not have alternative future use is
to be expensed in the current period. Based on the valuation, the write-off to
expense is expected to be $8.0 million. This write-off is expected to occur
during the quarter ended December 31, 1997. The impact of this write-off will
include a reduction of the goodwill and goodwill amortization as presented in
the pro forma combined financial statements.
VIALOG Corporation
VIALOG Corporation was incorporated on January 1, 1996. VIALOG Corporation
incurred a net loss of $785,000, $422,000 and $4.0 million for the year ended
December 31, 1996 and the nine month periods ended September 30, 1996 and
1997, respectively, from general and administrative expenses. These expenses
consisted primarily of legal, travel, salaries and consulting fees related to
the organization of VIALOG Corporation and the consummation of business
combination agreements and the Acquisition agreements with the Acquired
Companies. Additionally, during the nine months ended September 30, 1997,
VIALOG Corporation wrote off approximately $2.0 million related to an offering
of Common Stock of VIALOG Corporation which was terminated in early 1997.
Combined Acquired Companies and VIALOG Corporation
The combined Acquired Companies' and VIALOG Corporation's Statements of
Operations data for the years ended December 31, 1994, 1995 and 1996 and for
the nine month periods ended September 30, 1996 and 1997 do not purport to
present the financial results or the financial condition of the combined
Acquired Companies and VIALOG Corporation in accordance with generally
accepted accounting principles. Such data represents merely a summation of the
net revenues, cost of revenues and selling, general, and administrative
expenses of the individual Acquired Companies and VIALOG Corporation on an
historical basis, and excludes the effects of pro forma adjustments. This data
will not be comparable to and may not be indicative of the Company's post-
combination results of operations because (i) the Acquired Companies were not
under common control or management and had different tax structures (S
corporations and C corporations) and (ii) the Company will use the purchase
method of accounting to record the Acquisitions.
RESULTS OF OPERATIONS--COMBINED ACQUIRED COMPANIES AND VIALOG CORPORATION
The following table sets forth certain unaudited combined data of the
Acquired Companies and VIALOG Corporation on an historical basis and such data
as a percentage of net revenues, excluding the effects of pro forma
adjustments for the periods presented:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30, 1997
-------------------------------------------- -----------------------------
1994 1995 1996 1996 1997
-------------- -------------- -------------- -------------- --------------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues............ $19,390 100.0% $21,855 100.0% $29,005 100.0% $21,486 100.0% $26,351 100.0%
Cost of revenues........ 12,286 63.4% 13,143 60.1% 16,302 56.2% 11,993 55.8% 14,822 56.2%
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Gross Profit............ 7,104 36.6% 8,712 39.9% 12,703 43.8% 9,493 44.2% 11,529 43.8%
Selling, general and
administrative ex-
penses................. 5,707 29.4% 7,122 32.6% 10,558 36.4% 7,196 33.5% 11,031 41.2%
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Operating Income........ 1,397 7.2% 1,590 7.3% 2,145 7.4% 2,297 10.7% 498 1.9%
======= ====== ======= ====== ======= ====== ======= ====== ======= ======
</TABLE>
Nine Months Ended September 30, 1997 Compared to Nine Months Ended September
30, 1996
Net revenues. All Acquired Companies reflected an increase in net revenues
during the nine months ended September 30, 1997 compared to the nine months
ended September 30, 1996. Combined net revenues increased $4.9 million, or
22.6%, from $21.5 million for the nine months ended September 30, 1996 to
$26.4 million for the nine months ended September 30, 1997. The major
components of this increase were (i) an increase in Access' net revenues of
$2.7 million, or 40.2%, from $6.6 million for the nine months ended September
30, 1996 to $9.3 million for the nine months ended September 30, 1997, which
was primarily attributable to sales of teleconferencing services to existing
customers and new customers, (ii) an increase in Call Points' net revenues
29
<PAGE>
of $624,000, or 11.1%, from $5.6 million for the nine months ended September
30, 1996 to $6.2 million for the nine months ended September 30, 1997, which
was primarily attributable to sales of teleconferencing services to existing
customers and sales to new customers, and (iii) an increase in TCC's net
revenues of $502,000, or 20.1%, from $2.5 million for the nine months ended
September 30, 1996 to $3.0 million for the nine months ended September 30,
1997, which was primarily attributable to sales to existing customers and
sales to new customers. This growth was achieved despite the fact that TCC's
net revenues for the nine months ended September 30, 1996 included $565,000 of
net revenues from a portion of TCC's business that was divested in December
1996.
Cost of revenues. Cost of revenues increased $2.8 million, or 23.6%, from
$12.0 million for the nine months ended September 30, 1996 to $14.8 million
for the nine months ended September 30, 1997 and increased as a percentage of
net revenues from 55.8% in 1996 to 56.2% in 1997. The dollar increase was
primarily attributable to (i) an increase in Access' cost of revenues of $1.6
million, or 53.9%, from $3.0 million for the nine months ended September 30,
1996 to $4.6 million for the nine months ended September 30, 1997 related to
the substantial investment made in personnel and related costs associated with
video teleconferencing and increased telecommunications and personnel expense
associated with the growth in revenues, (ii) an increase in Americo's cost of
revenues of $420,000, or 66.6%, from $631,000 for the nine months ended
September 30, 1996 to $1.1 million for the nine months ended September 30,
1997 primarily due to telecommunications costs and personnel expenses to
support the current and expected call volume, and (iii) an increase in Call
Points' cost of revenues of $371,000, or 8.4%, from $4.4 million for the nine
months ended September 30, 1996 to $4.8 million for the nine months ended
September 30, 1997, which was primarily attributable to increased
telecommunications costs and personnel expenses to support the increased call
volume.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $3.8 million, or 53.3%, from $7.2 million
for the nine months ended September 30, 1996 to $11.0 million for the nine
months ended September 30, 1997 and increased as a percentage of net revenues
from 33.5% in 1996 to 41.2% in 1997. The dollar increase was primarily
attributable to (i) an increase in VIALOG Corporation's selling, general and
administrative expenses of $3.2 million from $703,000 for the nine months
ended September 30, 1996 to $3.9 million for the nine months ended September
30, 1997, which was primarily attributable to a non-recurring charge of
approximately $2.0 million related to an offering of Common Stock that was
terminated in early 1997 and increased staffing and associated expenses
related to increased activities to consummate business combination agreements
and the Acquisition agreements with the Acquired Companies, and (ii) an
increase in Access' selling, general and administrative expenses of $735,000,
or 32.6%, from $2.3 million for the nine months ended September 30, 1996 to
$3.0 million for the nine months ended September 30, 1997, which was primarily
attributable to increased personnel, outside services and advertising costs.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Net revenues. All Acquired Companies reflected an increase in net revenues
during 1996. Combined net revenues increased by $7.1 million, or 32.7%, from
$21.9 million in 1995 to $29.0 million in 1996. The major components of this
increase were (i) an increase in Access' net revenues of $2.6 million, or
39.4%, from $6.5 million in 1995 to $9.1 million in 1996 resulting from
additional sales of audio teleconferencing services to existing customers and
sales to new customers, and (ii) an increase in CSI'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 TCC'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 sales to new
customers.
Cost of revenues. Cost of revenues increased by $3.2 million, or 24.0%, from
$13.1 million in 1995 to $16.3 million in 1996 and decreased as a percentage
of net revenues from 60.1% in 1995 to 56.2% in 1996. The dollar increase in
cost of revenues was primarily attributable to (i) an increase in CSI's cost
of revenues of $906,000, or 48.3%, from $1.9 million in 1995 to $2.8 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 Access' cost of revenues of $652,000, or 19.1%,
from $3.4 million in 1995 to $4.1
30
<PAGE>
million in 1996 resulting from increased telecommunications and occupancy
costs associated with increased call volumes, and (iii) an increase in TCC's
cost of revenues of $684,000, or 60.6%, from $1.1 million for the nine months
ended September 30, 1996 to $1.8 million for the nine months ended September
30, 1997 resulting from increased telecommunications and personnel costs
associated with increased call volumes.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased by $3.4 million, or 48.2%, from $7.1 million
in 1995 to $10.5 million in 1996 and increased as a percentage of net revenues
from 32.6% in 1995 to 36.4% in 1996. The dollar and percentage increases in
selling, general and administrative expenses were primarily attributable to
(i) $1.3 million from VIALOG Corporation, which was formed on January 1, 1996
and incurred expenses in connection with the consummation of business
combination agreements and the Acquisition agreements with the Acquired
Companies, (ii) an increase in Access' selling, general and administrative
expenses of $873,000, or 33.8%, from $2.6 million in 1995 to $3.5 million in
1996 resulting primarily from increases in occupancy costs and non-recurring
executive compensation and bad debt expenses and (iii) an increase in TCC's
selling, general and administrative expenses of $440,000, or 49.5%, from
$889,000 in 1995 to $1.3 million in 1996 primarily attributable to the
addition of two salespeople, increased commissions and the hiring costs
associated with additional staff.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Net revenues. All Acquired Companies, with the exception of Call Points,
experienced an increase in net revenues in 1995. Overall net revenues
increased by $2.5 million, or 12.7%, from $19.4 million in 1994 to $21.9
million in 1995. This overall increase was primarily due to (i) an increase in
CSI's net revenues of $1.5 million, or 63.4%, from $2.3 million in 1994 to
$3.8 million in 1995 resulting from a $1.4 million increase in net revenues
from CSI's two major existing customers, (ii) an increase in Access' net
revenues of $1.4 million, or 27.3%, from $5.1 million in 1994 to $6.5 million
in 1995 resulting from additional sales of audio teleconferencing services to
existing customers and sales to new customers, and (iii) an increase in TCC's
net revenues of $814,000, or 53.7%, from $1.5 million in 1994 to $2.3 million
in 1995 resulting from additional sales of audio teleconferencing services to
existing customers and sales to new customers. Offsetting these increases was
a decrease in Call Points' net revenues of $1.7 million, or 19.7%, from $8.5
million in 1994 to $6.9 million in 1995, primarily attributable to the loss of
a significant customer.
Cost of revenues. Cost of revenues increased by $857,000, or 7.0%, from
$12.3 million in 1994 to $13.1 million in 1995 and decreased as a percentage
of net revenues from 63.4% in 1994 to 60.1% in 1995. The dollar increase in
cost of revenues was primarily attributable to (i) an increase in Access' cost
of revenues of $596,000, or 21.1%, from $2.8 million in 1994 to $3.4 million
in 1995 resulting primarily from the costs of new equipment and salaries and
benefits for 10 additional operators, and (ii) an increase in CSI's cost of
revenues of $411,000, or 28.1%, from $1.5 million in 1994 to $1.9 million in
1995 resulting from increased telecommunications and personnel costs to
support the increased call volumes. Partially offsetting these increases was
an $809,000 decrease in cost of revenues at Call Points, which was
attributable to the loss of a significant customer. The decrease in cost of
revenues as a percentage of net revenues was attributable to the ability of
the Acquired Companies to support the growth in net revenues without adding
significant layers of additional costs.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased by $1.4 million, or 24.8%, from $5.7 million
in 1994 to $7.1 million in 1995 and increased as a percentage of net revenues
from 29.4% in 1994 to 32.6% in 1995. The dollar increase was attributable to
(ii) an increase in Access' selling, general and administrative expenses of
$837,000, or 48.0%, from $1.7 million in 1994 to $2.6 million in 1995
resulting primarily from moving and occupancy cost associated with Access'
relocation of facilities in 1995, and (ii) an increase in TCC's selling,
general and administrative expenses of $379,000, or 74.3%, from $510,000 in
1994 to $889,000 in 1995 resulting primarily from increased marketing and
selling expenses to support TCC's growth.
31
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES--COMBINED ACQUIRED COMPANIES AND VIALOG
CORPORATION
The following table sets forth selected financial information from the
Acquired Companies' and VIALOG Corporation's cash flows:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER ENDED SEPTEMBER
31, 30,
------------------------ ----------------
1994 1995 1996 1996 1997
------- ------ ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net cash provided by (used in):
Operating activities............ $ 1,729 $2,619 $ 4,610 $ 3,462 $ 4,492
Investment activities........... (1,431) (2,014) (1,076) (690) (2,356)
Financing activities............ (301) 36 (2,821) (2,670) (2,256)
------- ------ ------- ------- -------
Net increase in cash and cash
equivalents...................... $ (3) $ 641 $ 713 $ 102 $ (120)
======= ====== ======= ======= =======
</TABLE>
All of the Acquired Companies had positive cash flows from operating
activities for all periods presented. Cash used in investing activities
related primarily to the acquisition of property and equipment. Net cash
provided by financing activities represents borrowings on long-term debt and
credit lines and capital lease obligations to finance the acquisition of
capital equipment. Cash used in financing activities was applied to the
repayment of long-term debt and capital lease obligations and to the payment
of dividends to stockholders. The combined Acquired Companies and VIALOG
Corporation had a working capital deficit of $4.1 million at September 30,
1997.
On the closing of the Private Placement, the Company repaid an aggregate of
approximately $2.8 million of indebtedness of VIALOG Corporation and the
Acquired Companies.
The Company anticipates that its cash flows from operations will meet or
exceed its working capital needs, debt service requirements and planned
capital expenditures for property and equipment. On a combined basis, the
Acquired Companies made capital expenditures of $1.4 million, $1.9 million,
$1.1 million, and $2.4 million for the years ended December 31, 1994, 1995,
and 1996, and for the nine months ended September 30, 1997, respectively.
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, cash flow from operations and borrowings, as well as issuances of
debt and/or equity securities.
The Company is aware of the issues associated with the programming code in
existing computer systems as the millennium (year 2000) approaches. The "year
2000" problem is pervasive and complex as virtually every computer operation
will be affected in some way by the rollover of the two digit year value to
00. The issue is whether computer systems will properly recognize date
sensitive information when the year changes to 2000. Systems that do not
properly recognize such information could generate erroneous data or cause a
system to fail.
The Company will utilize both internal and external resources to identify,
correct or reprogram, and test the systems for the year 2000 compliance. 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. Additionally, as part of
the integration of the Acquired Companies discussed elsewhere in this
Prospectus, the Company will be implementing common systems in both the
operations and financial management areas of the Company within the next two
years. The systems implemented or upgraded will all be year 2000 compliant,
one of the criteria of the systems integration plan. The Company will continue
to assess the impact of the year 2000 issue as a part of the systems
integration plan. The Company is in the process of contacting all of its
software and hardware suppliers with regard to their respective year 2000
compliant programs.
32
<PAGE>
Due to the relative low levels of inflation experienced in 1994, 1995 and
1996, inflation did not have a significant effect on the results of the
combined Founding Companies in those years.
Access
Founded in 1987, Access specializes in providing electronic 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 (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30,
----------------------------------------- -------------------------------
1994 1995 1996 1996 1997
------------- ------------- ------------- --------------- ---------------
(UNAUDITED)
<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% $ 6,606 100.0% $ 9,261 100.0%
Cost of revenues........ 2,823 55.2% 3,419 52.5% 4,071 44.9% 2,977 45.1% 4,582 49.5%
------ ------ ------ ------ ------ ------ ------- ------- ------- -------
Gross profit............ 2,291 44.8% 3,089 47.5% 5,002 55.1% 3,629 54.9% 4,679 50.5%
Selling, general and
administrative......... 1,745 34.1% 2,582 39.7% 3,455 38.1% 2,255 34.1% 2,990 32.3%
------ ------ ------ ------ ------ ------ ------- ------- ------- -------
Operating income........ $ 546 10.7% $ 507 7.8% $1,547 17.0% $ 1,374 20.8% $ 1,689 18.2%
====== ====== ====== ====== ====== ====== ======= ======= ======= =======
</TABLE>
Nine Months Ended September 30, 1997 Compared to Nine Months Ended September
30, 1996
Net revenues. Net revenues increased $2.7 million, or 40.2%, from $6.6
million for the nine months ended September 30, 1996 to $9.3 million for the
nine months ended September 30, 1997. This increase in net revenues resulted
primarily from additional sales of teleconferencing services to existing
customers and new customers. This increase included a substantial increase in
net revenues from unattended and enhanced conferencing services as well as
revenues of approximately $183,000 in video teleconferencing in 1997, compared
to an insignificant amount of video teleconferencing revenues for the
comparable period in 1996.
Cost of revenues. Cost of revenues increased $1.6 million, or 53.9%, from
$3.0 million for the nine months ended September 30, 1996 to $4.6 million for
the nine months ended September 30, 1997. As a percentage of revenue, cost of
revenues increased 4.4 percentage points, from 45.1% for the nine months ended
September 30, 1996 to 49.5 % for the nine months ended September 30, 1997.
This percentage increase was due primarily to the substantial investment in
personnel and related costs made in video teleconferencing.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $735,000, or 32.6% from $2.3 million for the
nine months ended September 30, 1996 to $3.0 million for the nine months ended
September 30, 1997. The dollar increase was primarily attributable to
increased personnel, outside services and advertising costs. As a percentage
of net revenues, selling, general and administrative expenses decreased 1.8
percentage points from 34.1% for the nine months ended September 30, 1996 to
32.3% for the nine months ended September 30, 1997.
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 in 1995 to $9.1 million in 1996. This increase was primarily
attributable to additional sales of teleconferencing services to existing
customers and sales to new customers.
Cost of revenues. Cost of revenues increased $652,000, or 19.1%, from $3.4
million in 1995 to $4.1 million in 1996. This dollar increase was primarily
attributable to increased telecommunications, occupancy costs and the salaries
and benefits of 16 additional operators. As a percentage of net revenues, cost
of revenues decreased 7.6 percentage points from 52.5% in 1995 to 44.9% in
1996.
33
<PAGE>
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $873,000, or 33.8%, from $2.6 million in
1995 to $3.5 million in 1996. As a percentage of net revenues, selling,
general and administrative expenses decreased 1.6 percentage points from 39.7%
in 1995 to 38.1% in 1996. The dollar increase resulted primarily from
increased occupancy costs and non-recurring executive compensation and bad
debt expense.
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 in 1994 to $6.5 million in 1995. This increase was primarily
attributable to additional sales of teleconferencing services to existing
customers and sales to new customers.
Cost of revenues. Cost of revenues increased $596,000, or 21.1%, from $2.8
million in 1994 to $3.4 million in 1995. This dollar increase was primarily
attributable to the costs of new equipment and salaries and benefits for 10
additional operators. As a percentage of net revenues, cost of revenues
decreased 2.7 percentage points from 55.2% in 1994 to 52.5% in 1995.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $837,000, or 48.0%, from $1.7 million in
1994 to $2.6 million in 1995. The dollar and percentage increases were
primarily attributable to moving expenses and increased occupancy costs
associated with relocating to a larger facility. As a percentage of net
revenues, selling, general and administrative expenses increased 5.6
percentage points from 34.1% in 1994 to 39.7% in 1995.
LIQUIDITY AND CAPITAL RESOURCES--ACCESS
The following table sets forth selected financial information from Access'
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>
Net cash provided by (used
in):
Operating activities........ $ 592 $ 821 $ 2,048 $ 1,681 $ 2,647
Investing activities........ (557) (1,432) (795) (431) (1,528)
Financing activities........ 22 771 (839) (820) (953)
------ -------- ------- -------- ---------
Net increase in cash and cash
equivalents.................. $ 57 $ 160 $ 414 $ 430 $ 166
====== ======== ======= ======== =========
</TABLE>
Access had a positive cash flow from operations in each of 1994, 1995 and
1996. 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 capital equipment. Cash used in financing activities consisted of the
repayments of notes payable, principal payments under capital leases
obligations, payments to a former stockholder and dividends to stockholders.
Dividends to stockholders totaled $39,000, $0 and $475,000 for 1994, 1995 and
1996, respectively.
Access generated positive cash flow from operations of $2.6 million during
the nine months ended September 30, 1997. Cash used in investing activities
was mainly for property and equipment. Net cash used in financing activities
for the nine months ended September 30, 1997 consisted of borrowings on notes
payable to finance the acquisition of capital equipment, offset by repayments
of notes payable and dividends to stockholders of $797,000.
34
<PAGE>
CSI
Founded in 1992, CSI is headquartered and maintains its operations in
Atlanta, Georgia. CSI specializes in providing audio teleconferencing services
and enhanced services, on an outsourced basis, to certain facilities-based and
non-facilities-based telecommunications providers. CSI's customers generally
arrange for and directly bear the cost of long distance telephone
transmission. As a result, CSI's gross margin as a percentage of net revenues
is higher than those of the other Acquired Companies. In addition, CSI is not
required to spend significant marketing dollars under its outsourcing
arrangement with its customers. This has resulted in CSI having a historically
lower selling, general and administrative expense as a percentage of net
revenues than most of the other Acquired Companies.
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 (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30,
----------------------------------------- -------------------------------
1994 1995 1996 1996 1997
------------- ------------- ------------- --------------- ---------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues............ $2,331 100.0% $3,808 100.0% $5,868 100.0% $ 4,483 100.0% $ 4,790 100.0%
Cost of revenues........ 1,463 62.8% 1,874 49.2% 2,780 47.4% 2,027 45.2% 2,010 42.0%
------ ------ ------ ------ ------ ------ ------- ------- ------- -------
Gross profit............ 868 37.2% 1,934 50.8% 3,088 52.6% 2,456 54.8% 2,780 58.0%
Selling, general and
administrative
expenses............... 735 31.5% 940 24.7% 1,049 17.9% 888 19.8% 686 14.3%
------ ------ ------ ------ ------ ------ ------- ------- ------- -------
Operating income........ $ 133 5.7% $ 994 26.1% $2,039 34.7% $ 1,568 35.0% $ 2,094 43.7%
====== ====== ====== ====== ====== ====== ======= ======= ======= =======
</TABLE>
Nine Months Ended September 30, 1997 Compared to Nine Months Ended September
30, 1996
Net revenues. Net revenues increased $307,000 or 6.8% from $4.5 million for
the nine months ended September 30, 1996 to $4.8 million for the nine months
ended September 30, 1997. This increase is primarily due to increased revenues
from CSI's two major customers. Net revenues from CSI's two significant
customers represented 69.5% and 71.8% of CSI's net revenues for the nine
months ended September 30, 1996 and September 30, 1997, respectively.
Cost of revenues. Cost of revenues was virtually unchanged at $2.0 million
for the nine months ended September 30, 1996 and 1997. As a percentage of
revenue, cost of revenues decreased 3.2 percentage points from 45.2% for the
nine months ended September 30, 1996 to 42.0% for the nine months ended
September 30, 1997. The percentage decrease was due primarily to CSI's
negotiation of a favorable telecommunications contract which became effective
November 1996.
Selling, general and administrative expenses. Selling, general and
administrative expenses decreased $202,000, or 22.7% from $888,000 for the
nine months ended September 30, 1996 to $686,000 for the nine months ended
September 30, 1997. As a percentage of net revenues, selling, general and
administrative expenses decreased 5.5 percentage points from 19.8% for the
nine months ended September 30, 1996 to 14.3% for the nine months ended
September 30, 1997. The dollar and percentage decreases were due primarily to
a reduction in outside services expenses.
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 CSI's two significant customers
represented 54.0% and 70.0% of CSI's net revenues for the year ended December
31, 1995 and 1996, respectively.
35
<PAGE>
Cost of revenues. Cost of revenues increased $906,000, or 48.3%, from $1.9
million in 1995 to $2.8 million in 1996. As a percentage of net revenues, cost
of revenues decreased 1.8 percentage points from 49.2% in 1995 to 47.4% 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 $109,000, or 11.6%, from $940,000 in 1995 to
$1.0 million in 1996. As a percentage of net revenues, selling, general and
administrative expenses decreased 6.8 percentage points from 24.7% in 1995 to
17.9% in 1996. This percentage decrease was primarily attributable to
spreading fixed costs over a larger revenue base.
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 CSI's two significant customers
represented 28.0% and 54.0% of total net revenues for 1994 and 1995,
respectively.
Cost of revenues. Cost of revenues increased $411,000, or 28.1%, from $1.5
million in 1994 to $1.9 million in 1995. As a percentage of net revenues, cost
of revenues decreased 13.6 percentage points from 62.8% in 1994 to 49.2% 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 $205,000, or 27.9%, from $735,000 in 1994 to
$940,000 in 1995. As a percentage of net revenues, selling, general and
administrative expenses decreased 6.8 percentage points from 31.5% in 1994 to
24.7% in 1995. This percentage decrease was primarily attributable to
spreading such costs over a larger revenue base.
LIQUIDITY AND CAPITAL RESOURCES--CSI
The following table sets forth selected financial information from CSI's
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>
Net cash provided by (used
in):
Operating activities....... $ 53 $ 721 $ 2,128 $ 1,450 $ 2,174
Investing activities....... (476) (225) (41) (31) (317)
Financing activities....... 426 (144) (2,144) (1,713) (2,163)
------- ------- --------- -------- --------
Net increase (decrease) in
cash and cash equivalents... $ 3 $ 352 $ (57) $ (294) $ (306)
======= ======= ========= ======== ========
</TABLE>
CSI had a positive cash flow from operations in each period presented. Cash
used in investing 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 dividends to stockholders. Dividends to
stockholders totaled $1.6 million in 1996. There were no dividends to
stockholders in 1994 and 1995. Dividends to stockholders totaled $1.3 million
and $2.1 million for the nine months ended September 30, 1996 and September
30, 1997, respectively. As of September 30, 1997, CSI had working capital of
$327,000.
Call Points
Founded in 1988, Call Points specializes in providing operator-attended
audio teleconferencing services primarily to the retail industry. Call Points
is headquartered and maintains its operations center in Montgomery, Alabama.
36
<PAGE>
RESULTS OF OPERATIONS--CALL POINTS
The following table sets forth certain historical financial data (in
thousands) of Call Points and such data as a percentage of net revenues for
the periods presented. In general, Call Points' retail customers are extremely
price sensitive for their teleconferencing services and will seek the best
price, regardless of the provider. As a result, Call Points has the lowest
average price per minute and gross margin as a percentage of net revenues of
all the Acquired Companies.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------------------- ---------------------------------
1994 1995 1996 1996 1997
------------- --------------- --------------- ----------------- ---------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues............ $8,537 100.0% $6,852 100.0% $7,509 100.0% $ 5,606 100.0% $ 6,230 100.0%
Cost of revenues........ 6,140 71.9% 5,331 77.8% 5,898 78.5% 4,392 78.3% 4,763 76.5%
------ ------ ------ ------- ------ ------- ------- -------- ------- -------
Gross profit............ 2,397 28.1% 1,521 22.2% 1,611 21.5% 1,214 21.7% 1,467 23.5%
Selling, general and
administrative
expenses............... 2,035 23.8% 1,820 26.6% 1,873 24.9% 1,377 24.6% 1,160 18.6%
------ ------ ------ ------- ------ ------- ------- -------- ------- -------
Operating income
(loss)................. $ 362 4.3% $ (299) (4.4)% $ (262) (3.4)% $ (163) (2.9)% $ 307 4.9%
====== ====== ====== ======= ====== ======= ======= ======== ======= =======
</TABLE>
Nine Months Ended September 30, 1997 Compared to Nine Months Ended September
30, 1996
Net revenues. Net revenues increased $624,000 or 11.1%, from $5.6 million
for the nine months ended September 30, 1996 to $6.2 million for the nine
months ended September 30, 1997. This increase in net revenues resulted
primarily from additional sales of teleconferencing services to existing
customers and sales to new customers.
Cost of revenues. Cost of revenues increased $371,000, or 8.4% from $4.4
million for the nine months ended September 30, 1996 to $4.8 million for the
nine months ended September 30, 1997. As a percentage of revenue, costs of
revenues decreased 1.8 percentage points from 78.3% for the nine months ended
September 30, 1996 to 76.5% for the nine months ended September 30, 1997. The
percentage decrease was primarily attributable to a reduction in long distance
rates with one of Call Points' long distance providers.
Selling, general and administrative expenses. Selling, general and
administrative expenses decreased $217,000 or 15.8% from $1.4 million for the
nine months ended September 30, 1996 to $1.2 million for the nine months ended
September 30, 1997. As a percentage of net revenues, selling, general and
administrative expenses decreased 6.0 percentage points from 24.6% for the
nine months ended September 30, 1996 to 18.6% for the nine months ended
September 30, 1997. The dollar and percentage decreases were primarily
attributable to a reduced reseller commission structure that went into effect
at the end of 1996 and a reduction in the rate of royalty payments.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Net revenues. Net revenues increased $657,000, or 9.6%, from $6.9 million in
1995 to $7.5 million in 1996. This increase in net revenues resulted from
additional sales of audio teleconferencing services to existing customers and
sales to new customers.
Cost of revenues. Cost of revenues increased $567,000, or 10.6%, from $5.3
million in 1995 to $5.9 million in 1996. This dollar increase was primarily
attributable to increased volume under unfavorable telecommunications
contracts. As a percentage of net revenues, cost of revenues remained
virtually unchanged between the periods.
37
<PAGE>
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $53,000, or 2.9%, from $1.8 million in 1995
to $1.9 million in 1996. As a percentage of net revenues, selling, general and
administrative expenses decreased 1.7 percentage points from 26.6% in 1995 to
24.9% in 1996. This percentage decrease was primarily due to the spreading of
fixed costs over a larger revenue base and a reduction in executive
compensation.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Net revenues. Net revenues decreased $1.7 million, or 19.7%, from $8.5
million in 1994 to $6.9 million in 1995. This decrease was attributable to the
loss of a significant customer representing approximately 24.0% of Call
Points' net revenues in 1994. This customer elected to provide its own
teleconferencing services and ceased to use Call Points' services.
Cost of revenues. Cost of revenues decreased $809,000, or 13.2%, from $6.1
million in 1994 to $5.3 million in 1995. As a percentage of net revenues, cost
of revenues increased 5.9 percentage points from 71.9% in 1994 to 77.8% in
1995. This percentage increase is primarily attributable to a time lapse
between the loss of a major customer and related labor reductions and to the
spreading of fixed depreciation costs over a smaller revenue base.
Selling, general and administrative expenses. Selling, general and
administrative expenses decreased $215,000, or 10.6%, from $2.0 million in
1994 to $1.8 million in 1995. As a percent of net revenues, selling, general
and administrative expenses increased 2.8 percentage points from 23.8% in 1994
to 26.6% in 1995. This percentage increase was due to higher commissions paid
to sales agents and the spreading of selling, general and administrative costs
over a smaller revenue base.
LIQUIDITY AND CAPITAL RESOURCES--CALL POINTS
The following table sets forth selected financial information from Call
Points' 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>
Net cash provided by (used in):
Operating activities......... $ 820 $ 841 $ 220 $ 262 $ 769
Investing activities......... (148) (105) (50) (39) (276)
Financing activities......... (695) (677) (288) (267) (43)
------- ------- ------- -------- --------
Net increase (decrease) in cash
and cash equivalents.......... $ (23) $ 59 $ (118) $ (44) $ 450
======= ======= ======= ======== ========
</TABLE>
Call Points had a positive cash flow from operations in each period
presented. Cash used in investing activities related solely to the acquisition
of property and equipment. Cash used in financing activities was the result of
repayment of notes payable to lenders and related parties. No dividends were
paid to stockholders in 1994, 1995 or 1996 or for the nine months ended
September 30, 1997. As of September 30, 1997, Call Points had a working
capital deficit of $91,000.
TCC
Founded in 1987, TCC provides audio teleconferencing services and enhanced
services to a general business clientele. TCC is headquartered and maintains
its operations center in Cambridge, Massachusetts.
On December 2, 1996, TCC distributed to its stockholders a line of business
("TCC's Distributed Business") unrelated to its core operations. Revenues
associated with these assets were $642,000, $727,000 and
38
<PAGE>
$707,000 for the years ended December 31, 1994 and 1995 and the period January
1, 1996 to December 2, 1996, respectively. Operating income associated with
these assets was $75,000, $42,000 and $48,000 in such years and period,
respectively. See Note 1(a) to Notes to Financial Statements of Kendall Square
Teleconferencing, Inc. included elsewhere in this Prospectus.
RESULTS OF OPERATIONS--TCC
The following table sets forth certain historical financial data of TCC and
such data as a percentage of net revenues for the periods presented (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30,
----------------------------------------- -------------------------------
1994 1995 1996 1996 1997
------------- ------------- ------------- --------------- ---------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues............ $1,515 100.0% $2,329 100.0% $3,396 100.0% $ 2,501 100.0% $ 3,003 100.0%
Cost of revenues........ 816 53.9% 1,129 48.5% 1,813 53.4% 1,351 54.0% 1,650 54.9%
------ ------ ------ ------ ------ ------ ------- ------- ------- -------
Gross profit............ 699 46.1% 1,200 51.5% 1,583 46.6% 1,150 46.0% 1,353 45.1%
Selling, general and
administrative
expenses............... 510 33.7% 889 38.2% 1,329 39.1% 969 38.7% 1,015 33.8%
------ ------ ------ ------ ------ ------ ------- ------- ------- -------
Operating income........ $ 189 12.4% $ 311 13.3% $ 254 7.5% $ 181 7.2% $ 338 11.3%
====== ====== ====== ====== ====== ====== ======= ======= ======= =======
</TABLE>
Nine Months Ended September 30, 1997 Compared to Nine Months Ended September
30, 1996
Net revenues. Net revenues increased $502,000 or 20.1% from $2.5 million for
the nine months ended September 30, 1996 to $3.0 million for the nine months
ended September 30, 1997. The increase in net revenues resulted primarily from
additional sales of teleconferencing services to existing customers and sales
to new customers and was achieved despite the fact that TCC's net revenues for
the nine months ended September 30, 1996 included $565,000 of net revenues
from TCC's Distributed Business which was divested in December 1996.
Cost of revenues. Cost of revenues increased $299,000 or 22.1% from $1.4
million for the nine months ended September 30, 1996 to $1.7 million for the
nine months ended September 30, 1997. As a percentage of revenue, cost of
revenues increased 0.9 percentage points from 54.0% for the nine months ended
September 30, 1996 to 54.9% for the nine months ended September 30, 1997. This
increase was due primarily to increased expenses associated with the hiring of
personnel working in the operations area.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $46,000 or 4.7% from $969,000 for the nine
months ended September 30, 1996 to $1.0 million for the nine months ended
September 30, 1997. As a percentage of net revenues, selling, general and
administrative expenses decreased 4.9 percentage points from 38.7% for the
nine months ended September 30, 1996 to 33.8% for the nine months ended
September 30, 1997. The percentage decrease was due primarily to the reduction
of selling, general and administrative costs related to TCC's Distributed
Business.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Net revenues. Net revenues increased $1.1 million, or 45.8%, from $2.3
million in 1995 to $3.4 million in 1996. This increase resulted from
additional sales of audio teleconferencing services to existing customers and
sales to new customers. This increase was due, in part, to the addition of two
new salespeople in 1996.
Cost of revenues. Cost of revenues increased $684,000, or 60.6%, from $1.1
million in 1995 to $1.8 million in 1996. As a percentage of net revenues, cost
of revenues increased 4.9 percentage points from 48.5% in 1995 to 53.4% in
1996. The dollar and percentage increases resulted primarily from an increase
in telecommunications expenses and the addition of 10 operators.
39
<PAGE>
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $440,000, or 49.5%, from $889,000 in 1995 to
$1.3 million in 1996. As a percentage of net revenues, selling, general and
administrative expenses increased 0.9 percentage points from 38.2% in 1995 to
39.1% in 1996. The dollar increase was primarily attributable to the costs of
the addition of two salespeople, increased commissions to sales personnel and
hiring costs associated with additional staff.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Net revenues. Net revenues increased $814,000, or 53.7%, from $1.5 million
in 1994 to $2.3 million in 1995. This increase resulted from additional sales
of audio teleconferencing services to existing customers and sales to new
customers. This increase was due, in part, to the addition of a salesperson in
the Washington, D.C. area.
Cost of revenues. Cost of revenues increased $313,000, or 38.4%, from
$816,000 in 1994 to $1.1 million in 1995. As a percentage of net revenues,
cost of revenues decreased 5.4 percentage points from 53.9% in 1994 to 48.5%
in 1995. This dollar increase was primarily attributable to increased
telecommunications costs and the addition of two operators. This percentage
decrease was primarily attributable to the spreading of such costs over a
larger revenue base.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $379,000, or 74.3%, from $510,000 in 1994 to
$889,000 in 1995. As a percentage of net revenues, selling, general and
administrative increased 4.5 percentage points from 33.7% in 1994 to 38.2% in
1995. The additional costs consisted primarily of increased marketing expenses
incurred to support TCC's growth and costs associated with the addition of the
salesperson in the Washington, D.C. area.
LIQUIDITY AND CAPITAL RESOURCES-TCC
The following table sets forth selected financial information from TCC's
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>
Net cash provided by (used
in):
Operating activities....... $ 62 $ 211 $ 159 $ 32 $ 150
Investing activities....... (20) (231) (156) (153) (144)
Financing activities....... (84) 68 40 72 (110)
------- -------- -------- -------- --------
Net increase (decrease) in
cash and cash equivalents... $ (42) $ 48 $ 43 $ (49) $ (104)
======= ======== ======== ======== ========
</TABLE>
TCC had a positive cash flow from operations in each period presented. Cash
used in investing related solely to the acquisition of property and equipment.
Net cash used by financing activities consisted of the repayment of debt and
acquisition of treasury stock. Cash provided by financing activities included
proceeds from borrowings under a note payable and net proceeds from capital
lease obligations. No dividends were paid to stockholders in 1994, 1995 or
1996. Dividends of $61,000 were paid to stockholders during the nine month
period ended September 30, 1997. As of September 30, 1997, TCC had a working
capital deficit of $15,000.
Americo
Founded in 1987, Americo services a general business clientele. Americo is
headquartered and maintains its operations center in Oradell, New Jersey.
40
<PAGE>
RESULTS OF OPERATIONS--AMERICO
The following table sets forth certain historical financial data of Americo
and such data as a percentage of net revenues for the periods presented (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------------- -------------------------------------
1994 1995 1996 1996 1997
---------- ------------ ------------- ----------------- -----------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues............ $772 100.0% $1,227 100.0% $1,679 100.0 % $ 1,210 100.0 % $ 1,581 100.0 %
Cost of revenues........ 335 43.4% 625 50.9% 854 50.9 % 631 52.1 % 1,051 66.5 %
---- ----- ------ ----- ------ ----- -------- ------- -------- -------
Gross profit............ 437 56.6% 602 49.1% 825 49.1 % 579 47.9 % 530 33.5 %
Selling, general and
administrative......... 345 44.7% 514 41.9% 889 52.9 % 593 49.0 % 840 53.1 %
---- ----- ------ ----- ------ ----- -------- ------- -------- -------
Operating income........ $ 92 11.9% $ 88 7.2% $ (64) (3.8)% $ (14) (1.1)% $ (310) (19.6)%
==== ===== ====== ===== ====== ===== ======== ======= ======== =======
</TABLE>
Nine Months Ended September 30, 1997 Compared to Nine Months Ended September
30, 1996
Net revenues. Net revenues increased $371,000 or 30.7% from $1.2 million for
the nine months ended September 30, 1996 to $1.6 million for the nine months
ended September 30, 1997. This increase in net revenues resulted primarily
from additional sales of teleconferencing services to existing customers and
sales to new customers.
Cost of revenues. Cost of revenues increased $420,000 or 66.6% from $631,000
for the nine months ended September 30, 1996 to $1.1 million for the nine
months ended September 30, 1997. As a percentage of revenue, cost of revenues
increased 14.4 percentage points from 52.1% for the nine months ended
September 30, 1996 to 66.5% for the nine months ended September 30, 1997. The
dollar and percentage increases were primarily due to the addition of eight
employees in the operations area who were hired in anticipation of increased
call volume for 1997.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $247,000, or 41.7%, from $593,000 for the
nine months ended September 30, 1996 to $840,000 for the nine months ended
September 30, 1997. As a percentage of revenue, selling, general and
administrative expenses increased 4.1 percentage points from 49.0% for the
nine months ended September 30, 1996 to 53.1% for the nine months ended
September 30, 1997. The dollar and percentage increases were primarily due to
higher levels of compensation paid to administrative and executive personnel.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Net revenues. Net revenues increased $452,000, or 36.8%, from $1.2 million
in 1995 to $1.7 million in 1996. This increase was primarily attributable to
increases in sales of audio teleconferencing services to existing customers
and sales to new customers.
Cost of revenues. Cost of revenues increased $229,000, or 36.6%, from
$625,000 in 1995 to $854,000 in 1996. As a percentage of revenues, cost of
revenues remained constant at 50.9% of net revenues.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $375,000, or 73.0%, from $514,000 in 1995 to
$889,000 in 1996. As a percentage of revenues, selling, general, and
administrative expense increased 11.0 percentage points from 41.9% in 1995 to
52.9% in 1996. The additional costs consisted primarily of increased executive
compensation as well as the cost of employee benefit plans established in
1996.
41
<PAGE>
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Net revenues. Net revenues increased $455,000, or 58.9%, from $772,000 in
1994 to $1.2 million in 1995. This increase was primarily attributable to
increases in sales of audio teleconferencing services to existing customers
and sales to new customers.
Cost of revenues. Cost of revenues increased $290,000, or 86.6%, from
$335,000 in 1994 to $625,000 in 1995. As a percentage of sales, cost of
revenues increased 7.5 percentage points from 43.4% in 1994 to 50.9% in 1995.
This percentage increase is primarily attributable to the increase in long-
distance telephone charges and the cost of additional operators.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $169,000, or 49.0%, from $345,000 in 1994 to
$514,000 in 1995. As a percentage of net revenues, selling, general and
administrative expenses decreased 2.8 percentage points from 44.7% in 1994 to
41.9% in 1995. The additional costs consisted primarily of increased marketing
personnel costs.
LIQUIDITY AND CAPITAL RESOURCES--AMERICO
The following table sets forth selected financial information from Americo's
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>
Net cash provided by (used
in):
Operating activities........ $ 43 $ 17 $ 90 $ 19 $ (125)
Investing activities........ (47) (17) (25) (21) (47)
Financing activities........ (1) 17 (43) (6) 142
------- ------- ------- -------- ---------
Net increase (decrease) in
cash and cash equivalents.... $ (5) $ 17 $ 22 $ (8) $ (30)
======= ======= ======= ======== =========
</TABLE>
Americo had a positive cash flow from operations in each of 1994, 1995 and
1996 and the nine months ended September 30, 1996. Americo had a negative cash
flow from operations for the nine months ended September 30, 1997. Cash used
in investing activities for all periods presented related solely to the
acquisition of property and equipment. Cash provided by financing activities
for 1994, 1995 and 1996, resulted from borrowings under a line of credit and
for the nine months ended September 30, 1997 also included proceeds from the
issuance of long-term debt. Cash used in financing activities consisted of
principal payments under capital lease obligations and long term debt, and
dividends. Dividends paid to stockholders for 1994, 1995 and 1996 were $0, $0
and $19,000, respectively. Dividends paid to stockholders for the nine months
ended September 30, 1996 and 1997 were $16,000 and $0, respectively. As of
September 30, 1997 Americo had a working capital deficit of $692,000.
CDC
Founded in 1991, CDC specializes in providing a range of electronic group
communications services and customized communications solutions, primarily to
the pharmaceutical and health-care industries. CDC is headquartered and
maintains its operations center in Danbury, Connecticut.
42
<PAGE>
RESULTS OF OPERATIONS--CDC
The following table sets forth certain historical financial data of CDC and
such data as a percentage of net revenues for the periods presented (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30,
------------------------------------------- ----------------------------------
1994 1995 1996 1996 1997
------------ -------------- ------------- ---------------- ----------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues.............. $1,121 100.0% $1,131 100.0 % $1,480 100.0% $ 1,080 100.0% $ 1,486 100.0%
Cost of revenues.......... 709 63.2% 765 67.6 % 886 59.9% 615 56.9% 766 51.5%
------ ----- ------ ------ ------ ----- -------- ------- -------- -------
Gross profit.............. 412 36.8% 366 32.4 % 594 40.1% 465 43.1% 720 48.5%
Selling, general and
administrative expenses.. 337 30.1% 377 33.3 % 655 44.2% 411 38.1% 442 29.8%
------ ----- ------ ------ ------ ----- -------- ------- -------- -------
Operating income............$ 75 6.7% $ (11) (.9)% $ (61) 4.1% $ 54 5.0% $ 278 18.7%
====== ===== ====== ====== ====== ===== ======== ======= ======== =======
</TABLE>
Nine months ended September 30, 1997 compared to nine months ended September
30, 1996
Net revenues. Net revenues increased $406,000 or 37.6 % from $1.1 million
for the nine months ended September 30, 1996 to $1.5 million for the nine
months ended September 30, 1997. The increase is a result of increased
penetration in sales in the pharmaceutical/medical marketing industries.
Increase in revenues also reflects the offerings of new services developed
specifically for clients in the pharmaceutical/medical marketing industries to
enhance their programs.
Cost of revenues. Cost of revenues increased $151,000 or 24.6%, from
$615,000 for the nine months ended September 30, 1996 to $766,000 for the nine
months ended September 30, 1997. The increase in cost of revenue is attributed
to the purchase of new computer equipment and network to support additional
employees and the growth of the pharmaceutical division and business in
general. Reservation and billing systems were upgraded, and customized
computer programs have been developed to service clients in the pharmaceutical
division. As a percentage of revenue, cost of revenues decreased 5.4
percentage points from 56.9% for the nine months ended September 30, 1996 to
51.5% for the nine months ended September 30, 1997. The percentage decrease is
primarily due to reductions in long distance rates and improved utilization of
existing capacity.
Selling, general, and administrative expenses. Selling, general and
administrative expenses increased $31,000 or 7.5% from $411,000 for the nine
months ended September 30, 1996 to $442,000 for the nine months ended
September 30, 1997. As a percentage of revenues, selling, general and
administrative expenses decreased 8.3 percentage points from 38.1% for the
nine months ended September 30, 1996 to 29.8% for the nine months ended
September 30, 1997 due to operating efficiencies and the spreading of fixed
costs over a larger revenue base.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Net revenues. Net revenues increased $349,000, or 30.9%, from $1.1 million
in 1995 to $1.5 million in 1996. These additional sales were generated, in
part, by an increase in net revenues of $183,000 from two significant
customers of CDC.
Cost of revenues. Cost of revenues increased $121,000, or 15.8%, from
$765,000 in 1995 to $886,000 in 1996. As a percentage of net revenues, cost of
revenues decreased 7.7 percentage points from 67.6% in 1995 to 59.9% in 1996.
The percentage decrease was due to reductions in telecommunications expense
and improved utilization of existing capacity.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $278,000, or 73.7%, from $377,000 in 1995 to
$655,000 in 1996. As a percentage of net revenues, selling, general and
administrative expenses increased 10.9 percentage points from 33.3% in 1995 to
44.2% in 1996. This percentage increase was primarily attributable to the
addition of a sales manager and increases in executive compensation.
43
<PAGE>
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Net revenues. Net revenues remained virtually unchanged from 1994 to 1995.
Although CDC experienced increases in net revenues from new and existing
customers, CDC's net revenues from its largest two customers declined by
$30,000.
Cost of revenues. Cost of revenues increased $56,000, or 7.9%, from $709,000
in 1994 to $765,000 in 1995. As a percentage of net revenues, cost of revenues
increased 4.4 percentage points from 63.2% in 1994 to 67.6% in 1995. The
dollar and percentage increases resulted from the addition of two operators
and the doubling of office space in anticipation of additional volume.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased by $40,000, or 11.9% from $337,000 in 1994
to $377,000 in 1995. As a percentage of net revenues, selling general and
administrative expenses increased 3.2 percentage points from 30.1% in 1994 to
33.3% in 1995. The dollar and percentage increases resulted from the doubling
of office space and increased compensation expense for administrative and
executive personnel.
LIQUIDITY AND CAPITAL RESOURCES--CDC
The following table sets forth selected financial information from CDC's
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>
Net cash provided by (used
in):
Operating activities........ $ 159 $ 8 $ 143 $ 137 $ 12
Investing activities........ (183) (4) (2) (13) (21)
Financing activities........ 31 1 (69) (63) (26)
-------- ------ ------- -------- --------
Net increase in cash and cash
equivalents.................. $ 7 $ 5 $ 72 $ 61 $ (35)
======== ====== ======= ======== ========
</TABLE>
CDC had a positive cash flow from operations in each period presented. Cash
used in investing activities related solely to the acquisition of property and
equipment. Cash provided by financing activities included borrowings under a
line of credit and long-term debt. Cash used in financing activities included
repayments of borrowings under a line of credit and repayments of long-term
debt. There were no dividends paid to stockholders during 1994, 1995 and 1996
or for the nine months ended September 30, 1997. As of September 30, 1997, CDC
had working capital of $245,000.
44
<PAGE>
BUSINESS
On November 12, 1997, VIALOG Corporation acquired, in separate transactions
(the "Acquisitions"), six private conference service bureaus (each, an
"Acquired Company" and, collectively, the "Acquired Companies") in exchange
for cash and shares of its Common Stock. Unless otherwise indicated, (i) all
information in this Prospectus gives effect to the Acquisitions and the
transactions described under "Organization and Acquisition of the Acquired
Companies", (ii) all references to "VIALOG Corporation" mean VIALOG
Corporation (which was founded on January 1, 1996) as a stand-alone entity and
(iii) all references to "VIALOG" or the "Company" refer to VIALOG Corporation
and include its consolidated subsidiaries.
COMPANY OVERVIEW
VIALOG is a leading independent provider of electronic group communications
services, consisting primarily of operator-assisted audio teleconferencing, as
well as video, data and unattended audio teleconference services. The Company
has one of the largest and most geographically diverse networks of sales and
operations centers focused solely on the electronic group communications
market, and has approximately 6,500 ports of teleconferencing capability (one
"port" is required for each conference participant) and state-of-the-art
digital conferencing technology. The Company believes it differentiates itself
from its competitors by providing superior customer service and support as
well as an extensive range of enhanced and customized communications
solutions. Combining these capabilities with targeted marketing and
relationship selling has allowed the Company to capitalize on the growth in
the developing teleconferencing services industry and to build a large, stable
client base of approximately 5,000 customers representing what the Company
estimates to be over 30,000 accounts. The Company's customer base is diverse,
ranging from Fortune 500 companies to medium and small businesses and
institutions. Customers also include certain major long distance
telecommunications providers which have outsourced their teleconferencing
services to VIALOG.
