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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended June 30, 1997.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
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Commission File Number: 0-22730
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Communications Central Inc.
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(Exact name of registrant as specified in its charter)
GEORGIA 58-1804173
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1150 NORTHMEADOW PARKWAY, SUITE 118, ROSWELL, GEORGIA 30076
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (770) 442-7300
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Securities registered pursuant to Section 12(b) of the Act: NONE
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Aggregate market value of the voting stock held by non-affiliates of the
Registrant as of September 25, 1997: $51,866,817.75.
Number of shares of Common Stock outstanding as of September 20, 1997:
6,285,987.
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DOCUMENTS INCORPORATED BY REFERENCE
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None, except as otherwise indicated in the list of exhibits set forth in Item 14
hereof.
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PART I
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995:
Certain of the statements contained in the body of this Report are
forward-looking statements (rather than historical facts) that are subject to
risks and uncertainties that could cause actual results to differ materially
from those described in the forward-looking statements. In the preparation of
this Report, where such forward-looking statements appear, the Company has
sought to accompany such statements with meaningful cautionary statements
identifying important factors that could cause actual results to differ
materially from those described in the forward-looking statements. An additional
statement summarizing the principal risks and uncertainties inherent in the
Company's business is included herein under the caption "Management's Discussion
and Analysis of Financial Condition and Results of Operations - Safe Harbor
Statement." Readers of this Report are encouraged to read these cautionary
statements carefully.
See the Glossary included as Appendix A hereto for the definitions of
certain terms used in this Report.
ITEM 1. BUSINESS.
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BACKGROUND
Communications Central Inc. ("CCI" or the "Company") owns and operates a
network of over 26,000 coin-operated payphones and inmate phones located in 42
states and the District of Columbia and believes it is the third largest
independent operator of payphones and the second largest independent provider of
inmate phones in the country. The Company's payphones are located where there
is significant demand for payphone services, such as convenience stores, service
stations, grocery stores, hospitals, shopping centers and truck stops, and
generate revenue from both coin calls and "non-coin" calls, such as collect
calls, third-party calls and credit card or calling card calls. The Company's
inmate phones are installed in approximately 560 correctional institutions, most
of which are operated at the county and local government level. All inmate
phone revenue is generated from non-coin calls. Substantially all of CCI's
payphones and inmate phones are electronically linked to the Company's
centralized, proprietary management information systems that permit the Company
to monitor phone usage patterns and address potential service and maintenance
needs before they cause significant downtime or come to the attention of the
site operator or correctional institution.
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The Company was founded in June 1986 and grew rapidly, primarily through
acquisitions, to revenues of $29.9 million for the fiscal year ended June 30,
1993. In December 1993, the Company successfully completed its initial public
offering of 2.5 million shares of Common Stock and raised over $23 million in
capital. Since the initial public offering, the Company has used such capital
and bank borrowings to acquire the businesses and operations of 15 companies
that added more than 7,700 payphones and over 4,300 inmate phones to the
Company's operations. This Report covers the Company's fiscal year ended June
30, 1997 ("fiscal 1997").
On September 20, 1996, the Federal Communications Commission ("FCC")
issued its Report and Order implementing the payphone-specific provisions of the
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Telecom Act. Among its directives, the FCC prescribed dial around compensation
for all access code and 800 subscriber calls from payphones at a flat rate of
$45.85 per payphone per month for the first year, with a per-call compensation
system to be implemented by October 7, 1997 under which compensation was
required to be paid at a default rate of $.35 per call. Based on appeals filed
challenging various aspects of the FCC's orders, on July 1, 1997, the United
States Court of Appeals for the District of Columbia Circuit ("Court") issued an
opinion which, among other things, affirmed the deregulation of the local coin
rate on October 7, 1997 and remanded both the interim dial around compensation
rate of $45.85 per payphone per month and the default compensation rate of $.35
per call to the FCC for further review. Following the release of the Court's
opinion, a number of interested parties filed motions for rehearing and/or
clarification of the July 1, 1997 decision. On September 16, 1997, the Court
clarified that it had, in fact, intended that the dial around compensation
provisions of the FCC's orders be vacated. On the same day, the Court denied
motions for rehearing on the local coin rate, thus affirming that the rate will
be deregulated on October 7, 1997. These and other regulatory changes could
significantly impact the Company's operations for the foreseeable future. See
"Regulation."