The Company facilitates effective teleconferences through a combination of
technology, enhanced services and superior customer service. Operator-assisted
audio teleconferencing is the cornerstone of the Company's business and the
principal service which builds customer loyalty. The Company also offers
enhanced services such as digital replay of teleconferences, broadcast fax and
fulfillment services such as follow-up mailings or calls. Additionally, the
Company offers customized communications solutions, which include event
planning, auction formats, coaching and event rehearsal services. The Company
derived approximately 97% and 3% of its 1996 net revenues from audio
teleconference services and related customized and enhanced services,
respectively.
The Acquired Companies had a combined compound annual growth rate in net
revenues of 27.3% during the three-year period ended December 31, 1996 and pro
forma combined net revenues of $28.3 million in 1996. VIALOG believes that the
consolidation of the Acquired Companies offers a number of significant
synergies that will contribute to VIALOG's continued growth in net revenues
and cash flow. These synergies include operating efficiencies such as reduced
costs for long distance charges, equipment and employee benefits. The Company
also expects to benefit from significantly enhanced marketing power by
creating the critical mass necessary to develop a brand name effectively,
implement a national selling strategy and offer a wide range of teleconference
services. The Company intends to establish its brand, VIALOG, as synonymous
with superior electronic group communications services. The Company also
intends to capitalize on strong industry fundamentals by leveraging its
service capabilities, targeted selling approach and unique industry position
to continue to increase penetration of its existing customer base and to win
new customers, including those long distance service providers that decide to
outsource their teleconferencing services. In addition to internal growth, the
Company believes there is substantial opportunity to consolidate the industry
further through future acquisitions.
45
<PAGE>
INDUSTRY OVERVIEW
Services
The electronic group communications industry provides a range of services to
facilitate multiparty communications with participants in different locations.
Through electronic group communications services, customers conduct routine
meetings, run training sessions, and share information where the traveling
associated with assembling a group frequently or on short notice makes face-
to-face meetings too costly, impractical or inconvenient. The International
Teleconferencing Association ("ITCA") estimates that total teleconferencing
industry net revenues (including hardware, services and network net revenues)
in North America increased from $1.8 billion in 1992 to $4.9 billion in 1996.
The primary electronic group communications services available today are
audio, video and data teleconferencing.
Audio teleconferencing. Industry sources estimate that total audio
teleconferencing net revenues attributable to the service segment (the segment
in which the Company competes) constituted approximately $1.7 billion in 1996.
An audio teleconference is established through specialized telephone
equipment known as a Multipoint Control Unit ("MCU") or "bridge." Prior to
1984, audio teleconferencing was generally considered ineffective because only
one person could speak at a time. With the introduction of MCU technology in
1984, the industry then began to develop rapidly. Using MCU technology, the
number of participants in an audio teleconference can now vary from three to
thousands. The maximum number of participants is limited by the number of
conference "ports" available to the operator, with each participant using one
port. Calls may be established manually by an operator who places calls to, or
receives calls from, conference participants, each of whom occupies a single
telephone line and port. These lines are then "bridged" together through an
MCU, which permits simultaneous speaking by all participants, filters out the
"echo" of each participant's own speech, and equalizes sound volume and
clarity. 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.
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 demand for audio teleconferencing services has 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 costs, and increase
communication with parties with whom they would otherwise not meet, thereby
yielding greater organizational productivity. 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.
Video teleconferencing. Total video teleconferencing net revenues were
approximately $2.7 billion in 1996. Of the $2.7 billion in 1996, industry
sources estimate that approximately $99 million was attributable to the
service segment in which the Company competes. The majority of these revenues
were attributed to dedicated network services for point-to-point video
meetings, which do not require any of the services offered by the Company. The
broad adoption of video teleconferencing as a meeting tool has historically
been constrained by several factors, including limited access to video sites,
expensive and proprietary equipment, limited and costly bandwidth,
incompatibility of systems, and poor video quality. Video teleconferencing was
also generally limited to small or broadcast meetings at fixed locations,
except as implemented using expensive two-way satellite technology.
The adoption of International Telecommunications Union ("ITU") standard
H.320 in 1991 and ITU standard H.323 in 1996 has facilitated systems
compatibility. By 1995, technological advances (which brought
46
<PAGE>
down the cost of equipment and required bandwidth) combined with increased
processing speed (which improved quality) to permit the development of desktop
video. Interactive multipoint video teleconferencing 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 the growth of the
market for multipoint video teleconferencing.
Data teleconferencing. Data teleconferencing, which enables multiple users
to collaborate using data and voice over a single, high bandwidth line, is the
most recent advance in teleconferencing. Industry sources estimate that total
data teleconferencing net revenues constituted approximately $180 million in
1996. Virtually all of these net revenues were related to proprietary software
and systems not offered by the Company. The adoption of ITU standard T.120
data protocols and H.323 for multimedia conferencing and new Internet
"groupware" services and software are expected to facilitate greater adoption
of data teleconferencing.
Prior to the emergence of data teleconferencing, audio teleconference
participants were unable to share computer data during a conference call. New
standards allow data to travel over data networks on an interactive basis so
that multiple remote computers can manipulate the same program. 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. These Internet data teleconferencing programs will likely be used in
conjunction with audio teleconferencing to allow simultaneous group
discussions during editing and display of documents. Also, several
manufacturers have announced plans to introduce specialized non-TCP/IP
application servers that will provide mixed media teleconferencing with high
quality.
SERVICE PROVIDERS
There are three categories of service providers in the North American
electronic group communications industry: (i) the IXCs, such as AT&T, MCI,
Sprint, WorldCom, Inc. ("WorldCom"), Frontier and Cable & Wireless, (ii) the
PCSBs, a group of over 25 companies, excluding the Acquired Companies, and
(iii) the independent LECs, such as GTE and SNET. In addition, the RBOCs will
be allowed to provide long distance services, which the Company believes may
lead to their entry into the teleconferencing market, if they individually
meet certain requirements under the Telecommunications Act of 1996. See
"Business--Regulation."
The IXCs are currently the largest providers of teleconferencing services,
constituting approximately 80% of the audio teleconferencing services market
in 1995. 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 IXCs
have generally not emphasized enhanced services or customized communications
solutions to meet individual customer needs. Rather, they have generally de-
emphasized operator-involved services (such as directory assistance and
collect calls), and are increasingly implementing automated systems and
technology as a substitute for traditional operator-intensive services.
The second category of providers of electronic group communications services
are the PCSBs. There are approximately 25 PCSBs, excluding the Acquired
Companies. PCSBs began entering 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 service, the ability to secure necessary
capital has become more critical. Additionally, many PCSBs do not currently
have the marketing expertise or teleconferencing capacity to reach
47
<PAGE>
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 electronic group communications services
are the independent LECs. Similar to the IXCs, the LECs have generally not
focused on teleconferencing, enhanced services or customized communications
solutions.
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, which
drastically limited their teleconferencing potential. Under the
Telecommunications Act of 1996, the RBOCs will be allowed to provide in-region
long distance services upon the satisfaction of certain conditions. Upon
entrance into the long distance market, the Company believes that the ability
of an RBOC to gain immediate and significant teleconferencing market share
will be enhanced by its 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 new entrants will elect to outsource
teleconferencing services and focus on entering the long distance market. To
date, the Company has received requests for proposals to provide
teleconferencing services from four of the five RBOCs.
COMPETITIVE STRENGTHS
The Company believes that several characteristics differentiate it from many
of its competitors, including:
Diverse and stable customer base. The Company has a diverse base of
customers that numbered approximately 5,000 in 1996, with only one customer
(at less than 11%) representing greater than 10% of net revenues and the
Company's top ten customers representing less than 28% of net revenues. The
Company believes that it has created strong customer loyalty for its services
through its emphasis on superior customer service and the importance of such
service to its clients. This loyalty is demonstrated by VIALOG's record of
attracting and retaining significant clients, with low customer turnover. The
Company estimates that it experienced a "churn" rate of less than 3% during
1995 and 1996 and that approximately 65% of its revenue growth in 1996 came
from existing customers.
Unique industry position. VIALOG believes that it is positioned as one of
the largest and most geographically diverse companies in the industry which
focuses solely on electronic group communications. The Company's largest
competitors are long distance service providers for whom teleconferencing
represents only a small fraction of their total revenues. Therefore, VIALOG
can focus its capabilities and resources solely on teleconferencing, including
its information systems, capital equipment, hiring practices, training and
marketing. The Company believes this focus offers significant flexibility and
competitive advantages in responding to the needs of customers. VIALOG is also
well situated to obtain future outsourcing contracts from long distance
service providers which the Company believes are reluctant to outsource to a
long distance service competitor, and would prefer to outsource to a larger,
independent group communications company with experience in managing the
outsourcing process.
Superior customer service capabilities. The Company believes that it has a
core competency in its customer service capabilities, which stress operator
training, personalized service and anticipation of customer needs. VIALOG has
developed and refined the technological capabilities, procedures and
management information systems necessary to provide superior customer service,
a factor that is critical to both customer retention and new business. An
example of these capabilities is the Company's proprietary billing system for
outsourced services. VIALOG has spent several years developing and revising
this software and believes that no competitor can currently match the
flexibility of this system in meeting customer needs.
Broad range of services. The Company believes that it offers the most
comprehensive selection of audio, video and data teleconferencing services in
its industry, providing it with significant marketing advantages. VIALOG
offers the features and pricing options to meet a wide variety of customer
needs. The Company intends
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to remain at the forefront of the electronic group communications industry by
continuing to augment its existing service offerings through the development
and introduction of additional enhanced services and customized communications
solutions.
Experienced management team. VIALOG has one of the most experienced
management teams in the teleconferencing industry. The top 10 managers of the
Company have on average 14 years of experience within the
teleconferencing/telecommunications industry. This experience is critical to
the Company's ability to implement its business strategy, respond to industry
trends and to identify and consummate acquisition opportunities successfully.
GROWTH STRATEGY
The Company's objective is to build upon its position as a leading
independent provider of electronic group communications services. Management
plans to achieve this goal by implementing the following initiatives:
Create a brand identity. The Company intends to establish its brand, VIALOG,
as synonymous with expertise in, and a focus on, electronic group
communications. The Company intends to distinguish its brand from those of the
IXCs and other competitors through the Company's responsive customer service,
focused service offerings and selling strategy. In conjunction with this
strategy, the Company anticipates that it will invest approximately $6.0
million in advertising and promotion during the 24 months following this
Offering, with significant expenditures for direct marketing and trade
advertising.
Establish a national sales network. The Company intends to establish a
national sales network with a total staff of approximately 40 salespeople,
including 25 field salespeople, 5 national accounts salespeople and 10
salespeople dedicated to telemarketing. The field salespeople will form the
core of the Company's selling effort. This group is expected to be deployed
throughout the United States and will focus on increasing usage at the local
level under any national contracts as well as focus on sales to regional
accounts. The national accounts salespeople will focus their efforts on
obtaining national contracts with the Company's top customers, which include
many Fortune 500 companies. The telemarketing specialists will generate sales
leads for its field sales force by identifying customers who are using a
competitor's service. The Company also intends to market its services
vertically within select industries, such as pharmaceuticals, finance and
technology, in order to capitalize on its industry-specific knowledge. The
Company believes that its national selling strategy, combined with its
specialized services and branding, will lead to greater penetration and
retention of existing customers as well as increased market share.
Capitalize on opportunities to provide outsourced services. The Company
intends to expand its customer base for outsourced services to include
additional IXCs and independent LECs as well as RBOCs. The Company believes
the broad trend among long distance providers generally to outsource services
such as telemarketing and billing is likely to extend to teleconferencing as
these companies continue to move away from labor intensive activities. The
Company believes that, should the RBOCs become long distance providers,
competition will require that the RBOCs enter the market quickly with a
complete package of high quality telecommunications services, including
teleconferencing. Consequently, the Company believes that some RBOCs will
choose to outsource their electronic group communications requirements. The
Company believes that it is well-positioned to be competitive in obtaining
outsourced teleconferencing business, since it (i) is not a competitor with
IXCs and LECs in the long distance markets or with the RBOCs, (ii) has the
capacity and resources to handle significant teleconferencing volume, and
(iii) already has experience in providing services on an outsourced basis.
Expand through acquisitions. One element of the Company's strategy is to
continue consolidating the electronic group communications services industry
in order to increase market share, broaden geographic coverage and add new
service offerings. The Company will seek to acquire companies that provide
high quality service, have a significant customer base and utilize high
quality technology. The Company believes its acquisition experience and its
knowledge of the industry will be instrumental in identifying and successfully
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negotiating additional acquisitions. The Company believes that it will be an
attractive acquirer for many closely-held PCSBs because of (i) the Company's
increased access to financial resources as a larger company, (ii) the
Company's decentralized operating structure, and (iii) the ability of the
owner of the business being acquired to participate in the Company's on-going
business, while at the same time realizing liquidity.
Capitalize on consolidation benefits. The Company expects to capitalize on
the benefits of its increased size, the combined experience of the Acquired
Companies and its diverse customer base. The Company believes that its size
will result in stronger bargaining power in areas such as long distance
telecommunications, equipment, employee benefits and marketing. The Company
also intends to improve allocation of personnel and equipment and to
streamline internal practices through coordination among the Acquired
Companies. The Company believes its combined experience and diverse customer
base will allow it to develop and rapidly deploy innovative new services.
Management also intends to cross-market services developed by any one of the
Acquired Companies to all of the Company's customers, to maximize capacity
utilization and to integrate pricing strategy.
THE COMPANY'S ELECTRONIC GROUP COMMUNICATIONS SERVICES
Audio Teleconferencing. The Company offers a broad range of audio
teleconferencing services and related services, primarily to businesses in the
financial, professional service and pharmaceutical industries as well as to
government agencies and trade associations. The Company generates revenues
from this service by charging on a per-line, per-minute basis similar to
standard telephone pricing practices.
The Company's audio teleconference call services may be divided into three
major classifications: operator attended calls, unattended calls and enhanced
services. Within each major category there are several means of accessing the
conference call, as well as a number of operator assisted features and
services available upon the request of the customer.
Operator Attended Conference Calls. On operator attended conference calls,
the operator coordinates the call with the customer and provides support on
the call as required. Customers are given a choice of three different methods
to access an operator attended conference call. In the dial-out method, the
operator dials each participant and places each participant in the conference.
In the 800 Meet-Me method, the conference participants dial into the
conference using the same toll-free number. In the Meet-Me method, the
conference call is handled the same as 800 Meet-Me, but the participants dial
in via their own long distance service provider. Customers can also decide to
mix the access methods for participants. In an operator-attended conference
call, the operator greets each caller, conducts a roll call, and places each
caller on the conference call. The operator can offer a variety of features
and enhanced services. For example, the operator can gather information such
as agenda items or weekly sales figures from participants prior to joining a
call, arrange for translation services, conduct question and answer (Q&A)
sessions, conduct polling sessions, and relay all results back to the
customer. If a conference participant disconnects while a call is in session,
the operator can immediately call that participant to determine if the
disconnect was unintentional and, if necessary, re-establish the link. This
feature is generally not offered on unattended calls.
Unattended Conference Calls. Unattended conference calls refer to calls that
are not monitored by a Company operator. Each of the participants joins the
conference by dialing into a Company MCU and entering an assigned passcode.
This passcode directs participants to the correct conference and allows them
to participate in the conference without operator assistance. During certain
unattended calls, customers are still able to obtain operator assistance by
pressing "0". Customers may use either 800 Meet-Me or Meet-Me access modes to
join unattended conference calls.
Enhanced Services. The Company offers a wide range of enhanced services
(some of which were noted above), which allow customers to add value to their
conference calls. Enhanced services provided to customers are generally
charged on a fee basis. The following are examples of enhanced services.
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. Q&A is often utilized on conference calls with a large number of
participants where an orderly forum for accepting questions is required.
This feature is appropriate, for example, during a review of a
corporation's quarterly financial results with a number of financial
analysts.
. Polling is a type of electronic counting using Touch-tone services and is
often provided for focus group sessions or educational applications.
. Digital recording and replay allows people who were unable to participate
in the call to dial in and listen to a recording of the call. Many
customers have the digital recording duplicated on tape or audio CD for
distribution to interested parties. In some cases, a CD ROM is pressed by
another vendor, augmented with interactive graphics, and used by the
customer as a marketing or training tool.
. Broadcast fax and fax on demand services provide distribution of
information to facsimile machines during or after a conference using the
Company's existing MCU facilities. Broadcast fax services are typically
used for the widespread distribution of press releases, earnings reports,
and other time-sensitive material.
. RSVP allows the Company to reserve places for participants on conference
calls and to gather information on such participants for its customers.
. Reminders can be sent to participants prior to a conference call via
direct call, fax or e-mail to ensure increased call attendance.
. Call transcripts of conference calls can be prepared and either printed
or downloaded onto a disk.
Customized Communications Solutions. The Company provides specialized event
management, production services and conference support services. Companies
wishing to conduct new product announcements, investor relations calls
regarding quarterly results, analyst briefings, press conferences, customer
satisfaction polls or large sales events use the Company's customized
communications services extensively. Large events, which combine many
electronic group communications services such as data teleconferencing, audio
teleconferencing and digital replay, may require weeks of planning. Training
services are billed either on a project or a per diem basis. The following are
examples of customized communications solutions.
. The Company works with clients to design events which maximize
participant interaction, provides information retrieval and assists in
distributing pre-conference handouts.
. Coaching and event rehearsal services personnel assist customer
spokespersons to prepare for a teleconference, provide public speaking
lessons, and arrange for professional speakers to ensure the proper
presentation of information and image.
. During a conference call, private line service allows an advisor to coach
a spokesperson privately about points to include or proper responses to
questions, without conference call participants hearing those comments.
. The Company provides customer training services such as introducing a new
customer to the effective use of a specific electronic group
communications service or to the detailed development of a teletraining
application.
Video Teleconferencing. In 1996, the Company began to offer video
teleconferencing services, which enable remote sites equipped with ITU
standards-compliant video equipment to conduct interactive multipoint sharing
of video images and audio among three or more participants. This service, like
audio teleconferencing, is charged on a per-line, per-minute basis, with
enhanced services charged on a fee basis. Video teleconferencing requires the
use of a video MCU and telecommunications facilities of greater bandwidth than
that required for a standard audio teleconference. The Company has one MCU
dedicated to video teleconferencing, with approximately 72 ports of capacity.
Video teleconferencing services accounted for approximately $13,000 of the
Acquired Companies' consolidated net revenues in 1996 and approximately
$183,000 for the nine months ended September 30, 1997.
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The Company's video teleconferencing services enable participants at
multiple locations to see and hear each other in a video conference.
Generally, the current speaker is displayed on the video monitors of the other
participants in the conference while the speaker's screen displays the
previous speaker's image. The Company also offers another video conferencing
technique known as "continuous presence," in which up to four participant
locations appear simultaneously on the four quadrants of a monitor for the
duration of the conference.
The Company believes that the use of multipoint video teleconferencing
services will grow in relationship to the installed base of compatible video
equipment. Industry sources estimate that over 100,000 video teleconferencing
units had been sold by the end of 1995. The following are examples of video
teleconferencing applications.
. Telemedicine, in which doctors in different hospitals videoconference to
discuss research, treatments, and surgery.
. Distance learning, in which classes are held over video, enabling
students to benefit from multiple teachers and to interact with students
at other locations.
. Computer aided design (CAD), in which civil engineers and architects
present designs to clients and project teams over live video for review.
Data Teleconferencing. In 1997, the Company began to offer data
teleconferencing services to its customers. Data teleconferences are
established between multiple computers through a server or data MCU and allow
the participants to review, discuss and modify spreadsheets or written text,
or design documents simultaneously on personal computers at different
locations. Data teleconferences are established through parallel data audio or
video links or on a single high bandwidth line which carries both data and
audio or video. When the Company simultaneously provides audio and data using
a data MCU for the data teleconferencing application, the charges for the data
and audio connections are on a per-line, per-minute basis. When the Company is
simply augmenting a data teleconference with the audio component, the per-
line, per-minute charges are for the audio portion only. The Company has one
beta site 48-port MCU, with 32 ports dedicated to data teleconferencing.
New Internet "groupware" services and software based on the ITU standards
T.120 and H.323 are expected to facilitate greater adoption of data
teleconferencing as an electronic group communications tool. For instance,
both Intel's ProShare and Microsoft's NetMeeting software services allow
remotely-located personal computers and/or work stations to interactively
share video and data regardless of the location of each machine. Also, several
manufacturers have announced plans to introduce specialized non-TCP/IP
application servers that will provide high quality data teleconferencing. The
Company is a beta site for a specialized data MCU that will use new software
programs designed for non-Internet data sharing, which may provide greater
security, faster protocols, and more reliable access than the Internet.
SALES AND MARKETING
The Company's sales and marketing strategy will center on the establishment
of its brand, VIALOG, as synonymous with expertise in, and a focus on,
electronic group communications. The Company plans to launch a new corporate
marketing program focused on customers who have the potential for high usage.
This marketing program will utilize targeted database marketing techniques
based on the combined customer data of the Acquired Companies, emerging
trends, and other market segment information. Management of the Company
estimates that 70% of the sales efforts in the Acquired Companies have
historically been performed by telephone, and 30% have been personal (face-to-
face) sales calls. The Company intends to reverse this strategy to focus the
majority of the Company's field sales efforts on face-to-face selling
augmented by dedicated telemarketing efforts.
The Company intends to establish a national sales network with a total staff
of approximately 40 salespeople, including 25 field salespeople, 5 national
accounts salespeople and 10 telemarketing specialists. The
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field salespeople will form the core of the Company's selling effort. This
group will be deployed throughout the United States and will focus on selling
services to smaller and regional accounts and on increasing usage at the local
level under any national contracts as well as on sales to regional accounts.
The national accounts salespeople will focus their efforts on obtaining
national contracts with the Company's top customers, which include many
Fortune 500 companies. The telemarketing specialists will generate sales leads
for the Company's field salespeople by identifying customers who are using a
competitor's service. The Company also intends to market its services within
select industries, such as the financial services and pharmaceutical
industries, in order to capitalize on its industry-specific knowledge. The
Company believes that its national selling strategy, combined with its
specialized services and branding, will lead to greater penetration and
retention of existing customers as well as increased market share.
The Company intends to expand its customer base for outsourced services to
include additional IXCs and independent LECs as well as RBOCs. The Company
currently provides outsourced audio teleconferencing services for one IXC, one
LEC and several non-facilities-based long distance providers. An important
element of the Company's marketing strategy will be to initiate additional
outsourcing alliances, both domestically and overseas, and to expand net
revenues from its existing alliances. These alliances could include the
existing and future IXCs in the U.S. and overseas, the LECs, the RBOCs and
other non-facilities based providers of equipment and services. The Company
believes the broad trend among telecommunications providers to outsource
services will extend to teleconferencing, as indicated by (i) existing
outsourcing of other services, such as billing and telemarketing, (ii) hiring
and downsizing trends in the IXCs, LECs and RBOCs as they move away from
labor-intensive activities, and (iii) increasing opportunities under the
Telecommunications Act of 1996 to provide telecommunications services in new
markets for the IXCs and RBOCs. The Company has received requests for
proposals from four of the five RBOCs and believes that it is well-positioned
to be competitive in obtaining outsourced teleconferencing business since it
(i) is not a competitor with IXCs or LECs in the long distance markets or with
the RBOCs, (ii) has the capacity and resources to handle significant
teleconferencing volume, and (iii) already has experience in providing
services on an outsourced basis. The Company plans to establish a small
specialized sales team to increase its market share of this business.
CUSTOMER SERVICE
The Company believes that it has successfully obtained and retained
customers due, in large measure, 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
conferences. 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 conference) to ensure a successful meeting. Supervisors are
available to assist in the setup and execution of a conference. The Company's
staff is trained to facilitate effective meetings through a combination of
classroom, mentoring, teaming, and on-the-job supervision.
CUSTOMERS
The Company has approximately 5,000 customers with what the Company
estimates to be over 30,000 separate accounts. Customers range in size from
major multinational corporations and Fortune 500 companies to small
businesses, professional organizations, public institutions and consumers. A
breakdown of the Company's top 20 customers by industry is as follows: health
and pharmaceutical (five), finance (five), retail (three), educational
(three), telecommunications (two) and industrial (two). Only one account (at
less than 11%)
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represented more than 10% of the Company's net revenues in 1996. The top 10
customers of the Company represented approximately 28% of the Company's net
revenues in 1996.
BILLING AND MANAGEMENT INFORMATION SYSTEMS
All operational aspects of the electronic group communications business are
presently performed in each of the Acquired Companies, including marketing,
sales, purchasing, accounting, billing, reservations, personnel, and service
delivery functions. Management of the Company intends to retain a
decentralized organizational structure, permitting most customer-related
decisions to remain at the Acquired Company level. The Company intends to
centralize some administrative support activities within 12 to 18 months
following the closing of the Private Placement in order to standardize its
services, improve customer service and reduce Company expenses.
The Acquired Companies presently perform the entire billing and collection
process for their respective customer receivables. 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, enhanced 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 Acquired Companies and 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 Acquired Company and by
customer. Generally, individual invoices are sent out within two business days
of the conference call.
Each of the Acquired Companies validates its invoices against its telephone
bills to verify billing accuracy. Each Acquired Company also generates account
reports which detail payments and adjustments, credit status, aging of
accounts receivable, invoice analysis, commission summaries, and usage and
rate profiles. These detailed reports allow management to make business and
marketing decisions concerning extension of credit or additional sales
contacts as customer usage increases or decreases.
The Company believes that the flexibility and capabilities of its billing
systems represent a competitive advantage in allowing the Company to meet the
needs of its customers, particularly in the Company's outsourcing services
business. 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.
The Company intends to transition the Acquired Companies' systems to a
uniform system on an individual basis over the 18 months following the Private
Placement. Each of the Acquired Companies will continue to process its results
with the 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 Acquired Companies."
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, and non-facilities based
long distance providers, such as Excel, (ii) independent LECs, such as GTE and
SNET, and (iii) other PCSBs. According to estimates from industry sources, the
IXCs serviced approximately 80% of the audio teleconferencing market in 1995.
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 will also be allowed to provide long
distance services within the
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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 will
be enhanced by its status as the incumbent primary provider of local services
to its customers.
If the Company is able to expand its video and data teleconferencing service
offerings, it will encounter additional competition. Management expects that
there will be competition from existing providers of audio teleconferencing
services, as well as new competitors dedicated to video and/or data
teleconferencing. 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 currently derives approximately 14% of its 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 these teleconferencing services
internally. There can be no assurance that the Company's current IXC and LEC
customers will not insource 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 and results of operations. Moreover, part of the
Company's growth is projected to occur as RBOCs enter the long distance market
and, as the Company believes, 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.
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 respective teleconferencing needs. If the manufacturers of PBXs
develop improved, cost-effective PBX capabilities for handling
teleconferencing calls 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 and results of operations. 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
and results of operations.
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 and results of
operations.
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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 Acquired Companies have purchased telecommunications services
from a number of vendors, including AT&T, Sprint, MCI, Cable & Wireless and
WorldCom. 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 Acquired Companies, the Company believes that it will be able to negotiate
telecommunications contracts with lower prices and improved service
guarantees. The Company anticipates that new telecommunications contracts will
be phased in over time as the existing contracts at the Acquired Companies
expire. 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
and results of operations. Certain of the Company's existing contracts have
remaining terms in excess of one year and require the Company to pay premiums
over current market rates for long distance services. These contracts impose
substantial monetary penalties for early termination. Although the Company
intends to attempt to renegotiate these contracts to obtain more favorable
rates, there can be no assurance that the Company will be able to do so. The
failure of the Company to renegotiate these contracts will require the Company
to continue to pay premiums over current market rates for long distance
services.
Bridging Hardware and Software Support Systems. The Company uses MCU
equipment produced by four different manufacturers. At present, such equipment
is not functionally identical, but it is compatible with substantially all
network standards. Approximately 41% of all audio MCU systems used by the
Founding Companies are 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. The Company intends to
use its position as a substantial purchaser of MCU equipment to attempt to
negotiate a volume purchase contract with each selected manufacturer.
FACILITIES
The Company's corporate headquarters are located in approximately 2,600
square feet of office space in Andover, Massachusetts under a lease expiring
May 31, 1999. The Company operates six network equipment centers in leased
locations in the United States. The Company believes all of such locations are
fully utilized except for its 25,141 square foot facility in Reston, Virginia,
which is approximately 75% utilized and its 12,000 square foot facility in
Oradell, New Jersey, which is approximately 40% utilized. The Company occupies
the equipment centers and other facilities under leases which provide for a
total of 71,058 square feet at rates ranging from $5.00 to $23.00 per square
foot with expiration dates, excluding month-to-month leases, ranging from
February 1998 to May 2008. The Company's total lease expense related to its
facilities was approximately $908,000 for the year ended December 31, 1996 and
$699,000 for the nine months ended September 30, 1997. 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.
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EMPLOYEES
On June 30, 1997 the Company had approximately 340 employees, of whom seven
were employed full time at its corporate headquarters, 142 were employed full
time in various management, supervisory and administrative positions, and 167
were employed full time as operators and 39 part time as operators. 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 electronic group
communications services offered by the Company, various government agencies,
such as the FCC, have 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 electronic
group communications services.
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 be required to devote more attention and resources to the provision
of such services and will therefore seek to outsource non-core services, such
as audio teleconferencing. Because the Company's outsourcing strategy 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 introduction of
facilities-based local competition, the offering of local services for resale,
compliance with access and interconnection requirements for facilities-based
competitors, and the establishment of a separate operating subsidiary with
separate financing, management, employees, and books and records. To date, to
the Company's knowledge only one RBOC has filed an application to obtain the
approval of the FCC to offer in-region long distance services, and such
application was withdrawn in February 1997. 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 significant 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 and results of operations.
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. There can be no assurance that the
FCC or other government agencies will not seek in the future to regulate the
prices, conditions or other aspects of the electronic 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.
57
<PAGE>
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 and results of operations. 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 the Company 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.
In connection with the acquisition of Call Points, one of the Acquired
Companies, the Company 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 October 30, 1997, 11
employees or former employees of Call Points filed claims in federal district
court against Call Points, Ropir and certain other parties named therein.
Complainants in these cases could seek to name the Company as a defendant in
such pending litigation and could seek to hold the Company liable for damages
resulting from the litigation as a successor in interest to Call Points. In
addition to equitable relief, the complainants are seeking back pay,
compensatory and punitive damages and attorneys fees based on allegations of
discrimination, retaliation and racially harassing atmosphere. Although the
Company believes it has defenses to any such claim, there can be no assurance
that any such defense would be successful. The principal stockholder of Call
Points has agreed to indemnify the Company from any liability relating to such
claims and to place $250,000 in escrow with a third party to secure such
indemnification obligations. In light of such indemnification, the Company
does not believe that such claims if successful would have a material adverse
effect on the Company.
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. 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 CSI believe that such claim is without merit.
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<PAGE>
ORGANIZATION AND ACQUISITION OF THE ACQUIRED COMPANIES
On November 12, 1997, VIALOG Corporation acquired (i) by merger, all of the
issued and outstanding stock of five Acquired Companies, and (ii) by purchase,
the assets of one Acquired Company. 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 and approximately
$925,000 in cash related to tax reimbursements. The consideration paid was
determined through arm's length negotiations among VIALOG Corporation, the
Acquired Companies and the stockholders of the Acquired Companies, and was
based upon a multiple of each Acquired Company's historical net revenue
adjusted to compare each Acquired Company on a consistent basis. The purchase
price of each Acquired Company was generally based upon such company'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 Acquired Companies.
<TABLE>
<CAPTION>
NAME CASH CONSIDERATION SHARES
---- ------------------ -------
<S> <C> <C>
Access.......................................... $19,000,000(1) --
CSI............................................. 18,675,000(2) --
Call Points..................................... 8,000,000(3) 21,000
TCC............................................. 3,645,000 166,156
Americo......................................... 1,260,000 267,826
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.
From June 30, 1997 to September 30, 1997, certain of the Acquired Companies
made S corporation distributions of $936,000. Additional S corporation
distributions of approximately $751,000 were made prior to or upon the
consummation of the Acquisitions. In addition, during the course of
operations, certain of the Acquired Companies 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 Acquired Companies 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 Private Placement, 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 hold the guarantors
harmless from liability under such guarantees.
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The following is a discussion of the material information regarding the
Acquired Companies 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. In the event the Company
completes an initial public offering of its shares or is acquired or otherwise
merges with another entity and such consideration 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 at September 30, 1997 was approximately $2.6 million. 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 indemnify Mr.
Marvin for any obligations arising under such guarantees. From June 30, 1997
to September 30, 1997, Access made S corporation tax distributions of
$165,000. Additional S corporation distributions of approximately $487,000
were made prior to or upon the consummation of the Acquisitions. Mr. Marvin
entered into a two-year employment agreement with Access which include 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 at
September 30, 1997 was approximately $615,000. 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. The Company agreed to
arrange for the release of such guarantees or to indemnify her for any
obligations arising under such guarantees. From June 30, 1997 to September 30,
1997, CSI made S corporation profit and tax distributions of $757,000.
Additional S corporation distributions of approximately $123,000 were made
prior to or upon the consummation of the Acquisitions. 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.
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. Stockholders' equity of Call Points at September 30,
1997 was approximately $1.2 million. 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 at September 30, 1997 was approximately $671,000.
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
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<PAGE>
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 Private Placement as determined by the VIALOG
Corporation Board of Directors. Such options are exercisable for 5,700 shares
on December 31, 1997 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 Private Placement closing. 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 all of TCC's capital
leases, which had remaining lease payments of approximately $324,000. The
Company agreed to arrange for the release of such guarantees or to indemnify
them for any obligations arising under such guarantees. From June 30, 1997 to
September 30, 1997, TCC made S corporation tax distributions of $14,000.
Additional S corporation distributions of approximately $142,000 were made
prior to or upon the consummation of the Acquisitions. 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 at September 30, 1997 was approximately $242,000. 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 Private Placement as determined by the
VIALOG Corporation Board of Directors. Such options are exercisable for 5,700
shares on December 31, 1997 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 closing of the Private Placement. 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.
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 at September 30, 1997 was approximately $305,000.
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 Private Placement 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 Private Placement. 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
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<PAGE>
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.
See "Management--Employment and Noncompetition Agreements" for a discussion
of certain employment agreements between the Company and certain of its
executive officers.
The Company agreed with all of the Acquired Companies, except Call Points,
that for the two-year period following the closing of the Private Placement
there will be no (i) change in the location of an Acquired Company's
facilities, (ii) physical merging of any Acquired Company'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 Acquired Company'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.
Additionally, VIALOG Corporation agreed to maintain the Acquired Companies'
respective employee incentive compensation, fringe benefits and severance
programs, or their substantial equivalent, through December 31, 1997.
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<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)........... 45 Chief Executive Officer, President, Treasurer
and Director
John J. Dion................. 39 Vice President--Finance
Robert F. Moore.............. 43 Vice President--Marketing and Business
Development
Gary G. Vilardi.............. 43 Vice President--Sales
John R. Williams............. 36 Vice President--Operations
C. Raymond Marvin............ 58 Vice President
Joanna M. Jacobson(1)(2)..... 37 Director
David L. Lougee(1)(2)........ 57 Director
David L. Lipsky.............. 52 Director and President--Americo
Patti R. Bisbano............. 53 Director and President--CDC
William P. Pucci............. 51 President--Access
Judy B. Crawford............. 45 President--CSI
Courtney P. Snyder........... 47 President--TCC
Olen E. Crawford............. 45 President--Call Points, Inc.
</TABLE>
- --------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
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. From July 1989 to September 1996, Mr. Bolduc served as Chief Financial
Officer of MutliLink, Inc., 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. 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, 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 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 had served as General Manager of the Spring
Conference Line, Sprint's audio conferencing service bureau business, since
July 1995. Prior to this assignment, Mr. Williams held positions in product
development, marketing, and strategic planning in the Sprint Long Distance
Division. From June 1984 to November 1989 he was a National Account Manager at
IBM.
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<PAGE>
RAYMOND MARVIN has served as a Vice President of the Company since December
31, 1997. He founded Access in 1987 and served as President and Chief
Executive Officer of Access from its inception to December 31, 1997 and as a
director of Access 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 upon, the closing of the Private
Placement. 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 upon the closing of the
Private Placement. 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
(i) Commonwealth BioVentures Inc., a venture capital company which provides
seed money to biotechnology companies; (ii) BioVentures Investors LLC, the
general partner of a partnership which invests in companies in the health
sciences industry; (iii) BioVentures Management Corporation, a company which
provides management services to the above-referenced partnership; and (iv)
Meridian Medical Technology, Inc., a public company in the medical devices and
drug delivery business. Mirick, O'Connell, DeMallie & Lougee, LLP serves as
outside general counsel to VIALOG Corporation.
DAVID L. LIPSKY founded Americo in August 1987 and has served as President,
Chief Executive Officer and as a director of Americo since its inception. From
1983 until 1996, Mr. Lipsky also served as President and Chief Executive
Officer of Resource Objectives, Inc., a seller of communications equipment
that merged into Americo in 1996. Mr. Lipsky became a Director of the Company
upon the closing of the Private Placement.
PATTI R. BISBANO co-founded CDC in April 1990 and has served as President,
Treasurer and as a director of CDC since its inception. Ms. Bisbano became a
Director of the Company upon the closing of the Private Placement.
WILLIAM P. PUCCI has served as President of Access 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. He
has focused expertise in integrating multiple sites into a single ACD served
enterprise and in identifying and implementing "best in class" practices.
JUDY B. CRAWFORD co-founded CSI in February 1992 and has served as
President, Chief Executive Officer and as a director of CSI since its
inception.
COURTNEY P. SNYDER founded TCC in 1987 and has served as President, Chief
Executive Officer and as a director of TCC since its inception.
OLEN E. CRAWFORD co-founded CSI in February 1992 and served as Executive
Vice President until his appointment as President of Call Points in November
1997. From March 1988 until January 1992, Mr. Crawford was a principal in
Crawford and Associates, a telecommunications consulting firm. During 1990 and
1991, Mr. Crawford served as Executive Vice President and General Manager of
Call Points. Between 1972 and 1988, Mr. Crawford held positions at South
Central Bell Telephone Company and other telecommunications related entities.
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. Mr. Lipsky serves in the class whose terms expire in 1998, Ms.
Jacobson and Ms. Bisbano serve in the class whose terms expire in 1999, and
Mr. Bolduc and Mr. Lougee serve in the class whose term expire in 2000.
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. See "Management--Executive
Compensation" and "Management--Employment and Noncompetition Agreements."
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<PAGE>
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 has 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 $250 for each committee
meeting (unless held on the same day as a Board of Directors meeting).
Directors are also reimbursed for out-of-pocket expenses incurred in attending
meetings of the Board of Directors or committees thereof or otherwise incurred
in their capacity as Directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
On January 6, 1998, the Company's Board of Directors established a
Compensation Committee, consisting of Mr. Bolduc, Ms. Jacobson and Mr. Lougee.
Prior to the establishment of the Compensation Committee, decisions as to
executive compensation were made by the Board of Directors. From January 1,
1997 until February 21, 1997, the Board of Directors consisted of John J.
Hassett, Mr. Bolduc and Thomas M. Carroll. Mr. Carroll is the brother-in-law
of Mr. Hassett. On February 21, 1997, Mr. Carroll resigned as Director and was
replaced by Bruce T. Guzowski. On July 9, 1997, Mr. Guzowski resigned and was
replaced by John J. Dion. On November 12, 1997, John Dion and John Hassett
resigned as Directors, and David L. Lougee, Patti R. Bisbano, Joanna Jacobson
and David L. Lipsky were appointed Directors. Messrs. Hassett, Bolduc, Lougee
and Lipsky and Ms. Bisbano have been parties to certain transactions with the
Company. See "Certain Transactions."
65
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the compensation earned by the individual who
served as the Company's President during the year ended December 31, 1997 and
the Company's four most highly-compensated executive officers other than the
President who were serving as executive officers on December 31, 1997 (the
"Named Executive Officers").
SUMMARY COMPENSATION TABLE
FISCAL YEAR 1997
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------- ---------------------
AWARDS PAYOUTS
---------- ----------
SECURITIES
RESTRICTED UNDERLYING
OTHER ANNUAL STOCK OPTIONS/
SALARY BONUS COMPENSATION AWARD(S) SARS
NAME AND PRINCIPAL POSITION ($) ($) ($) ($)(3) (#)
- --------------------------- ------- ------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C>
Glenn D. Bolduc.......... 33,000 270,000(1) (2) 0 75,000
President and CEO
C. Raymond Marvin........ 242,000 121,000 (2) 0 0
Vice President
David L. Lipsky.......... 238,000 94,000 (2) 0 75,000
Director, President--
Americo
Courtney P. Snyder....... 145,000 0 (2) 0 75,000
President--TCC
Judy B. Crawford......... 118,000 0 20,000(4) 0 0
President--CSI
</TABLE>
- --------
(1) Pursuant to an employment agreement executed by the Company and Mr. Bolduc
in 1996, Mr. Bolduc began to earn an annual salary of $250,000 and a
monthly automobile allowance of $1,000 upon the closing of the Private
Placement. In January, 1998, the Company paid Mr. Bolduc a one-time bonus
equal to 1/365th of his annualized salary and automobile allowance
multiplied by the number of days from the date of his employment by VIALOG
Corporation to the closing of the Private Placement.
(2) The aggregate amount of the Named Executive Officer's Compensation
reportable under this category falls below the reporting threshold under
Item 402(b)(2)(iii)(C)(1) of Regulation S-K.
(3) None of the Named Executive Officers received compensation for their
services in the form of restricted stock awards during the fiscal year
ended December 31, 1997. However, as of December 31, 1997, each of the
Named Executive Officers held restricted shares of the Company's Common
Stock as follows:
<TABLE>
<CAPTION>
VALUE($)
NAMED EXECUTIVE OFFICERS RESTRICTED SHARES(#) ($5.75/SHARE)
------------------------ -------------------- -------------
<S> <C> <C>
Glenn D. Bolduc......................... 20,000 115,000
C. Raymond Marvin....................... 0 0
David L. Lipsky......................... 267,826 1,539,999
Courtney P. Snyder...................... 48,780 280,485
Judy B. Crawford........................ 0 0
</TABLE>
The Company has no current plans to pay dividends on the above-referenced
restricted shares.
(4) Consists of an aggregate auto allowance of approximately $17,000 and
aggregate country club dues of approximately $3,000.
66
<PAGE>
EMPLOYMENT AND NONCOMPETITION AGREEMENTS
The following table sets forth a summary of the terms of the employment
agreements that were entered into with the Named Executive Officers.
<TABLE>
<CAPTION>
NAME POSITION SALARY TERM
---- -------- -------- ----------
<S> <C> <C> <C>
Glenn D. Bolduc(1)............. President and CEO--VIALOG $250,000 indefinite
C. Raymond Marvin(2)........... President--VIALOG $242,000 2 years
David L. Lipsky(3)............. President--Americo $225,000 3 years
Courtney P. Snyder(4).......... President--TCC $160,000 3 years
Judy B. Crawford(5)............ President--CSI $255,000 1 year
</TABLE>
- --------
(1) Pursuant to an employment agreement executed by the Company and Mr. Bolduc
in 1996, Mr. Bolduc began to earn an annual salary of $250,000 and a
monthly automobile allowance of $1,000 upon the closing of the Private
Placement. In January, 1998, the Company paid Mr. Bolduc a one-time bonus
equal to 1/365th of his annualized salary and automobile allowance
multiplied by the number of days from the date of his employment by VIALOG
Corporation to the closing of the Private Placement. Mr. Bolduc's
employment agreement also 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.
(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. Lipsky's employment agreement provides that if Mr. Lipsky's employment
is terminated by Americo 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 his employment agreement. Mr. Lipsky is entitled
to a monthly automobile allowance of $750.
(4) Mr. Snyder's employment agreement provides that if Mr. Snyder's employment
is terminated by TCC 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. TCC also maintains a life
insurance policy on the life of Mr. Snyder in the face amount of $750,000,
the proceeds of which are payable to a beneficiary to be designated by
him. He is also entitled to a monthly automobile allowance of $400.
(5) Ms. Crawford's employment agreement provides that if Ms. Crawford's
employment is terminated by CSI other than for cause, disability or death,
she will be entitled to receive her base compensation and group insurance
benefits during a period equal to the remainder of the term of her
employment agreement. CSI also maintains a life insurance policy on the
life of Ms. Crawford in the face amount of $1.0 million, the proceeds of
which are payable to a beneficiary to be designated by her. She is also
entitled to a monthly automobile allowance of $1,440.
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
67
<PAGE>
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.
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 1997:
OPTION GRANTS IN 1997
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
NUMBER OF PERCENT OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM (3)
OPTIONS EMPLOYEES IN PRICE EXPIRATION ---------------------
NAME GRANTED (#) FISCAL YEAR(%) ($/SHARE)(1) DATE 5%($) 10%($)
---- ----------- -------------- ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Glenn D. Bolduc......... 75,000 14.7(4) 2.00 (2) 94,334 239,061
C. Raymond Marvin....... 0 0 0 (2) -- --
David L. Lipsky......... 75,000 14.7(5) 5.75 (2) 271,211 687,301
Courtney P. Snyder...... 75,000 14.7(5) 5.75 (2) 271,211 687,301
Judy B. Crawford........ 0 0 0 (2) -- --
</TABLE>
- --------
(1) All options were granted at fair market value 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.
(2) All options granted to the Named Executive Officers terminate on the
earlier of (i) the date of termination of employment if the Named
Executive Officer ceases to be employed by the Company or (ii) 10 years
from date of grant.
(3) 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 Securities and Exchange
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.
(4) This option vests over a three year period vesting as to 25,000 shares on
the first anniversary of the grant date and as to 6,250 shares on the last
day of each quarter thereafter until the option has vested in full.
(5) This option vests over a three year period vesting as to 5,700 shares on
December 31, 1997 and as to 6,300 shares on the last day of each quarter
thereafter until the option has vested in full.
68
<PAGE>
The following table sets forth the value of all unexercised options held by
the Named Executive Officers at the end of 1997:
FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES
OF COMMON STOCK VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT FISCAL OPTIONS AT FISCAL
YEAR END (#) YEAR END ($)(1)
------------------------- -------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Glenn D. Bolduc............. 66,690 168,310 $381,601 $815,170
C. Raymond Marvin........... 0 0 0 0
David L. Lipsky............. 5,700 69,300 0 0
Courtney P. Snyder.......... 5,700 69,300 0 0
Judy B. Crawford............ 0 0 0 0
</TABLE>
- --------
(1) There was no public trading market for the Common Stock on December 31,
1997. Accordingly, solely for the purposes of this table, the values in
this column have been calculated on the basis of a determination of the
fair market value of the Common Stock on December 31, 1997 ($5.75 per
share), less the aggregate exercise price of the options.
69
<PAGE>
CERTAIN TRANSACTIONS
ORGANIZATION OF THE COMPANY
In connection with the formation and initial financing of VIALOG
Corporation, Common Stock was issued at prices ranging from $.01 per share to
$4.00 per share prior to a 2:1 stock split effected in the form of a
recapitalization declared October 16, 1997, including 1,000,000 shares to John
J. Hassett, the founder of VIALOG Corporation, and 50,000 shares to Glenn D.
Bolduc, President and Chief Executive Officer of the Company.
See "Organization and Acquisition of the Acquired Companies" for a
discussion of certain information regarding the Acquisitions and the principal
stockholders of the Acquired Companies.
OTHER TRANSACTIONS
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 Notes
remain outstanding or any obligation of the Company or the 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.
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. In 1995, 1996 and
1997, aggregate purchases of MCUs and ancillary services from MultiLink by the
Acquired Companies were approximately $889,000 and $811,000 and $878,000 ,
respectively. In 1997, MultiLink became a subsidiary of PictureTel
Corporation.
For information regarding consulting and employment agreements with certain
directors and executive officers, see "Management--Executive Compensation" and
"Management--Employment and Noncompetition Agreement."
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 1997, the Company paid Mirick, O'Connell, DeMallie
& Lougee, LLP an aggregate of approximately $1,712,000 in legal fees in
connection with general legal services, a withdrawn public offering, the
Acquisitions and the Private Placement.
COMPANY POLICY
The Company has implemented a policy whereby neither the Company 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 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 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.
70
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock of the Company as of January 1, 1998 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,
(iii) each Named Executive Officer, and (iv) all executive officers and
Directors 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 February 1,
1998, the Company had outstanding 3,531,410 shares of Common Stock.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT
NAME BENEFICIALLY OWNED(1) OF CLASS
---- --------------------- --------
<S> <C> <C>
John J. Hassett................................ 937,762(2) 26.6
J. Michael Powell.............................. 327,800(3) 9.3
Reynolds E. Moulton............................ 187,500 5.3
Glenn D. Bolduc................................ 143,520(4) 4.0
David L. Lougee................................ 74,674(5) 2.1
Joanna M. Jacobson............................. 6,000(6) *
David L. Lipsky................................ 279,826(7) 7.9
Courtney P. Snyder............................. 60,780(8) 1.6
C. Raymond Marvin.............................. 0 *
Judy B. Crawford............................... 12,000(9) *
Jefferies & Company, Inc....................... 358,145(10) 10.1
All executive officers and directors as a group
(7 persons)................................... 576,800(11) 15.6
</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) 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.
(3) Includes 60,000 shares held as Trustee.
(4) Includes 32,500 shares held by Mr. Bolduc, 81,020 shares with respect to
which options held by Mr. Bolduc may be exercised as of April 1, 1998 and
30,000 shares held by Grace K. Bolduc, the spouse of Mr. Bolduc, as
Trustee for their three minor children.
(5) Includes 70,000 shares held by Mr. Lougee and 4,674 shares with respect
to which options held by Mr. Lougee may be exercised as of April 1, 1998.
(6) Includes 6,000 shares with respect to which options held by Ms. Jacobson
may be exercised as of April 1, 1998.
(7) Includes 267,826 shares issued to Mr. Lipsky in connection with the
Acquisitions and 12,000 shares with respect to which options granted to
Mr. Lipsky may be exercised as of April 1, 1998.
(8) Includes 48,780 shares issued to Mr. Snyder in connection with the
Acquisitions and 12,000 shares with respect to which options granted to
Mr. Snyder may be exercised as of April 1, 1998.
(9) Includes 12,000 shares with respect to which options granted to Ms.
Crawford on January 1, 1998 may be exercised as of April 1, 1998.
(10) Includes 358,145 shares with respect to which warrants issued to
Jefferies & Company, Inc. in connection with the Private Placement may be
exercised.
(11) See notes (1), (4)-(9).
71
<PAGE>
THE EXCHANGE OFFER
GENERAL
In connection with the sale of the Old Notes, the purchasers thereof became
entitled to the benefits of certain registration rights under the Registration
Rights Agreement. The Exchange Notes are being offered hereunder in order to
satisfy the obligations of the Company under the Registration Rights
Agreement. See "Registration Rights; Additional Interest."
For each $1,000 principal amount of Old Notes surrendered to the Company
pursuant to the Exchange Offer, the holder of Old Notes will receive $1,000
principal amount of Exchange Notes. Upon the terms and subject to the
conditions set forth in this Prospectus and in the accompanying Letter of
Transmittal, the Company will accept all Old Notes properly tendered prior to
5:00 p.m., New York City time, on the Expiration Date. Holders may tender some
or all of their Old Notes pursuant to the Exchange Offer in integral multiples
of $1,000 principal amount.
Under existing interpretations of the staff of the SEC, including Exxon
Capital Holdings Corporation, SEC No-Action Letter (available May 13, 1988),
the Morgan Stanley Letter and Mary Kay Cosmetics, Inc., SEC No-Action Letter
(available June 5, 1991), the Company believes that the Exchange Notes would
in general be freely transferable after the Exchange Offer without further
registration under the Securities Act by the respective holders thereof (other
than a "Restricted Holder," being (i) a broker-dealer who purchased Old Notes
exchanged for such Exchange Notes directly from the Company to resell pursuant
to Rule 144A or any other available exemption under the Securities Act or (ii)
a person that is an affiliate of the Company within the meaning of Rule 405
under the Securities Act), without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such
Exchange Notes are acquired in the ordinary course of such holder's business
and such holder is not participating in, and has no arrangement with any
person to participate in, the distribution (within the meaning of the
Securities Act) of such Exchange Notes. Eligible holders wishing to accept the
Exchange Offer must represent to the Company that such conditions have been
met. Any holder of Old Notes who tenders in the Exchange Offer for the purpose
of participating in a distribution of the Exchange Notes could not rely on the
interpretation by the staff of the SEC enunciated in the Morgan Stanley Letter
and similar no-action letters, and must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale transaction.
Each holder of Old Notes who wishes to exchange Old Notes for Exchange Notes
in the Exchange Offer will be required to make certain representations,
including that (i) it is neither an affiliate of the Company nor a broker-
dealer tendering Old Notes acquired directly from the Company for its own
account, (ii) any Exchange Notes to be received by it are being acquired in
the ordinary course of its business and (iii) it is not participating in, and
it has no arrangement with any person to participate in, the distribution
(within the meaning of the Securities Act) of the Exchange Notes. In addition,
in connection with any resales of Exchange Notes, any broker-dealer (a
"Participating Broker-Dealer") who acquired Old Notes for its own account as a
result of market-making activities or other trading activities must
acknowledge that it will deliver a prospectus meeting the requirements of the
Securities Act in connection with any resale of such Exchange Notes. The staff
of the SEC has taken the position in no-action letters issued to third parties
including Shearman & Sterling, SEC No-Action Letter (available July 2, 1993),
that Participating Broker-Dealers may fulfill their prospectus delivery
requirements with respect to the Exchange Notes (other than a resale of an
unsold allotment from the original sale of Old Notes) with this Prospectus, as
it may be amended or supplemented from time to time. Under the Registration
Rights Agreement, the Company is required to allow Participating Broker-
Dealers to use this Prospectus, as it may be amended or supplemented from time
to time, in connection with the resale of such Exchange Notes. See "Plan of
Distribution."
The Exchange Offer shall be deemed to have been consummated upon the earlier
to occur of (i) the Company having exchanged Exchange Notes for all
outstanding Old Notes (other than Old Notes held by a Restricted Holder)
pursuant to the Exchange Offer or (ii) the Company having exchanged, pursuant
to the
72
<PAGE>
Exchange Offer, Exchange Notes for all Old Notes that have been tendered and
not withdrawn on the date that is 30 days following the commencement of the
Exchange Offer. In such event, holders of Old Notes seeking liquidity in their
investment would have to rely on exemptions to registration requirements under
applicable securities laws, including the Securities Act.
As of the date of this Prospectus, $75.0 million in principal amount of Old
Notes are issued and outstanding. In connection with the issuance of the Old
Notes, the Company arranged for the Old Notes to be eligible for trading in
the Private Offering, Resale and Trading through Automated Linkages (PORTAL)
Market, the National Association of Securities Dealers' screen based,
automated market trading of securities eligible for resale under Rule 144A.
The Company shall be deemed to have accepted for exchange validly tendered
Old Notes when, as and if the Company has given oral or written notice thereof
to the Exchange Agent. See "--Exchange Agent." The Exchange Agent will act as
agent for the tendering holders of Old Notes for the purpose of receiving
Exchange Notes from the Company and delivering Exchange Notes to such holders.
If any tendered Old Notes are not accepted for exchange because of an invalid
tender or the occurrence of certain other events set forth herein,
certificates for any such unaccepted Old Notes will be returned, without
expense, to the tendering holder thereof as promptly as practicable after the
Expiration Date. Holders of Old Notes who tender in the Exchange Offer will
not be required to pay brokerage commissions or fees or, subject to the
instructions in the Letter of Transmittal, transfer taxes with respect to the
exchange of Old Notes pursuant to the Exchange Offer. The Company will pay all
charges and expenses, other than certain applicable taxes, in connection with
the Exchange Offer. See "--Fees and Expenses."
This Prospectus, together with the accompanying Letter of Transmittal, is
being sent to all registered holders as of the date of this Prospectus.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean March 26, 1998 unless the Company, in
its sole discretion, extends the Exchange Offer, in which case the term
"Expiration Date" shall mean the latest date to which the Exchange Offer is
extended. In order to extend the Expiration Date, the Company will notify the
Exchange Agent of any extension by oral or written notice and will mail to the
record holders of Old Notes an announcement thereof, each prior to 9:00 a.m.,
New York City time, on the next business day after the previously scheduled
Expiration Date. Such announcement may state that the Company is extending the
Exchange Offer for a specified period of time. The Company reserves the right
(i) to delay acceptance of any Old Notes, to extend the Exchange Offer or to
terminate the Exchange Offer and to refuse to accept Old Notes not previously
accepted, if any of the conditions set forth herein under "--Termination"
shall have occurred and shall not have been waived by the Company (if
permitted to be waived by the Company), by giving oral or written notice of
such delay, extension or termination to the Exchange Agent, and (ii) to amend
the terms of the Exchange Offer in any manner deemed by it be advantageous to
the holders of the Old Notes. Any such delay in acceptance, extension,
termination or amendment will be followed as promptly as practicable by oral
or written notice thereof. If the Exchange Offer is amended in a manner
determined by the Company to constitute a material change, the Company will
promptly disclose such amendment in a manner reasonably calculated to inform
the holders of the Old Notes of such amendment. Without limiting the manner in
acceptance, extension, termination or amendment of the Exchange Offer, the
Company shall have no obligation to publish, advertise, or otherwise
communicate any such public announcement, other than by making a timely
release to the Dow Jones News Service.
INTEREST ON THE EXCHANGE NOTES
The Exchange Notes will bear interest payable semi-annually on May 15 and
November 15 of each year, commencing May 15, 1998. Holders of Exchange Notes
of record on May 1, 1998 will receive interest on May 15, 1998 from the date
of the exchange of the Exchange Notes for the Old Notes, plus an amount equal
to the accrued interest on the Old Notes from the date of issuance of the Old
Notes, November 12, 1997, to the date of exchange thereof. Consequently,
assuming the Exchange Offer is consummated prior to the record date in respect
73
<PAGE>
of the May 15, 1998 interest payment for the Old Notes, holders who exchange
their Old Notes for Exchange Notes will receive the same interest payment on
May 15, 1998 that they would have received had they not accepted the Exchange
Offer. Interest on the Old Notes accepted for exchange will cease to accrue
upon exchange for and issuance of the Exchange Notes.
PROCEDURES FOR TENDERING
To tender in the Exchange Offer, a holder must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, have the signatures thereon
guaranteed if required by the Letter of Transmittal, and mail or otherwise
deliver such Letter of Transmittal or such facsimile or an Agent's Message
(defined below) in lieu thereof, together with the Old Notes and any other
required documents, to the Exchange Agent prior to 5:00 p.m., New York City
time, on the Expiration Date. The tender by a holder of Old Notes will
constitute an agreement between such holder and the Company in accordance with
the terms and subject to the conditions set forth herein and in the Letter of
Transmittal. Delivery of all documents must be made to the Exchange Agent at
its address set forth herein. Holders may also request that their respective
brokers, dealers, commercial banks, trust companies or nominees effect such
tender for such holders. The method of delivery of Old Notes and the Letter of
Transmittal and all other required documents to the Exchange Agent is at the
election and risk of the holders. Instead of delivery by mail, it is
recommended that holders use an overnight or hand delivery service. In all
cases, sufficient time should be allowed to assure timely delivery. No Letter
of Transmittal or Old Notes should be sent to the Company. Only a holder of
Old Notes may tender such Old Notes in the Exchange Offer. The term "holder"
with respect to the Exchange Offer means any person in whose name Old Notes
are registered on the books of the Company or any other person who has
obtained a properly completed stock power from the registered holder.
The term "Agent's Message" means a message, transmitted by the Book-Entry
Transfer Facility to, and received by, the Exchange Agent and forming a part
of a Book-Entry Confirmation, which states that such Book-Entry Transfer
Facility has received an express acknowledgment from the participant in such
Book-Entry Transfer Facility tendering Old Notes which are the subject of such
Book-Entry Confirmation that such participant has received and agrees to be
bound by the terms of the Letter of Transmittal, and that the Company may
enforce such agreement against such participant. The term "Book-Entry
Confirmation" means a timely confirmation of book-entry transfer of Old Notes
to the Exchange Agent's Account at the Book-Entry Transfer Facility.
Any beneficial holder whose Old Notes are registered in the name of such
holder's broker, dealer, commercial bank, trust company or other nominee and
who wishes to tender should contact such registered holder promptly and
instruct such registered holder to tender on behalf of the registered holder.
If such beneficial holder wishes to tender directly, such beneficial holder
must, prior to completing and executing the Letter of Transmittal and
delivering his Old Notes, either make appropriate arrangements to register
ownership of the Old Notes in such holder's name or obtain a properly
completed bond power from the registered holder. The transfer of record
ownership may take considerable time. If the Letter of Transmittal is signed
by the record holder(s) of the Old Notes tendered thereby, the signature must
correspond with the name(s) written on the face of the Old Notes without
alteration, enlargement or any change whatsoever. If the Letter of Transmittal
is signed by a participant in DTC, the signature must correspond with the name
as it appears on the security position listing as the holder of the Old Notes.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed by a member firm of a registered national
securities exchange or of the National Association of Securities Dealers,
Inc., a commercial bank or trust company having an office or correspondent in
the United States or an "eligible guarantor institution" within the meaning of
Rule 17Ad-15 under the Exchange Act (an "Eligible Institution") unless the Old
Notes tendered pursuant thereto are tendered (i) by a registered holder (or by
a participant in DTC whose name appears on a security position listing as the
owner) who has not completed the box entitled "Special Issuance Instructions"
or "Special Delivery Instructions" on the Letter of Transmittal and the
Exchange Notes are being issued directly to such registered holder (or
deposited into the participant's account at DTC) or (ii) for the account of an
Eligible Institution. If the Letter of Transmittal is signed by a person other
than the registered holder of any Old Notes listed therein, such Old Notes
must be endorsed or accompanied by appropriate bond powers which authorize
such person to tender the Old Notes on behalf of the registered
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holder, in either case signed as the name of the registered holder or holders
appears on the Old Notes. If the Letter of Transmittal or any Old Notes or
bond powers are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations or others acting in a fiduciary or
representative capacity, such persons should so indicate when signing, and
unless waived by the Company, evidence satisfactory to the Company of their
authority to so act must be submitted with the Letter of Transmittal.
A tender will be deemed to have been received as of the date when the
tendering holder's duly signed Letter of Transmittal accompanied by Old Notes
(or a timely confirmation received by a book-entry transfer of Old Notes into
the Exchange Agent's account at DTC with an Agent's Message) or a Notice of
Guaranteed Delivery from an Eligible Institution is received by the Exchange
Agent. Issuances of Exchange Notes in exchange for Old Notes tendered pursuant
to a Notice of Guaranteed Delivery by an Eligible Institution will be made
only against delivery of the Letter of Transmittal (and any other required
documents) and the tendered Old Notes (or a timely confirmation received of a
book-entry transfer of Old Notes into the Exchange Agent's account at DTC)
with the Exchange Agent.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of the tendered Old Notes will be
determined by the Company in its sole discretion, which determination will be
final and binding. The Company reserves the absolute right to reject any and
all Old Notes not properly tendered or any Old Notes the Company's acceptance
of which would, in the option of the Company or its counsel, be unlawful. The
Company also reserves the absolute right to waive any conditions of the
Exchange Offer or defects or irregularities in tender as to particular Old
Notes. The Company's interpretation of the terms and conditions of the
Exchange Notes. The Company's interpretation of the terms and conditions of
the Exchange Offer (including the instructions in the Letter of Transmittal)
shall be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of Old Notes must be cured within
such time as the Company shall determine. Neither the Company, the Exchange
Agent nor any other person shall be under any duty to give notification of
defects or irregularities with respect to tenders of Old Notes nor shall any
of them incur any liability for failure to give such notification. Tenders of
Old Notes will not be deemed to have been made until such irregularities have
been cured or waived. Any Old Notes received by the Exchange Agent that are
not properly tendered and as to which the defects or irregularities have not
been cured or waived will be returned without cost by the Exchange Agent to
the tendering holder of such Old Notes unless otherwise provided in the Letter
of Transmittal, as soon as practicable following the Expiration Date. In
addition, the Company reserves the right in its sole discretion to (i)
purchase or make offers for any Old Notes that remain outstanding subsequent
to the Expiration Date, or, as set forth under "--Termination," to terminate
the Exchange Offer and (ii) to the extent permitted by applicable law,
purchase Old Notes in the open market, in privately negotiated transactions or
otherwise. The terms of any such purchases or offers may differ from the terms
of the Exchange Offer.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Old Notes at DTC within two business days after the date of this
Prospectus, and any financial institution which is a participant in DTC may
make book-entry delivery of the Old Notes by causing DTC to transfer such Old
Notes into the Exchange Agent's account in accordance with DTC's procedure for
such transfer. Although delivery of Old Notes may be effected through book-
entry transfer into the Exchange Agent's account at DTC, an Agent's Message
must be transmitted to and received by the Exchange Agent on or prior to the
Expiration Date at one of its addresses set forth below under "Exchange
Agent," or the guaranteed delivery procedure described below must be complied
with. DELIVERY OF DOCUMENTS TO DTC DOES NOT CONSTITUTE DELIVERY TO THE
EXCHANGE AGENT. All references in this Prospectus to deposit or delivery of
Old Notes shall be deemed to include DTC's book-entry delivery method.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Notes and whose Old Notes are not
immediately available or who cannot deliver their Old Notes, the Letter of
Transmittal or any other required documents to the Exchange Agent prior to the
Expiration Date, or who cannot complete the procedure for book-entry transfer
on a timely basis and
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delivery of an Agent's Message, may effect a tender if: (i) the tender is made
by or through an Eligible Institution; (ii) prior to the Expiration Date, the
Exchange Agent receives from such Eligible Institution a properly completed
and duly executed Notice of Guaranteed Delivery (by facsimile transmission,
mail or hand delivery) setting forth the name and address of the holder of the
Old Notes, the registration number of numbers of such Old Notes (if
applicable), and the total principal amount of Old Notes tendered, stating
that the tender is being made thereby and guaranteeing that, within five
business days after the Expiration Date, the Letter of Transmittal, together
with the Old Notes in proper form for transfer (or a confirmation of a book-
entry transfer into the Exchange Agent's account at DTC) and any other
documents required by the Letter of Transmittal, will be deposited by the
Eligible Institution with the Exchange Agent; and (iii) such properly
completed and executed Letter of Transmittal (or Agent's Message in lieu
thereof), together with the certificate(s) representing all tendered Old Notes
in proper form for transfer (or a confirmation of such a book-entry transfer)
and all other documents required by the Letter of Transmittal Letter of
Transmittal are received by the Exchange Agent within five business days after
the Expiration Date.
TERMS AND CONDITIONS OF THE LETTER OF TRANSMITTAL
The Letter of Transmittal contains, among other things, certain terms and
conditions which are summarized below and are part of the Exchange Offer.
Each holder who participates in the Exchange Offer will be required to
represent that any Exchange Notes received by it will be acquired in the
ordinary course of its business, that such holder is not participating in, and
has no arrangement with any person to participate in, the distribution (within
the meaning of the Securities Act) of the Exchange Notes, and that such holder
is not a Restricted Holder.
Old Notes tendered in exchange for Exchange Notes (or a timely confirmation
of a book-entry transfer of such Old Notes into the Exchange Agent's account
at DTC) must be received by the Exchange Agent, with the Letter of Transmittal
(or Agent's Message in lieu thereof) and any other required documents, by the
Expiration Date or within the time periods set forth above pursuant to a
Notice of Guaranteed Delivery from an Eligible Institution. Each holder
tendering the Old Notes for exchange sells, assigns and transfers the Old
Notes to the Exchange Agent, as agent of the Company, and irrevocably
constitutes and appoints the Exchange Agent as the holder's agent and
attorney-in-fact to cause the Old Notes to be transferred and exchanged. The
holder warrants that it has full power and authority to tender, exchange,
sell, assign and transfer the Old Notes and to acquire the Exchange Notes
issuable upon the exchange of such tendered Old Notes, that the Exchange
Agent, as agent of the Company, will acquire good and unencumbered title to
the tendered Old Notes, free and clear of all liens, restrictions, charges and
encumbrances, and that the Old Notes tendered for exchange are not subject to
any adverse claims when accepted by the Exchange Agent, as agent of the
Company. The holder also warrants and agrees that it will, upon request,
execute and deliver any additional documents deemed by the Company or the
Exchange Agent to be necessary or desirable to complete the exchange, sale,
assignment and transfer of the Old Notes. All authority conferred or agreed to
be conferred in the Letter of Transmittal by the holder will survive the
death, incapacity or dissolution of the holder and any obligation of the
holder shall be binding upon the heirs, personal representatives, successors
and assigns of such holder.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the business day prior
to the Expiration Date, unless previously accepted for exchange. To withdraw a
tender of Old Notes in the Exchange Offer, a written or facsimile transmission
notice of withdrawal must be received by the Exchange Agent at its address set
forth herein prior to 5:00 p.m., New York City time, on the business day prior
to the Expiration Date and prior to acceptance for exchange thereof by the
Company. Any such notice of withdrawal must (i) specify the name of the person
having deposited the Old Notes to be withdrawn (the "Depositor"), (ii)
identify the Old Notes to be withdrawn (including, if applicable, the
registration number or numbers and total principal amount of such Old Notes),
(iii) be signed by the Depositor in the same manner as the original signature
on the Letter of Transmittal by which such Old Notes were tendered (including
any required signature guarantees) or be accompanied by documents of transfer
sufficient to permit
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the Trustee with respect to the Old Notes to register the transfer of such Old
Notes into the name of the Depositor withdrawing the tender, (iv) specify the
name in which any such Old Notes are to be registered, if different from that
of the Deposit and (v) if applicable because the Old Notes have been tendered
pursuant to the book-entry procedures, specify the name and number of the
participant's account at DTC to be credited, if different than that of the
Depositor. All questions as to the validity, form and eligibility (including
time of receipt) of such withdrawal notices will be determined by the Company,
whose determination shall be final and binding on all parties. Any Old Notes
so withdrawn will be deemed not to have been validly tendered for purposes of
the Exchange Offer and no Exchange Notes will be issued with respect thereto
unless the Old Notes so withdrawn are validly retendered. Any Old Notes which
have been tendered but which are not accepted for exchange will be returned to
the holder thereof without cost to such holder as soon as practicable after
withdrawal, rejection of tender or termination of the Exchange Offer. Properly
withdrawn Old Notes may be retendered by following one of the procedures
described above under "--Procedures for Tender" at any time prior to the
Expiration Date.
TERMINATION
Notwithstanding any other term of the Exchange Offer, the Company will not
be required to accept for exchange any Old Notes not therefore accepted for
exchange, and may terminate the Exchange Offer if it determines that the
Exchange Offer violates any applicable law or interpretation of the staff of
the SEC.
If the Company determines that it may terminate the Exchange Offer, as set
forth above, the Company may (i) refuse to accept any Old Notes and return the
Old Notes that have been tendered to the holders thereof, (ii) extend the
Exchange Offer and retain all Old Notes tendered prior to the Expiration of
the Exchange Offer, subject to the rights of such holders of tendered Old
Notes to withdraw their tendered Old Notes or (iii) waive such termination
event with the respect to the Exchange Offer and accept all properly tendered
Old Notes that have not been withdrawn. If such waiver constitutes a material
change in the Exchange Offer, the Company will disclose such change by means
of a supplement to this Prospectus that will be distributed to each registered
holder of Old Notes, and the Company will extend the Exchange Offer for a
period of five to ten business days, depending upon the significance of the
waiver and the manner of disclosure to the registered holders of the Old
Notes, if the Exchange Offer would otherwise expire during such period.
Holders of Old Notes will have certain rights against the Company under the
Registration Rights Agreement should the Company fail to consummate the
Exchange Offer.
EXCHANGE AGENT
State Street Bank and Trust Company has been appointed as Exchange Agent for
the Exchange Offer. Questions and requests for assistance and requests for
additional copies of this Prospectus or of the Letter of Transmittal should be
directed to the Exchange Agent addressed as follows:
State Street Bank and Trust Company
Corporate Trust Department
Two International Place
Boston, Massachusetts 02110
Attention: Sandy Wong
FEES AND EXPENSES
The expenses of soliciting tenders pursuant to the Exchange Offer will be
borne by the Company. The principal solicitation for tenders pursuant to the
Exchange Offer is being made by mail. Additional solicitations may be made by
officers and regular employees of the Company and its affiliates in person, by
telegraph or telephone. The Company will not make any payments to brokers,
dealers or other persons soliciting acceptances of the Exchange Offer. The
Company, however, will pay the Exchange Agent for its reasonable out-of-pocket
expenses in connection therewith. The Company may also pay brokerage houses
and other custodians, nominees and fiduciaries the reasonable out-of-pocket
expenses incurred by them in forwarding copies of this Prospectus, Letters of
Transmittal and related documents to the beneficial owners of the Old Notes
and in handling or forwarding tenders for exchange.
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The other expenses incurred in connection with the Exchange Offer including
fees and expenses of the Exchange Agent and Trustee and accounting and legal
fees, will be paid by the Company. The Company will pay all transfer taxes, if
any, applicable to the exchange of Old Notes pursuant to the Exchange Offer.
If, however, Exchange Notes or Old Notes not tendered or accepted for exchange
are to be delivered to, or are to be registered or issued in the name of, any
person other than the registered holder of the Old Notes tendered, or if
tendered Old Notes are registered in the name of any person other than the
person signing the Letter of Transmittal, or if a transfer tax is imposed for
any reason other than the exchange of Old Notes pursuant to the Exchange
Offer, then the amount of any such transfer taxes (whether imposed on the
registered holder or any other persons) will be payable by the tendering
holder. If satisfactory evidence of payment of such taxes or exemption
therefrom is not submitted with the Letter of Transmittal, the amount of such
transfer taxes will be billed directly to such tendering holder.
ACCOUNTING TREATMENT
No gain or loss for accounting purposes will be recognized by the Company
upon the consummation of the Exchange Offer. The expenses of the Exchange
Offer will be amortized by the Company over the term of the Exchange Notes
under generally accepted accounting principles.
DESCRIPTION OF NOTES
The Exchange Notes will be issued, and the Old Notes were issued, pursuant
to the indenture (the "Indenture") dated as of November 12, 1997 by and among
the Company, the Subsidiary Guarantors and State Street Bank and Trust
Company, as Trustee (the "Trustee"). The terms of the Notes include those
stated in the Indenture and those made part of the Indenture by reference to
the Trust Indenture Act of 1939, as amended (the "TIA"), as in effect on the
date of the original issuance of the Notes. The following summary of certain
provisions of the Indenture, the Notes and the Subsidiary Guarantees (included
within the Indenture) does not purport to be complete and is subject to, and
is qualified in its entirety by reference to, the TIA, and to all of the
provisions of the Indenture (copies of which can be obtained from the Company
upon request), including the definitions of certain terms therein and those
terms made a part of the Indenture by reference to the TIA as in effect on the
date of the Indenture. The definitions of certain capitalized terms used in
the following summary are set forth under "--Certain Definitions" below. For
purposes of this Section, references to the "Company" shall mean VIALOG
Corporation, excluding its Subsidiaries.
GENERAL
The Notes will be issued in fully registered form only, without coupons, in
denominations of $1,000 and integral multiples thereof. Initially, the Trustee
will act as Paying Agent and Registrar for the Notes. The Notes may be
presented for registration of transfer and exchange at the offices of the
Registrar, which currently is the Trustee's corporate trust office. The
Company may change any Paying Agent and Registrar without notice to Holders of
the Notes and under certain circumstances the Company or any of its
Subsidiaries may act as Paying Agent and Registrar under the Indenture. The
Company will pay principal (and premium, if any) on the Notes at the Trustee's
corporate office in New York, New York. In addition, in the event the Notes do
not remain in book-entry form, interest may be paid, at the Company's option,
by wire transfer or check mailed to the registered address of the Holders as
shown on the Note Register.
The Company's operations are conducted exclusively through its subsidiaries.
As a consequence, the Company's ability to service its Indebtedness (including
the Notes) is dependent upon the Company's receipt of funds from its
Subsidiaries.
Any Old Notes that remain outstanding after the completion of the Exchange
Offer, together with the Exchange Notes issued in connection with the Exchange
Offer, will be treated as a single class of securities under the Indenture.
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The obligations of the Company under the Notes will be guaranteed on a
senior basis, jointly and severally, by each of the Subsidiary Guarantors. See
"--Ranking and Guarantees."
PRINCIPAL, MATURITY AND INTEREST
The Notes will be limited in aggregate principal amount to $75,000,000 and
will mature on November 15, 2001. Interest on the Notes will accrue at the
rate per annum set forth on the cover of this Prospectus and will be payable
semi-annually in cash on each May 15 and November 15, commencing on May 15,
1998 to the persons who are registered Holders at the close of business on the
May 1 and November 1 immediately preceding the applicable interest payment
date. Interest on the Notes will accrue from and including the most recent
date to which interest has been paid or, if no interest has been paid, from
and including the Issue Date. Interest will be computed on the basis of a 360-
day year comprised of twelve 30-day months.
OPTIONAL REDEMPTION
The Notes will be redeemable, at the Company's option, in whole at any time
or in part from time to time, on and after November 15, 1999 at the following
redemption prices (expressed as percentages of the principal amount) if
redeemed during the twelve-month period commencing on November 15 of the year
set forth below (but not including the date of maturity), plus, in each case,
accrued and unpaid interest thereon to the date of redemption:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
1999.............................. 110%
2000.............................. 105%
</TABLE>
Notwithstanding the foregoing, at any time on or prior to November 15, 1999,
the Company may redeem, in whole or in part, from time to time, up to an
aggregate of 35% of the original principal amount of Notes at a redemption
price of 112.75% of the principal amount thereof, plus accrued and unpaid
interest thereon to the redemption date, with the net proceeds of any Public
Equity Offering; provided that at least 65% in aggregate of the original
principal amount of the Notes remain outstanding immediately after the
occurrence of such redemption; and provided, further, that such redemption
occurs within 90 days of the date of the closing of such Public Equity
Offering.
In addition, prior to November 15, 1999, the Notes will be redeemable at the
Company's option, in whole or in part, at any time or from time to time, upon
not less than 30 nor more than 60 days' prior notice mailed by first-class
mail to each Holder's registered address, at a redemption price (expressed as
a percentage of principal amount) equal to the sum of the principal amount of
such Notes plus the applicable Make-Whole Premium thereon at the time of
redemption (subject to the right of Holders of record on the relevant record
date to receive interest due to the relevant interest payment date).
The following definitions are used to determine the applicable Make-Whole
Premium:
"Applicable Make-Whole Premium" means, with respect to a Note at the
redemption date, the greater of (i) 1.0% of the principal amount of such Note
and (ii) the excess of (A) the present value at such time of (1) the
redemption price of such Note at November 15, 1999 plus (2) all required
interest payments (excluding accrued but unpaid interest) due on such Note
through November 15, 1999, computed using a discount rate equal to the
Treasury Rate plus 100 basis points, over (B) the principal amount of such
Note at such time.
"Treasury Rate" means the yield to maturity at the time of computation of
United States Treasury securities with a constant maturity (as compiled and
published in the most recent Federal Reserve Statistical Release H.15(519)
which has become publicly available at least two business days prior to the
date fixed for repayment (or, if such Statistical Release is no longer
published, any publicly available source of similar market data)) most nearly
equal to the then Weighted Average Life to Maturity of the Notes; provided,
however, that if the Weighted
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Average Life to Maturity of the Notes is not equal to the constant maturity of
a United States Treasury security for which a weekly average yield is given,
the Treasury Rate shall be obtained by linear interpolation (calculated to the
nearest one-twelfth of a year) from the weekly average yields of United States
Treasury securities for which such yields are given.
MANDATORY REDEMPTION: SINKING FUND
Except as set forth below under "--Change of Control" and "--Certain
Covenants--Asset Sales," the Company is not required to make any mandatory
redemption, purchase or sinking fund payments with respect to the Notes.
SELECTION AND NOTICE OF REDEMPTION
In the event that less than all of the Notes are to be redeemed at any time,
selection of such Notes for redemption will be made by the Trustee in
compliance with the requirements of the principal national securities
exchange, if any, on which such Notes are listed or, if such Notes are not
then listed on a national securities exchange, on a pro rata basis, by lot or
by such method as the Trustee shall deem fair and appropriate; provided,
however, that no Notes of a principal amount of $1,000 or less shall be
redeemed in part. Notice of redemption shall be mailed by first-class mail at
least 30 but not more than 60 days before the redemption date to each Holder
of Notes to be redeemed at its registered address. If any Note is to be
redeemed in part only, the notice of redemption that relates to such Note
shall state the portion of the principal amount thereof to be redeemed. A new
Note in a principal amount equal to the unredeemed portion thereof will be
issued in the name of the Holder thereof upon cancellation of the original
Note. On and after the redemption date, interest will cease to accrue on Notes
or portions thereof called for redemption.
RANKING AND GUARANTEES
The indebtedness of the Company evidenced by the Notes will rank senior in
right of payment to all Subordinated Indebtedness of the Company and pari
passu in right of payment with all existing and future Senior Indebtedness of
the Company. The Notes will be effectively subordinated to secured
Indebtedness of the Company or its Subsidiaries to the extent of the assets
securing such Indebtedness. As of September 30, 1997, after giving pro forma
effect to the issuance of the Notes and the application of the estimated net
proceeds therefrom, the Company would have had no Senior Indebtedness
outstanding. The Company has accepted a proposal for, and is currently
negotiating, a commitment for the Senior Credit Facility consisting of a
revolving credit and term loan facility in the aggregate principal amount of
approximately $15.0 million. As of the date hereof, no amounts have been
advanced under the Senior Credit Facility.
Each Subsidiary Guarantor will fully and unconditionally guarantee, jointly
and severally, to each Holder and the Trustee, the full and prompt performance
of the Company's obligations under the Indenture and the Notes, including the
payment of principal of and interest on the Notes. The Subsidiary Guarantee of
each Subsidiary Guarantor will rank pari passu in right of payment to all
existing and future Senior Indebtedness of such Subsidiary Guarantor. As of
September 30, 1997, after giving pro forma effect to the issuance of the Notes
and the application of the estimated net proceeds therefrom, the Subsidiary
Guarantors would have had $1.3 million of Senior Indebtedness outstanding. The
obligations of each Subsidiary Guarantor are limited to the maximum amount
which, after giving effect to all other contingent and fixed liabilities of
such Subsidiary Guarantor and after giving effect to any collections from or
payments made by or on behalf of any other Subsidiary Guarantor in respect of
the obligations of such other Subsidiary Guarantor under its Subsidiary
Guarantee or pursuant to its contribution obligations under the Indenture,
will result in the obligations of such Subsidiary Guarantor under the
Subsidiary Guarantee not constituting a fraudulent conveyance or fraudulent
transfer under federal or state law. Each Subsidiary Guarantor that makes a
payment or distribution under a Subsidiary Guarantee shall be entitled to a
contribution from each other Subsidiary Guarantor in an amount pro rata, based
on the net assets of each Subsidiary Guarantor, determined in accordance with
GAAP.
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Each Subsidiary Guarantor may consolidate with or merge into or sell its
assets to the Company or another Subsidiary Guarantor without limitation, or
with other Persons upon the terms and conditions set forth in the Indenture.
See "--Certain Covenants--Mergers, Consolidations and Sale of Assets" and "--
Certain Covenants--Asset Sales." In the event all of the capital stock of a
Subsidiary Guarantor is sold (including by way of merger or consolidation) by
the Company and the sale complies with the provisions set forth in "--Certain
Covenants--Asset Sales," the Subsidiary Guarantee with respect to such
Subsidiary Guarantor will be released.
Separate financial statements of the Subsidiary Guarantors are not included
herein because such Subsidiary Guarantors are jointly and severally liable
with respect to the Company's obligations pursuant to the Notes, and the
aggregate net assets, earnings and equity of the Subsidiary Guarantors and the
Company are substantially equivalent to the net assets, earnings and equity of
the Company on a consolidated basis.
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each Holder of Notes will have
the right to require the Company to repurchase all or any part (equal to
$1,000 or an integral multiple thereof) of such Holder's Notes on a Business
Day (the "Change of Control Payment Date") not more than 60 nor less than 30
days following such Change of Control, pursuant to the offer described below
(the "Change of Control Offer") at an offer price in cash equal to 101% of the
aggregate principal amount thereof plus accrued and unpaid interest thereon to
the date of repurchase (the "Change of Control Payment"). Within 30 days
following any Change of Control, the Company will mail a notice to each Holder
describing the transaction or transactions that constitute the Change of
Control and offering to repurchase Notes pursuant to the procedures required
by the Indenture and described in such notice. The Company will comply with
the requirements of Rule 14e-1 under the Exchange Act and any other securities
laws and regulations thereunder to the extent such laws and regulations are
applicable in connection with the repurchase of the Notes as a result of a
Change of Control.
On the Change of Control Payment Date, the Company will, to the extent
lawful, (i) accept for payment all Notes or portions thereof properly tendered
pursuant to the Change of Control Offer, (ii) deposit with the Paying Agent an
amount equal to the Change of Control Payment in respect of all Notes or
portions thereof so tendered, and (iii) deliver or cause to be delivered to
the Trustee the Notes so accepted together with an Officers' Certificate
stating the aggregate principal amount of Notes or portions thereof being
repurchased by the Company. The Paying Agent will promptly mail or otherwise
deliver to each Holder of Notes so tendered the Change of Control Payment for
such Notes, and the Trustee will promptly authenticate and mail (or cause to
be transferred by book-entry) to each Holder a new Note equal in principal
amount to any unpurchased portion of the Notes surrendered, if any; provided
that each such new Note will be in a principal amount of $1,000 or an integral
multiple thereof. The Company will publicly announce the results of the Change
of Control Offer on or as soon as practicable after the Change of Control
Payment Date.
The Change of Control provisions described above will be applicable whether
or not any other provisions of the Indenture are applicable. Except as
described above with respect to a Change of Control, the Indenture will not
contain provisions that permit the Holders of the Notes to require that the
Company repurchase or redeem the Notes in the event of a takeover,
recapitalization or similar transaction. The provisions of the Indenture may
not afford Holders protection in the event of a highly-leveraged transaction,
reorganization, restructuring, merger or similar transaction affecting the
Company that may adversely affect Holders, if such transaction is not the type
of transaction included within the definition of Change of Control. A
transaction involving the management of the Company or its Affiliates, or a
transaction involving a recapitalization of the Company will result in a
Change of Control only if it is the type of transaction specified in such
definition.
The existence of a Holder's rights to require the Company to repurchase
Notes in connection with a Change of Control may deter a third party from
acquiring the Company in a transaction that would constitute a "Change of
Control."
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The source of funds for any repurchase of Notes upon a Change of Control
will be the Company's cash or cash generated from operations or other sources,
including borrowings or sales of assets; however, there can be no assurance
that sufficient funds will be available at the time of any Change of Control
to repay all Indebtedness owing under other Senior Indebtedness or to make any
required repurchases of the Notes. In addition, if there is a Change of
Control, any Indebtedness then outstanding under the Senior Credit Facility
would be accelerated. Any failure by the Company to repurchase Notes tendered
pursuant to a Change of Control Offer will constitute an Event of Default. See
"Risk Factors--Substantial Leverage and Ability to Service Debt."
The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set
forth in the Indenture applicable to a Change of Control Offer made by the
Company and repurchases all Notes validly tendered and not withdrawn under
such Change of Control Offer.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of the Company and its Subsidiaries, taken as a whole. Although
there is a developing body of case law interpreting the phrase "substantially
all," there is no precise established definition of the phrase under New York
law, which is the law governing the Indenture and the Notes or under
Massachusetts law, which is the jurisdiction of incorporation of the Company.
Accordingly, the ability of a Holder of Notes to require the Company to
repurchase such Notes as a result of a sale, lease, transfer, conveyance or
other disposition of less than all of the assets of the Company and its
Subsidiaries, taken as a whole, to another Person or group may be uncertain.
CERTAIN COVENANTS
The Indenture will contain, among others, the following covenants:
Limitation on Indebtedness. (a) The Indenture provides that neither the
Company nor any of its Subsidiaries will, directly or indirectly, Incur any
Indebtedness, including, without limitation, any Acquired Indebtedness (other
than Permitted Indebtedness).
(b) Notwithstanding the foregoing limitations, the Company and its
Subsidiaries may Incur Indebtedness (including, without limitation, Acquired
Indebtedness), in each case, if (i) no Default or Event of Default shall have
occurred and be continuing on the date of the proposed Incurrence thereof or
would result as a consequence of such proposed Incurrence and (ii) immediately
after giving effect to such proposed Incurrence on a pro forma basis, the
Consolidated Fixed Charge Coverage Ratio of the Company is at least equal to
2.0 to 1.0 if such proposed Incurrence is on or prior to December 31, 1998;
and at least equal to 3.0 to 1.0 if such proposed Incurrence is thereafter.
(c) Neither the Company nor any Subsidiary Guarantor will, directly or
indirectly, in any event Incur any Indebtedness that by its terms (or by the
terms of any agreement governing such Indebtedness) is subordinated to any
other Indebtedness of the Company or such Subsidiary Guarantor, as the case
may be, unless such Indebtedness is also by its terms (or by the terms of any
agreement governing such Indebtedness) made expressly subordinate to the Notes
or the Subsidiary Guarantee of such Subsidiary Guarantor, as the case may be,
to the same extent and in the same manner as such Indebtedness is subordinated
pursuant to subordination provisions that are most favorable to the holders of
any other Indebtedness of the Company or such Subsidiary Guarantor, as the
case may be.
(d) Notwithstanding the foregoing limitations, the Company and its
Subsidiaries may Incur no more than $15.0 million of secured Indebtedness.
Limitation on Restricted Payments. The Indenture provides that neither the
Company nor any of its Subsidiaries will, directly or indirectly (a) purchase,
redeem or otherwise acquire or retire for value any Capital Stock of the
Company, or any warrants, rights or options to acquire shares of any class of
such Capital Stock,
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other than through the exchange therefor solely of Qualified Capital Stock of
the Company or warrants, rights or options to acquire Qualified Capital Stock
of the Company, (b) make any principal payment on, purchase, defease, redeem,
prepay, decrease or otherwise acquire or retire for value, prior to any
scheduled final maturity, scheduled repayment or scheduled sinking fund
payment, any Subordinated Indebtedness of the Company or (c) make any
Investment (other than Permitted Investments) in any Person (each of the
foregoing prohibited actions set forth in clauses (a), (b) and (c) being
referred to as a "Restricted Payment"), if at the time of such proposed
Restricted Payment or immediately after giving effect thereto:
(i) a Default or an Event of Default has occurred and is continuing or
would result therefrom, or
(ii) the Company is not able to Incur at least $1.00 of additional
Indebtedness in accordance with paragraph (b) of "--Limitation on
Indebtedness" above (as if such Restricted Payment had been made as of the
last day of the Four Quarter Period), or
(iii) the aggregate amount of Restricted Payments (including such
proposed Restricted Payment) made subsequent to the Issue Date exceeds or
would exceed the sum of: (v) 50% of the Consolidated Net Income (or if
Consolidated Net Income shall be a loss, minus 100% of such loss) of the
Company during the period (treating such period as a single accounting
period) from the beginning of the first fiscal quarter commencing after the
Issue Date to the end of the Company's most recently ended fiscal quarter
for which internal financial statements are available at the time of such
Restricted Payment; (w) 100% of the aggregate Net Equity Proceeds received
by the Company from any Person from the issuance and sale subsequent to the
Issue Date of Qualified Capital Stock of the Company other than any
Qualified Capital Stock sold to a Subsidiary of the Company; (x) the
aggregate net cash proceeds received after the Issue Date by the Company
(other than from any of its Subsidiaries) upon the exercise of any options,
warrants or rights to purchase shares of Qualified Capital Stock of the
Company; (y) the aggregate net cash proceeds received after the Issue Date
by the Company from the issuance or sale (other than to any of its
Subsidiaries) of debt securities or shares of Disqualified Capital Stock
that have been converted into or exchanged for Qualified Capital Stock of
the Company, together with the aggregate cash received by the Company at
the time of such conversion or exchange; and (z) an amount equal to the net
reduction in Investments, subsequent to the date of the Indenture, in any
Person resulting from payments of interest on debt, dividends, repayments
of loans or advances, return of capital, or other transfers of property
(but only to the extent such distributions are not included in the
calculation of Consolidated Net Income), in each case, to the Company or
any Subsidiary from any Person, not to exceed in the case of any Person,
the amount of Investments previously made by the Company or any Subsidiary
in such Person and which was treated as a Restricted Payment.
Notwithstanding the foregoing, these provisions do not prohibit: (1) the
acquisition of Capital Stock of the Company or warrants, rights or options to
acquire Capital Stock of the Company either (i) solely in exchange for shares
of Qualified Capital Stock of the Company or warrants, rights or options to
acquire Qualified Capital Stock of the Company, or (ii) through the
application of net proceeds of a substantially concurrent sale for cash (other
than to a Subsidiary of the Company) of shares of Qualified Capital Stock of
the Company or warrants, rights or options to acquire Qualified Capital Stock
of the Company; (2) the acquisition of any Subordinated Indebtedness of the
Company either (i) solely in exchange for shares of Qualified Capital Stock of
the Company, or (ii) through the application of net proceeds of a
substantially concurrent sale for cash (other than to a Subsidiary of the
Company) of (A) shares of Qualified Capital Stock of the Company or warrants,
rights or options to acquire Qualified Capital Stock of the Company or (B)
Permitted Refinancing Indebtedness; or (3) loans by the Company or any
Subsidiary to employees in the ordinary course of business up to an aggregate
principal amount of $250,000 at any one time outstanding; provided, however,
that in the case of clauses (1), (2) and (3) of this paragraph, no Default or
Event of Default shall have occurred and be continuing at the time of such
payment or as a result thereof. In determining the aggregate amount of
Restricted Payments made subsequent to the Issue Date, amounts expended
pursuant to clauses (1)(ii), (2)(i) and (2)(ii)(A) of this paragraph shall, in
each case, be included in such calculation.
For purposes of the foregoing provisions, the amount of any Restricted
Payment (other than cash) shall be the fair market value (evidenced by a
resolution of the Board of Directors set forth in an Officers' Certificate
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delivered to the Trustee) on the date of the Restricted Payment of the
asset(s) proposed to be transferred by the Company or such Subsidiary, as the
case may be, pursuant to the Restricted Payment. Not later than the date of
making any Restricted Payment, the Company shall deliver to the Trustee an
Officers' Certificate stating that such Restricted Payment complies with the
Indenture and setting forth in reasonable detail the basis upon which the
required calculations were computed, which calculations may be based upon the
Company's latest available internal quarterly financial statements.
For purposes of this covenant, if a particular Restricted Payment involves a
non-cash payment, including a distribution of assets, then such Restricted
Payment shall be deemed to be an amount equal to the cash portion of such
Restricted Payment, if any, plus an amount equal to the fair market value of
the non-cash portion of such Restricted Payment.
Limitation on Dividends. The Indenture provides that the Company will not
declare or pay any dividend or make any distribution (other than dividends or
distributions payable solely in Qualified Capital Stock of the Company) on
shares of the Company's Capital Stock to holders of such Capital Stock.
Asset Sales. The Indenture provides that the Company will not, and will not
permit any of its Subsidiaries to, directly or indirectly, engage in an Asset
Sale unless (i) the Company or the Subsidiary, as the case may be, receives
consideration at the time of such Asset Sale at least equal to the fair market
value (evidenced by a resolution of the Board of Directors of the Company set
forth in an Officers' Certificate delivered to the Trustee) of the assets or
Properties issued or sold or otherwise disposed of and (ii) at least 85% of
the consideration therefor received by the Company or such Subsidiary is in
the form of cash or Cash Equivalents; provided that the amount of (x) any
liabilities (as shown on the Company's or such Subsidiary's most recent
balance sheet) of the Company or any Subsidiary (other than contingent
liabilities and liabilities that are Subordinated Indebtedness or otherwise by
their terms subordinated to the Notes or the Subsidiary Guarantees) that are
assumed by the transferee of any such assets pursuant to a customary novation
agreement that releases the Company or such Subsidiary from further liability
and (y) any notes or other obligations received by the Company or any such
Subsidiary from such transferee that are converted by the Company or such
Subsidiary into cash within 180 days of closing such Asset Sale (to the extent
of the cash received), shall be deemed to be cash for purposes of this
provision.
Within 180 days after the receipt of any Net Cash Proceeds from any Asset
Sale, the Company may (i) apply all or any of the Net Cash Proceeds therefrom
to repay Indebtedness (other than Subordinated Indebtedness) of the Company or
any Subsidiary, provided, in each case, that the related loan commitment of
any revolving credit facility or other borrowing (if any) is thereby
permanently reduced by the amount of such Indebtedness so repaid, or (ii)
invest all or any part of the Net Cash Proceeds thereof in properties and
other capital assets that replace the properties or other capital assets that
were the subject of such Asset Sale or in other properties or other capital
assets that will be used in the Business. Pending the final application of any
such Net Cash Proceeds, the Company may temporarily reduce borrowings under
any revolving credit facility or otherwise invest such Net Cash Proceeds in
any manner that is not prohibited by the Indenture. Any Net Cash Proceeds from
an Asset Sale that are not applied or invested as provided in the first
sentence of this paragraph will be deemed to constitute "Available Proceeds
Amount." When the aggregate Available Proceeds Amount exceeds $2.5 million,
the Company shall make an offer to purchase, from all Holders of the Notes and
any then outstanding Pari Passu Indebtedness required to be repurchased or
repaid on a permanent basis in connection with an Asset Sale, an aggregate
principal amount of Notes and any such Pari Passu Indebtedness equal to such
Available Proceeds Amount as follows:
(i) (A) The Company shall make an offer to purchase (an "Asset Proceeds
Offer") from all Holders of the Notes in accordance with the procedures set
forth in the Indenture the maximum principal amount (expressed as a
multiple of $1,000) of Notes that may be purchased out of an amount (the
"Payment Amount") equal to the product of such Available Proceeds Amount
multiplied by a fraction, the numerator of which is the outstanding
principal amount of the Notes and the denominator of which is the sum of
the outstanding principal amount of the Notes and such Pari Passu
Indebtedness, if any (subject to proration in
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the event such amount is less than the aggregate Offered Price (as defined
in clause (ii) below) of all Notes tendered), and (B) to the extent
required by any such Pari Passu Indebtedness and provided there is a
permanent reduction in the principal amount of such Pari Passu
Indebtedness, the Company shall make an offer to purchase such Pari Passu
Indebtedness (a "Pari Passu Offer") in an amount (the "Pari Passu
Indebtedness Amount") equal to the excess of the Available Proceeds Amount
over the Payment Amount.
(ii) The offer price for the Notes shall be payable in cash in an amount
equal to 100% of the principal amount of the Notes tendered pursuant to an
Asset Proceeds Offer, plus accrued and unpaid interest, if any, to the date
such Asset Proceeds Offer is consummated (the "Offered Price"), in
accordance with the procedures set forth in the Indenture. To the extent
that the aggregate Offered Price of the Notes tendered pursuant to an Asset
Proceeds Offer is less than the Payment Amount relating thereto or the
aggregate amount of the Pari Passu Indebtedness that is purchased or repaid
pursuant to the Pari Passu Offer is less than the Pari Passu Indebtedness
Amount (such shortfall constituting an "Asset Proceeds Deficiency"), the
Company may use such Asset Proceeds Deficiency, or a portion thereof, for
general corporate purposes, subject to the limitations of the "Limitation
on Restricted Payments" covenant.