In January 1997, the Company began to reassume responsibility for tasks
relating to the payphone division that were previously assigned to Perot Systems
Field Services Corporation ("Perot") pursuant to an outsourcing agreement
entered into in July 1995. Under the outsourcing agreement, as amended (the
"Services Agreement"), the Company is again responsible for the field operations
of the payphone division. Perot will continue to handle the management
information services function of the payphone division and complete final
documentation and enhancements to the Perot/CCI Oracle based payphone
information system.
On March 16, 1997, the Company entered into an Agreement and Plan of
Merger (the "Merger Agreement") with PhoneTel Technologies, Inc. ("PhoneTel")
and PhoneTel Acquisition Corp. ("Acquisition") pursuant to which Acquisition
commenced a tender offer to purchase all of the outstanding shares of Common
Stock of the Company (including the associated rights to purchase shares of the
Company's Common Stock). The Merger Agreement, as amended by First Amendment to
Agreement and Plan of Merger dated as of May 15, 1997 was terminated effective
August 21, 1997 without any shares of the Company's Common Stock being
purchased.
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On August 21, 1997, the Company, InVision Telecom, Inc. (a wholly owned
subsidiary of the Company), and Talton Holdings, Inc. ("Talton") entered into
an Asset Purchase Agreement (the "Purchase Agreement") whereby Talton agreed to
purchase substantially all of the assets of the Company's inmate phone business
for approximately $42 million (subject to adjustment as provided in the Purchase
Agreement). The Purchase Agreement is scheduled to close on or about October 31,
1997 and is subject to certain closing conditions including the consent of the
Company's principal lender and the execution of satisfactory employment
agreements with certain members of InVision's management team. Upon consummation
of the Purchase Agreement and the transactions contemplated thereby, the Company
will not own any inmate phones or have any inmate phone operations.
INDUSTRY
PUBLIC PAYPHONES
In June 1984, AT&T Corporation ("AT&T") was required to divest itself of
the seven Regional Bell Operating Companies ("RBOCs"). That development,
combined with the ruling of the FCC that parties other than local exchange
carriers ("LECs") could own payphones connected to the interstate telephone
network, marked the beginning of the independent payphone industry. At that
time, the FCC also authorized state regulation of local and intrastate calls.
Since June 1984, almost all states have authorized the installation and use of
independent payphones.
Prior to the AT&T divestiture, the RBOCs could refuse to provide
payphone service to a business operator or, if service was installed, would
typically only pay minimal commissions for the right to place a payphone on the
business premises. Following the AT&T divestiture and the FCC's authorization of
payphone competition, independent payphone operators began to pay property
owners competitive commissions on coin calls made from the payphones in order to
obtain the contractual right to install the equipment on their premises.
Initially, coin revenue was the only source of revenue from these payphones
because independent operators were unable to participate in revenues from non-
coin calls. However, the operator service provider ("OSP") industry emerged and
enabled independent payphone providers to compete more effectively with the
regulated telephone companies by paying commissions to payphone owners for non-
coin calls. For the first time, independent payphone operators were able to
participate in a portion of non-coin call revenue from their payphones. With
this incremental source of revenue from non-coin calls, independent payphone
operators were able to compete more vigorously with RBOCs for site location
agreements by paying more competitive commissions to business operators.
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PAYPHONE AND INMATE PHONE OPERATIONS
As of the end of fiscal 1997, CCI owned and operated over 26,000
payphones and inmate phones. The following table sets forth the number of phones
installed in each state as of June 30, 1997:
<TABLE>
<CAPTION>
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State Payphones Inmate Phones Total
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<S> <C> <C> <C>
Alabama 1,488 19 1,507
Arizona - 74 74
Arkansas 396 70 466
California - 523 523
Colorado 407 6 413
Delaware 16 - 16
District of Columbia 69 - 69
Florida 3,471 185 3,656
Georgia 2,248 211 2,459
Idaho - 59 59
Illinois 955 862 1,817
Indiana 208 413 621
Iowa 16 - 16
Kansas 6 - 6
Kentucky 125 495 620
Louisiana 775 96 871
Maryland 144 124 268
Massachusetts - 432 432
Michigan 251 139 390
Minnesota 366 45 411
Mississippi 831 - 831
Missouri 146 7 153
Montana - 145 145
Nebraska - 18 18
Nevada - 103 103
New Jersey 7 - 7
New Mexico - 30 30
New York - 18 18
North Carolina 968 165 1,133
North Dakota 6 - 6
Ohio 433 381 814
Oklahoma 82 - 82
Oregon - 4 4
Pennsylvania 428 34 462
South Carolina 500 16 516
Tennessee 2,049 606 2,655
Texas 2,260 196 2,456
Utah 11 2 13
Virginia 1,389 283 1,672
Washington 2 31 33
West Virginia 68 72 140
Wisconsin 132 28 160
Wyoming - 32 32
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TOTALS 20,253 5,924 26,177
=================================
</TABLE>
Upon consummation of the Purchase Agreement with Talton,
the Company will not own any inmate phones or have any
inmate phone operations.