(iii) If the aggregate Offered Price of Notes validly tendered and not
withdrawn by Holders thereof exceeds the Payment Amount, Notes to be
purchased will be selected on a pro rata basis. Upon completion of such Net
Proceeds Offer and Pari Passu Offer, the amount of Excess Proceeds shall be
reset to zero.
The Company will not permit any Subsidiary to enter into or suffer to exist
any agreement (excluding Permitted Liens) that would place any restriction of
any kind (other than pursuant to law or regulation) on the ability of the
Company to make an Asset Proceeds Offer following any Asset Sale. The Company
will comply with Rule 14e-1 under the Exchange Act, and any other securities
laws and regulations thereunder, if applicable, in the event that an Asset
Sale occurs and the Company is required to purchase Notes as described above.
Limitation on Dividend and Other Payment Restrictions Affecting
Subsidiaries. The Indenture provides that neither the Company nor any of its
Subsidiaries will, directly or indirectly, create or otherwise cause or permit
or suffer to exist or become effective any encumbrance or restriction on the
ability of any Subsidiary to (a) pay dividends or make any other distributions
on its Capital Stock; (b) make loans or advances or pay any Indebtedness or
other obligation owed to the Company or to any Subsidiary of the Company; or
(c) transfer any of its property or assets to the Company or to any Subsidiary
of the Company (each such encumbrance or restriction in clause (a), (b), or
(c) a "Payment Restriction"), except for such encumbrances or restrictions
existing under or by reason of: (1) applicable law; (2) the Indenture; (3)
customary non-assignment provisions of any lease or license agreements or
similar agreements entered into in the ordinary course of business of any
Subsidiary of the Company; (4) any instrument governing Acquired Indebtedness
Incurred in accordance with paragraph (b) of the covenant "--Limitation on
Indebtedness"; provided that such encumbrance or restriction is not, and will
not be, applicable to any Person, or the properties or assets of any Person,
other than the Person, or the property or assets of the Person, becoming a
Subsidiary of the Company; (5) agreements existing on the Issue Date to the
extent and in the manner such agreements are in effect on the Issue Date; (6)
any restriction or encumbrance contained in contracts for the sale of assets
to be consummated in accordance with the Indenture solely in respect of the
assets to be sold pursuant to such contract; (7) any restrictions on the sale
or other disposition or encumbrance of any property securing Indebtedness as a
result of a Permitted Lien on such property; (8) any agreement relating to an
acquisition of property, so long as the encumbrances or restrictions in any
such agreement relate solely to the property so acquired and are not or were
not created in anticipation of or in connection with the acquisition thereof;
(9) the Senior Credit Facility; or (10) any encumbrance or restriction
contained in Permitted Indebtedness or Permitted Refinancing Indebtedness
Incurred to Refinance the Indebtedness Incurred pursuant to an agreement
referred to in clause (4), (5) or (9) above; provided that the provisions
relating to such encumbrance or restriction contained in any such Permitted
Refinancing Indebtedness are no less favorable to the Company or to the
Holders in any material respect in the reasonable and good faith judgment of
the Board of Directors of the Company than the provisions relating to such
encumbrance or restriction contained in agreements referred to in such clause
(4), (5) or (9).
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Limitation on Issuances and Sales of Capital Stock of Subsidiaries. The
Indenture provides that the Company will not cause or permit any of its
Subsidiaries to issue or sell any Capital Stock (other than to the Company or
to a Wholly-owned Subsidiary of the Company) or permit any Person (other than
the Company or a Wholly-owned Subsidiary of the Company) to own or hold any
Capital Stock of any Subsidiary of the Company or any Lien or security
interest therein; provided, however, that such covenant shall not prohibit the
disposition (by sale, merger or otherwise) of all of the Capital Stock of a
Subsidiary provided any Net Cash Proceeds therefrom are applied in accordance
with the covenants described under "--Asset Sales."
Limitation on Liens. The Indenture provides that the Company will not, and
will not permit any Subsidiary to, directly or indirectly, create, incur,
assume, affirm or suffer to exist or become effective any Lien of any kind
except for Permitted Liens, upon any of their respective property or assets,
whether now owned or acquired after the Issue Date, or any income, profits or
proceeds therefrom, or convey any right to receive income therefrom. The
foregoing covenant will not apply to any Lien securing Acquired Indebtedness
incurred in accordance with the covenant "--Limitation on Indebtedness",
provided that any such Lien extends only to the property or assets that were
subject to such Lien prior to the related acquisition by the Company or such
Subsidiary and was not created, incurred or assumed in contemplation of such
transaction. The incurrence of additional secured Indebtedness by the Company
and its Subsidiaries is subject to further limitations on the incurrence of
Indebtedness as described under "--Limitation on Indebtedness."
Mergers, Consolidations and Sale of Assets. The Indenture provides that the
Company will not, in a single transaction or series of related transactions,
consolidate or merge with or into any Person, or sell, assign, transfer,
lease, convey or otherwise dispose of all or substantially all of the
Company's assets (determined on a consolidated basis for the Company and the
Company's Subsidiaries) whether as an entirety or substantially as an entirety
to any Person unless: (i) either (1) the Company shall be the surviving or
continuing corporation or (2) the Person (if other than the Company) formed by
such consolidation or into which the Company is merged or the Person which
acquires by sale, assignment, transfer, lease, conveyance or other disposition
the properties and assets of the Company and of the Company's Subsidiaries
substantially as an entirety (the "Surviving Entity") (x) shall be a
corporation organized and validly existing under the laws of the United States
or any State thereof or the District of Columbia and (y) shall expressly
assume, by supplemental indenture (in form and substance satisfactory to the
Trustee), executed and delivered to the Trustee, the due and punctual payment
of the principal of, and premium, if any, and interest on all of the Notes and
the performance of every covenant of the Notes, the Indenture and the
Registration Rights Agreement on the part of the Company to be performed or
observed; (ii) immediately after giving effect to such transaction and, if
applicable, the assumption contemplated by clause (i)(2)(y) above (including
giving effect to any Indebtedness and Acquired Indebtedness Incurred or
anticipated to be Incurred in connection with or in respect of such
transaction), the Company or such Surviving Entity, as the case may be, (1)
shall have a Consolidated Net Worth equal to or greater than the Consolidated
Net Worth of the Company immediately prior to such transaction and (2) shall
be able to Incur at least $1.00 of additional Indebtedness pursuant to
paragraph (b) of "--Limitation on Indebtedness"; provided that in determining
the Consolidated Fixed Charge Coverage Ratio of the Company or such Surviving
Entity, as the case may be, such ratio shall be calculated on a pro forma
basis as if the transaction (including the Incurrence of any Indebtedness or
Acquired Indebtedness) took place on the first day of the Four Quarter Period;
(iii) immediately before and immediately after giving effect to such
transaction and, if applicable, the assumption contemplated by clause
(i)(2)(y) above (including, without limitation, giving effect to any
Indebtedness and Acquired Indebtedness Incurred or anticipated to be Incurred
and any Lien granted in connection with or in respect of the transaction), no
Default and no Event of Default shall have occurred or be continuing; and (iv)
the Company or the Surviving Entity shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that such
consolidation, merger, sale, assignment, transfer, lease, conveyance or other
disposition and, if a supplemental indenture is required in connection with
such transaction, such supplemental indenture comply with the applicable
provisions of the Indenture and that all conditions precedent in the Indenture
relating to such transaction have been satisfied.
Upon any such consolidation, merger, conveyance, lease or transfer in
accordance with the foregoing, the successor Person formed by such
consolidation or into which the Company is merged or to which such
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conveyance, lease or transfer is made will succeed to, and be substituted for,
and may exercise every right and power of, the Company under the Indenture
with the same effect as if such successor had been named as the Company
therein, and thereafter (except in the case of a sale, assignment, transfer,
lease, conveyance or other disposition) the predecessor corporation will be
relieved of all further obligations and covenants under the Indenture and the
Notes.
Each Subsidiary Guarantor (other than any Subsidiary Guarantor whose
Subsidiary Guarantee is to be released in accordance with the terms of the
Guarantee and the Indenture in connection with any transaction complying with
the provisions of "--Asset Sales") will not, and the Company will not cause or
permit any Subsidiary Guarantor to, consolidate with or merge with or into any
Person, or sell, assign, transfer, lease, convey or otherwise dispose of all
or substantially all of its assets, other than the Company or any other
Subsidiary Guarantor unless: (i) the entity formed by or surviving any such
consolidation or merger (if other than the Subsidiary Guarantor), or to which
such disposition shall have been made, is a corporation organized and existing
under the laws of the United States, any state thereof or the District of
Columbia; (ii) such entity assumes by supplemental indenture all of the
obligations of the Subsidiary Guarantor on the Subsidiary Guarantee;
(iii) immediately after giving effect to such transaction, no Default or Event
of Default shall have occurred and be continuing; and (iv) immediately after
giving effect to such transaction and the use of any net proceeds therefrom on
a pro forma basis, the Company could satisfy the provisions of clause (ii) of
the first paragraph of this covenant. Any merger or consolidation of a
Subsidiary Guarantor with and into the Company (with the Company being the
surviving entity) or another Subsidiary Guarantor need only comply with
clauses (iii) and (iv) of the first paragraph of this covenant.
Limitation on Transactions with Affiliates. The Indenture provides that
neither the Company nor any Subsidiary of the Company will conduct any
business or enter into any transaction or series of transactions with or for
the benefit of any of their Affiliates (each an "Affiliate Transaction") but
excluding Specified Affiliate Transactions, except in good faith and on terms
that are no less favorable to the Company or such Subsidiary, as the case may
be, than those that could have been obtained in a comparable transaction on an
arm's-length basis from a Person not an Affiliate of the Company or such
Subsidiary. All Affiliate Transactions (and each series of related Affiliate
Transactions which are similar or part of a common plan) involving aggregate
payments or other property with a fair market value in excess of $250,000
shall be approved by a majority of the independent members of the Board of
Directors of the Company, such approval to be evidenced by a Board Resolution
stating that such Board of Directors has determined that such transaction
complies with the foregoing provisions. If the Company or any Subsidiary of
the Company enters into an Affiliate Transaction (or a series of related
Affiliate Transactions related to a common plan) that involves an aggregate
fair market value of more than $5,000,000, the Company or such Subsidiary
shall, prior to the consummation thereof, obtain a favorable opinion as to the
fairness of such transaction or series of related transactions to the Company
or the relevant Subsidiary, as the case may be, from a financial point of
view, from an Independent Financial Advisor and file the same with the
Trustee. Notwithstanding the foregoing, the restrictions set forth in this
covenant shall not apply to (i) transactions between the Company and any
Subsidiary Guarantor or between Subsidiary Guarantors, (ii) reasonable fees
and compensation paid to, and indemnity provided on behalf of, officers,
directors, employees or consultants of the Company or any Subsidiary as
determined in good faith by the Company's Board of Directors or senior
management, or (iii) Restricted Payments not prohibited by the Indenture.
Additional Subsidiary Guarantees. If the Company or any of its Subsidiaries
transfers or causes to be transferred, in one transaction or a series of
related transactions, any property to any Subsidiary that is not a Subsidiary
Guarantor, or if the Company or any of its Subsidiaries shall organize,
acquire or otherwise invest in another Subsidiary having total assets with a
book value in excess of $50,000, then such transferee or acquired or other
Subsidiary shall (i) execute and deliver to the Trustee a supplemental
indenture in form reasonably satisfactory to the Trustee pursuant to which
such Subsidiary shall fully and unconditionally guarantee all of the Company's
obligations under the Notes and the Indenture on the terms set forth in the
Indenture and (ii) deliver to the Trustee an Opinion of Counsel that such
supplemental indenture has been duly authorized, executed and delivered by
such Subsidiary and constitutes a legal, valid, binding and enforceable
obligation of such Subsidiary. Thereafter, such Subsidiary shall be a
Subsidiary Guarantor for all purposes of the Indenture.
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Limitation on Conduct of Business. The Indenture provides that the Company
will not, and will not permit any of its Subsidiaries to, engage in the
conduct of any business other than the Business on a basis consistent with the
conduct of such business as it is conducted on the Issue Date.
Limitation on Status as Investment Company. The Indenture will prohibit the
Company and the Subsidiary Guarantors from being required to register as an
"investment company" (as that term is defined in the Investment Company Act of
1940, as amended), or from otherwise becoming subject to regulation under the
Investment Company Act of 1940.
Sale and Leaseback Transactions. The Indenture provides that the Company
will not, and will not permit any of its Subsidiaries to, enter into any sale
and leaseback transaction; provided that the Company or any Subsidiary, as
applicable, may enter into a sale and leaseback transaction if (i) the Company
could have (a) incurred Indebtedness in an amount equal to the Attributable
Indebtedness relating to such sale and leaseback transaction pursuant to the
Consolidated Fixed Charge Coverage Ratio test set forth in clause (b) of the
covenant described above under the caption "--Limitation on Indebtedness" and
(b) incurred a Lien to secure such Indebtedness pursuant to the covenant
described above under the caption "--Limitation on Liens," (ii) the gross cash
proceeds of such sale and leaseback transaction are at least equal to the fair
market value (as determined in good faith by the Board of Directors of the
Company and set forth in an Officers' Certificate delivered to the Trustee) of
the property that is the subject of such sale and leaseback transaction and
(iii) the transfer of assets in such sale and leaseback transaction is
permitted by, and the Company applies the proceeds of such transaction in
compliance with, the covenant described under the caption "--Asset Sales."
Reports to Holders. So long as any of the Notes are outstanding or any
obligation of the Company or any Subsidiary Guarantor with respect thereto
remains unpaid finally and in full, the Company will file with the Commission
all information, documents and reports required to be filed with the
Commission pursuant to Section 13 or 15(d) of the Exchange Act, whether or not
the Company is then subject to such filing requirements so long as the
Commission will accept such filings. The Company will file with the Trustee,
within 15 days after it files them with the Commission, copies of the annual
reports and of the information, documents and other reports (or copies of such
portions of any of the foregoing as the Commission may by rules and
regulations prescribe), without exhibits, which the Company files with the
Commission pursuant to Section 13 or 15(d) of the Exchange Act. Regardless of
whether the Company is required to furnish such reports to its stockholders
pursuant to the Exchange Act, the Company will cause its consolidated
financial statements, comparable to that which would have been required to
appear in annual or quarterly reports, to be delivered to the Trustee and the
Holders. The Company will also make such reports available to prospective
purchasers of the Notes, securities analysts and broker-dealers upon their
request. In addition, the Indenture requires that for so long as any of the
Notes remain outstanding or, any obligation of the Company or any Subsidiary
Guarantor with respect thereto remains unpaid finally and in full, the Company
will make available to any prospective purchaser of the Notes or beneficial
owner of the Notes in connection with any sale thereof the information
required by Rule 144A(d)(4) under the Securities Act, until such time as the
holders thereof have disposed of such Notes pursuant to an effective
registration statement filed by the Company.
EVENTS OF DEFAULT
The following events are defined in the Indenture as "Events of Default":
(i) the failure to pay interest on any Note for a period of 30 days or
more after such interest becomes due and payable; or
(ii) the failure to pay the principal on any Note, when such principal
becomes due and payable, at maturity, upon redemption, pursuant to an Asset
Sale Offer or a Change of Control Offer or otherwise; or
(iii) (x) the failure of the Company or any Subsidiary Guarantor to
comply with the terms and provisions of the Indenture summarized under "--
Certain Covenants--Mergers, Consolidations and Sale of Assets" or (y) a
default in the observance or performance of any other covenant or agreement
contained in the Indenture which default continues for a period of 30 days
after the Company receives written notice
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specifying the default from the Trustee or from Holders of at least 25% in
principal amount of outstanding Notes; or
(iv) default under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced any
Indebtedness of the Company or of any Subsidiary of the Company (or the
payment of which is guaranteed by the Company or any Subsidiary of the
Company) which default (a) is caused by a failure to pay principal of or
premium, if any, or interest on such Indebtedness after any applicable
grace period provided in such Indebtedness on the date of such default (a
"payment default") or (b) results in the acceleration of such Indebtedness
prior to its express maturity and, in each case, the principal amount of
any such Indebtedness, together with the principal amount of any other such
Indebtedness under which there has been a payment default or the maturity
of which has been so accelerated, aggregates $1,000,000; or
(v) one or more judgments in an aggregate amount in excess of $1,000,000
(which are not covered by third-party insurance as to which a financially
sound insurer has not disclaimed coverage) being rendered against the
Company or any of its Subsidiaries and such judgments remain undischarged,
or unstayed or unsatisfied for a period of 60 days after such judgment or
judgments become final and non-appealable; or
(vi) certain events of bankruptcy, insolvency or reorganization affecting
the Company or any of its Subsidiaries; or
(vii) any of the Subsidiary Guarantees cease to be in full force and
effect or any of the Subsidiary Guarantees are declared to be null and void
and unenforceable or any of the Subsidiary Guarantees are found to be
invalid or any of the Subsidiary Guarantors denies its liability under its
Subsidiary Guarantee (other than by reason of release of a Subsidiary
Guarantor in accordance with the terms of the Indenture).
If an Event of Default (other than an Event of Default specified in clause
(vi) above with respect to the Company) occurs and is continuing, then and in
every such case the Trustee or the Holders of not less than 25% in aggregate
principal amount of the then outstanding Notes may declare the unpaid
principal of, premium, if any, and accrued and unpaid interest on, all the
Notes then outstanding to be due and payable, by a notice in writing to the
Company (and to the Trustee, if given by Holders) and upon such declaration
such principal amount, premium, if any, and accrued and unpaid interest will
become immediately due and payable. If an Event of Default with respect to the
Company specified in clause (vi) above occurs, all unpaid principal of, and
premium, if any, and accrued and unpaid interest on, the Notes then
outstanding will ipso facto become due and payable without any declaration or
other act on the part of the Trustee or any Holder.
The Holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may rescind an acceleration and its
consequences if all existing Events of Default (other than the nonpayment of
principal of and premium, if any, and interest on the Notes which has become
due solely by virtue of such acceleration) have been cured or waived and if
the rescission would not conflict with any judgment or decree. No such
rescission shall affect any subsequent Default or impair any right consequent
thereto.
Notwithstanding the foregoing, if an Event of Default specified in clause
(iv) above shall have occurred and be continuing, such Event of Default and
any consequential acceleration shall be automatically rescinded if the
Indebtedness that is the subject of such Event of Default has been repaid, or
if the default relating to such Indebtedness is waived or cured and if such
Indebtedness has been accelerated, the holders thereof have rescinded their
declaration of acceleration in respect of such Indebtedness (provided, in each
case, that such repayment, waiver, cure or rescission is effected within a
period of 10 days from the continuation of such default beyond the applicable
grace period or the occurrence of such acceleration).
The Holders of a majority in principal amount of the Notes may waive any
existing Default or Event of Default under the Indenture, and its
consequences, except a Default in the payment of the principal of or interest
on any Notes or a Default in respect of any term or provision of the Notes or
the Indenture that cannot be modified or amended without the consent of all
Holders.
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Holders of the Notes may not enforce the Indenture or the Notes except as
provided in the Indenture and under the TIA. Subject to the provisions of the
Indenture relating to the duties of the Trustee, the Trustee is under no
obligation to exercise any of its rights or powers under the Indenture at the
request, order or direction of any of the Holders, unless such Holders have
offered to the Trustee reasonable security or indemnity. Subject to all
provisions of the Indenture and applicable law, the Holders of a majority in
aggregate principal amount of the then outstanding Notes have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Trustee or exercising any trust or power conferred on the
Trustee.
Under the Indenture, the Company is required to provide an Officers'
Certificate to the Trustee promptly upon any such officer obtaining knowledge
of any Default or Event of Default (provided, that such officers shall provide
such certification at least annually whether or not they know of any Default
or Event of Default) that has occurred and, if applicable, describe such
Default or Event of Default and the status thereof.
DEFEASANCE
The Indenture provides that the Company may, at its option and at any time,
elect to have the obligations of the Company and the Subsidiary Guarantors
discharged in accordance with the defeasance provisions set forth below with
respect to the Notes then outstanding. Such defeasance means that the Company
shall be deemed to have paid and discharged the entire indebtedness
represented by such outstanding Notes and the Company and the Subsidiary
Guarantors shall be deemed to have satisfied all their respective other
obligations under the Notes, the Subsidiary Guarantees and the Indenture,
except for (i) the rights of holders of such outstanding Notes to receive
payments in respect of the principal of, premium, if any, and interest on such
Notes when such payments are due, (ii) the Company's and the Subsidiary
Guarantors' respective obligations with respect to the Notes concerning
issuing temporary Notes, registration of Notes, mutilated, destroyed, lost or
stolen Notes and the maintenance of an office or agency for payment and money
for security payments held in trust, (iii) the rights, powers, trusts, duties
and immunities of the Trustee, and (iv) the redemption and defeasance
provisions of the Indenture. In addition, the Company may, at its option and
at any time, elect to have the respective obligations of the Company and the
Subsidiary Guarantors released with respect to certain covenants in the
Indenture ("covenant defeasance"), and any omission to comply with such
obligations shall not constitute a Default or an Event of Default with respect
to the Notes. In order to exercise either defeasance or covenant defeasance,
(i) the Company must irrevocably deposit with the Trustee, in trust, for the
benefit of the holders of the Notes, cash in U.S. dollars, U.S. Government
Obligations, or a combination thereof, in such amounts as will be sufficient,
in the opinion of a nationally recognized firm of independent public
accountants, to pay the principal of, premium, if any, and interest on such
outstanding Notes on the stated maturity thereof or on the applicable
redemption date, as the case may be, and the Company must specify whether the
Notes are being defeased to maturity or to a particular redemption date; (ii)
in the case of defeasance, the Company shall have delivered to the Trustee an
Opinion of Counsel stating that (A) the Company has received from, or there
has been published by, the Internal Revenue Service a ruling or (B) since the
Issue Date, there has been a change in the applicable federal income tax law,
in either case to the effect that, and based thereon such Opinion of Counsel
shall confirm that, the holders of the outstanding Notes will not recognize
income, gain or loss for federal income tax purposes as a result of such
defeasance and will be subject to federal income tax on the same amounts, in
the same manner and at the same times as would have been the case if such
defeasance had not occurred; (iii) in the case of covenant defeasance, the
Company shall have delivered to the Trustee an Opinion of Counsel to the
effect that the holders of the outstanding Notes will not recognize income,
gain or loss for federal income tax purposes as a result of such covenant
defeasance and will be subject to federal income tax on the same amounts, in
the same manner and at the same times as would have been the case if such
covenant defeasance had not occurred; (iv) no Default or Event of Default
shall have occurred and be continuing on the date of such deposit; (v) such
defeasance or covenant defeasance shall not result in a breach or violation
of, or constitute a default under, the Indenture or any other material
agreement or instrument to which the Company is a party or by default under,
the Indenture or any other material agreement or instrument to which the
Company is a party or by which it is bound; (vi) in the case of defeasance or
covenant defeasance, the Company shall have delivered to the Trustee an
Opinion of Counsel to the effect that after the 91st day following the
deposit, the trust funds will not be subject to the effect
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of any applicable bankruptcy, insolvency, reorganization or similar law
affecting creditors' rights generally and that such defeasance or covenant
defeasance will not result in the Trustee or the trust arising from such
deposit constituting an Investment Company as defined in the Investment
Company Act of 1940, as amended; and (vii) the Company shall have delivered to
the Trustee an Officers' Certificate and an Opinion of Counsel each stating
that all conditions precedent provided for relating to either the defeasance
or the covenant defeasance, as the case may be, have been complied with.
MODIFICATION OF THE INDENTURE
From time to time, the Company and the Trustee, without the consent of the
Holders, may amend the Indenture for certain specified purposes, including
curing ambiguities, defects or inconsistencies, to provide for uncertificated
Notes in addition to or in place of certificated Notes, to provide for the
assumption of the Company's obligations in the case of a Disposition, to
comply with the TIA, or to make other changes so long as such change does not
adversely affect the rights of any of the Holders. Other modifications and
amendments of the Indenture may be made with the consent of the Holders of a
majority in principal amount of the then outstanding Notes issued under the
Indenture, except that, without the consent of each Holder of the Notes
affected thereby, no amendment may, directly or indirectly: (i) reduce the
amount of Notes whose Holders must consent to an amendment; (ii) reduce the
rate of or change the time for payment of interest, including defaulted
interest, on any Notes; (iii) reduce the principal of or change the fixed
maturity of any Notes, or change the date on which any Notes may be subject to
redemption or repurchase, or reduce the redemption or repurchase price
therefor; (iv) make any Notes payable in money other than that stated in the
Notes; (v) make any change in provisions of the Indenture protecting the right
of each Holder to receive payment of principal of and interest on such Note on
or after the due date thereof or to bring suit to enforce such payment, or
permitting Holders of a majority in principal amount of the Notes to waive
Defaults or Events of Default; (vi) amend, modify or change the obligation of
the Company to make or consummate a Change of Control Offer, an Asset Sale
Offer or waive any default in the performance thereof or modify any of the
provisions or definitions with respect to any such offers; (vii) adversely
affect the ranking of the Notes or the Subsidiary Guarantees; or (viii)
release any Subsidiary Guarantor from any of its obligations under its
Subsidiary Guarantee or the Indenture otherwise than in accordance with the
terms of the Indenture.
GOVERNING LAW
The Indenture, the Notes and the Subsidiary Guarantees are governed by, and
construed in accordance with, the laws of the State of New York.
THE TRUSTEE
State Street Bank and Trust Company is the Trustee under the Indenture.
The Indenture provides that, except during the continuance of an Event of
Default, the Trustee will perform only such duties as are specifically set
forth in the Indenture. During the existence of an Event of Default, the
Trustee will exercise such rights and powers vested in it by the Indenture,
and use the same degree of care and skill in its exercise as a prudent man
would exercise or use under the circumstances in the conduct of his own
affairs.
The Indenture and the provisions of the TIA contain certain limitations on
the rights of the Trustee, should it become a creditor of the Company, to
obtain payments of claims in certain cases or to realize on certain property
received in respect of any such claim as security or otherwise. Subject to the
TIA, the Trustee will be permitted to engage in other transactions; provided,
that if the Trustee acquires any conflicting interest as described in the TIA,
it must eliminate such conflict or resign within 90 days of becoming aware of
such conflicting interest as provided in the TIA or apply to the Commission
for permission to continue as Trustee. The Trustee may resign at any time, in
which case a successor trustee is to be appointed pursuant to the terms of the
Indenture.
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CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms, as well as any other terms used herein for which no definition is
provided.
"Acquired Indebtedness" of any Person means Indebtedness of another Person
and any of its Subsidiaries existing at the time such other Person becomes a
Subsidiary of such Person or at the time it merges or consolidates with such
Person or any of such Person's Subsidiaries or is assumed by such Person or
any Subsidiary of such Person in connection with the acquisition of assets
from such other Person and in each case not Incurred by such Person or any
Subsidiary of such Person or such other Person in connection with, or in
anticipation or contemplation of, such other Person becoming a Subsidiary of
such Person or such acquisition, merger or consolidation, and which
Indebtedness is without recourse to the Company or any of its Subsidiaries or
to any of their respective properties or assets other than the Person or such
Person's Subsidiaries or the assets to which such Indebtedness related prior
to the time such Person becomes a Subsidiary of the Company or the time of
such acquisition, merger or consolidation.
"Affiliate" means, when used with reference to any Person, any other Person
directly or indirectly controlling, controlled by, or under direct or indirect
common control with, such Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct or cause the direction of management or policies of such Person,
directly or indirectly, whether through the ownership of voting securities, by
contract or otherwise; and the terms "controlling" and "controlled" have
meanings correlative of the foregoing.
"Affiliate Transaction" has the meaning set forth in "--Certain Covenants--
Limitation on Transactions with Affiliates."
"Asset Acquisition" means (i) an Investment by the Company or any Subsidiary
of the Company in any other Person pursuant to which such Person shall become
a Subsidiary of the Company or shall be merged with or into the Company or any
Subsidiary of the Company or (ii) the acquisition by the Company or any
Subsidiary of the Company of assets of any Person comprising an existing
business (whether existing as a separate entity, subsidiary, division or unit
of such Person).
"Asset Sale" means any sale, issuance, conveyance, transfer, lease or other
disposition to any Person other than the Company or any Subsidiary Guarantor
(including, without limitation, by means of a sale and leaseback transaction
or a merger or consolidation) (collectively, for purposes of this definition,
a "transfer"), directly or indirectly, in one or a series of related
transactions, of (a) any Capital Stock of any Subsidiary Guarantor held by the
Company or any other Subsidiary Guarantor, (b) all or substantially all of the
properties and assets of any division or line of business of the Company or
any of the Subsidiary Guarantors, (c) any other properties or assets of the
Company or any of the Subsidiary Guarantors other than transfers of cash, Cash
Equivalents, accounts receivable, or properties or assets in the ordinary
course of business; provided that the transfer of all or substantially all of
the properties or assets of the Company and the Subsidiary Guarantors, taken
as a whole, will be governed by the provisions of the Indenture described
above under the captions "--Certain Covenants--Mergers, Consolidations and
Sale of Assets" and/or "--Change of Control" and not by the provisions of the
"Asset Sales" covenant. For the purposes of this definition, the term "Asset
Sale" also shall not include any of the following: (i) sales of damaged, worn-
out or obsolete equipment or assets that, in the Company's reasonable
judgment, are either (A) no longer used or (B) no longer useful in the
business of the Company or the Subsidiary Guarantors; (ii) any lease of any
property entered into in the ordinary course of business and with respect to
which the Company or any Subsidiary Guarantor is the lessor, except any such
lease that provides for the acquisition of such property by the lessee during
or at the end of the term thereof for an amount that is less than the fair
market value thereof at the time the right to acquire such property is
granted; (iii) a Restricted Payment or Permitted Investment permitted under
"Certain Covenants--Limitation on Restricted Payments;" and (iv) any transfers
that, but for this clause (iv), would be Asset Sales, if (A) the Company
elects to designate such transfers
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as not constituting Asset Sales and (B) after giving effect to such transfers,
the aggregate fair market value of the properties or assets transferred in
such transaction or any such series of related transactions so designated by
the Company does not exceed $1.0 million.
"Asset Proceeds Offer" has the meaning set forth in "--Certain Covenants--
Asset Sales."
"Attributable Indebtedness" in respect of a sale and leaseback transaction
means, at the time of determination, the present value (discounted at the rate
of interest implicit in such transaction, determined in accordance with GAAP)
of the obligation of the lessee for net rental payments during the remaining
term of the lease included in such sale and leaseback transaction (including
any period for which such lease has been extended or may, at the option of the
lessor, be extended). As used in the preceding sentence, the "net rental
payments" under any lease for any such period shall mean the sum of rental and
other payments required to be paid with respect to such period by the lessee
thereunder, excluding any amounts required to be paid by such lessee on
account of maintenance and repairs, insurance, taxes, assessments, water rates
or similar charges. In the case of any lease that is terminable by the lessee
upon payment of penalty, such net rental payment shall also include the amount
of such penalty, but no rent shall be considered as required to be paid under
such lease subsequent to the first date upon which it may be so terminated.
"Available Proceeds Amount" has the meaning set forth in "--Certain
Covenants--Asset Sales."
"Board Resolution" means, with respect to any Person, a copy of a resolution
certified by the Clerk or Secretary or an Assistant Clerk or Assistant
Secretary of such Person to have been duly adopted by the board of directors
of such Person and to be in full force and effect on the date of such
certification, and delivered to the Trustee.
"Business" means the business of providing audio, video and data
teleconferencing services.
"Business Day" means any day other than a Saturday, Sunday or any other day
on which banking institutions in New York, New York or Boston, Massachusetts
are required or authorized by law or other governmental action to be closed.
"Capital Stock" means (i) with respect to any Person that is a corporation,
any and all shares, interests, participations or other equivalents (however
designated and whether or not voting) of corporate stock, including each class
of Common Stock and Preferred Stock of such Person and (ii) with respect to
any Person that is not a corporation, any and all partnership or other equity
or profit participation interests of such Person.
"Capitalized Lease Obligation" means, as to any Person, the obligations of
such Person to pay rent or other amounts under a lease that are required to be
classified and accounted for as capital lease obligations under GAAP and, for
purposes of this definition, the amount of such obligations at any date shall
be the capitalized amount of such obligations at such date, determined in
accordance with GAAP.
"Cash Equivalents" means (i) marketable direct obligations issued by, or
unconditionally guaranteed by, the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States,
in each case maturing within one year from the date of acquisition thereof;
(ii) marketable direct obligations issued by any state of the United States of
America or any political subdivision of any such state or any public
instrumentality thereof maturing within one year from the date of acquisition
thereof and, at the time of acquisition, having one of the two highest ratings
obtainable from either Standard & Poor's Ratings Group ("S&P") or Moody's
Investors Service, Inc. ("Moody's"); (iii) commercial paper maturing no more
than 270 days from the date of creation thereof and, at the time of
acquisition, having a rating of at least A-1 from S&P or at least P-1 from
Moody's; (iv) certificates of deposit or bankers' acceptances maturing within
180 days from the date of acquisition thereof issued by any commercial bank
organized under the laws of the United States of America or any state thereof
or the District of Columbia or any U.S. branch of a foreign bank having at the
date of acquisition thereof combined capital and surplus of not less than
$250,000,000; (v) repurchase obligations
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with a term of not more than seven days for underlying securities of the types
described in clause (i) above entered into with any bank meeting the
qualifications specified in clause (iv) above; (vi) deposits available for
withdrawal on demand with any commercial bank not meeting the qualifications
specified in clause (ii) above, provided that all such deposits do not exceed
$5,000,000 in the aggregate at any one time; (vii) demand and time deposits
and certificates of deposit with any commercial bank organized in the United
States not meeting the qualifications specified in clause (ii) above, provided
that such deposits and certificates support bond, letter of credit and other
similar types of obligations incurred in the ordinary course of business; and
(viii) investments in money market or other mutual funds substantially all of
whose assets comprise securities of the types described in clauses (i) through
(v) above.
"Change of Control" means the occurrence of any of the following: (i) the
sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all
or substantially all of the assets of the Company and its Subsidiaries taken
as a whole to any person (as such term is used in Section 13(d)(3) of the
Exchange Act) other than to the Company or a Subsidiary Guarantor; (ii) the
Company consolidates with or merges into another Person or any Person
consolidates with, or merges into, the Company, in any such event pursuant to
a transaction in which the outstanding Voting Stock of the Company is changed
into or exchanged for cash, securities or other property, other than any such
transaction where (a) the outstanding Voting Stock of the Company is changed
into or exchanged for Voting Stock of the surviving or resulting Person that
is Qualified Capital Stock and (b) the holders of the Voting Stock of the
Company immediately prior to such transaction own, directly or indirectly, not
less than a majority of the Voting Stock of the surviving or resulting Person
immediately after such transaction; (iii) the adoption of a plan relating to
the liquidation or dissolution of the Company not involving a merger or
consolidation or a sale or other disposition of assets described in clause (i)
above; (iv) the consummation of any transaction (including, without
limitation, any merger or consolidation) the result of which is that any
person (as defined above), excluding Permitted Holders, becomes the
"beneficial owner" (as such term is defined in Rule 13d-3 and Rule 13d-5 under
the Exchange Act), directly or indirectly, of more than 50% of the total
voting power of the Voting Stock of the Company; provided that the sale of
Voting Stock of the Company to a Person or Persons acting as underwriters in
connection with a firm commitment underwriting shall not constitute a Change
of Control; (v) the first day on which a majority of the members of the Board
of Directors of the Company are not Continuing Directors (other than by action
of the Permitted Holders); or (vi) the appointment, selection or election of
John J. Hassett as a director or officer of the Company. For purposes of this
definition, any transfer of an equity interest of an entity that was formed
for the purpose of acquiring Voting Stock of the Company will be deemed to be
a transfer of such portion of such Voting Stock as corresponds to the portion
of the equity of such entity that has been so transferred.
"Common Stock" of any Person, means any and all shares, interests or other
participations in, and other equivalents (however designated and whether
voting or non-voting) of such Person's common stock, whether outstanding on
the Issue Date or issued after the Issue Date, and includes, without
limitation, all series and classes of such common stock.
"Consolidated EBITDA" means, with respect to any Person, for any period, the
sum (without duplication) of (i) Consolidated Net Income plus (ii) to the
extent that any of the following shall have been taken into account in
determining Consolidated Net Income, (A) all income taxes of such Person and
its Subsidiaries paid or accrued in accordance with GAAP for such period
(other than income taxes attributable to extraordinary, unusual or
nonrecurring gains or losses or taxes attributable to sales or dispositions of
assets outside the ordinary course of business), Consolidated Interest
Expense, amortization expense and depreciation expense, and (B) other
Consolidated Non-Cash Charges (other than non-cash interest) reducing
Consolidated Net Income, other than any non-cash item which requires the
accrual of or a reserve for cash charges for any future period and other than
any non-cash charge constituting an extraordinary item of loss, less other
non-cash items increasing Consolidated Net Income, all as determined on a
consolidated basis for such Person and its Subsidiaries in conformity with
GAAP.
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"Consolidated Fixed Charge Coverage Ratio" means, with respect to any
Person, the ratio of Consolidated EBITDA of such Person during the four full
fiscal quarters for which financial information is available (the "Four
Quarter Period") ending on or prior to the date of the transaction or event
giving rise to the need to calculate the Consolidated Fixed Charge Coverage
Ratio (the "Transaction Date") to Consolidated Fixed Charges of such Person
for the Four Quarter Period. In addition to and without limitation of the
foregoing, for purposes of this definition, "Consolidated EBITDA" and
"Consolidated Fixed Charges" shall be calculated after giving effect on a pro
forma basis for the period of such calculation to (i) the Incurrence or
repayment of any Indebtedness of such Person or any of its Subsidiaries (and
the application of the proceeds thereof) giving rise to the need to make such
calculation and any Incurrence or repayment of other Indebtedness (and the
application of the proceeds thereof), other than the Incurrence or repayment
of Indebtedness in the ordinary course of business for working capital
purposes pursuant to working capital facilities, at any time subsequent to the
first day of the Four Quarter Period and on or prior to the Transaction Date,
as if such Incurrence or repayment, as the case may be (and the application of
the proceeds thereof), occurred on the first day of the Four Quarter Period,
and (ii) any Asset Sales or Asset Acquisitions (including, without limitation,
any Asset Acquisition giving rise to the need to make such calculation as a
result of such Person or one of its Subsidiaries (including any Person who
becomes a Subsidiary as a result of any such Asset Acquisition) Incurring,
assuming or otherwise being liable for Acquired Indebtedness) at any time
subsequent to the first day of the Four Quarter Period and on or prior to the
Transaction Date, as if such Asset Sale or Asset Acquisition (including the
Incurrence, assumption or liability for any such Indebtedness or Acquired
Indebtedness and also including any Consolidated EBITDA, based upon the four
fiscal quarters of such Person for which financial information is available
immediately preceding such Asset Acquisition, associated with such Asset
Acquisition) occurred on the first day of the Four Quarter Period; provided
that the Consolidated EBITDA of any Person acquired shall be included only to
the extent includable pursuant to the definition of "Consolidated Net Income."
If such Person or any of its Subsidiaries directly or indirectly guarantees
Indebtedness of a third person, the preceding sentence shall give effect to
the Incurrence of such guaranteed Indebtedness as if such Person or any
Subsidiary of such Person had directly Incurred or otherwise assumed such
guaranteed Indebtedness. Furthermore, in calculating "Consolidated Fixed
Charges" for purposes of determining the denominator (but not the numerator)
of this "Consolidated Fixed Charge Coverage Ratio," (1) interest on
Indebtedness determined on a fluctuating basis as of the Transaction Date
(including Indebtedness actually Incurred on the Transaction Date) and which
will continue to be so determined thereafter shall be deemed to have accrued
at a fixed rate per annum equal to the rate of interest on such Indebtedness
in effect on the Transaction Date; and (2) notwithstanding clause (1) above,
interest on Indebtedness determined on a fluctuating basis, to the extent such
interest is covered by agreements relating to Interest Swap Obligations, shall
be deemed to accrue at the rate per annum resulting after giving effect to the
operation of such agreements.
"Consolidated Fixed Charges" means, with respect to any Person for any
period, the sum, without duplication, of (i) Consolidated Interest Expense and
(ii) the product of (x) the amount of all dividend payments on any series of
Preferred Stock of such Person (other than dividends paid in Common Stock)
paid, accrued or scheduled to be paid or accrued during such period times (y)
a fraction, the numerator of which is one and the denominator of which is one
minus the then current effective consolidated Federal, state and local tax
rate of such Person, expressed as a decimal.
"Consolidated Interest Expense" means, with respect to any Person for any
period, the aggregate of the interest expense (without deduction of interest
income) of such Person and its Subsidiaries (excluding amortization of
deferred financing fees) for such period, on a consolidated basis, as
determined in accordance with GAAP, and including (a) all amortization of
original issue discount (other than any original issue discount on
Indebtedness attributable to proceeds of the sale of warrants issued in
connection with the Incurrence of such Indebtedness); (b) the interest
component of Capitalized Lease Obligations paid, accrued and/or scheduled to
be paid or accrued by such Person and its Subsidiaries during such period; (c)
net cash costs under all Interest Swap Obligations (including amortization of
fees); (d) all capitalized interest; and (e) the interest portion of any
deferred payment obligations for such period.
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"Consolidated Net Income" means, with respect to any Person, for any period,
the aggregate net income (or loss) of such Person and its Subsidiaries for
such period on a consolidated basis, determined in accordance with GAAP;
provided that there shall be excluded therefrom (a) after-tax gains from Asset
Sales or abandonments or reserves relating thereto, (b) after-tax items
classified as extraordinary or nonrecurring gains, (c) the net income or loss
of any Person acquired in a "pooling of interests" transaction accrued prior
to the date it becomes a Subsidiary of the referent Person or is merged or
consolidated with the referent Person or any Subsidiary of the referent
Person, (d) the net income (but not loss) of any Subsidiary of the referent
Person to the extent that the declaration of dividends or similar
distributions by that Subsidiary of that income is restricted by a contract,
operation of law or otherwise, (e) the net income of any Person, other than a
Subsidiary of the referent Person, except to the extent of cash dividends or
distributions paid to the referent Person or to a Wholly-owned Subsidiary of
the referent Person by such Person, (f) any restoration to income of any
contingency reserve, except to the extent that provision for such reserve was
made out of Consolidated Net Income accrued at any time following the Issue
Date, (g) income or loss attributable to discontinued operations (including,
without limitation, operations disposed of during such period whether or not
such operations were classified as discontinued), and (h) in the case of a
successor to the referent Person by consolidation or merger or as a transferee
of the referent Person's assets, any earnings of the successor corporation
prior to such consolidation, merger or transfer of assets.
"Consolidated Net Worth" of any Person means the consolidated stockholders'
equity of such Person, determined on a consolidated basis in accordance with
GAAP, less (without duplication) amounts attributable to Disqualified Capital
Stock of such Person.
"Consolidated Non-cash Charges" means, with respect to any Person for any
period, the aggregate depreciation, amortization and other non-cash expenses
of such Person and its Subsidiaries for such period, on a consolidated basis,
as determined in accordance with GAAP.
"Continuing Directors" means, as of any date of determination, any member of
the Board of Directors of the Company who: (i) was a member of such Board of
Directors on the Issue Date; or (ii) was nominated for election or elected to
such Board of Directors with the approval of a majority of the Continuing
Directors who were members of such Board of Directors at the time of such
nomination or election.
"Default" means an event or condition the occurrence of which is, or with
the lapse of time or the giving of notice or both would be, an Event of
Default.
"Disqualified Capital Stock" means any Capital Stock which, by its terms (or
by the terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or is
redeemable at the sole option of the holder thereof, in whole or in part, on
or prior to the final maturity date of the Notes.
"Events of Default" has the meaning set forth in "--Events of Default."
"Exchange Act" means the Securities Exchange Act of 1934, as amended or any
successor statute or statutes thereto.
"Existing Indebtedness" means up to $1.5 million in aggregate principal
amount of Indebtedness of the Company and its Subsidiaries in existence on the
Issue Date, until such amounts are repaid.
"Fair market value" or "fair value" means, with respect to any asset or
property, the price which could be negotiated in an arm's-length, free market
transaction, for cash, between an informed and willing seller and an informed
and willing and able buyer, neither of whom is under undue pressure or
compulsion to complete the transaction. Fair market value shall be determined
by the Board of Directors of the Company acting reasonably and in good faith
and shall be evidenced by a Board Resolution delivered to the Trustee;
provided, however, that if the aggregate non-cash consideration to be received
by the Company or any of its Subsidiaries from any Asset
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Sale could be reasonably likely to exceed $1.0 million, the fair market value
shall be determined by an Independent Financial Advisor.
"Family Member" means, when used with reference to any natural Person, such
Person's spouse, siblings, parents, children, or other lineal descendants
(whether by adoption or consanguinity), and shall mean a trust, the primary
beneficiary of which is the Person's spouse, siblings, parents, children, or
other lineal descendants (whether by adoption or consanguinity).
"Financial Advisor" means an accounting, appraisal or investment banking
firm of nationally recognized standing that is, in the reasonable and good
faith judgment of the Board of Directors of the Company, qualified to perform
the task for which such firm has been engaged.
"Four Quarter Period" has the meaning set forth in the definition of
"Consolidated Fixed Charge Coverage Ratio."
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States, which are in effect as of the Issue Date.
"Holder" means a Person in whose name a Note is registered on the
Registrar's books.
"Incur" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur (by conversion, exchange or otherwise),
assume, guarantee or otherwise become liable in respect of such Indebtedness
or other obligation or the recording, as required pursuant to GAAP or
otherwise, of any such Indebtedness or other obligation on the balance sheet
of such Person (and "Incurrence," "Incurred," "Incurrable" and "Incurring"
shall have meanings correlative to the foregoing); provided, however, that (A)
any Indebtedness assumed in connection with an acquisition of assets and any
Indebtedness of a Person existing at the time such Person becomes a Subsidiary
(whether by merger, consolidation, acquisition or otherwise) of the Company or
at the time such Person is merged or consolidated with the Company or any
Subsidiary of the Company shall be deemed to be Incurred at the time of the
acquisition of such assets or by such Subsidiary at the time it becomes, or is
merged or consolidated with, a Subsidiary of the Company or by the Company at
the time of such merger or consolidation, as the case may be, and (B) any
amendment, modification or waiver of any document pursuant to which
Indebtedness was previously Incurred shall not be deemed to be an Incurrence
of Indebtedness unless such amendment, modification or waiver shall increase
the principal or premium thereof or interest rate thereon (including by way of
original issue discount). A guarantee by the Company or a Subsidiary Guarantor
of Indebtedness Incurred by the Company or a Subsidiary Guarantor, as
applicable, shall not be a separate incurrence of Indebtedness.
"Indebtedness" means with respect to any Person, without duplication, (i)
all Obligations of such Person for borrowed money, (ii) all Obligations of
such Person evidenced by bonds, debentures, notes or other similar
instruments, (iii) all Capitalized Lease Obligations of such Person, (iv) all
Obligations of such Person issued or assumed as the deferred purchase price of
property, all conditional sale obligations and all Obligations under any title
retention agreement (but excluding trade accounts payable and accrued
liabilities arising in the ordinary course of business that are not overdue by
90 days or more or are being contested in good faith by appropriate
proceedings promptly instituted and diligently conducted), (v) all Obligations
for the reimbursement of any obligor on any letter of credit, banker's
acceptance or similar credit transaction, (vi) all Indebtedness of others
(including all dividends of other Persons for the payment of which is)
guaranteed, directly or indirectly, by such Person or that is otherwise its
legal liability or which such Person has agreed to purchase or repurchase or
in respect of which such Person has agreed contingently to supply or advance
funds but excluding endorsements of negotiable instruments and documents in
the ordinary course of business, (vii) net liabilities of such Person under
Interest Swap Obligations, (viii) all Indebtedness of others secured by (or
for which the holder of such
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Indebtedness has an existing right, contingent or otherwise, to be secured by)
any Lien on any asset or property (including, without limitation, leasehold
interests and any other tangible or intangible property) of such Person,
whether or not such Indebtedness is assumed by such Person or is not otherwise
such Person's legal liability; provided that if the Obligations so secured
have not been assumed by such Person or are otherwise not such Person's legal
liability, the amount of such Indebtedness for the purposes of this definition
shall be limited to the lesser of the amount of such Indebtedness secured by
such Lien or the fair market value of the assets or property securing such
Lien, and (ix) all Disqualified Capital Stock issued by such Person with the
amount of Indebtedness represented by such Disqualified Capital Stock being
equal to the greater of its voluntary or involuntary liquidation preference
and its maximum fixed repurchase price, but excluding accrued dividends if
any. The amount of Indebtedness of any Person at any date shall be the
outstanding balance at such date of all unconditional obligations as described
above and the maximum liability, upon the occurrence of the contingency giving
rise to the obligation, of any contingent obligations at such date; provided
that the amount outstanding at any time of any non-interest bearing
Indebtedness or other Indebtedness issued with original issue discount is the
full amount of such Indebtedness less the remaining unamortized portion of the
original issue discount of such Indebtedness at such time as determined in
conformity with GAAP, but such Indebtedness shall only be deemed to be
Incurred as of the date of original issuance thereof.
"Independent" when used with respect to any specified Person means such a
Person who (a) is in fact independent, (b) does not have any direct financial
interest or any material indirect financial interest in the Company or any of
its Subsidiaries, or in any Affiliate of the Company or any of its
Subsidiaries and (c) is not an officer, employee, promoter, underwriter,
trustee, partner, director or person performing similar functions for the
Company or any of its Subsidiaries. Whenever it is provided in the Indenture
that any Independent Person's opinion or certificate shall be furnished to the
Trustee, such Person shall be appointed by the Company and approved by the
Trustee in the exercise of reasonable care, and such opinion or certificate
shall state that the signer has read this definition and that the signer is
Independent within the meaning thereof.
"Interest Swap Obligations" means the obligations of any Person under any
interest rate protection agreement, interest rate future, interest rate
option, interest rate swap, interest rate cap or other interest rate hedge or
arrangement.
"Investment" by any Person means any direct or indirect (i) loan, advance or
other extension of credit or capital contribution (by means of transfers of
cash or other property (valued at the fair market value thereof as of the date
of transfer) to others or payments for property or services for the account or
use of others, or otherwise) (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business);
(ii) purchase or acquisition of Capital Stock, bonds, notes, debentures or
other securities or evidences of Indebtedness issued by any other Person;
(iii) guarantee or assumption of any Indebtedness or any other obligation of
any other Person (except for an assumption of Indebtedness for which the
assuming Person receives consideration at the time of such assumption in the
form of property or assets with a fair market value at least equal to the
principal amount of the Indebtedness assumed, extensions of trade credit or
other advances to customers on commercially reasonable terms in accordance
with normal trade practices or otherwise in the ordinary course of business,
workers' compensation, utility, lease and similar deposits and prepaid
expenses made in the ordinary course of business, and endorsements of
negotiable instruments and documents in the ordinary course of business); and
(iv) all other items that would be classified as investments on a balance
sheet of such Person prepared in accordance with GAAP. The amount of any
Investment shall not be adjusted for increases or decreases in value, or
write-ups, write-downs or write-offs with respect to such Investment. If the
Company or any Subsidiary of the Company sells or otherwise disposes of any
Common Stock of any direct or indirect Subsidiary of the Company such that,
after giving effect to any such sale or disposition, the Company no longer
owns, directly or indirectly, greater than 50% of the outstanding Common Stock
of such Subsidiary, the Company shall be deemed to have made an Investment on
the date of any such sale or disposition equal to the fair market value of the
Common Stock of such Subsidiary not sold or disposed of.
"Issue Date" means the date on which the Notes were first issued under the
Indenture.
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"Lien" means, with respect to any Person, any mortgage, pledge, lien,
encumbrance, easement, restriction, covenant, right-of-way, charge or adverse
claim affecting title or resulting in an encumbrance against real or personal
property of such Person, or a security interest of any kind (including any
conditional sale or other title retention agreement, any lease in the nature
thereof, any option, right of first refusal or other similar agreement to
sell, in each case securing obligations of such Person and any filing of or
agreement to give any financing statement under the Uniform Commercial Code
(or equivalent statute or statutes) of any jurisdiction other than to reflect
ownership by a third party of property leased to the referent Person or any of
its Subsidiaries under a lease that is not in the nature of a conditional sale
or title retention agreement).
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds in
the form of cash or Cash Equivalents (including payments in respect of
deferred payment obligations when received in the form of cash or Cash
Equivalents) received by the Company or any of its Subsidiaries from such
Asset Sale net of (a) reasonable out-of-pocket expenses and fees relating to
such Asset Sale (including, without limitation, brokerage, legal, accounting
and investment banking fees and sales commissions), (b) taxes paid or payable
((1) including, without limitation, income taxes reasonably estimated to be
actually payable as a result of any disposition of property within two years
of the date of disposition and (2) after taking into account any reduction in
tax liability due to available tax credits or deductions and any tax sharing
arrangements) and (c) appropriate amounts to be provided by the Company or any
Subsidiary, as the case may be, as a reserve, in accordance with GAAP, against
any liabilities associated with such Asset Sale and retained by the Company or
any Subsidiary, as the case may be, after such Asset Sale, including, without
limitation, pension and other post-employment benefit liabilities, liabilities
related to environmental matters and liabilities under any indemnification
obligations associated with such Asset Sale.
"Net Equity Proceeds" means (a) in the case of any sale by the Company of
Qualified Capital Stock of the Company, the aggregate net cash proceeds
received by the Company, after payment of expenses, commissions and the like
(including, without limitation, brokerage, legal, accounting and investment
banking fees and commissions) incurred in connection therewith, and (b) in the
case of any exchange, exercise, conversion or surrender of any outstanding
Indebtedness of the Company or any Subsidiary issued after the Issue Date for
or into shares of Qualified Capital Stock of the Company, the amount of such
Indebtedness (or, if such Indebtedness was issued at an amount less than the
stated principal amount thereof, the accrued amount thereof as determined in
accordance with GAAP) as reflected in the consolidated financial statements of
the Company prepared in accordance with GAAP as of the most recent date next
preceding the date of such exchange, exercise, conversion or surrender (plus
any additional amount required to be paid by the holder of such Indebtedness
to the Company or to any wholly-owned Subsidiary of the Company upon such
exchange, exercise, conversion or surrender and less any and all payments made
to the holders of such Indebtedness, and all other expenses incurred by the
Company in connection therewith), in each case (a) and (b) to the extent
consummated after the Issue Date.
"Obligations" means all obligations for principal, premium, interest,
penalties, fees, indemnifications, reimbursements, damages and other
liabilities payable under the documentation governing any Indebtedness.
"Officers' Certificate" means a certificate signed by two officers of the
Company (one of whom must be a principal executive officer, principal
financial officer or principal accounting officer).
"Opinion of Counsel" means a written opinion from legal counsel which and
who are reasonably acceptable to the Trustee.
"Pari Passu Indebtedness" means any Indebtedness of the Company that is pari
passu in right of payment to the Notes.
"Paying Agent" shall initially be the Trustee until a successor paying agent
for the Notes is selected in accordance with the Indenture.
"Payment default" has the meaning set forth in "--Events of Default."
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"Permitted Holders" means the following Persons: J. Michael Powell, Reynolds
E. Moulton, Glenn D. Bolduc, William P. Pucci, David L. Lougee, John J. Dion,
Joanna M. Jacobson, David L. Lipsky and Patti R. Bisbano, and any of their
respective Affiliates and Family Members, each of the foregoing individually
being a Permitted Holder.
"Permitted Indebtedness" means, without duplication, each of the following:
(i) Indebtedness under the Notes;
(ii) Indebtedness under any Existing Indebtedness or under the Senior
Credit Facility;
(iii) Indebtedness in respect of bid, performance or surety bonds issued
for the account of the Company or any Subsidiary thereof in the ordinary
course of business, including guarantees or obligations of the Company or
any Subsidiary thereof with respect to letters of credit supporting such
bid, performance or surety obligations (in each case other than for an
obligation for money borrowed);
(iv) Permitted Refinancing Indebtedness;
(v) the Subsidiary Guarantees of the Notes;
(vi) Interest Swap Obligations of the Company; provided, however, that
such Interest Swap Obligations are entered into to protect the Company and
its Subsidiaries from fluctuations in interest rates on Indebtedness
Incurred in accordance with the Indenture to the extent the notional
principal amount of such Interest Swap Obligation does not exceed the
principal amount of the Indebtedness to which such Interest Swap Obligation
relates;
(vii) Indebtedness of a direct or indirect Subsidiary of the Company to
the Company or to a direct or indirect Subsidiary of the Company for so
long as such Indebtedness is held by the Company or a direct or indirect
Subsidiary of the Company in each case subject to no Lien held by a Person
other than the Company or a direct or indirect Subsidiary of the Company;
provided, that if as of any date any Person other than the Company or a
direct or indirect Subsidiary of the Company owns or holds any such
Indebtedness or holds a Lien in respect of such Indebtedness, such date
shall be deemed the date of the Incurrence of Indebtedness not constituting
Permitted Indebtedness by the issuer of such Indebtedness;
(viii) Indebtedness of the Company to a direct or indirect Subsidiary of
the Company for so long as such Indebtedness is held by a direct or
indirect Subsidiary of the Company in each case subject to no Lien;
provided that (a) any Indebtedness of the Company to any direct or indirect
Subsidiary of the Company is unsecured and subordinated, pursuant to a
written agreement, to the Company's Obligations under the Indenture and the
Notes, and (b) if as of any date any Person other than a direct or indirect
Subsidiary of the Company owns or holds any such Indebtedness or any Person
holds a Lien in respect of such Indebtedness, such date shall be deemed the
date of the Incurrence of Indebtedness not constituting Permitted
Indebtedness by the issuer of such Indebtedness; and
(ix) additional Indebtedness not to exceed an aggregate principal amount
of $1.0 million at any one time outstanding and any guarantee thereof.
"Permitted Investments" means: (a) Investments in cash and Cash Equivalents;
(b) Investments by the Company or by any Subsidiary of the Company in any
Person that is or will become immediately after such Investment a direct or
indirect Subsidiary of the Company; (c) any Investments in the Company by any
Subsidiary of the Company; provided that any Indebtedness evidencing such
Investment is unsecured; (d) Investments made by the Company or by its
Subsidiaries as a result of an Asset Sale made in compliance with "--Certain
Covenants--Asset Sales"; (e) Interest Swap Obligations to the extent the same
constitute Permitted Indebtedness; (f) Investments in an amount not to exceed
$2.5 million at any one time outstanding; (g) Investments held by any Person
on the date such Person becomes a Subsidiary to the extent such Investments
are not incurred in anticipation of or in connection with such acquisition;
and (h) Investments in stock, obligations or securities received in settlement
of debts owing to the Company or any Subsidiary as a result of bankruptcy or
insolvency proceedings or upon the foreclosure, perfection or enforcement of
any Lien in favor of the Company or any Subsidiary, in each case as to debt
owing to the Company or any Subsidiary that arose in the ordinary course of
business of the Company or any such Subsidiary, provided that any stocks,
obligations or
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securities received in settlement of debts that arose in the ordinary course
of business (and received other than as a result of bankruptcy or insolvency
proceedings or upon foreclosure, perfection or enforcement of any Lien) that
are, within 30 days of receipt, converted into cash or Cash Equivalents shall
be treated as having been cash or Cash Equivalents at the time received.
"Permitted Liens" means the following types of Liens:
(i) Liens existing as of the date of the Indenture;
(ii) Liens securing the Notes, the Subsidiary Guarantees or any
Indebtedness under the Senior Credit Facility;
(iii) Liens in favor of the Company or as otherwise permitted by clause
(vii) of the "Permitted Indebtedness" definition;
(iv) Liens for taxes, assessments and governmental charges or claims
either (i) not delinquent or (ii) contested in good faith by appropriate
proceedings and as to which the Company or its Subsidiaries shall have set
aside on its books such reserves as may be required pursuant to GAAP;
(v) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen and other Liens imposed by law
incurred in the ordinary course of business for sums not delinquent for
more than 30 days or being contested in good faith, if such reserve or
other appropriate provision, if any, as shall be required by GAAP shall
have been made in respect thereof;
(vi) Liens incurred or deposits made in the ordinary course of business
in connection with workers' compensation, unemployment insurance and other
types of social security, or to secure the payment or performance of
tenders, statutory or regulatory obligations, surety and appeal bonds,
bids, government contracts and leases, performance and return of money
bonds and other similar obligations (exclusive of obligations for the
payment of borrowed money);
(vii) judgment Liens not giving rise to an Event of Default so long as
any appropriate legal proceedings which may have been duly initiated for
the review of such judgment shall not have been finally terminated or the
period within which such proceeding may be initiated shall not have
expired;
(viii) any interest or title of a lessor under any Capital Lease
Obligation or operating lease;
(ix) Liens securing Purchase Money Indebtedness incurred in compliance
with the "Limitation on Indebtedness" covenant; provided, however, that (i)
the related Purchase Money Indebtedness shall not be secured by any
property or assets of the Company or any Subsidiary other than the property
or assets so acquired and any proceeds therefrom and (ii) the Lien securing
any such Indebtedness shall be created within 90 days of such acquisition;
(x) Liens securing obligations under or in respect of Interest Swap
Obligations;
(xi) Liens upon specific items of inventory or other goods of any Person
securing such Person's obligations in respect of bankers' acceptances
issued or created for the account of such Person to facilitate the
purchase, shipment or storage of such inventory or other goods;
(xii) Liens securing reimbursement obligations with respect to commercial
letters of credit that encumber documents and other property or assets
relating to such letters of credit and products and proceeds thereof;
(xiii) Liens encumbering deposits made to secure obligations arising from
statutory, regulatory, contractual or warranty requirements of the Company
or any of its Subsidiaries, including rights of offset and set-off;
(xiv) Liens on property existing at the time of acquisition thereof by
the Company or any Subsidiary of the Company and Liens on property or
assets of a Subsidiary existing at the time it became a Subsidiary,
provided that such Liens were in existence prior to the contemplation of
the acquisition and do not extend to any assets other than the property of
such Person or the acquired property (and the proceeds thereof), as
applicable; and
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(xv) Liens securing Permitted Refinancing Indebtedness which is incurred
to refinance any Indebtedness which has been secured by a Lien permitted
under the Indenture and which has been incurred in accordance with the
provisions of the Indenture; provided, however, that such Liens (a) are no
less favorable to the Holders and not more favorable to the lienholders
with respect to such Liens than the Liens in respect of the Indebtedness
being refinanced, and (b) do not extend to or cover any property or assets
of the Company or any of its Subsidiaries not securing the Indebtedness so
refinanced.
"Permitted Refinancing Indebtedness" means any Indebtedness of the Company
or any of its Subsidiaries issued in exchange for, or the net proceeds of
which are used to refinance, renew, replace, defease or refund, other
Indebtedness of the Company or any of its Subsidiaries incurred pursuant to
clause (i), (ii) or (v) of the definition of "Permitted Indebtedness";
provided that: (i) the principal amount (or accreted value, if applicable) of
such Permitted Refinancing Indebtedness does not exceed the principal amount
(or accreted value, if applicable) of the Indebtedness so exchanged,
refinanced, renewed, replaced, defeased or refunded (plus the amount of
related prepayment penalties, fees and reasonable expenses incurred in
connection therewith); (ii) such Permitted Refinancing Indebtedness has a
final maturity date later than the final maturity date of, and has a Weighted
Average Life to Maturity equal to or greater than the Weighted Average Life to
Maturity of, the Indebtedness being exchanged, refinanced, renewed, replaced,
defeased or refunded; (iii) if the Indebtedness being exchanged, refinanced,
renewed, replaced, defeased or refunded is subordinated in right of payment to
the Notes or the Subsidiary Guarantees, such Permitted Refinancing
Indebtedness is subordinated in right of payment to, the Notes or the
Subsidiary Guarantees, as the case may be, on terms at least as favorable to
the Holders of Notes as those contained in the documentation governing the
Indebtedness being exchanged, refinanced, renewed, replaced, defeased or
refunded; and (iv) such Indebtedness is incurred either by the Company or by
the Subsidiary that is the obligor on the Indebtedness being exchanged,
refinanced, renewed, replaced, defeased or refunded.
"Person" means an individual, trustee, corporation, partnership, limited
liability company, joint stock company, trust, unincorporated organization,
joint venture, union, business association, firm, governmental agency or
political subdivision thereof or other legal entity.
"Preferred Stock" of any Person means any Capital Stock of such Person that
has preferential rights to any other Capital Stock of such Person with respect
to dividends or redemptions or upon liquidation.
"Purchase Money Indebtedness" means Indebtedness or that portion of
Indebtedness of the Company or any Subsidiary incurred in connection with the
acquisition by the Company or such Subsidiary, subsequent to the Issue Date,
of any property or assets.
"Public Equity Offering" means an underwritten offer and sale of Qualified
Capital Stock of the Company pursuant to a registration statement that has
been declared effective by the Commission pursuant to the Securities Act
(other than a registration statement on Form S-8 or otherwise relating to
equity securities issuable under any employee benefit plan of the Company).
"Qualified Capital Stock" means any Capital Stock that is not Disqualified
Capital Stock.
"Refinance" means, in respect of any security or Indebtedness, to refinance,
renew, refund, repay, prepay, redeem, defease or retire, or to issue a
security or Indebtedness in exchange or replacement for, such security or
Indebtedness in whole or in part. "Refinanced" and "Refinancing" shall have
correlative meanings.
"Registrar" shall initially mean the Trustee until a successor registrar for
the Notes is selected in accordance with the Indenture.
"Senior Indebtedness" means all Indebtedness of the Company or a Subsidiary
Guarantor which is not, by its terms, Pari Passu Indebtedness or Subordinated
Indebtedness.
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"Specified Affiliate Transactions" means certain transactions among the
Company and Subsidiaries and certain Affiliates which were entered into prior
to the Issue Date as set forth in a Schedule to the Indenture.
"Subordinated Indebtedness" means any Indebtedness of the Company or a
Subsidiary Guarantor which, by its terms, is expressly subordinated in right
of payment to the Notes or the Subsidiary Guarantees, as the case may be.
"Subsidiary," with respect to any Person, means (i) any corporation of which
the outstanding Capital Stock having at least a majority of the votes entitled
to be cast in the election of directors under ordinary circumstances shall at
the time be owned, directly or indirectly, by such Person or (ii) any other
Person of which at least a majority of the voting interest under ordinary
circumstances is at the time, directly or indirectly, owned by such Person.
"Subsidiary Guarantee" means any guarantee of the Notes by a Subsidiary
Guarantor in accordance with the provisions described under "--Ranking and
Guarantees."
"Subsidiary Guarantor" means each of Telephone Business Meetings, Inc.,
Conference Source International, Inc., Call Points, Inc., Kendall Square
Teleconferencing, Inc., American Conferencing Company, Inc., and Communication
Development Corporation and (ii) each of the Company's Subsidiaries that in
the future executes a supplemental indenture in which such Subsidiary agrees
to be bound by the terms of the Indenture as a Subsidiary Guarantor; provided
that any Person constituting a Subsidiary Guarantor as described above shall
cease to constitute a Guarantor when its respective Subsidiary Guarantee is
released in accordance with the terms of the Indenture.
"Voting Stock" means, with respect to any Person, securities of any class or
classes of Capital Stock in such Person entitling the holders thereof (whether
at all times or only so long as no senior class of stock has voting power by
reason of any contingency) to vote in the election of members of the Board of
Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (a) the then outstanding
aggregate principal amount of such Indebtedness into (b) the total of the
product obtained by multiplying (i) the amount of each then remaining
installment, sinking fund, serial maturity or other required payment of
principal, including payment at final maturity, in respect thereof, by (ii)
the number of years (calculated to the nearest one-twelfth) which will elapse
between such date and the making of such payment.
"Wholly-owned Subsidiary" of any Person means any Subsidiary of such Person
of which all the outstanding voting securities which normally have the right
to vote in the election of directors, other than director's qualifying shares,
are owned by such Person or any wholly-owned Subsidiary of such Person.
REGISTRATION RIGHTS; ADDITIONAL INTEREST
Pursuant to the Registration Rights Agreement, the Company agreed to file
with the Commission the Exchange Offer Registration Statement on the
appropriate form under the Securities Act with respect to the Exchange Notes.
Upon the effectiveness of the Exchange Offer Registration Statement, the
Company will offer to the Holders of the Transfer Restricted Securities
pursuant to the Exchange Offer who are able to make certain representations
the opportunity to exchange their Transfer Restricted Securities for Exchange
Notes. Under existing SEC interpretations, the Transfer Restricted Securities
would, in general, be freely transferable after the Exchange Offer without
further registration under the Securities Act; provided, however, that in the
case of broker-dealers participating in the Exchange Offer, a prospectus
meeting the requirements of the Securities Act will be delivered upon resale
by such broker-dealers in connection with resales of the Exchange Notes. If
(i) the Company is not required to file the Exchange Offer Registration
Statement or permitted to consummate the Exchange Offer because the Exchange
Offer is not permitted by applicable law or Commission policy or (ii) any
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Holder of Transfer Restricted Securities notifies the Company within the
specified time period that (A) it is prohibited by law or Commission policy
from participating in the Exchange Offer or (B) that it may not resell the
Exchange Notes acquired by it in the Exchange Offer to the public without
delivering a prospectus and the prospectus contained in the Exchange Offer
Registration Statement is not appropriate or available for such resales or (C)
that it is a broker-dealer and owns Old Notes acquired directly from the
Company or an affiliate of the Company, the Company will file with the
Commission a Shelf Registration Statement to cover resales of the Old Notes by
the Holders thereof who satisfy certain conditions relating to the provision
of information on connection with the Shelf Registration Statement. The
Company will use its best efforts to cause the applicable registration
statement to be declared effective as promptly as possible by the Commission.
For purposes of the foregoing, "Transfer Restricted Securities" means each
Note until (i) the date on which such Note has been exchanged by a person
other than a broker-dealer for an Exchange Note in the Exchange Offer, (ii)
following the exchange by a broker-dealer in the Exchange Offer of a Note for
an Exchange Note, the date on which such Exchange Note is sold to a purchaser
who receives from such broker-dealer on or prior to the date of such sale a
copy of the prospectus contained in the Exchange Offer Registration Statement,
(iii) the date on which such Note has been effectively registered under the
Securities Act and disposed of in accordance with the Shelf Registration
Statement or (iv) the date on which such Note is distributed to the public
pursuant to Rule 144 under the Securities Act.
The Registration Rights Agreement provides that: (i) the Company will file
an Exchange Offer Registration Statement with the Commission on or prior to 60
days after the Issue Date, (ii) the Company will use its best efforts to have
the Exchange Offer Registration Statement declared effective by the Commission
on or prior to 120 days after the Issue Date, (iii) unless the Exchange Offer
would not be permitted by applicable law or Commission policy, the Company
will commence the Exchange Offer and use its best efforts to issue on or prior
to 30 business days after the date on which the Exchange Offer Registration
Statement was declared effective by the Commission, Exchange Notes in exchange
for all Old Notes tendered prior thereto in the Exchange Offer and (iv) if
obligated to file the Shelf Registration Statement, the Company will use its
best efforts to file the Shelf Registration Statement with the Commission on
or prior to 30 days after such filing obligation arises (and in any event
within 90 days after the Issue Date) and to cause the Shelf Registration to be
declared effective by the Commission on or prior to 90 days after such
obligation arises. If (a) the Company fails to file any of the Registration
Statements required by the Registration Rights Agreement on or before the date
specified for such filing, (b) any of such Registration Statements is not
declared effective by the Commission on or prior to the date specified for
such effectiveness (the "Effectiveness Target Date"), (c) the Company fails to
consummate the Exchange Offer within 30 business days of the Effectiveness
Target Date with respect to the Exchange Offer Registration Statement, or (d)
the Shelf Registration Statement or the Exchange Offer Registration Statement
is declared effective but thereafter ceases to be effective or usable in
connection with the Exchange Offer or resales of Transfer Restricted
Securities, as the case may be, during the periods specified in the
Registration Rights Agreement (each such event referred to in clauses (a)
through (d) above a "Registration Default"), then the interest rate on the
Transfer Restricted Securities, with respect to the first 90-day period
immediately following the occurrence of such Registration Default will
increase ("Additional Interest") by 0.50% per annum and will increase by an
additional 0.50% per annum with respect to each subsequent 90-day period until
all Registration Defaults have been cured, up to a maximum amount of
Additional Interest of 1.5% per annum with respect to all Registration
Defaults. All accrued Additional Interests will be paid by the Company on each
Interest Payment Date to the Global Note Holder by wire transfer of
immediately available funds and to Holders of Certificated Securities by wire
transfer to the accounts specified by them or by mailing checks to their
registered addresses if no such accounts have been specified. Following the
cure of all Registration Defaults, the accrual of Additional Interest will
cease.
Each holder of Old Notes who wishes to exchange such Notes for Exchange
Notes in the Exchange Offer will be required to make certain representations,
including representations that (i) any Exchange Notes to be received by it
will be acquired in the ordinary course of business, (ii) it is not
participating in, and it has no arrangement with any person to participate in
the distribution (within the meaning of the Securities Act) of the Exchange
Notes and (iii) it is neither an affiliate of the Company, as defined in Rule
405 of the Securities Act,
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nor a broker-dealer tendering notes acquired directly from the Company for its
own account. If the holder is a broker-dealer that will receive Exchange Notes
for its own account in exchange for Old Notes that were acquired as a result
of market-making activities or other trading activities, it will be required
to acknowledge that it will deliver a prospectus in connection with any resale
of such Exchange Notes. The Company has agreed, for a period of 180 days after
consummation of the Exchange Offer, to make available a prospectus meeting the
requirements of the Securities Act to any such broker-dealer for use in
connection with any resale of any Exchange Notes acquired in the Exchange
Offer. Holders of Notes will also be required to deliver information to be
used in connection with the Shelf Registration Statement and to provide
comments on the Shelf Registration Statement within the time periods set forth
in the Registration Rights Agreement in order to have their Notes included in
the Shelf Registration Statement and benefit from the provisions regarding
Additional Interest set forth above.
BOOK-ENTRY; DELIVERY AND FORM
Except as set forth in the next paragraph, the Exchange Notes will be issued
in the form of one "Global Note" comprised of one or more fully registered
Global Notes (collectively, the "Global Note"). The Global Note will be
deposited with, or on behalf of, DTC and registered in the name of a nominee
of DTC.
Notes (i) originally purchased by or transferred to Accredited Investors who
are not qualified institutional buyers (as defined in "Transfer
Restrictions"), or (ii) held by qualified institutional buyers which elect to
take physical delivery of their certificates instead of holding their interest
through the Global Note (and which are thus ineligible to trade through DTC)
(collectively referred to herein as the "Non-Global Purchasers") will be
issued, in registered certificated form "Certificated Notes" (collectively,
"Certificated Securities"). Upon the transfer to a qualified institutional
buyer of any Certificated Security initially issued to a Non-Global Purchaser,
such Certificated Security will, unless the transferee requests otherwise or
the Global Note has previously been exchanged in whole for Certificated
Securities, be exchanged for an interest in the Global Note.
The Company expects that pursuant to procedures established by DTC (i) upon
deposit of the Global Note, DTC or its custodian will credit, on its internal
system, portions of the Global Note which shall be comprised of the
corresponding respective principal amount of the Global Note to the respective
accounts of persons who have accounts with such depositary and (ii) ownership
of the Notes will be shown on, and the transfer of ownership thereof will be
effected only through, records maintained by DTC or its nominee (with respect
to interests of participants) and the records of participants (with respect to
interests of persons other than participants). Such accounts initially will be
designated by or on behalf of the Initial Purchaser and ownership of
beneficial interests in the Global Note will be limited to persons who have
accounts with DTC ("participants") or persons who hold interests through
participants. Qualified institutional buyers may hold their interests in the
Global Note directly through DTC if they are participants in such system, or
indirectly through organizations which are participants in such system.
So long as DTC, or its nominee, is the registered owner or holder of the
Notes, DTC or such nominee will be considered the sole owner or holder of the
Notes represented by the Global Note for all purposes under the Indenture. No
beneficial owner of an interest in the Global Note will be able to transfer
such interest except in accordance with DTC's applicable procedures, in
addition to those provided for under the Indenture with respect to the Notes.
Payments of the principal of, premium (if any) and interest (including
Additional Interest) on the Global Note will be made to DTC or its nominee, as
the case may be, as the registered owner thereof. None of the Company, the
trustee or any Paying Agent will have any responsibility or liability for any
aspect of the records relating to or payments made on account of beneficial
ownership interest in the Global Note or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interest.
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The Company expects that DTC or its nominee, upon receipt of any payment of
the principal of, premium (if any) and interest (including Additional
Interest) on the Global Note, will credit participants' accounts with payments
in amounts proportionate to their respective beneficial interests in the
principal amount of such Global Note as shown on the records of DTC or its
nominee. The Company also expects that payments by participants to owners of
beneficial interests in the Global Note held through such participants will be
governed by standing instructions and customary practice, as is now the case
with securities held for the accounts of customers registered in the names of
nominees for such customers. Such payments will be the responsibility of such
participants.
Transfers between participants in DTC will be effected in the ordinary way
in accordance with DTC rules and be settled in accordance with DTC rules in
same day funds. If a holder requires physical delivery of a Certificated
Security for any reason, including to sell Notes to persons in states which
require physical delivery of such securities or to pledge such securities,
such holder must transfer its interest in the Global Note in accordance with
the normal procedures of DTC and with the procedures set forth in the
Indenture.
DTC has advised the Company that DTC will take any action permitted to be
taken by a holder of Notes (including the presentation of Notes for exchange
as described below) only at the direction of one or more participants to whose
account the DTC interests in the Global Note are credited and only in respect
to such portion of Notes, the aggregate principal amount of Notes as to which
such participant or participants have given such direction. However, if there
is an Event of Default under the Indenture, DTC will exchange the Global Note
for Certificated Securities, which it will distribute to its participants.
DTC has advised the Company as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "Clearing Agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC was created to hold
securities for its participants and facilitate the clearance and settlement of
securities transactions between participants through electronic book-entry
changes in accounts of its participants, thereby eliminating the need for
physical movement of certificates. Participants include securities brokers and
dealers, banks, trust companies and clearing corporations and certain other
organizations. Indirect access to the DTC system is available to others such
as banks, brokers, dealers and trust companies that clear through or maintain
a custodial relationship with a participant, either directly or indirectly
("indirect participants").
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the Global Note among participants of DTC, it is
under no obligation to perform such procedures, and such procedures may be
discontinued at any time. None of the Company, the Trustee or the Warrant
Agent will have any responsibility for the performance by DTC or its
participants or indirect participants of their respective obligations under
the rules and procedures governing their operations.
If DTC is at any time unwilling or unable to continue as a depositary for
the Global Note and a successor depositary is not appointed by the Company,
within 90 days, the Company will issue Certificated Securities in exchange for
the Global Note.
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TRANSFER RESTRICTIONS ON OLD NOTES
The Old Notes have not been registered under the Securities Act and may not
be offered or sold except pursuant to an exemption from, or in a transaction
not subject to, the registration requirements of the Securities Act. The Old
Notes were offered and sold by the Initial Purchaser only (i) to a limited
number of "qualified institutional buyers" (as defined in Rule 144A
promulgated under the Securities Act) ("QIBs") in compliance with Rule 144A;
and (ii) to a limited number of other institutional "accredited investors" (as
defined in Rule 501(a)(1), (2), (3) or (7) promulgated under the Securities
Act) ("Accredited Investors") that prior to their purchase of any Notes
delivered to the Initial Purchaser a letter containing certain representations
and agreements.
Each purchaser of Old Notes, by its acceptance thereof, will be deemed to
have acknowledged, represented and agreed as follows:
1. It is purchasing the Old Notes for its own account or an account with
respect to which it exercises sole investment discretion and that it and
any such account is (i) a QIB, and is aware that the sale to it is being
made in reliance on Rule 144A; or (ii) an Accredited Investor.
2. It acknowledges that the Old Notes have not been registered under the
Securities Act and may not be offered or sold except as set forth below.
3. It shall not resell or otherwise transfer the Old Notes except (i) to
the Company or any subsidiary thereof, (ii) to a QIB in compliance with
Rule 144A, (iii) to an Accredited Investor that, prior to such transfer,
furnishes (or has furnished on its behalf by a U.S. broker-dealer) to the
Trustee, a signed letter containing certain representations and agreements
relating to the restrictions on transfer of the Old Notes (the form of
which letter can be obtained from the Trustee), (iv) pursuant to the
exemption from registration provided by Rule 144 promulgated under the
Securities Act (if available), or (v) pursuant to an effective registration
under the Securities Act. Each Accredited Investor that is not a QIB and
that is an original purchaser of the Old Notes will be required to sign an
agreement to the foregoing effect.
4. It agrees that it will give to each person to whom it transfers Old
Notes notice of any restrictions on transfer of such Old Notes.
5. It understands that the Old Notes will bear a legend substantially to
the following effect unless otherwise agreed by the Company and the holder
thereof:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT
BE OFFERED OR SOLD EXCEPT AS SET FORTH BELOW. BY ITS ACQUISITION
HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED
INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A PROMULGATED UNDER THE
SECURITIES ACT) OR (B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS
DEFINED IN RULE 501(a)(1), (2), (3) OR (7) PROMULGATED UNDER THE
SECURITIES ACT) (AN "ACCREDITED INVESTOR"), (2) AGREES THAT IT WILL NOT
RESELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO THE ISSUER
THEREOF OR ANY SUBSIDIARY THEREOF, (B) TO A QUALIFIED INSTITUTIONAL
BUYER IN COMPLIANCE WITH RULE 144A PROMULGATED UNDER THE SECURITIES
ACT, (C) TO AN ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER,
FURNISHED (OR HAS FURNISHED ON ITS BEHALF BY A U.S. BROKER-DEALER) TO
THE TRUSTEE OR WARRANT AGENT A SIGNED LETTER CONTAINING CERTAIN
REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER
OF THIS SECURITY), (D) PURSUANT TO THE EXEMPTION FROM REGISTRATION
PROVIDED BY RULE 144 PROMULGATED UNDER THE SECURITIES ACT (IF
AVAILABLE) OR (E) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT AND (3) AGREES THAT IT WILL GIVE TO EACH PERSON TO
WHOM THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT
OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THIS SECURITY
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WITHIN TWO YEARS AFTER THE ORIGINAL ISSUANCE OF THIS SECURITY, IF THE
PROPOSED TRANSFEREE IS AN ACCREDITED INVESTOR, THE HOLDER MUST, PRIOR
TO SUCH TRANSFER, FURNISH TO THE TRUSTEE OR WARRANT AGENT AND THE
ISSUER SUCH CERTIFICATIONS, WRITTEN LEGAL OPINIONS OR OTHER INFORMATION
AS EITHER OF THEM MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER
IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT
SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT.
6. It acknowledges that the Trustee will not be required to accept for
registration of transfer any Old Notes acquired by it, except upon
presentation of evidence satisfactory to the Company and the Trustee that
the restrictions set forth herein have been complied with.
7. It acknowledges that the Company, the Initial Purchaser and others
will rely upon the truth and accuracy of the foregoing acknowledgments,
representations and agreements and agrees that if any of the
acknowledgments, representations or agreements deemed to have been made by
its purchase of Old Notes are no longer accurate, it shall promptly notify
the Company and Initial Purchaser. If it is acquiring any Old Notes as a
fiduciary or agent for one or more investor accounts, it represents that it
has sole investment discretion with respect to each such account and it has
full power to make the foregoing acknowledgments, representations and
agreements on behalf of each account.
The Old Notes may not be sold or transferred to, and each purchaser by its
purchase of the Old Notes shall be deemed to have represented and covenanted
that it is not acquiring the Old Notes for or on behalf of, any pension or
welfare plan (as defined in Section 3 of the Employee Retirement Income
Security Act of 1974 ("ERISA")), except that such a purchase for or on behalf
of a pension or welfare plan shall be permitted:
(1) to the extent such purchase is made by or on behalf of a bank
collective investment fund maintained by the purchase in which no plan
(together with any other plans maintained by the same employer or employee
organization) has an interest in excess of 10% of the total assets in such
collective investment fund and the applicable conditions of Prohibited
Transaction exemption 91-38 issued by the Department of Labor are
satisfied;
(2) to the extent such purchase is made by or on behalf of an insurance
company pooled separate account maintained by the purchase in which, at any
time while the Old Notes are outstanding, no plan (together with any other
plans maintained by the same employer or employee organization) has an
interest in excess of 10% of the total of all assets in such pooled
separate account and the applicable conditions of Prohibited Transaction
Exemption 90-1 issued by the Department of Labor are satisfied;
(3) to the extent such purchase is made on behalf of a plan by (A) an
investment advisor registered under the Investment Advisers Act of 1940
that had as of the last day of its most recent fiscal year total assets
under its management and control in excess of $50,000,000 and had
shareholders' or partners' equity in excess of $750,000, as shown in its
most recent balance sheet prepared in accordance with generally accepted
accounting principles, (B) a bank as defined in Section 202(a) of the
Investment Advisers Act of 1940 with equity capital in excess of $1,000,000
as of the last day of its most recent fiscal year or (C) an insurance
company which is qualified under the laws of more than on state to manage,
acquire or dispose of any assets of a plan, which company had, as of the
last day of its most recent fiscal year, net worth in excess of $1,000,000
and which is subject to supervision and examination by a state authority
having supervision over insurance companies, in each case, such investment
advisor, bank or insurance company is otherwise a qualified professional
asset manager, as such term is used in the Prohibited Transaction Exemption
84-14 issued by the Department of Labor, and the assets of such plan when
combined with the assets of other plans established or maintained by the
same employer (or affiliate thereof) or employee organization and managed
by such investment advisor, bank or insurance company, do not represent
more than 20% of the total client assets managed by such investment
advisor, bank or insurance company and the applicable conditions or
Prohibited Transaction Exemption 84-14 are otherwise satisfied; or
(4) to the extent such plan is a governmental plan (as defined in Section
3 of ERISA) which is not subject to the provisions of Title 1 of ERISA or
Section 4975 of the Code.
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Each purchaser by its purchase of the Old Notes shall also be deemed to have
represented that (a) if it is an insurance company, no part of the funds to be
used to purchase the Old Notes to be purchased by it constitutes assets
allocated to any separate account maintained by it such that the use of such
funds constitutes a transaction in violation of Section 406 of ERISA or a
Prohibited Transaction, as such term is defined in Section 4975 of the Code,
which could be subject to, respectively, a civil penalty assessed pursuant to
Section 502 of ERISA or a tax imposed by Section 4975 of the Code and (b) if
it is not an insurance company, that no part of the funds to be used to
purchase the Units to be purchased by it constitutes assets allocated to any
trust, plan or account which contains the assets of any employee pension
benefit plan, welfare plan or account prohibited pursuant to the preceding
paragraph of these "Transfer Restrictions."
Purchasers are advised that the Prohibited Transaction Exemptions described
above do not relieve a fiduciary or other party from all prohibited
transaction provisions of the Code and ERISA and from ERISA's general
fiduciary responsibilities including, but not limited to, a fiduciary's
obligation to discharge his or her duties solely in the interests of
participants and beneficiaries. As a result of the foregoing restrictions,
purchasers are advised to consult legal counsel prior to making any offer,
resale, pledge, hypothecation or other transfer or disposition of the Units or
any interest therein.
DESCRIPTION OF SENIOR CREDIT FACILITY
The Company has accepted a proposal for a commitment for the Senior Credit
Facility (which is subject to, among other things, lender due diligence and
final written approval) consisting of a revolving credit, term loan and
capital expenditures facility in the aggregate principal amount of $15.0
million. However, the Company has not entered into a binding agreement with
respect to the Senior Credit Facility, and as of the date of this Prospectus
is negotiating the terms of such agreement. The proposed Senior Credit
Facility is expected to be available to provide liquidity, fund future working
capital requirements of the Company, fund the purchase of new capital
equipment and finance future acquisitions consistent with the Company's
business strategy. The proposed Senior Credit Facility is for a term of two
years, has a minimum outstanding loan balance of $5.0 million and an interest
rate equal to a money center bank reference rate plus 1.0%. The borrowing base
of the proposed Senior Credit Facility consists of up to $8.0 million of
eligible accounts receivable, up to $3.0 million on existing equipment and up
to $4.0 million on new equipment purchases. The terms of the proposed Senior
Credit Facility also provide that it will be guaranteed by the Subsidiary
Guarantors, will be secured by substantially all of the assets of the Company
and the stock and assets of the Subsidiary Guarantors, and will contain
customary representations, warranties and covenants, including financial
covenants. See "Risk Factors--Senior Credit Facility; Effective
Subordination."
DESCRIPTION OF CAPITAL STOCK AND WARRANTS
GENERAL
The Company's authorized capital stock consists of 30,000,000 shares of
Common Stock, $.01 par value, and 10,000,000 shares of preferred stock, $.01
par value (the "Preferred Stock"). As of February 1, 1998, the Company had
outstanding 3,531,410 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."
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.
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. 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
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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 to be issued in the Acquisitions
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.
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, conversion 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 (including, without limitation, the Warrant
Shares (defined below)). 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.
FEBRUARY 1997 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
Equity 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 33,450 additional
shares of Common Stock as a result of adjustments required by the antidilution
provisions of such Warrants.
NOVEMBER 1997 WARRANTS
General. The Company issued Warrants as part of the issuance of the Old
Notes. Each Warrant, when exercised, will entitle 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 to the Initial
Purchaser warrants to purchase 302,657 shares of Common Stock at an exercise
price of $.01 per share. 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 on or
after the Issue Date (the "Exercisability Date"). Unless exercised, the
Warrants will automatically expire on the maturity date of the Notes (the
"Expiration Date"). The Company will give notice of expiration not less
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than 90 nor more than 120 days prior to the Expiration Date to the registered
holders of the then outstanding Warrants. The Warrants will entitle the
holders thereof to purchase in the aggregate approximately 12.5% of the
outstanding Common Stock of the Company on a fully diluted basis as of the
date of issuance of the Warrants. No fractional shares of Common Stock will be
issued upon exercise of the Warrants. The Company shall pay to holders of the
Warrants at the time of exercise an amount in cash equal to the same fraction
of the current market price of a share of Common Stock less the Exercise
Price.
Voting Rights. The holders of the Warrants will have no right to vote on
matters submitted to the stockholders of the Company and will have no right to
receive cash dividends. The holders of the Warrants will not be entitled to
share in the assets of the Company in the event of the liquidation,
dissolution or winding up of the Company's affairs.
Adjustments. Each of the number of Warrant Shares purchasable upon the
exercise of the 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 of 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, 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 holders 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 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 a
public equity 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.
Additional Information. Anyone who receives this Prospectus may obtain a
copy of the Warrant Agreement without charge by writing to the Company at the
address set forth herein.
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PROVISIONS OF MASSACHUSETTS LAW AND THE COMPANY'S ARTICLES OF ORGANIZATION AND
BY-LAWS
Certain Anti-Takeover Provisions. After the closing of any Public Equity
Offering, the Company expects that it will be subject to the provisions of
Chapter 110F of the Massachusetts General Law, an anti-takeover law. In
general, this statute 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 affiliate 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 corporation 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, 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 share acquires 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 for the issuing corporation. The Company has
amended its By-Laws to opt out of the provisions of Chapter 110D.
Massachusetts General Laws Chapter 156, 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 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 to 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,
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even though such an attempt might be beneficial to the Company and its
stockholders. In addition, because such 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; Possible Issuances of Preferred Stock."
Elimination of Monetary Liability for Officers and Directors. The Company's
Articles of Organization also incorporate certain provisions permitted under
the Massachusetts General Law 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 an 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 of 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.
CERTAIN REGISTRATION RIGHTS
In connection with the Acquisitions, the Company has entered into a
registration rights agreement with the principal stockholders of VIALOG
Corporation (the "VIALOG Stockholders") and the principal stockholders of each
of the Acquired Companies who are receiving shares of Common Stock in
connection with their respective Acquisitions (the "Acquired Company
Stockholders") granting demand and piggy-back registration rights with respect
to their shares and providing for a "lock-up" of their shares following the
effective date of a registration statement of the Company filed under the
Securities Act.
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The VIALOG Stockholders and the Acquired Company Stockholders may demand, on
two occasions only, that the Company will register their shares of Common
Stock under the Securities Act by written request 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 Acquired Company 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.
The VIALOG Stockholders and the Acquired Company Stockholders have agreed to
enter into a 180-day "lock-up" following the effective date of a Company
registration statement if requested to do so by the Company or the underwriter
of said offering and provided that all of the principal stockholders, officers
and directors of the Company enter into similar agreements. Such agreement may
prohibit the sale, transfer or disposition of the shares of registerable
Common Stock held by the VIALOG Stockholders or Acquired Company Stockholders.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Company's Common Stock is State
Street Bank and Trust Company.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following is a summary of certain United States federal income tax
consequences associated with the acquisition, ownership, and disposition of
the Notes. The following summary does not discuss all of the aspects of
federal income taxation that may be relevant to a prospective holder of the
Notes in light of its particular circumstances, or to certain types of holders
that are subject to special treatment under the federal income tax laws
(including persons who hold the Notes as part of a conversion, straddle or
hedge, dealers in securities, insurance companies, tax-exempt organizations,
financial institutions, broker-dealers and S corporations). Further, except as
specifically provided, this summary pertains only to holders who are citizens
or residents of the United States, corporations, partnerships, or other
business entities created in or under the laws of the United States or any
political subdivision thereof, estates the income of which is subject to
United States federal income taxation regardless of its source, or trusts if a
court within the United States is able to exercise primary supervision over
its administration and one or more U.S. persons have the authority to control
all of its substantial decisions. In addition, this summary does not describe
any tax consequences under state, local, or foreign tax laws and is limited to
holders who hold Notes as "capital assets" (generally, property held for
investment) within the meaning of Section 1221 of the Code.
This summary is based upon the Code, Treasury Regulations (the
"Regulations"), rulings and pronouncements issued by the Internal Revenue
Service ("IRS") and judicial decisions now in effect, all of which are subject
to change at any time by legislative, judicial or administrative action. Any
such changes may be applied retroactively in a manner that could adversely
affect the holder of the Notes. The Company has not sought and will not seek
any rulings from the IRS or opinions from counsel with respect to the matters
discussed below. There can be no assurance that the IRS will not take
positions concerning the tax consequences of the valuation, purchase,
ownership or disposition of the Notes that are different from those discussed
herein.
CLASSIFICATION OF THE NOTES
Under applicable authorities, the Notes should be treated as indebtedness of
the Company for federal income tax purposes. Pursuant to Section 385(c) of the
Code, a holder of a Note is required to treat such Note as indebtedness for
all United States federal income tax purposes unless such holder discloses
such inconsistent treatment on such holder's tax return. The characterization
of the Notes by the Company is not binding on the IRS. In the unlikely event
that the Notes are treated as equity, the amount treated as a distribution on
any such instrument would be treated as ordinary dividend income to the extent
of the current and accumulated earnings and profits of the Company, or
otherwise as a return of capital to the extent of a holder's basis in a Note,
and thereafter, capital gain.
TAXATION OF THE NOTES
Issue Price. The Units (Notes and Warrants sold together in the Private
Placement) are treated as investment units for federal income tax purposes.
The issue price of the Units was the first price at which a substantial amount
of such Units was sold to investors. In order to determine the issue price for
the Notes and Warrants in the Unit, the aggregate issue price of the Units was
allocated between the Notes and the Warrants based upon their relative fair
market values on the date of issuance. In general, a holder's initial tax
basis for the Note and the Warrants constituting the Unit equals the portion
of the issue price of the Unit allocated to each. The Company has allocated
the issue price of the Units on a per Note and per Warrant basis. See
"Capitalization." A holder of a Unit may not adopt a different allocation
unless such holder properly discloses such different allocation on such
holder's federal income tax return for the year in which the Units were
acquired.
Original Issue Discount. As noted above, because the Notes were offered as a
part of a Unit including the Warrants, a portion of the issue price for a Unit
was allocated to the Notes and a portion to the Warrants. Since the portion
allocable to a Note was less than the Note's principal amount, the Note was
issued at a discount from its principal amount. The total amount of such
discount with respect to the Notes was the difference between
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their issue price (determined as indicated above) and their principal amount.
If such discount exceeds a statutory de minimis amount ( 1/4 of 1% of an
obligation's stated redemption price at maturity multiplied by the number of
complete years to its maturity), the Notes will be considered to have been
issued with original issue discount ("OID") for federal income tax purposes.
In addition to including in income the amount of stated interest received or
accrued, a holder will be required to include a portion of any such OID as
ordinary income for federal income tax purposes each year over the term of the
Notes so as to provide a constant yield to maturity.
Under the OID rules, in general, holders of Notes with OID must include in
gross income for federal income tax purposes the sum of the daily portions of
OID with respect to the Note for each day during the taxable year or portion
of a taxable year on which such holder holds the Note (such sum, "Accrued
OID"). The daily portion is determined by allocating to each day of any
accrual period within a taxable year a pro rata portion of an amount equal to
the adjusted issue price of the Note at the beginning of the accrual period
multiplied by the yield to maturity of the Note less qualified stated interest
accrued for such period. For purposes of computing OID, the Company will use
six-month accrual periods that end on the days in the calendar year
corresponding to the maturity date of the Notes and the date six months prior
to such maturity date, with the possible exception of the initial accrual
period for the Notes. The adjusted issue price of a Note at the beginning of
any accrual period is the issue price of the Note increased by the Accrued OID
for all prior accrual periods (less all payments made on the Notes other than
payments of qualified stated interest). The yield to maturity of a debt
instrument is the interest rate that will produce an amount equal to the issue
price of the debt instrument used in computing the present value of all
payments to be made pursuant to the debt instrument. An investor in a Note who
purchases the Note subsequent to its initial issuance at a price less than its
principal amount but in excess of its revised issue price will reduce
proportionately the Accrued OID with respect to each accrual period. The
Company will annually furnish to certain record holders of the Notes and to
the IRS information with respect to any OID accruing during the calendar year
as may be required by applicable Regulations.
Market Discount and Premium. A purchaser of a Note may be subject to the
market discount rules of Sections 1276-1278 of the Code. A holder that
acquires a Note with more than a prescribed de minimis amount of "market
discount" (generally, the excess of the principal amount of the Note over the
purchaser's purchase price) will be required to include accrued market
discount in income as ordinary income only upon the retirement of the Note or,
if the Note is sold, to the extent of any gain realized. Such market discount
would in general accrue under a straight-line method or, at the election of
the holder, on the basis of a constant yield.
Section 1277 of the Code provides that the excess of interest paid or
accrued to purchase or carry a Note with market discount over interest
received on such Note is allowed as a current deduction only to the extent
such excess is greater than the market discount that accrued during the
taxable year in which such interest expense was incurred. In general, the
deferred portion of any interest expense will be deductible when such market
discount is included in income, including upon the sale, disposition, or
repayment of the Note. A holder may elect to include market discount in income
currently as it accrues on all market discount obligations acquired by such
holder during the taxable year such election is made and thereafter, in which
case the interest expense deferral rule will not apply.
A holder who purchases a Note at a cost greater than its principal balance
will not be required to include any amount of OID in gross income. In
addition, such holder generally will be considered to have purchased the Note
at a premium, which it may elect to amortize as an offset to interest income
on such Note (and not as a separate deduction item) on a constant yield method
except as otherwise provided in applicable Regulations. Premium on a Note that
is not amortized pursuant to an election under Section 171 of the Code may
only be deductible upon the maturity of a Note as a capital loss. In addition,
because the Notes may be redeemed by the Company at a premium prior to
maturity, special rules may apply that could result in a deferral of the
amortization of some of the premium until later in the term of the Note with
respect to Notes purchased prior to March 2, 1998. If a holder makes an
election to amortize premium on a Note, such election will apply to all
taxable debt instruments held by the holder at the beginning of the taxable
year in which the election is made, and to all taxable debt instruments
acquired thereafter by such holder, and will be irrevocable without the
consent of the IRS.