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CCI's payphones generate revenue from both coin and non-coin calls. Coin
calls include traditional local calls at 10 cents, 25 cents or 35 cents (the FCC
has ordered that the local coin rate be deregulated as of October 7, 1997: See
"Regulation") and "1+" long distance calls which the Company markets at a rate
of four-minute increments for $1.00 at most of the Company's payphones. Non-coin
calls include calling card, credit card, collect and third-party billed calls
made from CCI's phones. Non-coin calls generate revenue from intrastate and
interstate calls placed through arrangements with various long distance or
"interexchange carriers" ("IXCs") selected by CCI. The Company considers a
variety of factors when selecting a specific long distance carrier for use at
its payphones. These factors include the financial and other contractual
arrangements between CCI and the long distance carrier, the financial stability
of the carrier, the quality of service, the location of the payphone, the types
of calls made from the location, the profitability of each type of call under
each calling alternative, the requirements of the property owners, and
applicable regulatory restrictions.
The Company has also received revenues from IXCs through "dial around
compensation." Dial around compensation is revenue derived from the use of the
Company's payphones in two methods. The first method is when an "access code"
is dialed by an end user for the purpose of placing a call using an alternative
billing method, such as a calling card. For example, a caller may dial "102880"
or "1-800-CALL-ATT" to obtain entrance into the AT&T network to place a call
that will be handled and billed by AT&T, thus "dialing around" the Company's
presubscribed carrier. Previously, the Company was paid dial around
compensation for access code calls (using 10XXX, 950 or "800" carrier access
numbers) at a rate of $6.00 per phone per month. During 1995, the Company
experienced a change in compensation payments from AT&T and Sprint, who received
authority from the FCC to begin paying at a rate of 25 cents per call in lieu of
their share of the $6.00 flat rate in the areas where access calls could be
tracked. More recently, the FCC determined that dial around compensation also
included a second method of payphone use when end users place "subscriber calls"
to a toll-free number for purposes other than to access a carrier's network.
The FCC also recognized that existing regulations do not prohibit an IXC from
blocking subscriber "800" numbers from payphones if the IXC wants to avoid
paying per-call compensation on these calls. Examples of these calls include 1-
800-FLOWERS and toll-free "800" or "888" numbers to an end user's business
office. The FCC increased the compensation level and revised the method for
calculating dial around compensation for both types of dial around calls in a
ruling on September 20, 1996. Effective November 7, 1996, the Company was
entitled to receive dial around compensation at a flat rate of $45.85 per phone
per month for the first year, with a per call compensation system to be
implemented by October 7, 1997 under which compensation would be paid at a
default rate of $.35 per call. On July 1, 1997, the United States Court of
Appeals for the District of Columbia Circuit ("Court"), remanded the interim
dial-around compensation plan and the default per call compensation rate to the
FCC for further review. However, on September 16, 1997, the Court clarified
that the existing dial around compensation system was vacated, pending further
FCC review. See "Regulation." Dial around compensation has not been paid on
inmate calls since inmate phone providers are not required
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under applicable laws to allow access to all long distance carriers.
CCI's inmate phones generate non-coin revenue only. Calls originating
from inmate facilities are handled by the Company through the use of automated
call processing technology which permits collect-only calling. The Company has
witnessed an increase in the amount of bad debt for its inmate phone revenue
over the past year to approximately 30%. To address the issue of bad debt, the
Company implemented a program for direct billing that enabled it to bill the
called number directly and set parameters for blocking calls based on collection
results. As of June 30, 1997, the Company had successfully implemented the
direct billing program in conjunction with a strengthened credit policy in all
but 3 states in which it operates. The combination of the direct billing program
and the new credit policy resulted in approximately a 20% reduction in call
volumes in the fourth fiscal quarter. Although the Company implemented the
direct billing program with the belief that it will reduce the amount of bad
debt attributable to its inmate phones, no assurance can be given as to the
success of the direct billing program in reducing the level of bad debt.