Purchasers should consult their tax advisers regarding the elections
discussed in the preceding three paragraphs and the methods to be employed.
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Disposition of Notes. Generally, any sale or redemption or other disposition
of Notes (including in connection with an Asset Proceeds Offer) will result in
taxable gain or loss equal to the difference between (i) the amount of cash
and the fair market value of other property received and (ii) the holder's
adjusted tax basis in the Note. A holder's adjusted tax basis in a Note will
equal the holder's purchase price allocated to the Note and will be increased
by any Accrued OID (reduced by any acquisition premium described above)
includable in such holder's gross income and the accruals of market discount,
if any, that the holder has previously elected to include in gross income on
an annual basis, and decreased by all payments received by such holder on such
Note, other than a payment of qualified stated interest, and by the accruals
of amortizable bond premium, if any, that the holder has elected to offset
against interest on the Note on an annual basis. Any gain (except as discussed
above in Market Discount) or loss upon a sale or other disposition of a Note
will generally be capital gain or loss, which will be long-term if the Note
has been held by the holder for more than one year, and generally will be
subject to lower maximum capital gains rates if held for more than eighteen
months.
EXCHANGE OFFER
Assuming a Registration Default has not occurred prior thereto, the offer to
exchange Old Notes for Exchange Notes pursuant to the Exchange Offer will not
constitute a material modification of the terms of the Old Notes and,
therefore, such exchange will not constitute an exchange for United States
federal income tax purposes. Accordingly, such exchange should have no United
States federal income tax consequences to holders of Old Notes. The basis of
the Exchange Notes will be the same as the basis of the Old Notes immediately
before the exchange and the holding period of the Exchange Notes will include
the holding period of the Old Notes.
If a Registration Default occurs prior to the Expiration Date of the
Exchange Offer, the offer to exchange the Old Notes for the Exchange Notes
pursuant to the Exchange Offer may constitute a material modification of the
terms of the Old Notes, thereby causing the holders of the Old Notes to
recognize gain or loss on the exchange for federal income tax purposes. The
amount of the gain would equal the difference between the holder's basis in
the Old Notes prior to the exchange and the issue price of the Exchange Notes
received in the exchange. Any gain or loss recognized upon the exchange
generally would be long-term capital gain or loss if the Old Notes had been
held by the holder for more than one year, and generally will be subject to
lower maximum capital gains rates if held for more than eighteen months at the
time of the exchange.
Under applicable tax regulations, a change in the yield of a debt instrument
constitutes a significant modification that results in a taxable exchange if
the yield of the debt instrument received in the exchange varies from the
annual yield of the instrument surrendered by more than the greater of 25
basis points or five percent of the annual yield of the instrument surrendered
in the exchange. If a Registration Default occurs, the Company will be
required to pay Additional Interest during the period of the Default. The
amount of Additional Interest due will depend on the length of the default
period, but cannot exceed a maximum of 1.50% per annum. If a Registration
Default occurs prior to the Expiration Date of the Exchange Offer, therefore,
the amount of Additional Interest payable on the Old Notes could cause the
annual yield on the Old Notes to exceed the annual yield on the Exchange Notes
by an amount that constitutes a material modification as such term is defined
in the applicable tax regulations, even though the rate of interest payable on
the Exchange Notes will be the same as the rate of interest payable on the Old
Notes prior to the Registration Default and the terms of the Exchange Notes
are in all other material respects identical to the Old Notes. Note holders
are urged to consult their own tax advisors regarding the tax consequences of
the Exchange Offer.
BACKUP WITHHOLDING
A noncorporate holder may be subject, under certain circumstances, to backup
withholding at a 31 percent rate with respect to payments received with
respect to the Notes. This withholding generally applies only if the holder
(i) fails to furnish his or her social security or other taxpayer
identification number ("TIN"), (ii) furnishes an incorrect TIN, (iii) is
notified by the IRS that he or she has failed to report properly payments of
interest and dividends and the IRS has notified the Company that he or she is
subject to back-up withholding, or (iv) fails, under certain circumstances, to
provide a certified statement, signed under penalty of perjury, that the TIN
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provided is his or her correct number and that he or she is not subject to
backup withholding. Any amount withheld from a payment to a holder under the
backup withholding rules is allowable as a credit against such holder's
federal income tax liability, provided that the required information is
furnished to the IRS. Certain holders (including, among others, corporations
and foreign individuals who comply with certain certification requirements)
are not subject to backup withholding. Holders should consult their tax
advisors as to their qualification for exemption from backup withholding and
the procedure for obtaining such an exemption.
These backup withholding tax and information reporting rules currently are
under review by the IRS and proposed Regulations issued on April 15, 1996, if
finalized would modify certain of such rules generally with respect to
payments made after December 31, 1997. Accordingly, the application of such
rules to the Notes and Common Stock acquired upon exercise of a Warrant could
be changed.
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account pursuant
to the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. This Prospectus, as it may
be amended or supplemented from time to time, may be used by a broker-dealer
in connection with resales of Exchange Notes received in exchange for Old
Notes where such Old Notes were acquired as a result of market-making
activities or other trading activities. The Company has agreed that it will
make this Prospectus, as amended or supplemented, available to any broker-
dealer for use in connection with any such resale for a period of 180 days
after consummation of the Exchange Offer, or such shorter period as will
terminate when all Old Notes acquired by broker-dealers for their own accounts
as a result of market-making activities or other trading activities have been
exchanged for Exchange Notes and resold by such broker-dealers. A broker-
dealer that delivers such a prospectus to purchasers in connection with such
resales will be subject to certain of the civil liability provisions under the
Securities Act and will be bound by the provisions of the Registration Rights
Agreement (including certain indemnification rights and obligations).
The Company will not receive any proceeds from any sale of Exchange Notes by
broker-dealers. Exchange Notes received by broker-dealers for their own
account pursuant to the Exchange Offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the Exchange Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at
prices related to such prevailing market prices or negotiated prices. Any such
resale may be made directly to purchasers or to or through brokers or dealers
who may receive compensation in the form of commissions or concessions from
any such broker-dealer that resells Exchange Notes that were received by it
for its own account pursuant to the Exchange Offer and any broker or dealer
that participates in a distribution of such Exchange Notes may be deemed to be
an "underwriter" within the meaning of the Securities Act and any profit on
any such resale of Exchange Notes and any commissions or concessions received
by any such persons may be deemed to be underwriting compensation under the
Securities Act. For a period of 180 days after consummation of the Exchange
Offer, or such shorter period as will terminate when all Old Notes acquired by
broker-dealers for their own accounts as a result of market-making activities
or other trading activities have been exchanged for Exchange Notes and resold
by such broker-dealers, the Company will promptly send additional copies of
this Prospectus and any amendment or supplement to this Prospectus to any
broker-dealer that requests such documents in the Letter of Transmittal. The
Company has agreed in the Registration Rights Agreement to indemnify such
broker-dealers against certain liabilities, including liabilities under the
Securities Act.
Any Old Notes not exchanged in the Exchange Offer for Exchange Notes will
remain subject to the transfer restrictions described above.
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LEGAL MATTERS
Certain legal matters regarding the Notes 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 74,000 shares of the Company's Common Stock and hold
options to acquire an additional 12,000 shares, 4,674 of which are exercisable
within the next 60 days.
EXPERTS
The historical financial statements as indicated in the index on page F-1 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.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
Basis of Presentation.................................................... F-2
Pro Forma Combined Balance Sheet as of September 30, 1997................ F-3
Pro Forma Combined Statement of Operations for the Year Ended December
31, 1996 ............................................................... F-4
Pro Forma Combined Statement of Operations for the Nine Months Ended
September 30, 1997...................................................... F-5
Notes to Unaudited Pro Forma Combined Financial Statements............... F-6
HISTORICAL FINANCIAL STATEMENTS
VIALOG Corporation
Independent Auditors' Report........................................... F-9
Balance Sheets......................................................... F-10
Statements of Operations............................................... F-11
Statements of Stockholders' Equity (Deficit)........................... F-12
Statements of Cash Flows............................................... F-13
Notes to Financial Statements.......................................... F-14
Telephone Business Meetings, Inc. ("Access")
Independent Auditors' Report........................................... F-19
Balance Sheets......................................................... F-20
Statements of Operations............................................... F-21
Statements of Stockholders' Equity..................................... F-22
Statements of Cash Flows............................................... F-23
Notes to Financial Statements.......................................... F-24
Conference Source International, Inc. ("CSI")
Independent Auditors' Report........................................... F-30
Balance Sheets......................................................... F-31
Statements of Operations............................................... F-32
Statements of Stockholders' Equity..................................... F-33
Statements of Cash Flows............................................... F-34
Notes to Financial Statements.......................................... F-35
Call Points, Inc. ("Call Points")
Independent Auditors' Report........................................... F-40
Balance Sheets......................................................... F-41
Statements of Operations............................................... F-42
Statements of Stockholders' Equity..................................... F-43
Statements of Cash Flows............................................... F-44
Notes to Financial Statements.......................................... F-45
Kendall Square Teleconferencing, Inc. ("TCC")
Independent Auditors' Report........................................... F-51
Balance Sheets......................................................... F-52
Statements of Operations............................................... F-53
Statements of Stockholders' Equity..................................... F-54
Statements of Cash Flows............................................... F-55
Notes to Financial Statements.......................................... F-56
American Conferencing Company, Inc. and Resource Objectives, Inc.
("Americo")
Independent Auditors' Report........................................... F-62
Combined Balance Sheets................................................ F-63
Combined Statements of Operations...................................... F-64
Combined Statements of Stockholders' Equity (Deficit).................. F-65
Combined Statements of Cash Flows...................................... F-66
Notes to Combined Financial Statements................................. F-67
Communication Development Corporation ("CDC")
Independent Auditors' Report........................................... F-73
Balance Sheets......................................................... F-74
Statements of Operations............................................... F-75
Statements of Stockholders' Equity..................................... F-76
Statements of Cash Flows............................................... F-77
Notes to Financial Statements.......................................... F-78
</TABLE>
F-1
<PAGE>
VIALOG CORPORATION AND ACQUIRED COMPANIES
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
(UNAUDITED)
The following unaudited pro forma combined financial statements give effect
to the acquisitions by VIALOG Corporation 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"). These acquisitions (the
"Acquisitions") occurred simultaneously with the closing of the Private
Placement and will be accounted for using the purchase method of accounting.
The unaudited pro forma combined financial statements also give effect to the
sale of the Old Notes and the Warrants in connection with the Private
Placement. These statements are based on the historical financial statements
of VIALOG Corporation and the Acquired Companies included elsewhere in this
Prospectus and the estimates and assumptions set forth below and in the notes
to the unaudited pro forma combined financial statements.
The unaudited pro forma combined balance sheet gives effect to these
transactions (the Acquisition and the Private Placement) as if they had
occurred on September 30, 1997. The unaudited pro forma combined statements of
operations gives effect to these transactions as if they occurred on January
1, 1996.
The pro forma adjustments are based upon preliminary estimates, currently
available information and certain assumptions that management deems
appropriate. In management's opinion, the preliminary estimates regarding
allocation of the purchase price of the Acquired Companies are not expected to
materially differ from the final adjustments, except that management
anticipates allocating some portion of the purchase price to in-process
research and development expenses. This allocation will result in a
significant charge to operations and a reduction in goodwill in the
accompanying pro forma combined balance sheet. These adjustments will be
finalized in the quarter ended December 31, 1997. The unaudited pro forma
combined financial data presented herein are not necessarily indicative of the
results the Company would have obtained had such events occurred on January 1,
1996, as assumed, or the future results of the Company. The unaudited pro
forma combined financial statements should be read in conjunction with the
other financial statements and notes thereto included elsewhere in this
Prospectus. See "Risk Factors" included elsewhere herein.
F-2
<PAGE>
VIALOG CORPORATION AND ACQUIRED COMPANIES
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
SEPTEMBER 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
ACQUIRED COMPANIES--HISTORICAL PRO FORMA
-------------------------------------------- ------------------------
VIALOG CALL
CORP. ACCESS CSI POINTS TCC AMERICO CDC ADJUSTMENTS(1) COMBINED
------- ------ ------ ------- ------ ------- ---- -------------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and equivalents.. $ 76 $ 970 $ 12 $ 481 $ -- $ 9 $ 55 $ 64,131 (a) $11,829
(53,905)(b)
Accounts receivable... -- 1,376 955 1,244 782 235 396 -- 4,988
Prepaid expenses and
other current
assets............... 86 204 58 3 73 62 28 -- 514
------- ------ ------ ------- ------ ------ ---- -------- -------
Total current assets.. 162 2,550 1,025 1,728 855 306 479 10,226 17,331
Other assets:
Property, net......... 25 3,116 1,065 1,659 902 556 100 -- 7,423
Other assets.......... 775 33 67 -- 12 78 4 (203)(b) 766
Debt issuance costs... 34 -- -- -- -- -- -- 5,666 (a) 7,440
1,740 (c)
Intangible assets,
net.................. -- 203 -- -- -- -- -- 50,853 (b) 51,056
------- ------ ------ ------- ------ ------ ---- -------- -------
Total Assets.......... $ 996 $5,902 $2,157 $ 3,387 $1,769 $ 940 $583 $ 68,282 $84,016
======= ====== ====== ======= ====== ====== ==== ======== =======
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of
long-term debt....... $ 712 $ 971 $ 454 $ 861 $ 162 $ 106 $ 24 $ (1,885)(a) $ 423
(982)(b)
Accounts payable...... 1,510 336 151 363 343 535 72 (1,134)(a) 2,176
Accrued expenses...... 2,364 679 93 595 232 311 37 (500)(a) 3,811
Other current
liabilities.......... -- -- -- -- 133 46 101 -- 280
------- ------ ------ ------- ------ ------ ---- -------- -------
Total current
liabilities.......... 4,586 1,986 698 1,819 870 998 234 (4,501) 6,690
------- ------ ------ ------- ------ ------ ---- -------- -------
Long-term debt......... -- 925 844 338 228 184 25 (1,710)(a) 71,483
75,000 (a)
(4,351)(c)
Other liabilities...... -- 150 -- -- -- -- 19 -- 169
------- ------ ------ ------- ------ ------ ---- -------- -------
Total liabilities..... 4,586 3,061 1,542 2,157 1,098 1,182 278 64,438 78,342
------- ------ ------ ------- ------ ------ ---- -------- -------
Redeemable common
stock................. -- 273 -- -- -- -- -- (273)(d) --
Stockholders' equity:
Common stock.......... 28 -- 1 2 68 1 2 6 (b) 34
(74)(e)
Additional paid in
capital.............. 1,175 660 349 3,132 -- -- -- 3,210 (b) 10,476
(4,141)(e)
6,091 (c)
Treasury stock........ -- -- -- -- (15) -- -- 15 (e) --
Notes receivable from
stockholders......... -- -- -- -- (6) -- -- 6 (b) --
Retained earnings
(deficit)............ (4,793) 1,908 265 (1,904) 624 (243) 303 (43)(a) (4,836)
(953)(e)
------- ------ ------ ------- ------ ------ ---- -------- -------
Total stockholders'
equity (deficit)..... (3,590) 2,568 615 1,230 671 (242) 305 4,117 5,674
------- ------ ------ ------- ------ ------ ---- -------- -------
Total Liabilities and
Stockholders'
Equity.............. $ 996 $5,902 $2,157 $ 3,387 $1,769 $ 940 $583 $ 68,282 $84,016
======= ====== ====== ======= ====== ====== ==== ======== =======
</TABLE>
- --------
(1) See Note 4 to unaudited pro forma combined financial statements.
See accompanying notes to unaudited pro forma combined financial statements.
F-3
<PAGE>
VIALOG CORPORATION AND ACQUIRED COMPANIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
ACQUIRED COMPANIES--HISTORICAL PRO FORMA
----------------------------------------------- ------------------------
VIALOG CALL
CORP. ACCESS CSI POINTS TCC AMERICO CDC ADJUSTMENTS(1) COMBINED
------- ------ ------ ------ ------ ------- ------ -------------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues............ $ -- $9,073 $5,868 $7,509 $3,396 $1,679 $1,480 $ (707)(a) $ 28,298
Cost of revenues........ -- 4,071 2,780 5,898 1,813 854 886 (492)(a) 14,811
(999)(b)
------- ------ ------ ------ ------ ------ ------ --------
Gross profit............ -- 5,002 3,088 1,611 1,583 825 594 13,487
Operating expenses...... 1,308 3,455 1,049 1,873 1,329 889 655 (167)(a) 9,425
(586)(c)
(294)(d)
(86)(e)
Amortization of
intangibles............ -- -- -- -- -- -- -- 2,809 (f) 2,809
------- ------ ------ ------ ------ ------ ------ --------
Operating income
(loss)................. (1,308) 1,547 2,039 (262) 254 (64) (61) 1,253
Interest income
(expense).............. 1 (174) (165) (49) (42) (9) (11) (12,188)(g) (12,637)
------- ------ ------ ------ ------ ------ ------ --------
Income (loss) before
income taxes........... (1,307) 1,373 1,874 (311) 212 (73) (72) (11,384)
Income tax expense
(benefit).............. (522) -- -- -- -- (14) (28) 24 (h) (540)
------- ------ ------ ------ ------ ------ ------ --------
Net income (loss)....... $ (785) $1,373 $1,874 $ (311) $ 212 $ (59) $ (44) $(10,844)
======= ====== ====== ====== ====== ====== ====== ========
Supplementary
Information:
EBITDA(2).............. $(1,308) $ 6,036
</TABLE>
- --------
(1) See Note 5 to unaudited pro forma combined financial statements.
(2) EBITDA represents income from continuing operations before interest
expense, income taxes, depreciation and amortization. EBITDA is frequently
used by securities analysts and is presented here to provide additional
information about the Company's operations. 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.
See accompanying notes to unaudited pro forma combined financial statements.
F-4
<PAGE>
VIALOG CORPORATION AND ACQUIRED COMPANIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
ACQUIRED COMPANIES--HISTORICAL PRO FORMA
---------------------------------------------- ------------------------
VIALOG CALL
CORP. ACCESS CSI POINTS TCC AMERICO CDC ADJUSTMENTS(1) COMBINED
------- ------ ------ ------ ------ ------- ------ -------------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues............ $ -- $9,261 $4,790 $6,230 $3,003 $1,581 $1,486 $26,351
Cost of revenues........ -- 4,582 2,010 4,763 1,650 1,051 766 (1,126)(b) 13,696
------- ------ ------ ------ ------ ------ ------ -------
Gross profit............ -- 4,679 2,780 1,467 1,353 530 720 12,655
Operating expenses(2) .. 3,898 2,990 686 1,160 1,015 840 442 (247)(c) 10,635
(149)(d)
Amortization of
intangibles............ -- -- -- -- -- -- -- 2,107 (f) 2,107
------- ------ ------ ------ ------ ------ ------ -------
Operating income
(loss)................. (3,898) 1,689 2,094 307 338 (310) 278 (87)
Interest income
(expense).............. (110) (94) (99) 7 (31) (13) (4) (9,252)(g) (9,596)
------- ------ ------ ------ ------ ------ ------ -------
Income (loss) before
income taxes........... (4,008) 1,595 1,995 314 307 (323) 274 (9,683)
Income tax expense
(benefit).............. -- -- -- -- -- (25) 107 (82)(h) --
------- ------ ------ ------ ------ ------ ------ -------
Net income (loss)....... $(4,008) $1,595 $1,995 $ 314 $ 307 $ (298) $ 167 $(9,683)
======= ====== ====== ====== ====== ====== ====== =======
Supplementary
Information:
EBITDA(3)............. $(3,888) $ 3,825
</TABLE>
- --------
(1) See Note 5 to unaudited pro forma combined financial statements.
(2) Includes a non-recurring charge of approximately $2.2 million related to
an offering of Common Stock which was terminated in early 1997.
(3) EBITDA represents income from continuing operations before interest
expense, income taxes, depreciation and amortization. EBITDA is frequently
used by securities analysts and is presented here to provide additional
information about the Company's operations. 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.
See accompanying notes to unaudited pro forma combined financial statements.
F-5
<PAGE>
VIALOG CORPORATION AND ACQUIRED COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
1. VIALOG CORPORATION BACKGROUND
VIALOG Corporation was formed with the intention of becoming a leading
provider of value added electronic group communications. These services
include audio, video and data teleconferencing, 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 Private Placement.
2. HISTORICAL FINANCIAL STATEMENTS
The historical financial statements represent the financial position and
results of operations of the Acquired Companies and were derived from the
respective financial statements where indicated. All Acquired Companies have a
December 31 year-end or have been converted on to December 31 year-end.
3. ACQUISITION OF ACQUIRED COMPANIES
Concurrent with the closing of the Private Placement, VIALOG Corporation
acquired substantially all of the stock, or in one case, the net assets of the
Acquired Companies. The Acquisitions will be accounted for using the purchase
method of accounting.
The following table sets forth for each Acquired Company the consideration
paid its common stockholders (i) in cash and (ii) in shares of Common Stock.
<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 the Acquired Companies.
The purchase price of the Acquired Companies is estimated to be $57.6
million, which amount reflects the sum of the cash consideration paid in the
Acquisitions, a valuation of the shares issued in the Acquisitions and direct
costs associated with the Acquisitions. Of the estimated purchase price, $6.8
million has been allocated to the identifiable assets acquired and liabilities
assumed and the balance (currently estimated at $50.9 million) has been
allocated to intangible assets. In management's opinion, the preliminary
estimates regarding allocation of the purchase price to the Founding Companies
are not expected to differ materially from the final adjustments, except that
management anticipates allocating some portion of the purchase price to in-
process research and development expenses.
F-6
<PAGE>
VIALOG CORPORATION AND ACQUIRED COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
4. UNAUDITED PRO FORMA COMBINED BALANCE SHEET ADJUSTMENTS
(a) Net proceeds from the Private Placement are calculated using the
following assumptions:
<TABLE>
<S> <C>
Proceeds from the Private Placement............................. $75,000,000
Less cash used for:
Direct acquisitions costs..................................... 500,000
Issuance costs and other cash expenses........................ 7,300,000
Debt assumed to be retired.................................... 3,069,000
-----------
Net proceeds................................................ $64,131,000
===========
</TABLE>
Proceeds from the debt are based on the Private Placement of $75,000,000
Senior Notes due 2001.
(b) The excess of total purchase price over the allocation of fair value to
the net assets will be recorded as intangible assets, which is calculated as
based on the following assumptions:
<TABLE>
<S> <C> <C>
Value of Common Stock consideration(1).............. $ 3,216,148
Cash consideration.................................. 52,979,588
Tax reimbursements to stockholders of certain Ac-
quired Companies................................... 925,000
Direct acquisition costs............................ 500,000
-----------
Total purchase price.............................. $57,620,736
Net tangible asset value of Acquired Companies...... $5,217,000
Debt of the Acquired Companies that will not be
assumed.......................................... 1,551,000
Net assets acquired............................... 6,768,000
-----------
Intangible assets (2)............................... $50,852,736
===========
</TABLE>
--------
(1) Consideration consists of 559,330 shares at $5.75 per share.
(2) The Company has not completed an assessment of the fair value of the
net assets acquired for purposes of allocating the purchase price.
Accordingly, the excess of the purchase price over the net asset value
of the Acquired Companies has been allocated entirely to intangible
assets. During the first quarter subsequent to the closing of the
Acquisitions, the Company intends to allocate a portion of the purchase
price to in-process research and development expense. Based on an
independent valuation, the amount of the write-off is expected to be
$8.0 million. This allocation will result in a charge to operations
during the first quarter subsequent to the closing of the Acquisitions
and would result in a reduction in goodwill and goodwill amortization.
(c) Under GAAP, approximately $4.4 million of the proceeds of the Private
Placement has been allocated to the fair value of the Warrants and $70.6
million has been allocated to the Notes. In addition, $1.7 million of the
total estimated fair value of certain warrants issued in connections with the
Private Placement has been allocated to debt issuance costs.
(d) Represents restricted Common Stock of an Acquired Company that will no
longer be restricted after the closing of the Acquisitions.
(e) Represents elimination of historical equity balances of the Acquired
Companies.
F-7
<PAGE>
VIALOG CORPORATION AND ACQUIRED COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
5. UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS ADJUSTMENTS
(a) Accounts for the effect of assets that were distributed to certain
stockholders of one of the Acquired Companies. These assets were not part of
the core operations of the Company.
(b) Accounts for the reduction in long distance charges as a result of
contracts recently negotiated by the Acquired Companies.
(c) Reflects elimination of compensation paid to officers and consultants
that will be reduced after the Acquisitions.
(d) Adjustments reflect certain royalties paid to a related party that will
not exist after the Acquisitions.
(e) Adjustment reflects expense related to back taxes of an Acquired Company
the liability for which was not assumed by VIALOG Corporation.
(f) Reflects amortization of intangible assets, which are amortized over
periods ranging from 6 to 20 years.
(g) Adjustments to interest expense reflect the retirement of certain debt
outstanding and the issuance of the Old Notes. Does not include an adjustment
for interest income earned on excess cash balances.
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1996 SEPTEMBER 30, 1997
----------------- ------------------
<S> <C> <C>
Assumed interest expense on the Old
Notes(1)................................ $12,510,000 $9,383,000
Assumed interest expense on capitalized
lease obligations....................... 127,000 213,000
----------- ----------
Pro forma annual interest expense........ 12,637,000 9,596,000
Less: Combined interest expense.......... (449,000) (344,000)
----------- ----------
Net adjustment to interest expense....... $12,188,000 $9,252,000
=========== ==========
</TABLE>
--------
(1) Includes $1.9 million of annual amortization of bond issuance costs and
$1.1 million of amortization of original issue discount.
(h) The pro forma income tax provision (benefit) has been calculated as if
each Acquired Company had been included in the Company's consolidated income
tax return and, therefore, was subject to corporate income taxation at an
effective tax rate of approximately 40%. In all years presented, the tax
benefit has been limited to the extent of future projected income before tax
through 1999.
F-8
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
VIALOG Corporation:
We have audited the accompanying balance sheet of VIALOG Corporation
(VIALOG) as of December 31, 1996, and the related statement of operations,
stockholders' equity (deficit) and cash flows for the period from January 1,
1996 (inception) to December 31, 1996. These financial statements are the
responsibility of VIALOG's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit 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 audit provides 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 VIALOG Corporation as of
December 31, 1996 and the results of its operations and its cash flows for the
period from January 1, 1996 (inception) to December 31, 1996, in conformity
with generally accepted accounting principles.
KPMG Peat Marwick LLP
January 14, 1997 except
for Note 6 which is as
of October 16, 1997
Boston, Massachusetts
F-9
<PAGE>
VIALOG CORPORATION
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash.............................................. $ 337 $ 76
Deferred offering costs........................... 377 --
Other current assets.............................. 13 86
------ -------
Total current assets............................ 727 162
------ -------
Office equipment, net (note 2)...................... 7 25
Deferred acquisition costs.......................... -- 203
Deferred debt issuance costs........................ -- 34
Other assets........................................ 7 50
Deferred income taxes (note 5)...................... 522 522
------ -------
Total assets.................................... $1,263 $ 996
====== =======
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Notes payable (note 7)............................ $ -- $ 712
Accounts payable.................................. 313 1,510
Accrued expenses (note 4)......................... 663 2,364
------ -------
Total current liabilities....................... 976 4,586
------ -------
Stockholders' equity (deficit) (note 3):
Preferred stock, $.01 par value. Authorized
10,000,000 shares; none issued and outstanding... -- --
Common stock, $.01 par value. Authorized
30,000,000 shares; issued and outstanding
2,695,300 and 2,799,300 shares at December 31,
1996 and September 30, 1997, respectively........ 28 28
Additional paid-in capital........................ 1,044 1,175
Accumulated deficit............................... (785) (4,793)
------ -------
Total stockholders' equity (deficit)............ 287 (3,590)
------ -------
Commitments and contingencies (notes 6 and 7)
Total liabilities and stockholders' equity...... $1,263 $ 996
====== =======
</TABLE>
See accompanying notes to financial statements.
F-10
<PAGE>
VIALOG CORPORATION
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
DECEMBER 31, 1996 ENDED SEPTEMBER 30,
----------------- --------------------
1996 1997
--------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Net revenues........................... $ -- $ -- $ --
General and administrative expenses.... 1,308 703 3,898
------- -------- ----------
Loss from operations................. (1,308) (703) (3,898)
Interest income (expense), net......... 1 -- (110)
------- -------- ----------
Loss before income tax benefit....... (1,307) (703) (4,008)
Income tax benefit (note 5)............ 522 281 --
------- -------- ----------
Net loss............................. $ (785) $ (422) $ (4,008)
======= ======== ==========
</TABLE>
See accompanying notes to financial statements.
F-11
<PAGE>
VIALOG CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
TOTAL
COMMON STOCK ADDITIONAL STOCKHOLDERS'
-------------------- PAID-IN ACCUMULATED EQUITY
SHARES PAR VALUE CAPITAL DEFICIT (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
placement 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
(unaudited).......... 104,000 -- 2 -- 2
Warrants related to
Notes Payable dated
February 24, 1997
(unaudited).......... -- -- 129 -- 129
Net loss (unaudited).. -- -- -- (4,008) (4,008)
--------- --- ------ ------- -------
Balance at September 30,
1997 (unaudited)....... 2,799,300 $28 $1,175 $(4,793) $(3,590)
========= === ====== ======= =======
</TABLE>
See accompanying notes to financial statements.
F-12
<PAGE>
VIALOG CORPORATION
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED SEPTEMBER 30,
DECEMBER 31, --------------
1996 1996 1997
------------ ----- -------
(UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss....................................... $(785) $(422) $(4,008)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization.................. -- -- 10
Amortization of warrants....................... -- -- 86
Deferred income taxes.......................... (522) (281) --
Compensation expense for issuance of common
stock and options
(note 3)...................................... 173 78 --
Changes in operating assets and liabilities:
Other current assets......................... (13) (3) (73)
Other assets................................. (7) -- (48)
Accounts payable............................. 313 49 1,197
Accrued expenses............................. 663 460 1,701
----- ----- -------
Net cash used in operating activities...... (178) (119) (1,135)
----- ----- -------
Cash flows from investing activities:
Additions to property and equipment............ (7) (2) (23)
----- ----- -------
Cash flows from financing activities:
Proceeds from issuance of notes payable and
warrants...................................... -- -- 755
Proceeds from issuance of common stock......... 899 132 2
Deferred offering costs........................ (377) -- 377
Deferred acquisition costs..................... -- (5) (203)
Deferred debt issuance costs................... -- -- (34)
----- ----- -------
Net cash provided by financing activities.. 522 127 897
----- ----- -------
Net increase (decrease) in cash.................. 337 6 (261)
Cash at beginning of period...................... -- -- 337
----- ----- -------
Cash at end of period............................ $ 337 $ 6 $ 76
===== ===== =======
</TABLE>
See accompanying notes to financial statements.
F-13
<PAGE>
VIALOG CORPORATION
NOTES TO FINANCIAL STATEMENTS
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 & 1997 IS UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Description of Business
VIALOG Corporation ("VIALOG") was incorporated in Massachusetts on January
1, 1996 as Interplay Corporation. In January 1997, the Company changed its
name to VIALOG Corporation. VIALOG was formed to create a national provider of
group communications services. VIALOG intends to acquire group communications
service providers, complete an offering of Senior Notes, with warrants to
purchase shares of its common stock (the "Private Placement"), and subsequent
to the Private Placement, continue to acquire similar companies to expand
their national operations. (See note 7.)
VIALOG has not conducted any operations, and all activities have related to
the acquisitions and a financing transaction to fund the acquisitions. During
1996, VIALOG raised a total of approximately $900,000 from issuance of Common
Stock which was expended on costs associated with the acquisitions and an
offering of VIALOG's Common Stock which was terminated in early 1997. During
the nine months ended September 30, 1997, VIALOG raised $775,500 from the
issuance of notes with warrants and convertible notes, which will be expended
on costs associated with the acquisitions and the Private Placement. See note
7 relating to the subsequent completion of the Private Placement.
(b) Interim Financial Statements
The financial statements of VIALOG 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 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. Management assumes that recoverability of VIALOG's
primary assets at December 31, 1996 and September 30, 1997 will occur through
the successful completion of the Offering and the acquisitions described in
note 7.
(d) 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.
(e) Stock-based Compensation
The Financial Accounting Standards Board has issued SFAS No. 123, Accounting
for Stock-Based Compensation. VIALOG is required to adopt this standard for
the year ending December 31, 1996. SFAS No. 123 permits entities either to
recognize as expense, over the vesting period, the fair value of all stock-
based awards on the date of grant or continue to apply the provisions of
Accounting Principles Board ("APB") Opinion No. 25 and provide pro forma net
income disclosure for options granted in 1995 and subsequent years,
F-14
<PAGE>
VIALOG CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
as if the provisions of SFAS No. 123 had been applied. VIALOG has elected to
continue to apply the provisions of APB 25 and provide the disclosures
required by SFAS No. 123. This pronouncement had no impact on VIALOG's
reported financial position or results of operations for the year ended
December 31, 1996 and the nine months ended September 30, 1997.
(2) PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
(UNAUDITED)
<S> <C> <C>
Office equipment.................................. $ 7 $30
Less: Accumulated depreciation.................... -- 5
---- ---
$ 7 $25
==== ===
</TABLE>
(3) STOCKHOLDERS' EQUITY
(a) Sale of Common Stock
During 1996, VIALOG sold common stock through several private placements.
The proceeds of the sales have been 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 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, has been recorded in
connection with these transactions.
(c) 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
September 30, 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.
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 or by the rules
of any stock exchange or automated quotation system on which the Common Stock
may then be listed or quoted.
F-15
<PAGE>
VIALOG CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
During 1996, VIALOG granted and had outstanding ISOs to purchase a total of
815,000 shares of Common Stock as follows: (i) 660,000 shares of Common Stock
exercisable at $.2775 per share granted in September and October of 1996 and
(ii) 155,000 shares of Common Stock exercisable at $2.00 per share granted in
November 1996. In February 1997, 54,000 shares of Common Stock exercisable at
$4.50 per share were granted. The options vest in equal quarterly installments
over 3 years and have a 10 year term. During 1996, VIALOG also granted NQSOs
to purchase a total of 295,132 shares of Common Stock as follows: (i) 222,132
shares of Common Stock exercisable at $.025 to $.03 per share granted in
February, March and April of 1996 and (ii) 73,000 shares of common stock
exercisable at $.2775 per share granted in June through October of 1996. In
February 1997, 30,000 shares of Common Stock exercisable at $4.50 per share
were granted. The options generally vest in equal quarterly installments over
3 years and have a 10 year term. During 1996, 75,000 NQSOs with a $.025
exercise price were exercised so that 220,132 NQSOs are outstanding at
December 31, 1996. At December 31, 1996, 75,000 options were exercisable at
$.2775 per share.
In 1996 and the nine months ended September 30, 1997, VIALOG granted a total
of 111,112 and 30,000 options, respectively to consultants. Compensation
expense of $50,250 and $60,000 has been recorded in connection with these
transactions in 1996 and the nine months ended September 30, 1997,
respectively.
At December 31, 1996 and September 30, 1997, there were 1,914,868 and
2,764,678 additional shares available for grant under the Plan, respectively.
The per share weighted-average fair value of ISO and NQSO stock options
granted during 1996 were $.135 and $.02, respectively, on the date of grant
using the minimum value option-pricing model with the following weighted-
average assumptions: 1996--no expected dividend yield, risk-free interest rate
of 6.5%, and an expected life of 4 years.
VIALOG applies APB Opinion No. 25 Accounting for stock issued to employees
in accounting for its Plan and, accordingly, no compensation cost has been
recognized in the financial statements for stock options granted to employees.
Had VIALOG determined compensation cost based on the fair value at the grant
date for its stock options under SFAS No. 123, the Company's net loss would
have been increased to the pro forma amount indicated below (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996
------------
<S> <C>
Net loss
As reported................................................... $(785)
Pro forma..................................................... $(826)
</TABLE>
(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.
(4) ACCRUED EXPENSES
Accrued expenses principally consist of professional fees and salaries
related to the acquisitions of the Acquired Companies (defined below) and the
Private Placement.
F-16
<PAGE>
VIALOG CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(5) INCOME TAXES
Income tax benefit consists of the following for the periods ended:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
------- -------- -----
(IN THOUSANDS)
<S> <C> <C> <C>
December 31, 1996:
Federal............................................. $-- 398 398
State............................................... -- 124 124
---- --- ---
$-- 522 522
==== === ===
September 30, 1997 (unaudited)
Federal............................................. $-- -- --
State............................................... -- -- --
---- --- ---
$-- -- --
==== === ===
</TABLE>
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 (in
thousands):
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
(UNAUDITED)
<S> <C> <C>
Computed "expected" tax benefit................. $445 $ 1,363
State and local income taxes, net of federal tax
benefit........................................ 82 238
Nondeductible amounts and other differences..... (5) (42)
Change in valuation allowance for deferred taxes
allocated to income tax expense................ -- (1,559)
---- -------
Tax benefit................................... $522 $ --
==== =======
</TABLE>
The tax effects of temporary differences that give rise to significant
portion of deferred tax assets and liabilities are presented below (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
(UNAUDITED)
<S> <C> <C>
Deferred tax asset:
Organizational expenditures and start-up
costs........................................ $522 $ 2,081
Valuation allowance........................... -- (1,559)
---- -------
Net deferred tax asset...................... $522 $ 522
==== =======
</TABLE>
VIALOG had net operating loss carryforwards of $0 at December 31, 1996 and
$110,000 at September 30, 1997.
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 over the periods in which the deferred tax assets are
deductible, a valuation allowance has been established for certain of the
deferred tax assets.
F-17
<PAGE>
VIALOG CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(6) 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.
(7) SUBSEQUENT EVENTS (UNAUDITED)
(a) Lease
In September 1997, VIALOG moved to new office space in Andover,
Massachusetts. The lease expires in May 1999, and future minimum payments
under this lease as of September 30, 1997 are approximately $87,000.
(b) Notes Payable
On February 24, 1997, VIALOG issued promissory notes in the amount of
$500,000, bearing interest at 8.0% per annum and due on the earlier of ten
days following the closing of an initial public offering or one year from
their issue date. Warrants to purchase 111,118 common shares at an exercisable
price of $4.50 were issued in conjunction with the promissory notes. 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.
(c) Acquisitions and the Private Placement
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. (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. The Acquisitions will be accounted for
using the purchase method. The total purchase price of the Acquired Companies
consisted of $53.0 million in cash paid to the stockholders of the Acquired
Companies (the "Sellers") upon the consummation of the Private Placement, the
issuance of 559,330 shares of Common Stock to the Sellers and approximately
$925,000 in cash related to tax reimbursements.
(d) Convertible Bridge Facility
In October 1997, the Company completed a private placement to certain of its
existing investors of $255,500 in subordinated convertible promissory notes
bearing interest at 10% per annum and due on the earlier to occur of (a) five
(5) days after 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 or
(b) January 1, 1998. The notes are subordinate and junior in right to all
senior indebtedness of the Company outstanding at the date of the notes or
incurred after the date of the notes. The notes may be converted at the option
of the holder at any time prior to and including the due date into such number
of shares of the Company'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. In
November, 1997, the notes were converted into 127,750 shares of the Company's
Common Stock.
F-18
<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, and the year ended December 31,
1996. 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, and the year ended December 31, 1996, 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.
KPMG Peat Marwick LLP
January 24, 1997
Washington, D.C.
F-19
<PAGE>
TELEPHONE BUSINESS MEETINGS, 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....................... $ 390 $ 804 $ 970
Trade accounts receivable, less allowance for
doubtful accounts of $33, $206 and $292 at
December 31, 1995, December 31, 1996 and
September 30, 1997, respectively............... 802 1,103 1,376
Prepaid expenses and other current assets....... 108 161 204
------ ------ -------
Total current assets.......................... 1,300 2,068 2,550
------ ------ -------
Property and equipment, net (note 2).............. 2,032 2,201 3,116
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, $28 and $40 at December 31, 1995, December
31, 1996 and September 30, 1997, respectively
(note 4)......................................... 231 215 203
Other assets...................................... 4 11 33
------ ------ -------
Total assets.................................. $3,672 $4,605 $ 5,902
====== ====== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt (note
3)............................................. $ 732 $ 654 $ 821
Current installments of note payable to former
stockholder (note 4)........................... 109 116 121
Current installments of obligations under
capital leases (note 7)........................ 28 32 29
Accounts payable................................ 4 141 336
Accrued expenses (note 6)....................... 276 366 679
Income taxes payable............................ 10 -- --
------ ------ -------
Total current liabilities..................... 1,159 1,309 1,986
------ ------ -------
Long-term debt, excluding current installments
(note 3)....................................... 1,029 880 667
Note payable to former stockholder, excluding
current installments
(note 4)....................................... 439 323 231
Obligations under capital leases, excluding
current installments (note 7).................. 79 47 27
Deferred rent................................... 94 128 150
------ ------ -------
Total liabilities............................. 2,800 2,687 3,061
------ ------ -------
Common stock issued to employees with redemption
option, 15.464 shares at liquidation value (note
5)............................................... -- 148 273
------ ------ -------
Stockholders' equity (notes 4 and 5):
Common stock, $.01 par value. Authorized and
issued 1,000 shares; 500 shares outstanding.... -- -- --
Additional paid-in capital...................... 660 660 660
Retained earnings............................... 212 1,110 1,908
------ ------ -------
Total stockholders' equity.................... 872 1,770 2,568
------ ------ -------
Commitments and contingencies (notes 7 and 8)
Total liabilities and stockholders' equity...... $3,672 $4,605 $ 5,902
====== ====== =======
</TABLE>
See accompanying notes to financial statements.
F-20
<PAGE>
TELEPHONE BUSINESS MEETINGS, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD PERIOD NINE MONTHS
YEAR ENDED JANUARY 1, APRIL 10, TO YEAR ENDED ENDED SEPTEMBER 30,
DECEMBER 31, TO APRIL 9, DECEMBER 31, DECEMBER 31, -------------------
1994 1995 1995 1996 1996 1997
------------ ----------- ------------ ------------ --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Net revenues............ $5,114 $1,590 $4,918 $9,073 $ 6,606 $ 9,261
Cost of revenues........ 2,823 855 2,564 4,071 2,977 4,582
------ ------ ------ ------ --------- ---------
Gross profit.......... 2,291 735 2,354 5,002 3,629 4,679
Selling, general and
administrative
expenses............... 1,745 524 2,058 3,455 2,255 2,990
------ ------ ------ ------ --------- ---------
Income from
operations........... 546 211 296 1,547 1,374 1,689
Interest expense, net... 49 12 140 174 135 94
------ ------ ------ ------ --------- ---------
Income before income
tax expense
(benefit)............ 497 199 156 1,373 1,239 1,595
Income tax expense
(benefit).............. 52 8 (56) -- -- --
------ ------ ------ ------ --------- ---------
Net income............ $ 445 $ 191 $ 212 $1,373 $ 1,239 $ 1,595
====== ====== ====== ====== ========= =========
</TABLE>
See accompanying notes to financial statements.
F-21
<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%
interest (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
(unaudited)............ -- -- -- (797) (797)
Net income (unaudited).. -- -- -- 1,595 1,595
----- ---- ---- ------ ------
Balance at September 30,
1997 (unaudited)....... 500 $-- $660 $1,908 $2,568
===== ==== ==== ====== ======
</TABLE>
See accompanying notes to financial statements.
F-22
<PAGE>
TELEPHONE BUSINESS MEETINGS, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
PERIOD PERIOD ENDED
YEAR ENDED JANUARY 1, APRIL 10, 1995 YEAR ENDED SEPTEMBER 30,
DECEMBER 31, TO APRIL 9, TO DECEMBER 31, DECEMBER 31, ---------------
1994 1995 1995 1996 1996 1997
------------ ----------- --------------- ------------ ------ -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net income............ $ 445 $ 191 $ 212 $1,373 $1,239 $ 1,595
Adjustments to
reconcile net income
to net cash provided
by operating
activities:
Depreciation and
amortization......... 269 121 375 630 456 713
Deferred income
taxes................ 24 -- (62) -- -- --
Compensation expense
for issuance of
common stock......... -- -- -- 148 -- 125
Changes in operating
assets and
liabilities:
Trade accounts
receivable, net..... (71) (170) (108) (301) (270) (273)
Prepaid expenses and
other current
assets.............. (58) 62 (5) (53) (51) (43)
Accounts payable and
accrued expenses.... (17) 90 22 227 292 508
Income taxes
payable............. -- -- -- (10) (10) --
Deferred rent........ -- -- 93 34 25 22
----- ------ ------- ------ ------ -------
Net cash provided by
operating
activities......... 592 294 527 2,048 1,681 2,647
----- ------ ------- ------ ------ -------
Cash flows from
investing activities:
Additions to property
and equipment........ (560) (123) (1,227) (783) (427) (1,616)
Restricted cash....... -- -- (105) (5) (4) 110
Other assets.......... 3 (40) 63 (7) -- (22)
----- ------ ------- ------ ------ -------
Net cash used in
investing
activities......... (557) (163) (1,269) (795) (431) (1,528)
----- ------ ------- ------ ------ -------
Cash flows from
financing activities:
Proceeds from long-
term debt............ 484 2,149 -- 587 250 500
Principal repayments
of long-term debt.... (338) (626) (389) (814) (660) (546)
Principal repayments
of notes payable to
stockholders......... (85) -- (51) (109) (81) (87)
Principal payments
under capital lease
obligations.......... -- -- (12) (28) (21) (23)
Cash portion of
consideration paid to
former stockholder... -- -- (300) -- -- --
Dividends............. (39) -- -- (475) (308) (797)
----- ------ ------- ------ ------ -------
Net cash provided by
(used in) financing
activities......... 22 1,523 (752) (839) (820) (953)
----- ------ ------- ------ ------ -------
Net increase
(decrease) in cash
and cash
equivalents.......... 57 1,654 (1,494) 414 430 166
Cash and cash
equivalents at
beginning of period.. 173 230 1,884 390 390 804
----- ------ ------- ------ ------ -------
Cash and cash
equivalents at end of
period............... $ 230 $1,884 $ 390 $ 804 $ 820 $ 970
===== ====== ======= ====== ====== =======
Supplemental
disclosures of cash
flow information:
Cash paid during the
period for:
Interest.............. $ 49 $ 18 $ 169 $ 191 $ 146 $ 131
===== ====== ======= ====== ====== =======
Income taxes.......... $ 22 $ -- $ -- $ 10 $ 10 $ --
===== ====== ======= ====== ====== =======
Supplemental disclosure
of noncash investing
and financing
activities:
Capital lease
obligations.......... $ -- $ -- $ 120 $ -- $ -- $ --
===== ====== ======= ====== ====== =======
Issuance of note
payable in partial
consideration to
former stockholder... $ -- $ -- $ 599 $ -- $ -- $ --
===== ====== ======= ====== ====== =======
</TABLE>
See accompanying notes to financial statements.
F-23
<PAGE>
TELEPHONE BUSINESS MEETINGS, 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
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.
(b) Interim Financial Statements
The financial statements of Access 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 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-24
<PAGE>
TELEPHONE BUSINESS MEETINGS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Costs, Access changes 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 and 1996 were $128,000, $207,000 and $288,000,
respectively. Access' research and development expenses for the nine months
ended September 30, 1996 and 1997 were $177,000 and $196,000, 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.
(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>
Office furniture and equipment............... $ 66 $ 88 $ 264
Conferencing equipment....................... 1,982 2,632 3,911
Computer equipment........................... 456 567 728
Capitalized lease equipment.................. 120 120 120
Leasehold improvements....................... 234 234 234
------ ------ ------
2,858 3,641 5,257
Less: accumulated depreciation and amortiza-
tion........................................ 826 1,440 2,141
------ ------ ------
Property and equipment, net................ $2,032 $2,201 $3,116
====== ====== ======
</TABLE>
F-25
<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,
------------- SEPTEMBER 30,
1995 1996 1997
------ ------ -------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <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........................... $ -- $ -- $ 444
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 1,029 686
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......................... -- 187 124
Note payable to a bank, interest at 9.5%, monthly
principal payments of $9,400 plus interest,
balance due in October 1999....................... -- 318 234
Note payable to a bank, interest at 9.33%, repaid
in full in September 1996......................... 275 -- --
------ ------ ------
Total long-term debt............................. 1,761 1,534 1,488
Less current installments........................ 732 654 821
------ ------ ------
Long-term debt, excluding current installments... $1,029 $ 880 $ 667
====== ====== ======
</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>
October 1 to December 31, 1997....................... $ 234
1998................................................. 944
1999................................................. 524
2000................................................. 138
------
$1,840
======
</TABLE>
(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-26
<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, December 31, 1996 and September 30, 1997, $548,000,
$439,000 and $352,000, respectively, were due under the note payable to the
former stockholder, of which $109,000, $116,000 and $121,000 respectively,
were current. During the period from April 10, 1995 to December 31, 1995, and
the year ended December 31, 1996, Access paid the former stockholder $62,000
and $125,000, respectively, under the agreements for consulting services and
not to compete. During the nine months ended September 30, 1996 and 1997,
Access paid the former stockholder $94,000 under the agreements for consulting
services and not to compete.
(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, Access
recognized a total of $148,000 of compensation expense relating to the stock
awards. Compensation expense of $0 and $125,000 was recorded during the nine
months ended September 30, 1996 and 1997, respectively. Further, the
liquidation value of the shares has been reflected between total liabilities
and stockholders' equity in the accompanying balance sheets.
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, and $42,000 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, and the year ended December 31, 1996, respectively. Access' matching
contributions to the Plan for the nine months ended September 30, 1996 and
1997 were $30,000 and $37,000, respectively.
(6) 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 salaries, wages and benefits........... $ 86 $ 215 $586
Accrued fees and other expenses................ 190 151 93
------ ------ ----
$276 $ 366 $679
====== ====== ====
</TABLE>
F-27
<PAGE>
TELEPHONE BUSINESS MEETINGS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(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>
October 1, to December 31, 1997...................... $ 105
1998................................................. 373
1999................................................. 384
2000................................................. 396
2001................................................. 407
Thereafter........................................... 1,485
------
$3,150
======
</TABLE>
Total rent expense was approximately $185,000, $51,000, $287,000 and
$396,000 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, and the
year ended December 31, 1996, respectively, and $298,000 and $315,000 for the
nine months ended September 30, 1996 and 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%.
Future minimum payments under the leases are as follows (in thousands):
<TABLE>
<S> <C>
October 1, to December 31, 1997......................... $ 8
1998.................................................... 28
1999.................................................... 17
2000.................................................... 8
---
61
Less: imputed interest.................................. 5
---
Net present value of future lease obligations........... 56
Less: current portion................................... 29
---
Obligations under capital leases, net of current
portion................................................ $27
===
</TABLE>
F-28
<PAGE>
TELEPHONE BUSINESS MEETINGS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(8) SUBSEQUENT EVENTS (UNAUDITED)
On November 12, 1997, VIALOG Corporation ("VIALOG") acquired all of the
outstanding stock of Access for cash and Access became a wholly owned
subsidiary of VIALOG. The acquisition of Access 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 conjunction with this merger, the tax status of Access was converted from
an S corporation to a C corporation, whereby Access will now be liable for
income taxes.
As stipulated in the business combination agreement between Access and
VIALOG, $662,000 of the purchase price was paid directly to the related party
referred to in note 4 to retire the note and to pay the remaining obligation
under the agreement for consulting services and an agreement not to compete.
In November 1997, all of the bank notes described in note 3 were repaid in
full.
F-29
<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. 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, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
January 17, 1997
Boston, Massachusetts
F-30
<PAGE>
CONFERENCE SOURCE INTERNATIONAL, 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........................ $ 375 $ 318 $ 12
Trade account receivables, less allowance for
doubtful accounts of $5, $10 and $10 at December
31, 1995, December 31, 1996 and September 30,
1997, respectively (note 6)..................... 692 801 955
Due from stockholder (note 4).................... 72 -- --
Prepaid expenses and other current assets........ -- 24 58
------ ------ ------
Total current assets........................... 1,139 1,143 1,025
------ ------ ------
Property and equipment, net (notes 2 and 5)........ 866 1,059 1,065
Other assets....................................... 32 91 67
------ ------ ------
Total assets................................... $2,037 $2,293 $2,157
====== ====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt (note 3).. $1,089 $ 111 $ 186
Current installments of obligations under capital
leases (note 5)................................. 141 375 268
Accounts payable................................. 201 121 151
Accrued expenses................................. 30 91 93
------ ------ ------
Total current liabilities...................... 1,461 698 698
------ ------ ------
Long-term debt, excluding current installments
(note 3).......................................... 43 219 338
Obligations under capital leases, excluding current
installments (note 5)............................. 173 700 506
------ ------ ------
Total liabilities.............................. 1,677 1,617 1,542
------ ------ ------
Stockholders' equity:
Common stock, $1.00 par value. Authorized 100,000
shares; issued and outstanding 1,000 shares..... 1 1 1
Additional paid-in capital....................... 349 349 349
Retained earnings................................ 10 326 265
------ ------ ------
Total stockholders' equity..................... 360 676 615
------ ------ ------
Commitments and contingencies (notes 5 and 7)
Total liabilities and stockholders' equity..... $2,037 $2,293 $2,157
====== ====== ======
</TABLE>
See accompanying notes to financial statements.
F-31
<PAGE>
CONFERENCE SOURCE INTERNATIONAL, INC.
STATEMENTS OF OPERATIONS
(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>
Net revenues (note 6).................. $2,331 $3,808 $5,868 $ 4,483 $ 4,790
Cost of revenues....................... 1,463 1,874 2,780 2,027 2,010
------ ------ ------ -------- --------
Gross profit......................... 868 1,934 3,088 2,456 2,780
Selling, general and administrative
expenses.............................. 735 940 1,049 888 686
------ ------ ------ -------- --------
Income from operations............... 133 994 2,039 1,568 2,094
Interest expense, net.................. 124 160 165 129 99
------ ------ ------ -------- --------
Net income........................... $ 9 $ 834 $1,874 $ 1,439 $ 1,995
====== ====== ====== ======== ========
</TABLE>
See accompanying notes to financial statements.
F-32
<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
(unaudited).......... -- -- -- 1,995 1,995
Distributions
(unaudited).......... -- -- -- (2,056) (2,056)
----- ---- ---- ------- -------
Balance at September 30,
1997 (unaudited)....... 1,000 $ 1 $349 $ 265 $ 615
===== ==== ==== ======= =======
</TABLE>
See accompanying notes to financial statements.
F-33
<PAGE>
CONFERENCE SOURCE INTERNATIONAL, 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......................... $ 9 $ 834 $ 1,874 $ 1,439 $ 1,995
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization..... 235 292 393 268 311
Changes in operating assets and
liabilities:
Trade accounts receivable, net... (205) (312) (109) (200) (154)
Due from stockholder............. (6) (66) 72 -- --
Prepaid expenses and other
assets.......................... (35) 4 (83) (4) (10)
Accounts payable and accrued
expenses........................ 55 (31) (19) (53) 32
----- ----- ------- -------- --------
Net cash provided by operating
activities..................... 53 721 2,128 1,450 2,174
----- ----- ------- -------- --------
Cash flows from investing
activities:
Additions to property and
equipment......................... (476) (225) (41) (31) (317)
----- ----- ------- -------- --------
Cash flows from financing
activities:
Proceeds from borrowings on long-
term debt......................... 652 201 -- -- 573
Principal repayment of long-term
debt.............................. (100) (197) (438) (351) (379)
Proceeds from refinancing of
obligations under capital leases.. -- -- 142 142 --
Principal repayment of obligations
under capital leases.............. (126) (148) (290) (227) (301)
Distributions to stockholder....... -- -- (1,558) (1,277) (2,056)
----- ----- ------- -------- --------
Net cash provided by (used in)
financing activities........... 426 (144) (2,144) (1,713) (2,163)
----- ----- ------- -------- --------
Net increase (decrease) in cash and
cash equivalents................... 3 352 (57) (294) (306)
Cash and cash equivalents at
beginning of period................ 20 23 375 375 318
----- ----- ------- -------- --------
Cash and cash equivalents at end of
period............................. $ 23 $ 375 $ 318 $ 81 $ 12
===== ===== ======= ======== ========
Supplemental disclosures of cash
flow information:
Cash paid during the period for:
Interest.......................... $ 119 $ 162 $ 169 $ 131 $ 112
===== ===== ======= ======== ========
Noncash transaction:
Equipment purchased under capital
lease obligations................ $ 296 $ -- $ 545 $ 545 $ --
===== ===== ======= ======== ========
</TABLE>
See accompanying notes to financial statements.
F-34
<PAGE>
CONFERENCE SOURCE INTERNATIONAL, 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
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) Interim Financial Statements
The financial statements of CSI 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 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.
(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,
F-35
<PAGE>
CONFERENCE SOURCE INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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 nine months ended September 30, 1996
and 1997 were $153,000 and $226,000, respectively.
(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.
(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>
Vehicles........................................ $ 27 $ 27 $ 27
Office equipment................................ 123 148 237
Bridge equipment................................ 1,313 1,874 2,102
Computer software............................... 62 62 62
----- ------ ------
1,525 2,111 2,428
Less: accumulated depreciation and
amortization................................. 659 1,052 1,363
----- ------ ------
Property, and equipment, net................ $ 866 $1,059 $1,065
===== ====== ======
</TABLE>
F-36
<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,
-------------SEPTEMBER 30,
1995 1996 1997
------ -------------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <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....................... $ -- $ -- $517
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 7
------ ----- ----
Total long-term debt............................ 1,132 330 524
Less: current installments...................... 1,089 111 186
------ ----- ----
Long-term debt, excluding current installments.. $ 43 $ 219 $338
====== ===== ====
</TABLE>
The aggregate maturities of long-term debt are as follows (in thousands):
<TABLE>
<S> <C>
October 1 to December 31, 1997....................................... $ 46
1998................................................................. 188
1999................................................................. 202
2000................................................................. 88
----
$524
====
</TABLE>
(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. The
lease payments for the nine months ended September 30, 1996 and September 30,
1997 were approximately $38,000 and $20,000, respectively. The leases expired
during 1997.
F-37
<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 $152,000 and $187,000 for the nine months ended September
30, 1996 and 1997, respectively. Future minimum lease payments under
noncancelable operating leases are as follows (in thousands):
<TABLE>
<S> <C>
October 1 to December 31, 1997......................................... $ 55
1998................................................................... 164
1999................................................................... 158
2000................................................................... 152
2001................................................................... 152
2002 and thereafter.................................................... 139
----
Total minimum operating lease payments............................... $820
====
</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,
------------- SEPTEMBER 30,
1995 1996 1997
------ ------ -------------
(UNAUDITED)
<S> <C> <C> <C>
Equipment........................................ $1,243 $1,788 $1,788
Less: accumulated amortization................... 521 852 1,106
------ ------ ------
$ 722 $ 936 $ 682
====== ====== ======
</TABLE>
Future minimum payments under capital leases are as follows (in thousands):
<TABLE>
<S> <C>
October 1, to December 31, 1997....................................... $109
1998.................................................................. 312
1999.................................................................. 287
2000.................................................................. 157
2001.................................................................. 69
----
Total minimum capital lease payments................................ 934
Less: amounts representing interest (at rates ranging from 10% to
18%)................................................................. 160
----
Present value of minimum capital lease payments..................... 774
Less: current installments of obligations under capital leases........ 268
----
Obligations under capital leases, excluding current installments.... $506
====
</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-38
<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 NET REVENUES PERCENTAGE OF 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.............. 14% 30% 49% 49% 48% 47% 58% 53%
Customer B.............. 14% 24% 21% 21% 24% 26% 26% 28%
</TABLE>
(7) SUBSEQUENT EVENTS (UNAUDITED)
In November 1997, all of the outstanding stock of CSI was acquired by a
wholly owned subsidiary of VIALOG Corporation ("VIALOG") for cash. CSI was the
surviving entity of the merger and became a wholly owned subsidiary of VIALOG.
Under the terms of the merger agreement, the stockholders of CSI agreed to
make an election under Section 338(h) 10 of the Internal Revenue Code in order
for the merger to be treated as an asset purchase by the Internal Revenue
Service.
At the time of the merger, 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 merger.
In November 1997, the remaining balance of long-term debt described in note
3 was repaid in full, plus accrued interest.
F-39
<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.
KPMG Peat Marwick LLP
January 17, 1997
Birmingham, Alabama
F-40
<PAGE>
CALL POINTS, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
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
December 31, 1995, December 31, 1996 and
September 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.
Authorized 8,000 shares; issued and
outstanding 1,000 shares.................... 1 1 1
Common stock--Class B, $1 par value.
Authorized 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'
equity.................................... $ 3,222 $ 3,036 $ 3,387
======= ======= =======
</TABLE>
See accompanying notes to financial statements.
F-41
<PAGE>
CALL POINTS, INC.
STATEMENTS OF OPERATIONS
(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>
Net revenues (note 8)........... $ 8,537 $ 6,852 $ 7,509 $ 5,606 $ 6,230
Cost of revenues................ 6,140 5,331 5,898 4,392 4,763
------- ------- ------- -------- --------
Gross profit.................. 2,397 1,521 1,611 1,214 1,467
Selling, general and
administrative expenses........ 2,035 1,820 1,873 1,377 1,160
------- ------- ------- -------- --------
Income (loss) from
operations................... 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
======= ======= ======= ======== ========
</TABLE>
See accompanying notes to financial statements.
F-42
<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
(unaudited)........... -- -- -- 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-43
<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-44
<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-45
<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.
(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-46
<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-47
<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
deferred 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-48
<PAGE>
CALL POINTS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
At December 31, 1996, Call Points has net operating loss carryforwards of
approximately $2,474,000. 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
$2,250,000, 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 and
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-49
<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.
(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 (UNAUDITED)
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.
In April 1997, Call Points settled one of the claims discussed in Note 9,
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 one of the claims discussed in note 9, 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.
F-50
<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.
KPMG Peat Marwick LLP
January 18, 1997
Boston, Massachusetts
F-51
<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
December 31, 1995, December 31, 1996 and
September 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
capital 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
current 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
December 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-52
<PAGE>
KENDALL SQUARE TELECONFERENCING, INC.
STATEMENTS OF OPERATIONS
(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>
Net revenues (note 8 and 9)....... $1,515 $2,329 $3,396 $ 2,501 $ 3,003
Cost of revenues.................. 816 1,129 1,813 1,351 1,650
------ ------ ------ -------- --------
Gross profit.................. 699 1,200 1,583 1,150 1,353
Selling, general and
administrative expenses.......... 510 889 1,329 969 1,015
------ ------ ------ -------- --------
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
====== ====== ====== ======== ========
</TABLE>
See accompanying notes to financial statements.
F-53
<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-54
<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-55
<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-56
<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.
F-57
<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
installments............................... $ 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-58
<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 in-
stallments............................................ $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-59
<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-60
<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 (UNAUDITED)
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 Access 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.
F-61
<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.
KPMG Peat Marwick LLP
January 20, 1997
Short Hills, New Jersey
F-62
<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
capital 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
current 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-63
<PAGE>
AMERICAN CONFERENCING COMPANY, INC.
AND RESOURCE OBJECTIVES, INC.
COMBINED STATEMENTS OF OPERATIONS
(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>
Net revenues (note 8)............ $ 772 $ 1,227 $ 1,679 $ 1,210 $ 1,581
Cost of revenues................. 335 625 854 631 1,051
------ -------- -------- -------- --------
Gross profit................... 437 602 825 579 530
Selling, general, and
administrative expenses......... 345 514 889 593 840
------ -------- -------- -------- --------
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)
====== ======== ======== ======== ========
</TABLE>
See accompanying notes to combined financial statements.
F-64
<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
recapitalization (note
1a) (unaudited)......... 20 -- (100) -- 35 (35) --
--- ---- -------- -------- -------- ----- -----
Balance at September 30,
1997 (unaudited).............70 $ 1 -- $ -- $ -- $(243) $(242)
=== ==== ======== ======== ======== ===== =====
</TABLE>
See accompanying notes to combined financial statements.
F-65
<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
liabilities:
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)
operating 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
credit............................... -- 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)
financing 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-66
<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
F-67
<PAGE>
AMERICAN CONFERENCING COMPANY, INC.
AND RESOURCE OBJECTIVES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
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.
(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.
(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
amortization.................................. 148 184 232
------ ------ ----
Property and equipment, net.................... $ 122 $ 111 $556
====== ====== ====
</TABLE>
(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
F-68
<PAGE>
AMERICAN CONFERENCING COMPANY, INC.
AND RESOURCE OBJECTIVES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
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
taxes........................................ $ 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-69
<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-70
<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 (UNAUDITED)
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-71
<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.
F-72
<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.
KPMG Peat Marwick LLP
January 17, 1997
Boston, Massachusetts
F-73
<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-74
<PAGE>
COMMUNICATION DEVELOPMENT CORPORATION
STATEMENTS OF OPERATIONS
(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>
Net revenues (note 7)................. $1,121 $1,131 $1,480 $ 1,080 $ 1,486
Cost of revenues...................... 709 765 886 615 766
------ ------ ------ -------- --------
Gross profit........................ 412 366 594 465 720
Selling, general and administrative
expenses............................. 337 377 655 411 442
------ ------ ------ -------- --------
Income (loss) from operations....... 75 (11) (61) 54 278
Interest expense, net................. 7 17 11 7 4
------ ------ ------ -------- --------
Income (loss) before income tax
expense (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
====== ====== ====== ======== ========
</TABLE>
See accompanying notes to financial statements.
F-75
<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
(unaudited)........................... $5,000 $ 2 $303 $305
====== ==== ==== ====
</TABLE>
See accompanying notes to financial statements.
F-76
<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-77
<PAGE>
COMMUNICATION DEVELOPMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 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
F-78
<PAGE>
COMMUNICATION DEVELOPMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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.
(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.
(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
amortization.................................. 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-79
<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-80
<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 (UNAUDITED)
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.
F-81
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFOR-
MATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PRO-
SPECTUS 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 OR THE INITIAL PURCHASER. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL, OR THE SOLICITATION OF AN OFFER TO BUY ANY SE-
CURITY OTHER THAN THE NOTES OFFERED BY THIS PROSPECTUS, NOR DOES IT CONSTITUTE
AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY IN ANY JURISDICTION IN
WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAK-
ING 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 EXCHANGE MADE HEREUNDER WILL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSE-
QUENT TO THE DATE HEREOF.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information.................................................... iii
Prospectus Summary....................................................... 1
Disclosure Regarding Forward-Looking Statements.......................... 14
Risk Factors............................................................. 14
The Company.............................................................. 22
Private Placement........................................................ 23
Use of Proceeds.......................................................... 23
Dividend Policy.......................................................... 23
Capitalization........................................................... 24
Selected Financial Data.................................................. 25
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 28
Business................................................................. 45
Organization and Acquisition of the Acquired Companies................... 59
Management............................................................... 63
Certain Transactions..................................................... 70
Principal Stockholders................................................... 71
The Exchange Offer....................................................... 72
Description of Notes..................................................... 78
Registration Rights; Additional Interest................................. 103
Book-Entry; Delivery and Form............................................ 105
Transfer Restrictions on Old Notes....................................... 107
Description of Senior Credit Facility.................................... 109
Description of Capital Stock and Warrants................................ 109
Certain Federal Income Tax Consequences.................................. 115
Plan of Distribution..................................................... 118
Legal Matters............................................................ 119
Experts.................................................................. 119
Index to Financial Statements............................................ F-1
</TABLE>
---------------
UNTIL MAY 13, 1998, ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SE-
CURITIES, 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 UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LOGO
OFFER TO EXCHANGE
$75,000,000 12 3/4% SENIOR NOTES DUE 2001, SERIES B
FOR
$75,000,000 12 3/4% SENIOR NOTES DUE 2001, SERIES A
---------------
PROSPECTUS
---------------
, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. 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 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 Purchase 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.
II-1
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1 Purchase Agreement dated November 6, 1997 By and Among VIALOG
Corporation, TBMA Acquisition Corporation, CSII Acquisition
Corporation, Call Points Acquisition Corporation, KST Acquisition
Corporation, AMCS Acquisition Corporation, CDC Acquisition
Corporation, and Jefferies & Company, Inc.
1.2 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.
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.
3.1 Restated Articles of Organization of VIALOG Corporation.
3.2 Amended and Restated By-Laws of VIALOG Corporation.
3.3 Certificate of Incorporation of Communications 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.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
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 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., 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).
4.2 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.,
Communications Development Corporation, and State Street Bank and
Trust Company (including Form of Unit Certificate attached to the Unit
Agreement as Exhibit A).
4.3 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).
4.4 Security Holders' and Registration Rights Agreement Dated as of
November 12, 1997 Among VIALOG Corporation and Jefferies & Company,
Inc.
4.5 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.--attached as Exhibit 1.2 to this Registration Statement
4.6* Exchange Agent Agreement Dated as of February 9, 1998.
5.1* 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.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
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.
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.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
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.
12.1 Statement Regarding Computation of Ratios.
21.1 Subsidiaries of the Company.
23.1* Consent of KPMG Peat Marwick LLP.
23.2* Consent of Mirick, O'Connell, DeMallie & Lougee, LLP (incorporated in
the Opinion filed as Exhibit 5.1 above).
24.1 Power of Attorney (included on the signature page of this Registration
Statement).
25.1 Statement of Eligibility of Trustee.
27.1 Financial Data Schedule.
99.1* Form of Letter of Transmittal for Exchange Offer.
</TABLE>
- --------
* Filed with this Amendment No. 1. All non-marked Exhibits listed above were
filed with the Commission on January 9, 1998.
(b) FINANCIAL STATEMENT SCHEDULES
No financial statement schedules are required to be included.
ITEM 22. UNDERTAKINGS.
(1) The undersigned registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c),
the issuer undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form.
(2) The registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415 will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment 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.
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
Securities Act of 1933 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
II-5
<PAGE>
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 to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a post-
effective amendment all information concerning a transaction, and the company
being acquired involved therein, that was not the subject of and included in
the registration statement when it became effective.
II-6
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT NO. 1 TO REGISTRATION STATEMENT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF
BOSTON, COMMONWEALTH OF MASSACHUSETTS, ON FEBRUARY 9, 1998.
Vialog Corporation
/s/ Glenn D. Bolduc
By: _________________________________
GLENN D. BOLDUC
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN
THE CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<S> <C>
SIGNATURES TITLE
DATE
/s/ Glenn D. Bolduc President, Chief February 9,
By: _________________________________ Executive Officer, 1998
GLENN D. BOLDUC Treasurer and
Director
/s/ John J. Dion Vice President-- February 9,
By: _________________________________ Finance, Principal 1998
JOHN J. DION Financial Officer
and Principal
Accounting Officer
/s/ Joanna M. Jacobson* Director February 9,
By: _________________________________ 1998
JOANNA M. JACOBSON
/s/ David L. Lougee* Director February 9,
By: _________________________________ 1998
DAVID L. LOUGEE
/s/ David L. Lipsky* Director February 9,
By: _________________________________ 1998
DAVID L. LIPSKY
/s/ Patti R. Bisbano* Director February 9,
By: _________________________________ 1998
PATTI R. BISBANO
</TABLE>
* By Glenn D. Bolduc, attorney-in-fact pursuant to a Power of Attorney
previously filed.
II-7
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT NO. 1 TO REGISTRATION STATEMENT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF
BOSTON, COMMONWEALTH OF MASSACHUSETTS, ON FEBRUARY 9, 1998.
Telephone Business Meetings, Inc.
/s/ Glenn D. Bolduc
By: ________________________________
GLENN D. BOLDUC AUTHORIZED
SIGNATORY
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN
THE CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<S> <C> <C>
SIGNATURES TITLE
DATE
/s/ William P. Pucci* President February 9,
By: _________________________________ 1998
WILLIAM P. PUCCI
/s/ John Novack* Principal Financial February 9,
By: _________________________________ Officer and 1998
JOHN NOVACK Principal
Accounting Officer
/s/ Glenn D. Bolduc Director February 9,
By: _________________________________ 1998
GLENN D. BOLDUC
</TABLE>
* By Glenn D. Bolduc, attorney-in-fact pursuant to a Power of Attorney
previously filed.
II-8
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT NO. 1 TO REGISTRATION STATEMENT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF
BOSTON, COMMONWEALTH OF MASSACHUSETTS, ON FEBRUARY 9, 1998.
Conference Source International,
Inc.
/s/ Glenn D. Bolduc
By: _________________________________
GLENN D. BOLDUC
AUTHORIZED SIGNATORY
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN
THE CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<S> <C> <C>
SIGNATURES TITLE
DATE
/s/ Judy B. Crawford* President February 9,
By: _________________________________ 1998
JUDY B. CRAWFORD
/s/ Katrina Bradbury* Principal Financial February 9,
By: _________________________________ Officer and 1998
KATRINA BRADBURY Principal
Accounting Officer
/s/ Glenn D. Bolduc Director February 9,
By: _________________________________ 1998
GLENN D. BOLDUC
</TABLE>
* By Glenn D. Bolduc, attorney-in-fact pursuant to a Power of Attorney
previously filed.
II-9
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT NO. 1 TO REGISTRATION STATEMENT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF
BOSTON, COMMONWEALTH OF MASSACHUSETTS, ON FEBRUARY 9, 1998.
Call Points, Inc.
/s/ Glenn D. Bolduc
By: _________________________________
GLENN D. BOLDUC
AUTHORIZED SIGNATORY
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN
THE CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<S> <C> <C>
SIGNATURES TITLE
DATE
/s/ Olen E. Crawford* President February 9,
By: _________________________________ 1998
OLEN E. CRAWFORD
/s/ Marcus Jones* Principal Financial February 9,
By: _________________________________ Officer and 1998
MARCUS JONES Principal
Accounting Officer
/s/ Glenn D. Bolduc Director February 9,
By: _________________________________ 1998
GLENN D. BOLDUC
</TABLE>
* By Glenn D. Bolduc, attorney-in-fact pursuant to a Power of Attorney
previously filed.
II-10
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT NO. 1 TO REGISTRATION STATEMENT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF
BOSTON, COMMONWEALTH OF MASSACHUSETTS, ON FEBRUARY 9, 1998.
Kendall Square Teleconferencing,
Inc.
/s/ Glenn D. Bolduc
By: _________________________________
GLENN D. BOLDUC
AUTHORIZED SIGNATORY
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN
THE CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<S> <C>
SIGNATURES TITLE
DATE
/s/ Courtney P. Snyder* President February 9,
By: _________________________________ 1998
COURTNEY P. SNYDER
/s/ Mark Pashoian* Principal Financial February 9,
By: _________________________________ Officer and 1998
MARK PASHOIAN Principal
Accounting Officer
/s/ Glenn D. Bolduc Director February 9,
By: _________________________________ 1998
GLENN D. BOLDUC
</TABLE>
* By Glenn D. Bolduc, attorney-in-fact pursuant to a Power of Attorney
previously filed.
II-11
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT NO. 1 TO REGISTRATION STATEMENT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF
BOSTON, COMMONWEALTH OF MASSACHUSETTS, ON FEBRUARY 9, 1998.
American Conferencing Company, Inc.
/s/ Glenn D. Bolduc
By: _________________________________
GLENN D. BOLDUC
AUTHORIZED SIGNATORY
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN
THE CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<S> <C> <C>
SIGNATURES TITLE
DATE
/s/ David L. Lipsky* President February 9,
By: _________________________________ 1998
DAVID L. LIPSKY
/s/ Michael Maraccia* Principal Financial February 9,
By: _________________________________ Officer and 1998
MICHAEL MARACCIA Principal
Accounting Officer
/s/ Glenn D. Bolduc Director February 9,
By: _________________________________ 1998
GLENN D. BOLDUC
</TABLE>
* By Glenn D. Bolduc, attorney-in-fact pursuant to a Power of Attorney
previously filed.
II-12
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT NO. 1 TO REGISTRATION STATEMENT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF
BOSTON, COMMONWEALTH OF MASSACHUSETTS, ON FEBRUARY 9, 1998.
Communication Development
Corporation
/s/ Glenn D. Bolduc
By: _________________________________
GLENN D. BOLDUC
AUTHORIZED SIGNATORY
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN
THE CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<S> <C>
SIGNATURES TITLE
DATE
/s/ Patti R. Bisbano* President February 9,
By: _________________________________ 1998
PATTI R. BISBANO
/s/ Gloria Ebbesen* Principal Financial February 9,
By: _________________________________ Officer and 1998
GLORIA EBBESEN Principal
Accounting Officer
/s/ Glenn D. Bolduc Director February 9,
By: _________________________________ 1998
GLENN D. BOLDUC
</TABLE>
* By Glenn D. Bolduc, attorney-in-fact pursuant to a Power of Attorney
previously filed.
II-13
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1 Purchase Agreement dated November 6, 1997 By and Among VIALOG
Corporation, TBMA Acquisition Corporation, CSII Acquisition
Corporation, Call Points Acquisition Corporation, KST Acquisition
Corporation, AMCS Acquisition Corporation, CDC Acquisition
Corporation, and Jefferies & Company, Inc.
1.2 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.
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.
3.1 Restated Articles of Organization of VIALOG Corporation.
3.2 Amended and Restated By-Laws of VIALOG Corporation.
3.3 Certificate of Incorporation of Communications 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.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
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 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., 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).
4.2 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.,
Communications Development Corporation, and State Street Bank and
Trust Company (including Form of Unit Certificate attached to the Unit
Agreement as Exhibit A).
4.3 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).
4.4 Security Holders' and Registration Rights Agreement Dated as of
November 12, 1997 Among VIALOG Corporation and Jefferies & Company,
Inc.
4.5 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.--attached as Exhibit 1.2 to this Registration Statement
4.6* Exchange Agent Agreement Dated as of February 9, 1998.
5.1* 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.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
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.
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.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
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.
12.1 Statement Regarding Computation of Ratios.
21.1 Subsidiaries of the Company.
23.1* Consent of KPMG Peat Marwick LLP.
23.2* Consent of Mirick, O'Connell, DeMallie & Lougee, LLP (incorporated in
the Opinion filed as Exhibit 5.1 above).
24.1 Power of Attorney (included on the signature page of this Registration
Statement).
25.1 Statement of Eligibility of Trustee.
27.1 Financial Data Schedule.
99.1* Form of Letter of Transmittal for Exchange Offer.
</TABLE>
- --------
* Filed with this Amendment No. 1. All non-marked Exhibits listed above were
filed with the Commission on January 9, 1998.
<PAGE>
EXHIBIT 4.6
-----------
EXCHANGE AGENT AGREEMENT
------------------------
February 9, 1998
State Street Bank and Trust Company
2 International Place
Boston, Massachusetts 02110
Attention: Roland Gustafsen
Ladies and Gentlemen:
VIALOG Corporation, a corporation formed under the laws of the
Commonwealth of Massachusetts (the "Company"), proposes to make an offer (the
"Exchange Offer") to exchange its $1,000 principal amount 12 3/4% Series A
Senior Notes due 2001 (the "Old Notes") for its $1,000 principal amount 12 3/4%
Series B Senior Notes due 2001 (the "Exchange Notes"). The Old Notes and the
Exchange Notes are collectively referred to herein as the "Notes." The terms
and conditions of the Exchange Offer as currently contemplated are set forth in
a prospectus, dated February 12, 1998 (the "Prospectus"), to be distributed by
the Company to all record holders of the Units of the Company each consisting of
(i) one Old Note and one Warrant (a "Warrant") to purchase 10.0886 shares of the
Common Stock ("Common Stock"), par value $.01 per share of the Company (the
"Units").
The Company hereby appoints State Street Bank and Trust Company to act
as exchange agent (the "Exchange Agent") in connection with the Exchange Offer
to effect the exchange of Units for Exchange Notes and Warrants, on the terms
and subject to conditions of this agreement. References hereinafter to "you"
shall refer to State Street Bank and Trust Company.
The Exchange Offer is expected to be commenced by the Company on or
about February 12, 1998. The Letter of Transmittal accompanying the Prospectus
(or in the case of Units to be tendered by book-entry transfer, the transmission
of an Agent's Message (as defined below) in lieu of delivery of the Letter of
Transmittal through the Book-Entry Transfer Facility's Automated Tender Offer
Program ("ATOP") is to be used by the holders of the Units to accept the
Exchange Offer and contains instructions with respect to (i) the delivery of
certificates for the Units tendered in connection therewith and (ii) the book
entry transfer of Notes and Warrants to the Exchange Agent's account.
The Exchange Offer shall expire at 5:00 P.M., New York City time, on
March 26, 1998 or on such later date or time to which the Company may extend the
Exchange Offer (the "Expiration Date"). Subject to the terms and conditions set
forth in the Prospectus, the Company expressly reserves the right to extend the
Exchange Offer from time to time by
<PAGE>
giving oral (to be confirmed in writing) or written notice to you before 9:00
A.M., New York City time, on the business day following the previously scheduled
Expiration Date.
The Company expressly reserves the right to amend or terminate the
Exchange Offer, and not to accept for exchange any Unit not theretofore accepted
for exchange, upon the occurrence of any of the conditions of the Exchange Offer
specified in the Prospectus under the captions "The Exchange Offer--General," "-
- -Expiration Date, Extensions; Amendments" and "--Termination". The Company will
give oral (confirmed in writing) or written notice of any amendment, termination
or nonacceptance of Units to you promptly after any amendment, termination or
nonacceptance.
In carrying out your duties as Exchange Agent, you are to act in
accordance with the following instructions:
1. You will perform such duties and only such duties as are
specifically set forth in the section of the Prospectus captioned "The Exchange
Offer" or as specifically set forth herein; provided, however, that in no way
-------- -------
will your general duty to act in good faith be discharged by the foregoing.
2. You will establish an account with respect to the Units at The
Depository Trust Company (the "Book-Entry Transfer Facility") for purposes of
the Exchange Offer within two business days after the date of the Prospectus,
and any financial institution that is a participant in the Book-Entry Transfer
Facility's system may make book-entry delivery of the Units by causing the Book-
Entry Transfer Facility to transfer such Units into your account in accordance
with the Book-Entry Transfer Facility's procedure for such transfer.
3. You are to examine each of the Letters of Transmittal, or Agent's
Message, in lieu thereof, and certificates for the Units (or confirmation of
book-entry transfer into your account at the Book-Entry Transfer Facility) and
any other documents delivered or mailed to you by or for holders of the Units to
ascertain whether: (i) the Letters of Transmittal and any such other documents
are duly executed and properly completed in accordance with instructions set
forth therein and (ii) the Units have otherwise been properly tendered. In each
case where the Letter of Transmittal or any other document has been improperly
completed or executed or any of the certificates for the Units are not in proper
form for transfer or some other irregularity in connection with the acceptance
of the Exchange Offer exists, you will endeavor to inform the presenters of the
need for fulfillment of all requirements and to take any other action as may be
necessary or advisable to cause such irregularity to be corrected. You need not
pass on the legal sufficiency of any signature or verify any signature
guarantee.
4. With the approval of the President or the Vice President - Finance
of the Company or any other officer of the Company designated in writing by the
President or the Vice President - Finance of the Company (a "Designated
Officer") (such approval, if given orally, to be confirmed in writing) or any
other party designated by any such Designated Officer in writing, you are
authorized to waive any irregularities in connection with any tender of Units
pursuant to the Exchange Offer.
2
<PAGE>
5. Tenders of the Units may be made only as set forth in the Letter
of Transmittal and in the section of the Prospectus captioned "The Exchange
Offer--Procedures for Tendering," and the Units shall be considered properly
tendered to you only when tendered in accordance with the procedures set forth
herein and therein.
Notwithstanding the provisions of this paragraph 5, Units that any
Designated Officer of the Company shall approve as having been properly tendered
shall be considered to be properly tendered (such approval, if given orally,
shall be confirmed in writing).
6. You shall advise the Company with respect to any Units received
subsequent to the Expiration Date and accept their instructions with respect to
disposition of such Units.
7. You shall accept tenders:
(a) in cases where the Units are registered in two or more names
only if signed by all named holders;
(b) in cases where the signing person (as indicated on the Letter
of Transmittal) is acting in a fiduciary or a representative capacity only when
proper evidence of such person's authority so to act is submitted; and
(c) from persons other than the registered holder of the Units
provided that customary transfer requirements, including any applicable transfer
taxes, are fulfilled.
You shall accept partial tenders of the Units where so indicated and
as permitted in the Letter of Transmittal and deliver certificates for the Units
to the transfer agent for split-up and return any untendered Units to the holder
(or such other person as may be designated in the Letter of Transmittal) as
promptly as practicable after expiration or termination of the Exchange Offer.
8. Upon satisfaction or waiver of all of the conditions to the
Exchange Offer, the Company will notify you (such notice if given orally, to be
confirmed in writing) of its acceptance, promptly after the Expiration Date, of
all Units properly tendered and you, on behalf of the Company, will exchange
such Units for Exchange Notes and Warrants and cause such Units to be canceled.
Delivery of Exchange Notes and Warrants will be made on behalf of the Company by
you at the rate of $1,000 principal amount of Exchange Notes for each $1,000
principal amount of the corresponding series of Old Notes tendered promptly
after notice (such notice if given orally, to be confirmed in writing) of
acceptance of said Units by the Company and one Warrant to purchase 10.0886
shares of Common Stock for each $1000 principal amount of Exchange Notes;
provided, however, that in all cases, the Units tendered pursuant to the
- -------- -------
Exchange Offer will be exchanged only after timely receipt by you of
certificates for such Units (or confirmation of book-entry transfer into your
account at the Book-Entry Transfer Facility), a properly completed and duly
executed Letter of Transmittal
3
<PAGE>
(or facsimile thereof), or for book-entry transfers of Units, an Agent's Message
in lieu thereof, with any required signature guarantees and any other required
documents. You shall issue Exchange Notes only in denominations of $1,000 or any
integral multiple thereof and one Warrant to purchase 10.0886 Shares of Common
Stock for each $1,000 principal amount of Exchange Notes or any integral
multiple thereof.
9. Tenders pursuant to the Exchange Offer are irrevocable, except
that, subject to the terms and upon the conditions set forth in the Prospectus
and the Letter of Transmittal, the Units tendered pursuant to the Exchange Offer
may be withdrawn at any time on or prior to the Expiration Date.
10. The Company shall not be required to exchange any Units tendered
if any of the conditions set forth in the Exchange Offer are not met. Notice of
any decision by the Company not to exchange any Units tendered shall be given
orally (and confirmed in writing) by the Company to you.
11. If, pursuant to the Exchange Offer, the Company does not accept
for exchange all or part of the Units tendered because of an invalid tender, the
occurrence of certain other events set forth in the Prospectus under the caption
"The Exchange Offer-- Termination" or otherwise, you shall promptly after the
expiration or termination of the Exchange Offer return those certificates for
unaccepted Units (or effect appropriate book-entry transfer), together with any
related required documents and the Letters of Transmittal relating thereto that
are in your possession, to the persons who deposited them.
12. All certificates for reissued Units, unaccepted Units or for
Exchange Notes and Warrants shall be forwarded by (a) first-class mail, under a
blanket surety bond protecting you and the Company from loss or liability
arising out of the non-receipt or non-delivery of such certificates or (b) by
registered mail insured separately for the replacement value of each of such
certificates.
13. You are not authorized to pay or offer to pay any concessions,
commissions or solicitation fees to any broker, dealer, bank or other persons or
to engage or utilize any person to solicit tenders.
14. As Exchange Agent hereunder you:
(a) shall have no duties or obligations other than those
specifically set forth in the section of the Prospectus captioned "The Exchange
Offer," the Letter of Transmittal or herein or as may be subsequently agreed to
in writing by you and the Company;
(b) will be regarded as making no representations and having no
responsibilities as to the validity, sufficiency (not only as to genuiness but
also as to its due execution, genuiness of signatures appearing thereon and as
to truth and accuracy of information contained therein), value or genuineness of
any of the certificates or the Units represented thereby deposited with you
pursuant to the Exchange Offer, and will not be
4
<PAGE>
required to and will make no representation as to the validity, value or
genuineness of the Exchange Offer or the Exchange Notes or Warrants;
(c) shall not be obligated to take any legal action hereunder that
might in your reasonable judgment involve any expense or liability, unless you
shall have been furnished with reasonable indemnity;
(d) shall not be liable to the Company for any action taken or
omitted by you, or any action suffered by you to be taken or omitted, without
gross negligence, willful misconduct or bad faith on your part, by reason of or
as a result of the administration of your duties hereunder in accordance with
the terms and conditions of this Agreement or by reason of your compliance with
the instructions set forth herein or with any written or oral instructions
delivered to you pursuant hereto, and may reasonably rely on and shall be
protected in acting in reliance upon any certificate, instrument, opinion,
notice, letter, telegram or other document or security delivered to you and
reasonably believed by you to be genuine and to have been signed by the proper
party or parties;
(e) may reasonably act upon any tender, statement, request,
agreement or other instrument whatsoever not only as to its due execution and
validity and effectiveness of its provisions, but also as to the truth and
accuracy of any information contained therein, which you shall in good faith
believe to be genuine or to have been signed or represented by a proper person
or persons;
(f) may rely on and shall be protected in acting upon written or
oral instructions from any Designated Officer of the Company;
(g) may consult with your counsel with respect to any questions
relating to your duties and responsibilities and the advice or opinion of such
counsel shall be full and complete authorization and protection in respect of
any action taken, suffered or omitted to be taken by you hereunder in good faith
and in accordance with the advice or opinion of such counsel; and
(h) shall not advise any person tendering Units pursuant to the
Exchange Offer as to the wisdom of making such tender or as to the market value
or decline or appreciation in market value of any Units.
(i) you shall not be deemed to have notice of any fact, claim or
demand with respect hereto unless actually known by an officer charged with
responsibility for administering this Agreement or unless in writing received by
you and making specific reference to this Agreement.
15. You shall take such action as may from time to time be reasonably
requested by the Company or its counsel (and such other action as you may
reasonably deem appropriate) to furnish copies of the Prospectus, Letter of
Transmittal and the Notice of Guaranteed Delivery (as defined in the Prospectus)
or such other forms as may be approved from time to time by the Company, to all
persons requesting such documents and to accept and
5
<PAGE>
comply with telephone requests for information relating to the Exchange Offer,
provided that such information shall relate only to the procedures for accepting
(or withdrawing from) the Exchange Offer. The Company will furnish you with
copies of such documents at your request. All other requests for information
relating to the Exchange Offer shall be directed to the Company, Attention:
Glenn D. Bolduc, President. The Company shall pay the reasonable fees and
expenses of the Exchange Agent in providing the services set forth in this
section.
16. You shall advise by facsimile transmission or telephone, and
promptly thereafter confirm in writing to Glenn D. Bolduc, and such other person
or persons as the Company may request, daily (and more frequently during the
week immediately preceding the Expiration Date as reasonably otherwise
requested) up to and including the Expiration Date, as to the number of Units
that have been tendered pursuant to the Exchange Offer and the items received by
you pursuant to this Agreement, separately reporting and giving cumulative
totals as to items properly received and items improperly received. In addition,
you will also inform, and cooperate in making available to, the Company or any
such other person or persons upon oral request made from time to time on or
prior to the Expiration Date of such other information as it or such person
reasonably requests. Such cooperation shall include, without limitation, the
granting by you to the Company and such person as the Company may request of
access to those persons on your staff who are responsible for receiving tenders,
in order to ensure that immediately prior to the Expiration Date the Company
shall have received information in sufficient detail to enable it to decide
whether to extend the Exchange Offer. You shall prepare a final list of all
persons whose tenders were accepted, the aggregate amount of Units tendered, the
aggregate amount of Units accepted and deliver the list to the Company promptly
after the Expiration Date.
17. Letters of Transmittal and Notices of Guaranteed Delivery shall be
stamped by you as to the date and the time of receipt thereof and shall be
maintained by you for a period of time at least equal to the period of time you
maintain other records pertaining to the transfer of Notes. You shall dispose of
unused Letters of Transmittal and other surplus materials by returning them to
the Company at the address set forth below for notices.
18. You hereby expressly waive any lien, encumbrance or right of set-
off whatsoever that you may have with respect to funds deposited with you for
the payment of transfer taxes by reasons of amounts, if any, borrowed by the
Company, or any of its subsidiaries or affiliates pursuant to any loan or credit
agreement with you or for compensation owed to you hereunder.
19. For services rendered as Exchange Agent hereunder, you shall be
entitled to such compensation and reimbursement of out-of-pocket expenses as set
forth on Schedule I attached hereto.
----------
20. You hereby acknowledge receipt of the Prospectus and the Letter of
Transmittal and further acknowledge that you have examined each of them. Any
inconsistency between this Agreement, on the one hand, and the Prospectus and
the Letter of Transmittal (as they may be amended from time to time), on the
other hand, shall be resolved in favor of the
6
<PAGE>
latter two documents, except with respect to the duties, liabilities and
indemnification of you as Exchange Agent, which shall be controlled by this
Agreement.
21. (a) The Company covenants and agrees to indemnify and hold you
harmless in your capacity as Exchange Agent hereunder against any loss,
liability, cost or expense, including reasonable attorneys' fees and expenses,
arising out of or in connection with the administration of your duties hereunder
or any act, omission, delay or refusal made by you in reliance upon any
signature, endorsement, assignment, certificate, order, request, notice,
instruction or other instrument or document reasonably believed by you to be
valid, genuine and sufficient and in accepting any tender or effecting any
transfer of Units reasonably believed by you in good faith to be authorized, and
in delaying or refusing in good faith to accept any tenders or effect any
transfer of Units; provided, however, that the Company shall not be liable for
-------- -------
indemnification or otherwise for any loss, liability, cost or expense to the
extent arising out of your gross negligence or willful misconduct.
(b) You agree that, without the prior written consent of the
Company (which consent shall not be unreasonably withheld), you will not settle,
compromise or consent to the entry of any pending or threatened claim, action,
or proceeding in respect of which indemnification could be sought in accordance
with the indemnification provisions of this Agreement (whether or not you or the
Company is an actual or potential party to such claim, action or proceeding),
unless such settlement, compromise or consent includes an unconditional release
of the Company from all liability arising out of such claim, action or
proceeding.
22. This Agreement and your appointment as Exchange Agent hereunder
shall be construed and enforced in accordance with the laws of the Commonwealth
of Massachusetts applicable to agreements made and to be performed entirely
within such state, and without regard to conflicts of law principles, and shall
inure to the benefit of, and the obligations created hereby shall be binding
upon, the successors and assigns of each of the parties hereto.
23. This Agreement may be executed in one or more counterparts, each
of which shall be deemed to be an original and all of which taken together shall
constitute one and the same agreement.
24. In case any provision of this Agreement shall be invalid, illegal
or unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
25. This Agreement shall not be deemed or construed to be modified,
amended, rescinded, canceled or waived, in whole or in part, except by a written
instrument signed by a duly authorized representative of the party to be
charged. This Agreement may not be modified orally.
26. Unless otherwise provided herein, all notices, requests and other
communications to any party hereunder shall be in writing (including facsimile
or similar
7
<PAGE>
writing) and shall be given to such party, addressed to it, at its address or
facsimile number set forth below:
If to the Company:
VIALOG Corporation
Ten New England Business Center, Suite 302
Andover, Massachusetts 01810
Facsimile: (978) 975-7208
Attention: Glenn D. Bolduc, President
If to the Exchange Agent:
State Street Bank and Trust Company
2 International Place
Boston, Massachusetts 02110
Facsimile: (617) 664-5150
Attention: Roland Gustafsen
27. Unless terminated earlier by the parties hereto, this Agreement
shall terminate 90 days following the Expiration Date. Notwithstanding the
foregoing, paragraphs 19 and 21 shall survive the termination of this Agreement.
Upon any termination of this Agreement, you shall promptly deliver to the
Company any certificates for Units, Notes, Warrants, funds or property then held
by you as Exchange Agent under this Agreement.
28. This Agreement shall be binding and effective as of the date
hereof.
Please acknowledge receipt of this Agreement and confirm the
arrangements herein provided by signing and returning the enclosed copy.
VIALOG Corporation
By: /s/ Glenn D. Bolduc
---------------------
Name: Glenn D. Bolduc
Title: President
Accepted as the date
first above written:
8
<PAGE>
STATE STREET BANK AND TRUST COMPANY, as Exchange Agent
By: /s/ Roland Gustafsen
---------------------
Name: Roland Gustafsen
Title: Assistant Vice President
9
<PAGE>
SCHEDULE I
----------
FEES
STATE STREET BANK AND TRUST COMPANY
EXCHANGE AGENCY
FEE SCHEDULE
10
<PAGE>
EXHIBIT 5.1
-----------
MIRICK, O'CONNELL, DEMALLIE & LOUGEE, LLP
ATTORNEYS AT LAW
1700 BankBoston Tower
100 Front Street
Worcester, MA 01608-1477
508-791-8500
fax: 508-791-8502
February 10, 1998
VIALOG Corporation and each of the
Subsidiary Guarantors (defined below)
10 New England Business Center
Suite 302
Andover, MA 01810
Ladies and Gentlemen:
We have acted as counsel for VIALOG Corporation, a Massachusetts
corporation (the "Company"), and the Subsidiary Guarantors in connection with
the proposed offer by the Company to exchange (the "Exchange Offer") all
outstanding 12.75% Senior Notes due 2001, Series A ($75,000,000 principal amount
outstanding) (the "Old Notes") for 12.75% Senior Notes due 2001, Series B
($75,000,000 principal amount)(the "Exchange Notes"). The Old Notes have been,
and the Exchange Notes will be, issued pursuant to an indenture dated as of
November 12, 1997 (the "Indenture") among the Company, the Subsidiary Guarantors
and State Street Bank and Trust Company, as Trustee (the "Trustee"). Telephone
Business Meetings, Inc., Conference Source International, Inc., Call Points,
Inc., Kendall Square Teleconferencing, Inc., American Conferencing Company, Inc.
and Communication Development Corporation are collectively referred to as the
"Subsidiary Guarantors," and the guarantees by the Subsidiary Guarantors with
respect to the Exchange Notes are collectively referred to the "Subsidiary
Guarantees." At your request, this opinion letter is being rendered to you.
In connection with such matters, we have examined the Indenture, the
Registration Statement on Form S-4, together with all amendments to date, filed
by the Company and the Subsidiary Guarantors with the Securities and Exchange
Commission for the registration of the Exchange Notes and the Subsidiary
Guarantees (collectively referred to as the "Securities") under the Securities
Act of 1933, as amended (that Registration Statement, as amended at the time it
becomes effective, being referred to as the "Registration Statement") and such
corporate records of the Company and the Subsidiary Guarantors, certificates of
public officials and other documents as we have deemed necessary or appropriate
for the purpose of this opinion letter.
With respect to all documents examined by us, we have assumed the
genuineness of all signatures, the authenticity of all documents submitted to us
as originals, the conformity to original
<PAGE>
documents of all documents submitted to us as certified or photostatic copies or
forms, and the legal capacity of all natural persons.
Based upon the foregoing and subject to the qualifications set forth below,
we are of the opinion that the Securities have been duly authorized for issuance
by all necessary corporate action on the part of the Company and the Subsidiary
Guarantors and, subject to the Registration Statement becoming effective under
the Securities Act of 1933, as amended, and to compliance with any applicable
state securities laws, when issued, executed, delivered, authenticated and
exchanged in accordance with the Exchange Offer as described in the Registration
Statement and the Indenture, will be valid and binding obligations of the
Company and the Subsidiary Guarantors, and will be enforceable against the
Company and the Subsidiary Guarantors, in accordance with their respective
terms.
The opinions expressed in this opinion letter are subject to (i)
bankruptcy, insolvency, receivership, reorganization, moratorium, liquidation,
rearrangement, fraudulent transfer, fraudulent conveyance and other similar laws
(including court decisions) now or hereafter in effect relating to or affecting
the rights and remedies of creditors generally or providing for the relief of
debtors; (ii) the refusal of a particular court to grant equitable remedies,
including without limitation specific performance and injunctive relief; and
(iii) general principles of equity (regardless of whether considered and applied
in a proceeding in equity or at law).
The opinions expressed in this opinion letter are limited exclusively to
the laws of the State of New York and the Commonwealth of Massachusetts which
are presently in effect.
We hereby consent to the filing of this opinion as an Exhibit to the
Registration Statement and to the reference to Mirick, O'Connell, DeMallie &
Lougee, llp under "Legal Matters" in the prospectus forming a part of the
Registration Statement. In giving this consent, we do not thereby admit that we
are within the category of persons whose consent is required under Section 7 of
the Securities Act of 1933 and the rules and regulations of the Securities and
Exchange Commission thereunder. Except as specifically stated above, this
opinion letter may not be used for any other purpose or relied upon by any other
person or entity without our prior written consent.
Very truly yours,
/s/ MODL
Mirick, O'Connell, DeMallie & Lougee, LLP
<PAGE>
EXHIBIT 10.21
-------------
EMPLOYMENT AGREEMENT
--------------------
This Agreement is entered into as of November 20, 1997 by and between Call
Points, Inc., a Delaware corporation with its principal place of business at
Montgomery, Alabama (the "Company") and OLEN E. CRAWFORD, an individual residing
at the address which appears below his signature to this Agreement
("Executive").
FACTS
The company is a subsidiary of VIALOG Corporation, a Massachusetts
Corporation ("VIALOG").
The Company desires to employ Executive as a senior executive with the
duties, responsibilities, rights and obligations set forth below, and Executive
desires to be so employed.
In Executive's capacity as a senior executive of the Company, Executive
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 Executive agree as follows:
1. Term. The term of this Agreement will commence at the Effective Time,
----
as that term is defined in the Acquisition Agreements (the "Effective Time"),
and will continue for one year from the Effective Time unless terminated in
accordance with the provisions of Section 6 of this Agreement (the "Term").
2. Duties and Responsibilities. The Company agrees to employ Executive,
---------------------------
and Executive agrees to be employed, as President and Chief Executive Officer,
and Executive will perform all of the duties and responsibilities of said
office, subject to direction by the Chief Executive Officer, Vice President -
Operations and the Board of Directors of VIALOG. In addition, Executive will
perform such other specific tasks and responsibilities, consistent with
Executive's position as President and Chief Executive Officer, as may be
assigned to him from time to time by the Board of Directors of the Company.
Executive will not be required to locate outside the Southeastern United States
area without Executive's consent. Executive will devote substantially all of
Executive's business time, labor, skill and best efforts to carrying out
Executive's duties and responsibilities under this Agreement. Executive may
engage in side business activities so long as (i) Executive does not otherwise
violate any other provision of this Agreement, and (ii) such side business
activities do not interfere with Executive's ability to carry out Executive's
duties and responsibilities under this Agreement. Executive will travel to
whatever extent may be reasonably necessary in the conduct of the VIALOG Group's
business and Executive's duties and responsibilities under this Agreement.
<PAGE>
3. Compensation. Subject to Executive's adherence to Executive's
------------
responsibilities and obligations under this Agreement, the Company agrees to pay
Executive a base compensation for the Term of $180,000 and such additional
compensation as may be mutually agreed upon from time to time by the Company and
Executive. Executive 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. In addition to his base
compensation, Executive will be granted an incentive stock option to purchase
75,000 shares of VIALOG's Common Stock, which option shall vest as to 25,000
shares on the first anniversary of the date of grant and as to 6,250 shares on
the last day of each calendar quarter thereafter.
4. Benefits and Vacation. Executive will be eligible to participate in
---------------------
and/or receive such group insurance plans, other fringe benefit plans and
vacation as the Company makes available to similarly situated senior executives.
Executive is entitled to the same level of health and dental benefits as the
health and dental benefits provided to the Executive by Conference Source
International, Inc. immediately prior to the Effective Time. During the term of
this Agreement, the Executive will receive an automobile allowance in the amount
of $500 per month.
5. Expense Reimbursement. Executive will be entitled to reimbursement for
---------------------
business expenses incurred by Executive connection with the performance of
Executive'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.
6. Termination. The Company may terminate Executive's employment at any
-----------
time during the Term for any reason as follows:
(a) By the Company for Cause. The Company has the right to terminate
------------------------
Executive's employment immediately for "Cause". For purposes of this Agreement
only, the term "Cause" means material willful misconduct in the performance of
Executive's duties or responsibilities; conviction of, or written admission to,
a felony or other crime involving moral turpitude; imprisonment for any crime
constituting a felony; or conviction of any crime involving theft, embezzlement
or fraud. If Executive's employment is terminated for Cause, the Company will
only be obligated to pay Executive his base compensation through the date of
such termination, together with such other benefits or payments to which
Executive may be entitled (in the event of a Cause termination) by law or
pursuant to benefit plans of the Company then in effect. Executive will remain
bound by Executive's obligations under Sections 7, 8 and 9 of this Agreement.
(b) Disability. The Company has the right to terminate Executive's
----------
employment if Executive is prevented, by illness, accident, disability or any
other physical or mental condition, from substantially performing Executive's
duties and responsibilities under this Agreement for one or more periods
totaling one hundred fifty (150) days during the Term. If Executive's
employment is terminated pursuant to this section, Executive will be entitled to
2
<PAGE>
receive such base compensation and group insurance benefits as Executive would
have received (at such times as Executive would have received them) during a
period equal to the remainder of the Term had Executive remained employed by the
Company, which amount will be reduced by only the amount actually received by
Executive under any disability plans maintained by the Company. Executive will
also be entitled to receive such payments or benefits to which Executive may be
entitled by law or pursuant to benefit plans of the Company then in effect.
Executive will remain bound by Executive's obligations under Sections 7, 8 and 9
of this Agreement.
(c) Death. If Executive dies during the Term, then the Company will
-----
pay to Executive's estate, designated beneficiary, or legal representative such
base compensation and group insurance benefits as Executive would have received
(at such times as Executive would have received them) during a period equal to
the remainder of the Term, together with such other benefits or payments to
which Executive 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 Executive each have the right to terminate
- -------------------
Executive's employment upon thirty (30) days' prior written notice. If
Executive's employment is terminated pursuant to this Section 6 (d) during the
Term by the Company, Executive will be entitled to receive such base
compensation and group insurance benefits as Executive would have received (at
such times as Executive would have received them) during a period equal to the
remainder of the Term had Executive remained employed by the Company (the
"Severance Period"), together with such other payments and benefits to which
Executive may be entitled by law or pursuant to benefit plans of the Company
then in effect. Executive will remain bound by Executive's obligations under
Sections 7, 8 and 9 of this Agreement.
7. Confidentiality. Executive 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 him 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 Executive's, nor does it include salary, bonus or other personnel information
specific to Executive.
Executive 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 Executive (or anyone acting at Executive's direction or on
Executive's behalf) from the VIALOG
3
<PAGE>
Group's custody or premises without the Company's prior written consent. Upon
the termination of Executive's employment, Executive will promptly deliver to
the Company all copies of all documents, equipment, property or materials of any
type in Executive'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, Executive 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 Executive in the course of employment), Executive'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 Executive 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. Executive agrees,
at the Company's expense, to take all steps necessary or proper to vest title to
all such Intellectual Property in the 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),
---------------------
Executive will not, directly or indirectly, for Executive'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
teleconferencing business of the VIALOG Group;
(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 Executive'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 Executive or where Executive
supervised or participated in such solicitation activities; or
(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
solicity 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.
4
<PAGE>
For purposes of this Agreement, the Restricted Period will be a period
beginning at the Effective Time, as that term is defined in the Acquisition
Agreements, and ending three (3) years after the Effective Time.
Executive 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 Executive
does not otherwise (i) participate in the management or operation of any such
business, or (ii) violate any other provision of this Agreement.
Executive understands and agrees that, by virtue of Executive's position
with the Company, Executive 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 Executive engage
in business in competition with the VIALOG Group. Executive acknowledges that
Executive'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. Executive 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. Executive 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
-------------
related to it, will be governed by the law of the State of Alabama.
12. Choice of Forum. All disputes arising under or out of this Agreement
---------------
will be brought in courts of competent jurisdiction located within the State of
Alabama.
13. Assignment. This Agreement, and the rights and obligations of
----------
Executive and the Company, inures to the benefit of and is binding upon,
Executive, Executive's heirs and representatives, and upon the Company, the
Subsidiaries and their respective successors and assigns. This Agreement may
not be assigned by Executive. 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 Executive, to the address which appears below Executive's
signature to this Agreement
5
<PAGE>
(b) If to the Company:
Call Points, Inc.
c/o VIALOG Corporation
Ten New England Business Center
Suite 302
Andover, MA 01810
ATTN: President
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.
16. Consultation with Counsel; No Representations. Executive acknowledges
---------------------------------------------
that Executive has had a full and complete opportunity to consult with counsel
of Executive's own choosing concerning the terms, enforceability and
implications of this Agreement, and that the Company has made no representations
or warranties to Executive concerning the terms, enforceability or implications
of this Agreement other than are as reflected in this Agreement.
17. Entire Agreement. This Agreement represents the entire agreement
----------------
between the Executive and the Company with respect to the subject matter hereof
and supersedes all other agreements between the Company and Executive with
respect to such subject matter.
Executed under seal as of November 20, 1997.
OLEN E. CRAWFORD CALL POINTS, INC.
/s/ Olen E. Crawford By: /s/ Glenn D. Bolduc
- ---------------------- ------------------------------------
Name: Olen E. Crawford Name: Glenn D. Bolduc
Title: Director and Authorized Signer
260 Vaughn Lakes Blvd. #617
- ---------------------------
Address:
Montgomery, AL 06117
- ---------------------
6
<PAGE>
EXHIBIT 23.1
CONSENT OF KPMG PEAT MARWICK LLP
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" in the prospectus.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Boston, Massachusetts
February 9, 1998
<PAGE>
EXHIBIT 99.1
------------
LETTER OF TRANSMITTAL
VIALOG CORPORATION
NOTICE OF SEPARATION OF 75,000 UNITS
(CUSIP #92552X-AA4 AND CUSIP #92-55-2X-AB-2)
OF VIALOG CORPORATION INTO 12 3/4% SERIES A SENIOR NOTES
DUE 2001 AND WARRANTS
OFFER TO EXCHANGE ITS
12 3/4 % SERIES B SENIOR NOTES DUE 2001
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
FOR ANY AND ALL OF ITS OUTSTANDING
12 3/4 % SERIES A SENIOR NOTES DUE 2001
AS DESCRIBED HEREIN, BY
VIALOG CORPORATION
PURSUANT TO THE PROSPECTUS DATED FEBRUARY 12, 1998
- --------------------------------------------------------------------------------
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON MARCH 26, 1998, UNLESS THE OFFER IS EXTENDED. TENDERS MAY BE WITHDRAWN
PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
- --------------------------------------------------------------------------------
The Exchange Agent For The Exchange Offer Is:
By Hand Or Overnight Delivery: By Registered Or Certified Mail:
State Street Bank and Trust State Street Bank and Trust Company
Company
Corporate Trust Department Corporate Trust Department
2 International Place 2 International Place
Boston, Massachusetts 02110 Boston, Massachusetts 02110
Attn: Ken Ring Attn: Ken Ring
New York Drop Location
State Street Bank and Trust
Company, N.A.
61 Broadway
Concourse Level, Corporate Trust
Window
New York, New York 10008
Facsimile Transmissions:
(Eligible Institutions Only)
(617) 664-5290
To Confirm by Telephone or for
Information Call:
(617) 664-5558
<PAGE>
Delivery of this Letter of Transmittal to an address other than as set
forth above or transmission of this Letter of Transmittal via facsimile to a
number other than set forth above does not constitute a valid delivery.
THE INSTRUCTIONS CONTAINED HEREIN SHOULD BE READ CAREFULLY BEFORE THIS
LETTER OF TRANSMITTAL IS COMPLETED.
Capitalized terms used but not defined herein shall have the same meaning
given them in the Prospectus (as defined below).
Notice is hereby given to all holders of the 75,000 Units of VIALOG
Corporation (the "Company") consisting of 12 3/4% Series A Senior Notes due 2001
and Warrants to purchase 756,645 shares of Common Stock $.01 par value of the
Company that the Units have been separated as of the date of Prospectus, defined
below in accordance with the terms of the Offering Circular (the "Offering
Circular") dated November 6, 1997. See Offering Circular-Description of Units.
In connection with the separation of the Units all Units should be tendered to
the Exchange Agent pursuant to the terms of this Transmittal Letter. Tenders of
Units for separation will also constitute acceptance of the Exchange Offer,
defined below, unless otherwise specifically indicated herein.
The "Exchange Offer" means the offer to exchange 12 3/4% Series B Senior
Notes (the "Exchange Notes") of the Company due 2001 which have been registered
under the Securities Act of 1933 (the "Exchange Notes") for any and all of the
12 3/4% Series A Senior Notes (the "Old Notes") of the Company due 2001,
pursuant to the Prospectus dated February 12, 1998 (the "Prospectus").
To participate in the Exchange Offer, Holders of Units of the Company (each
Unit consisting of one $1,000 principal amount 12 3/4% Series A Notes due 2001
(the "Old Notes") and one warrant (a "Warrant") to purchase 10.0886 shares of
Common Stock of the Company ("Common Stock") par value $.01 per share) (a
"Unit") must tender the Unit by a (a) book-entry transfer pursuant to the
procedures set forth in the Prospectus under "The Exchange Offer--Procedures for
Tendering," or (b) forwarding Unit Certificates herewith. Holders who are DTC
Participants tendering by book-entry transfer must execute such tender through
the Automated Tender Offer Program ("ATOP") of DTC. A Holder using ATOP should
transmit its acceptance to DTC on or prior to the Expiration Date. DTC will (i)
verify such acceptance, (ii) execute a book-entry separation of the Unit into
its underlying Old Note and Warrants, and (iii) execute a transfer of the Old
Notes into Exchange Notes and Warrants, and (iv) execute a transfer of the
Exchange Notes and Warrants into the Exchange Agent's account at DTC and then
send to the Exchange Agent confirmation of such book-entry transfer (a "book-
entry confirmation"), including an agent's message ("Agent's Message")
confirming that DTC has received an express acknowledgment from such Holder that
such Holder has received and agrees to be bound by this Letter of Transmittal
and that the Trust and the Corporation may enforce this Letter of Transmittal
against such Holder. The book-entry confirmation must be received by the
Exchange Agent in order for the tender relating thereto to be effective. Book-
entry transfer to
2
<PAGE>
DTC in accordance with DTC's procedures does not constitute delivery of the
book-entry confirmation to the Exchange Agent.
If the tender is not made through ATOP, Unit Certificates, as well as this
Letter of Transmittal (or facsimile thereof), property completed and duly
executed, with any required signatures guarantees, and any other documents
required by this Letter of Transmittal, must be received by the Exchange Agent
at its address set forth herein on or prior to the Expiration Date in order for
such tender to be effective. Exchange Agent shall execute a separation and
cancellation of the Units in exchange for Exchange Notes and Warrants and
deliver the same to the Holders.
Holders of Units who cannot complete the procedures for delivery by book-
entry transfer of such Units on a timely basis or who cannot deliver their Unit
Certificates and all other required documents to the Exchange Agent on or prior
to the Expiration Date, must, in order to participate in the Exchange Offer,
tender their Units according to the guaranteed delivery procedures set forth in
the Prospectus under "The Exchange Offer--Guaranteed Delivery Procedures."
3
<PAGE>
DELIVERY OF DOCUMENTS TO THE BOOK-ENTRY TRANSFER
FACILITY DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT
NOTE: SIGNATURES MUST BE PRODUCED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
ALL TENDERING HOLDERS COMPLETE THIS BOX:
- --------------------------------------------------------------------------------
DESCRIPTION OF UNITS TENDERED
Units tendered
If blank, please print name and (Attach additional list if necessary)
address of registered holder
- --------------------------------------------------------------------------------
Unit Certificate Aggregate Principal Number
Number(s) Principal Amount of of Shares
Amount of Old Notes of
Old Notes Tendered Common
Tendered (if less Stock
all)** included
in Warrant
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TOTAL
AMOUNT
TENDERED
- --------------------------------------------------------------------------------
* Need not be completed by book-entry holders.
- --------------------------------------------------------------------------------
** Old Notes may be tendered in whole or in part in denominations of $1,000 and
integral multiples of $1,000 in excess thereof, provided that if any Old
Notes are tendered for exchange in part, the untendered principal amount
thereof must be $1,000 or any integral multiple of $1,000 in excess thereof.
All Old Notes held shall be deemed tendered unless a less number is
specified in this column. See Instruction 4.
- --------------------------------------------------------------------------------
(BOXES BELOW TO BE CHECKED BY ELIGIBLE INSTITUTIONS ONLY)
[ ] CHECK HERE IF TENDERED UNITS ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH DTC AND COMPLETE
THE FOLLOWING:
Name of Tendering Institution
-----------------------------------------
DTC Account Number
----------------------------------------------------
Transaction Code Number
-----------------------------------------------
4
<PAGE>
[ ] CHECK HERE AND ENCLOSE A PHOTOCOPY OF THE NOTICE OF GUARANTEED DELIVERY IF
TENDERED UNITS ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED
DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPELTE THE FOLLOWING:
Name of Registered Holder(s)
-------------------------------------------
Window Ticket Number (if any)
------------------------------------------
Date of Execution of Notice of Guaranteed Delivery
---------------------
Name of Institution which Guaranteed Delivery
--------------------------
If Guaranteed Delivery is to be made By Book-Entry Transfer:
Name of Tendering Institution
-----------------------------------
DTC Account Number
-----------------------------------------------
Transaction Code Number
------------------------------------------
[ ] CHECK HERE IF TENDERED BY B00K-ENTRY TRANSFER AND NON-EXCHANGED NOTES ARE
TO BE RETURNED BY CREDITING THE DTC ACCOUNT NUMBER SET FORTH ABOVE.
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER WHO ACQUIRED THE UNITS FOR ITS OWN
ACOUNT AS A RESULT OF MARKET MAKING OR OTHER TRADING ACTIVITIES (A
"PARTICIPATING BROKER-DEALER") AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF
THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO.
5
<PAGE>
Name:
------------------------------------------------------------------------
Address:
---------------------------------------------------------------------
Ladies and Gentlemen:
The undersigned hereby tenders to VIALOG Corporation, a Massachusetts
Corporation (the "Company"), the above described Unit consisting of 12 3/4%
Series A Senior Notes Due 2001, (the "Old Notes") and a Warrant to purchase
shares of Common Stock of the Company (the "Warrant") in exchange for 12 3/4%
Series B Senior Notes Due 2001, (the "Exchange Notes") which have been
registered under the Securities Act of 1933 (the "Securities Act") and a
Warrant, upon the terms and subject to the conditions set forth in the
Prospectus dated February 12, 1998 (as the same may be amended or supplemented
from time to time, the "Prospectus"), receipt of which is hereby acknowledged,
and in this Letter of Transmittal (which, together with the Prospectus,
constitute the "Exchange Offer").
Subject to and effective upon the acceptance for exchange of all or
any portion of the Old Notes tendered herewith in accordance with the terms and
conditions of the Exchange Offer (including, if the Exchange Offer is extended
or amended, the terms and conditions of any such extension or amendment), the
undersigned hereby sells, assigns and transfers to or upon the order of the
Company all right, title and interest in and to such Units and the underlying
Old Notes and Warrant as are being tendered herewith. The undersigned hereby
irrevocably constitutes and appoints the Exchange Agent as its agent and
attorney-in-fact (with full knowledge that the Exchange Agent is also acting as
agent of the Company in connection with the Exchange Offer) with respect to the
tendered Units, with full power of substitution (such power of attorney being
deemed to be an irrevocable power coupled with an interest) subject only to the
right of withdrawal described in the Prospectus, to (i) deliver Units
Certificates consisting of the Old Notes and Warrants to the Company together
with all accompanying evidences of transfer and authenticity to, or upon the
order of, the Company, upon receipt by the Exchange Agent, as the undersigned's
agent, of the Exchange Notes and Warrants to be issued in exchange for such
Units, (ii) present Unit Certificates for cancellation, separation and transfer
Units on the books of the Company, and (iii) receive for the account of the
Company all benefits and otherwise exercise all rights of beneficial ownership
of such Units, all in accordance with the terms and conditions of the Exchange
Offer.
THE UNDERSIGNED HEREBY REPRESENTS AND WARRANTS THAT THE UNDERSIGNED HAS
FULL POWER AND AUTHORITY TO TENDER, EXCHANGE, SELL, ASSIGN AND TRANSFER THE
UNITS TENDERED HEREBY AND THAT, WHEN THE SAME ARE ACCEPTED FOR EXCHANGE, THE
TRUST WILL ACQUIRE GOOD, MARKETABLE AND UNENCUMBERED TITLE THERETO, FREE AND
CLEAR OF ALL LIENS, RESTRICTIONS, CHARGES AND ENCUMBRANCES, AND THAT THE OLD
NOTES TENDERED HEREBY ARE NOT SUBJECT TO ANY ADVERSE CLAIMS OR PROXIES. THE
UNDERSIGNED WILL, UPON REQUEST, EXECUTE AND DELIVER
6
<PAGE>
ANY ADDITIONAL DOCUMENTS DEEMED BY THE COMPANY OR THE EXCHANGE AGENT TO BE
NECESSARY OR DESIRABLE TO COMPLETE THE SPEARATION OF THE UNITS EXCHANGE,
ASSIGNMENT AND TRANSFER OF THE OLD NOTES AND WARRANTS TENDERED HEREBY, AND THE
UNDERSIGNED WILL COMPLY WITH ITS OBLIGATIONS UNDER THE REGISTRATION RIGHTS
AGREEMENT. THE UNDERSIGNED HAS READ AND AGREES TO ALL OF THE TERMS OF THE
EXCHANGE OFFER.
The name(s) and address(es) of the registered holder(s) of the Units
tendered hereby should be printed above, if they are not already set forth
above, as they appear on the Certificates representing such Units. The
Certificate number(s) and the Units that the undersigned wishes to tender should
be indicated in the appropriate boxes above.
If any amount of the tendered Old Notes represented in a tendered Unit
are not exchanged pursuant to the Exchange Offer for any reason, or if
Certificates for Units are submitted for more Old Notes than are tendered or
accepted for exchange, Certificates for such nonexchanged or nontendered Old
Notes will be returned (or, in the case of Old Notes tendered by book-entry
transfer, such Old Notes will be credited to an account maintained at DTC),
without expense to the tendering holder, promptly following the expiration or
termination of the Exchange Offer.
The undersigned understands that tenders of Units consisting of Old
Notes and Warrants pursuant to any one of the procedures described in "The
Exchange Offer--Procedures for Tendering" in the Prospectus and in the
instructions attached hereto will, upon the Company's acceptance for exchange of
such tendered Units, constitute a binding agreement between the undersigned and
the Company upon the terms and subject to the conditions of the Exchange Offer.
The undersigned recognizes that, under certain circumstances set forth in the
Prospectus, the Company may not be required to accept for exchange any of the
Units tendered hereby.
Unless otherwise indicated herein in the box entitled "Special
Issuance Instructions" below, the undersigned hereby directs that the Exchange
Notes be issued in the name(s) of the undersigned or, in the case of a book-
entry transfer, that such Exchange Notes and Warrants be credited to the account
indicated above maintained at DTC. If applicable, substitute certificates
representing Old Notes not exchanged or not accepted for exchange will be issued
to the undersigned or, in the case of a book-entry transfer of Old Notes, will
be credited to the account indicated above maintained at DTC. Similarly, unless
otherwise indicated under "Special Delivery Instructions," please deliver
Exchange Notes and Warrants to the undersigned at the address shown below the
undersigned's signature.
BY TENDERING UNITS AND EXECUTING THIS LETTER OF TRANSMITTAL, THE
UNDERSIGNED HEREBY REPRESENTS AND AGREES THAT (I) THE UNDERSIGNED IS NOT AN
"AFFILIATE" OF THE COMPANY, (II) ANY EXCHANGE NOTES AND WARRANTS TO BE RECEIVED
BY THE UNDERSIGNED ARE BEING ACQUIRED IN THE ORDINARY COURSE OF ITS BUSINESS,
(III) THE
7
<PAGE>
UNDERSIGNED HAS NO ARRANGEMENT OR UNDERSTANDING WITH ANY PERSON TO PARTICIPATE
IN A DISTRIBUTION (WITHIN THE MEANING OF THE SECURITIES ACT) OF EXCHANGE NOTES
OR WARRANTS TO BE RECEIVED IN THE EXCHANGE OFFER, AND (IV) IF THE UNDERSIGNED IS
NOT A BROKER-DEALER, THE UNDERSIGNED IS NOT ENGAGED IN, AND DOES NOT INTEND TO
ENGAGE IN, A DISTRIBUTION (WITHIN THE MEANING OF THE SECURITIES ACT) OF SUCH
EXCHANGE NOTES OR WARRANTS. BY TENDERING UNITS PURSUANT TO THE EXCHANGE OFFER
AND EXECUTING THIS LETTER OF TRANSMITTAL, A HOLDER OF UNITS EVIDENCING OLD NOTES
AND WARRANTS WHICH IS A BROKER-DEALER REPRESENTS AND AGREES, CONSISTENT WITH
CERTAIN INTERPRETIVE LETTERS ISSUED BY THE STAFF OF THE DIVISION OF CORPORATION
FINANCE OF THE SECURITIES AND EXCHANGE COMMISSION TO THIRD PARTIES, THAT (A)
SUCH UNITS HELD BY THE BROKER-DEALER ARE HELD ONLY AS A NOMINEE, OR (B) SUCH
UNITS WERE ACQUIRED BY SUCH BROKER-DEALER FOR ITS OWN ACCOUNT AS A RESULT OF
MARKET-MAKING ACTIVITIES OR OTHER TRADING ACTIVITIES AND IT WILL DELIVER THE
PROSPECTUS (AS AMENDED OR SUPPLEMENTED FROM TIME TO TIME) MEETING THE
REQUIREMENTS OF THE SECURITIES ACT IN CONNECTION WITH ANY RESALE OF SUCH
EXCHANGE NOTES (PROVIDED THAT, BY SO ACKNOWLEDGING AND BY DELIVERING A
PROSPECTUS, SUCH BROKER-DEALER WILL NOT BE DEEMED TO ADMIT THAT IT IS AN
"UNDERWRITER" WITHIN THE MEANING OF THE SECURITIES ACT).
Holders of Units whose Old Notes are accepted for exchange will not
receive distributions on such Old Notes and the undersigned waive(s) the right
to receive any distributions on such Old Notes accumulated from and including
November 12, 1997. Accordingly, holders of Exchange Notes as of the record date
for the payment of distributions on May 15, 1998 will be entitled to
distributions accumulated from and including November 12, 1997.
The undersigned will, upon request, execute and deliver any additional
documents deemed by the Company to be necessary or desirable to complete the
separation, sale, assignment and transfer of the Units and underlying Old Notes
and Warrants tendered hereby. All authority herein conferred or agreed to be
conferred in this Letter of Transmittal shall survive the death or incapacity of
the undersigned and any obligation of the undersigned hereunder shall be binding
upon the heirs, executors, administrators, personal representatives, trustees in
bankruptcy, legal representatives, successors and assigns of the undersigned.
Except as stated in the Prospectus, this tender is irrevocable.
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF UNITS
TENDERED" ABOVE AND SIGNING THIS LETTER, WILL BE DEEMED TO HAVE TENDERED THE
UNITS CONSISTING OF THE OLD NOTES AND WARANTS AS SET FORTH IN SUCH BOX.
8
<PAGE>
HOLDER(S) SIGN HERE
(SEE INSTRUCTIONS 2, 5 AND 6)
(PLEASE COMPLETE SUBSTITUTE FORM W-9 BELOW) (NOTE:
SIGNATURE(S) MUST BE GUARANTEED IF REQUIRED BY INSTRUCTION 2)
Must be signed by registered holder(s) exactly as name(s) appear(s) on
Certificate(s) for the Units hereby tendered, or by any person(s) authorized to
become the registered holder(s) by endorsements and documents transmitted
herewith (including such opinions of counsel, certifications and other
information as may be required by the Company or the Trustee for the Units to
comply with the restrictions on transfer applicable to the Units). If signature
is by an attorney-in-fact, executor, administrator, trustee, guardian, officer
of a corporation or another acting in a fiduciary capacity or representative
capacity, please set forth the signer's full title. See Instruction 5.
================================================================================
(SIGNATURE(S) OF HOLDER(S))
Date: , 1998
--------------------
Name(s)
-------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT)
Capacity (full title)
-----------------------------------------------------------
Address
-------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(INCLUDE ZIP CODE)
Area Code and Telephone Number
- --------------------------------------------------------------------------------
(TAX IDENTIFICATION OR SOCIAL SECURITY NUMBER(S))
================================================================================
GUARANTEE OF SIGNATURE(S)
(SEE INSTRUCTIONS 2 AND 5)
- --------------------------------------------------------------------------------
(AUTHORIZED SIGNATURE)
9
<PAGE>
Date: , 1998
--------------------
Name of Firm
--------------------------------------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT)
Capacity (full title)
-----------------------------------------------------------
Address
-------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(INCLUDE ZIP CODE)
Area Code and Telephone Number
--------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5 AND 6)
To be completed ONLY if Exchange Notes, or Old Notes or Warrants not tendered
are to be issued in the name of someone other than the registered holder of the
Units whose name(s) appear(s) above.
Issue
[ ] Old Notes not tendered to:
-----------------------------------------------
[ ] Warrants to:
-------------------------------------------------------------
[ ] Exchange Notes to:
-------------------------------------------------------
Name(s)
------------------------------------------------------------------------
Address
------------------------------------------------------------------------
(INCLUDE ZIP CODE)
Area Code and Telephone Number
-------------------------------------------------
- -------------------------------------------------------------------------------
(TAX IDENTIFICATION OR SOCIAL SECURITY NUMBER(S))
- -------------------------------------------------------------------------------
10
<PAGE>
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5 AND 6)
To be completed ONLY if Exchange Notes, Old Notes, or Warrants not tendered are
to be sent to someone other than the registered holder of the Old Notes whose
name(s) appear(s) above, or such registered holder(s) at an address other than
that shown above.
Mail
[ ] Old Notes not tendered to:
-----------------------------------------------
[ ] Warrants to:
-------------------------------------------------------------
[ ] Exchange Notes to:
-------------------------------------------------------
Name(s)
------------------------------------------------------------------------
Address
------------------------------------------------------------------------
(INCLUDE ZIP CODE)
Area Code and Telephone Number
-------------------------------------------------
- -------------------------------------------------------------------------------
(TAX IDENTIFICATION OR SOCIAL SECURITY NUMBER(S))
- -------------------------------------------------------------------------------
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. DELIVERY OF LETTER OF TRANSMITTAL AND CERTIFICATES; GUARANTEED DELIVERY
PROCEDURES. To tender in the Exchange Offer, Holders must tender by (a)
forwarding Unit Certificates herewith or (b) book-entry transfer pursuant to the
procedures set forth in "The Exchange Offer - Procedures for Tendering" in the
Prospectus. Holders who are DTC Participants tendering by book-entry transfer
must execute such tender through DTC's ATOP system. A Holder using ATOP should
transmit its acceptance to DTC on or prior to the Expiration Date. DTC will
verify such acceptance, execute a book-entry transfer to the tendered Units into
the Exchange Agent's account at DTC and then send to the Exchange Agent a book-
entry confirmation, including an Agent's Message confirming that DTC has
received an express acknowledgment from such Holder that such Holder has
received and agrees to be bound by this Letter of Transmittal and that the Trust
and the Corporation may enforce this Letter of Transmittal against such Holder.
The book-entry confirmation must be received by the Exchange Agent in order for
the tender relating thereto to be effective. Book entry transfer to
11
<PAGE>
DTC in accordance with DTC's procedure does not constitute delivery of the book-
entry confirmation to the Exchange Agent.
If the tender is not made through ATOP, Unit Certificates, as well as
this Letter of Transmittal (or facsimile thereof), properly completed and duly
executed, with any required signature guarantees, and any other documents
required by this Letter of Transmittal, must be received by the Exchange Agent
at its address set forth herein on or prior to the Expiration Date in order for
such tender to be effective.
Units consisting of the Old Notes and Warrants may be tendered in
whole or in part in the principal amount of the Old Notes of $1,000 and integral
multiples of $1,000 in excess thereof, provided that, if any Units are tendered
for exchange in part, the untendered principal amount of the Old Note component
thereof must be $1,000 or any integral multiple of $1,000 in excess thereof.
Holders who wish to tender their Units and (i) whose Units are not
immediately available or (ii) who cannot deliver their Units, this Letter of
Transmittal and all other required documents to the Exchange Agent on or prior
to the Expiration Date or (iii) who cannot complete the procedures for delivery
by book-entry transfer on a timely basis, may tender their Units by properly
completing and duly executing a Notice of Guaranteed Delivery pursuant to the
guaranteed delivery procedures set forth in "The Exchange Offer--Procedures for
Tendering" in the Prospectus. Pursuant to such procedures: (i) such tender must
be made by or through an Eligible Institution (as defined below); (ii) a
properly completed and duly executed Notice of Guaranteed Delivery,
substantially in the form made available by the Company, must be received by the
Exchange Agent on or prior to the Expiration Date; and (iii) the Certificates
(or a book-entry confirmation (as defined in this Prospectus)) representing all
tendered Units, in proper form for transfer, together with a Letter of
Transmittal (or facsimile thereof), properly completed and duly executed, with
any required signature guarantees and any other documents required by this
Letter of Transmittal, must be received by the Exchange Agent within five
business days after the Expiration Date, all as provided in "The Exchange Offer-
- -Procedures for Tendering" in the Prospectus.
The Notice of Guaranteed Delivery may be delivered by hand or
transmitted by facsimile or mail to the Exchange Agent, and must include a
guarantee by an Eligible Institution in the form set forth in such Notice. For
Units to be properly tendered pursuant to the guaranteed delivery procedure, the
Exchange Agent must receive a Notice of Guaranteed Delivery on or prior to the
Expiration Date. As used herein and in the Prospectus, "Eligible Institution"
means a firm or other entity identified in Rule 17Ad-15 under the Exchange Act
as "an eligible guarantor institution," including (as such terms are defined
therein) (i) a bank; (ii) a broker, dealer, municipal securities broker or
dealer or government securities broker or dealer; (iii) a credit union; (iv) a
national securities exchange, registered securities association or clearing
agency; or (v) a savings association that is a participant in a Securities
Transfer Association.
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<PAGE>
THE METHOD OF DELIVERY OF CERTIFICATES, THIS LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND SOLE RISK OF THE TENDERING
HOLDER AND THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE
EXCHANGE AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT
REQUESTED, PROPERLY INSURED, OR OVERNIGHT DELIVERY SERVICE IS RECOMMENDED. IN
ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
The Company will not accept any alternative, conditional or contingent
tenders. Each tendering holder, by execution of a Letter of Transmittal (or
facsimile thereof), waives any right to receive any notice of the acceptance of
such tender.
2. GUARANTEE OF SIGNATURES. No signature guarantee on this Letter of
Transmittal is required if:
(i) this Letter of Transmittal is signed by the registered holder of
the Unit (which term, for purposes of this document, shall
include any participant in DTC whose name appears on a security
position listing as the owner of the Units) of Units tendered
herewith, unless such holder(s) has completed either the box
entitled "Special Issuance Instructions" or the box entitled
"Special Delivery Instructions" above, or
(ii) such Units are tendered for the account of a firm that is an
Eligible Institution.
In all other cases, an Eligible Institution must guarantee the
signature(s) on this Letter of Transmittal. See Instruction 5.
3. INADEQUATE SPACE. If the space provided in the box captioned
"Description of Units Tendered" is inadequate, the Certificate number(s) and/or
the principal amount of Old Notes evidencing such Unit, the amount of shares of
Common Stock of the Warrant and any other required information should be listed
on a separate signed schedule which is attached to this Letter of Transmittal.
4. PARTIAL TENDERS AND WITHDRAWAL RIGHTS. Tenders of Units will be
accepted only in the principal amount of the Old Notes of $1,000 and integral
multiples of $1,000 in excess thereof, provided that if any Units are tendered
for exchange in part, the untendered principal amount thereof must be $1,000 or
any integral multiple of $1,000 in excess thereof. [If less than all the Units
evidenced by any Unit Certificate submitted are to be tendered, fill in the
principal amount of Old Notes which are to be tendered in the box entitled
"Principal Amount of Old Notes Tendered". In such case, new Certificate(s) for
the remainder of the Old Notes that were evidenced by your Unit Certificate(s)
will only be sent to the holder of the Unit, promptly after the Expiration Date.
ALL OLD NOTES AND WARRANTS REPRESENTED
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<PAGE>
BY UNIT CERTIFICATES DELIVERED TO THE EXCHANGE AGENT WILL BE DEEMED TO HAVE BEEN
TENDERED UNLESS OTHERWISE INDICATED.
Except as otherwise provided herein, tenders of Units may be withdrawn
at any time on or prior to the Expiration Date. In order for a withdrawal to be
effective on or prior to that time, a written or facsimile transmission of such
notice of withdrawal must be timely received by the Exchange Agent at one of its
addresses set forth above or in the Prospectus on or prior to the Expiration
Date. Any such notice of withdrawal must specify the name of the person who
tendered the Old Notes to be withdrawn, and (if Certificates for Units have been
tendered) the name of the registered holder of the Units as set forth on the
Unit Certificate, if different from that of the person who tendered such Units.
If Unit Certificates have been delivered or otherwise identified to the Exchange
Agent, then prior to the physical release of such Unit Certificates, the
tendering holder must submit the serial numbers shown on the particular Old
Notes to be withdrawn and the signature on the notice of withdrawal must be
guaranteed by an Eligible Institution, except in the case of Units tendered for
the account of an Eligible Institution. If Units have been tendered pursuant to
the procedures for book entry transfer set forth in the Prospectus under "The
Exchange Offer-- Procedures for Tendering" the notice of withdrawal must specify
the name and number of the account at DTC to be credited with the withdrawal of
Old Notes, in which case a notice of withdrawal will be effective if delivered
to the Exchange Agent by written or facsimile transmission. Withdrawals of
tenders of Old Notes may not be rescinded. Old Notes properly withdrawn will
not be deemed validly tendered for purposes of the Exchange Offer, but may be
retendered at any subsequent time on or prior to the Expiration Date by
following any of the procedures described in the Prospectus under "The Exchange
Offer--Procedures for Tendering."
All questions as to the validity, form and eligibility (including time
of receipt) of such withdrawal notices will be determined by the Company, in
their sole discretion, whose determination shall be final and binding on all
parties. Neither the Company, any affiliates or assigns of the Company, the
Exchange Agent nor any other person shall be under any duty to give any
notification of any irregularities in any notice of withdrawal or incur any
liability for failure to give any such notification. Any Old Notes which have
been tendered but which are withdrawn will be returned to the holder thereof
without cost to such holder promptly after withdrawal.
5. SIGNATURES ON LETTER OF TRANSMITTAL, ASSIGNMENTS AND ENDORSEMENTS.
If this Letter of Transmittal is signed by the registered holder(s) of the Old
Notes tendered hereby, the signature(s) must correspond exactly with the name(s)
as written on the face of the Certificate(s) without alteration, enlargement or
any change whatsoever.
If any of the Units tendered hereby are owned of record by two or more
joint owners, all such owners must sign this Letter of Transmittal.
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<PAGE>
If any tendered Units are registered in different name(s) on several
Certificates, it will be necessary to complete, sign and submit as many separate
Letters of Transmittal (or facsimiles thereof) as there are different
registrations of Certificates.
If this Letter of Transmittal or any Certificates or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in- fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing and must submit proper
evidence satisfactory to the Corporation and the Trust, in their sole
discretion, of each such person's authority so to act.
When this Letter of Transmittal is signed by the registered owner(s)
of the Units listed and transmitted hereby, no endorsement(s) of Certificate(s)
or separate bond power(s) are required unless Exchange Notes [or warrants] are
to be issued in the name of a person other than the registered holder(s).
Signature(s) on such Certificate(s) or bond power(s) must be guaranteed by an
Eligible Institution.
If this Letter of Transmittal is signed by a person other than the
registered owner(s) of the Units listed, the Certificates must be endorsed or
accompanied by appropriate bond powers, signed exactly as the name or names of
the registered owner(s) appear(s) on the Certificates, and also must be
accompanied by such opinions of counsel, certifications and other information as
the Company or the Trustee for the Units may require in accordance with the
restrictions on transfer applicable to the Units. Signatures on such
Certificates or bond powers must be guaranteed by an Eligible Institution.
6. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. If Exchange Notes [or
warrants] are to be issued in the name of a person other than the signer of this
Letter of Transmittal, or if Exchange Notes are to be sent to someone other than
the signer of this Letter of Transmittal or to an address other than that shown
above, the appropriate boxes on this Letter of Transmittal should be completed.
[Certificates for Units not exchanged will be returned by mail or, if tendered
by book-entry transfer, by crediting the account indicated above maintained at
DTC. See Instruction 4.]
7. IRREGULARITIES. The Company will determine, in their sole
discretion, all questions as to the form of documents, validity, eligibility
(including time of receipt) and acceptance for exchange of any tender of any Old
Note or Warrant included in a Unit, which determination shall be final and
binding on all parties. The Company reserves the absolute right to reject any
and all tenders determined by either of them not to be in proper form or the
acceptance of which, or exchange for which, may, in the view of counsel to the
Company be unlawful. The Company also reserves the absolute right, subject to
applicable law, to waive any of the conditions of the Exchange Offer set forth
in the Prospectus under "The Exchange Offer" or any conditions or irregularity
in any tender of Units of any particular holder whether or not similar
conditions or irregularities are waived in the case of other holders. The
Company's interpretation of the terms and conditions of the Exchange Offer
(including this Letter of Transmittal and the instructions hereto) will be final
and binding. No tender of Units will be deemed to have been validity made until
all irregularities with respect to such tender have been
15
<PAGE>
cured or waived. The Company, any affiliates or assigns of the Company, the
Exchange Agent, or any other person shall not be under any duty to give
notification of any irregularities in tenders or incur any liability for failure
to give such notification.
8. QUESTIONS, REQUESTS FOR THE ASSISTANCE AND ADDITIONAL COPIES.
Questions and requests for assistance may be directed to the Exchange Agent at
its address and telephone number set forth on the front of this Letter of
Transmittal. Additional copies of the Prospectus, the Notice of Guaranteed
Delivery and the Letter of Transmittal may be obtained from the Exchange Agent
or from your broker, dealer, commercial bank, trust company or other nominee.
9. BACKUP WITHHOLDING; SUBSTITUTE FORM W-9. Under U.S. Federal income
tax law, a holder whose tendered Units are accepted for exchange is required to
provide the Exchange Agent with such holder's correct taxpayer identification
number ("TIN") on Substitute Form W-9 below. If the Exchange Agent is not
provided with the correct TIN, the Internal Revenue Service (the "IRS") may
subject the holder or other payee to a $50 penalty. In addition, payments to
such holders or other payees with respect to the Old Note component of the Unit
exchanged pursuant to the Exchange Offer may be subject to 31% backup
withholding.
The box in Part 2 of the Substitute Form W-9 may be checked if the
tendering holder has not been issued a TIN and has applied for a TIN or intends
to apply for a TIN in the near future. If the box in Part 2 is checked, the
holder or other payee must also complete the Certificate of Awaiting Taxpayer
Identification Number below in order to avoid backup withholding.
Notwithstanding that the box in Part 2 is checked and the Certificate of
Awaiting Taxpayer Identification Number is completed, the Exchange Agent will
withhold 31% of all payments made prior to the time a properly certified TIN is
provided to the Exchange Agent. The Exchange Agent will retain such amounts
withheld during the 60-day period following the date of the Substitute Form W-9.
If the holder furnishes the Exchange Agent with its TIN within 60 days after the
date of the Substitute Form W- 9, the amounts retained during the 60-day period
will be remitted to the holder and no further amounts shall be retained or
withheld from payments made to the holder thereafter. If, however, the holder
has not provided the Exchange Agent with its TIN within such 60-day period,
amounts withheld will be remitted to the IRS as backup withholding. In
addition, 31% of all payments made thereafter will be withheld and remitted to
the IRS until a correct TIN is provided.
The holder is required to give the Exchange Agent the TIN (e.g.,
social security number or employer identification number) of the registered
owner of the Unit evidencing the Old Notes or of the last transferee appearing
on the transfers attached to, or endorsed on, the Unit. If the Units are
registered in more than one name or are not in the name of the actual owner,
consult the enclosed "Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9" for additional guidance on which number to
report.
Certain holders (including, among others, corporations, financial
institutions and certain foreign persons) may not be subject to these backup
withholding and reporting requirements. Such holders should nevertheless
complete the attached Substitute Form W-9
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<PAGE>
below, and write "exempt" on the face thereof, to avoid possible erroneous
backup withholding. A foreign person may qualify as an exempt recipient by
submitting a properly completed IRS Form W-8, signed under penalties of perjury,
attesting to that holder's exempt status. Please consult the enclosed
"Guidelines for Certification of Taxpayer Identification Number on Substitute
Form W-9" for additional guidance on which holders are exempt from backup
withholding.
Backup withholding is not an additional U.S. Federal income tax.
Rather, the U.S. Federal income tax liability of a person subject to backup
withholding will be reduced by the amount of tax withheld. If withholding
results in an overpayment of taxes, a refund may be obtained.
10. WAIVER OF CONDITIONS. The Company reserves the absolute right to
waive satisfaction of any or all conditions enumerated in the Prospectus.
11. NO CONDITIONAL TENDERS. No alternative, conditional or contingent
tenders will be accepted. All tendering holders of Units, by execution of this
Letter of Transmittal, shall waive any right to receive notice of the acceptance
of Units for exchange.
Neither the Corporation, the Trust, the Exchange Agent nor any other
person is obligated to give notice of any defect or irregularity with respect to
any tender of Units nor shall any of them incur any liability for failure to
give any such notice.
12. LOST, DESTROYED OR STOLEN CERTIFICATES. If any Certificate(s)
representing Units have been lost, destroyed or stolen, the holder should
promptly notify the Exchange Agent. The holder will then be instructed as to the
steps that must be taken in order to replace the Certificate(s). This Letter of
Transmittal and related documents cannot be processed until the procedures for
replacing lost, destroyed or stolen Certificate(s) have been followed.
13. SECURITY TRANSFER TAXES. Holders who tender their [Units
evidencing] Old Notes for exchange will not be obligated to pay any transfer
taxes in connection therewith. If, however, Exchange Notes are to be delivered
to, or are to be issued in the name of, any person other than the registered
holder of the Units tendered, or if a transfer tax is imposed for any reason
other than the exchange of Old Notes in connection with the Exchange Offer, then
the amount of any such transfer tax (whether imposed on the registered holder or
any other persons) will be payable by the tendering holder. If satisfactory
evidence of payment of such taxes or exemption therefrom is not submitted with
the Letter of Transmittal, the amount of such transfer taxes will be billed
directly to such tendering holder.
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR FACSIMILE THEREOF) AND ALL OTHER
REQUIRED DOCUMENTS MUST BE RECEIVED BY THE EXCHANGE AGENT ON OR PRIOR TO THE
EXPIRATION DATE.
TO BE COMPLETED BY ALL TENDERING SECURITYHOLDERS
(See Instruction 9)
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<PAGE>
TAXPAYER'S NAME:
----------------------
- --------------------------------------------------------------------------------
SUBSTITUTE Part 1--PLEASE PROVIDE TIN:
Form W-9 YOUR TIN ON THE LINE -------------------------
AT RIGHT AND CERTIFY Social Security Number or
BY SIGNING AND DATING Employer Identification
BELOW Number
--------------------------------------------------
Department of the Treasury [ ]
Internal Revenue PART 2-TIN
Applied For Service Payer's
Request for Taxpayer
Identification Number
("TIN") and Certification
--------------------------------------------------
CERTIFICATION-UNDER THE PENALTIES OF PERJURY,
I CERTIFY THAT:
(1) the number shown on this form is my correct
taxpayer identification number (or I am
waiting for a number and to be issued to me).
(2) I am not subject to backup withholding either
because (i) I am exempt from backup
withholding; (ii) I have not been notified by
the Internal Revenue Service ("IRS") that I am
subject to backup withholding as a result of a
failure to report all interest or dividends,
or (iii) the IRS has notified me that I am no
longer subject to backup withho lding, and
(3) any other information provided on this form is
true and correct.
Signature Date , 1998
------------------ ------------
- --------------------------------------------------------------------------------
You must cross out item (iii) in Part (2) above if you have been notified by the
IRS that you are subject to backup withholding because of underreporting
interest or dividends on your tax return and you have not been notified by the
IRS that you are no longer subject to backup withholding.
- --------------------------------------------------------------------------------
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY IN CERTAIN CIRCUMSTANCES
RESULT IN BACKUP WITHHOLDING OF 31% OF ANY AMOUNTS PAID TO YOU PURSUANT TO THE
EXCHANGE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF
TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART 2 OF
THE SUBSTITUTE FORM W-9
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<PAGE>
- --------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification
number has not been issued to me, and either (1) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or (2)
I intend to mail or deliver an application in the near future. I understand
that if I do not provide a taxpayer identification number by the time of
payment, 31% of all payments made to me on account of the Exchange Notes shall
be retained until I provide a taxpayer identification number to the Exchange
Agent and that, if I do not provide my taxpayer identification number within 60
days, such retained amounts shall be remitted to the Internal Revenue Service as
backup withholding and 31% of all reportable payments made to me thereafter will
be withheld and remitted to the Internal Revenue Service until I provide a
taxpayer identification number.
Signature Date , 1998
--------------------------------------- --------------------
19