MARKETING AND SALES
The Company's marketing and sales efforts in its payphone operations are
divided into sales for independent and key accounts and corporate accounts.
Corporate accounts generally provide payphone growth and call volume, while
independent and key accounts generally provide better gross margins, are less
susceptible to turnover when the contract expires and have longer contractual
terms.
INDEPENDENT AND KEY PAYPHONE ACCOUNTS
As of June 30, 1997, approximately 59% of the Company's payphone base
was represented by independent and key accounts. Independent accounts are
defined by the Company as those businesses with fewer than ten payphones. Key
accounts are those with 10 to 20 payphones. The Company selects locations for
its payphones where it believes there is a demonstrated high demand for payphone
service and where the phones may be easily serviced. The Company generally does
not install a payphone unless it estimates that the location will generate
minimum levels of coin and non-coin revenue per month. For the majority of
payphone locations, the Company bases its estimates on the historical revenue
from each site. When available, CCI obtains the historical data of existing
locations from the business operator. When historical data is unavailable for a
prospective location, CCI examines store hours, other payphones in the area,
traffic patterns, data from payphones in comparable locations and other factors
to determine whether to install a payphone at a particular site.
The Company negotiates site location agreements at desirable locations
by offering commissions to business operators typically based upon percentages
of revenue. Site location
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agreements for independent accounts usually have five to ten-year terms. Under
the Company's current form of site location agreement, CCI can generally
terminate a site location agreement if it determines that a payphone is not
profitable.
CCI markets its payphones to independent accounts on a commission basis
through a network of independent marketing representatives who represent the
Company under the supervision of the Vice President, Sales and Marketing, and
CCI's field sales and operating managers.
CORPORATE PAYPHONE ACCOUNTS
As of June 30, 1997, corporate payphone accounts represented
approximately 41% of CCI's payphone base. The Company's marketing efforts to
corporate accounts are directed to large, multi-location entities, such as
restaurant chains, grocery stores, property management companies, hospitals,
convenience store operators, franchisers, shopping mall developers, department
store chains and oil service companies. CCI's marketing campaign to corporate
accounts emphasizes the Company's ability to offer complete coverage of all of
the customer's payphone needs, including standardized reporting, broad
geographical coverage and extensive service. Contracts with corporate account
customers are negotiated on an account-by-account basis and typically have three
to seven-year contract terms. Previously, regulatory limitations prevented RBOCs
from being able to provide this breadth of service to corporate account
customers who, by definition, tend to have operations that cross RBOCs operating
territories. However, a 1996 FCC ruling lifted certain of these limitations to
allow RBOCs to provide such service. See "Regulation." Among major oil
companies, CCI's corporate accounts include Conoco Inc., Crown Central Petroleum
Corporation and Racetrac Petroleum, Inc. In the convenience store industry,
CCI's corporate accounts include, among others, Country Cupboard Food Stores,
Inc. and E-Z Serve Corp. As of June 30, 1997, the Company's largest corporate
account customer represented approximately 3.8% of its payphone base (exclusive
of inmate phones) and the four largest corporate accounts represented
approximately 12.1% of its payphone base.
TECHNOLOGY
Historically, when a call was initiated at most payphones owned by a
LEC, the call was processed through one of the LEC's central offices which
communicated with the caller, if necessary, and controlled the payphone by
external means. By contrast, the Company's payphones are "smart" terminals and
process the functions associated with a call using a microprocessor located
within the payphone.
In addition to the microprocessor, the Company's payphones contain non-
volatile, electrically erasable, programmable read-only memory chips ("EEProm")
permitting CCI to
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"download" rates and option selections from its corporate office in Atlanta,
using software provided and periodically updated by the Company's principal
payphone vendors. The information stored on the chip includes the local,
intrastate and interstate coin rates that can be charged through CCI's
payphones. The payphones are also programmed for other available options, such
as free calls for emergency numbers, special charges for certain calls and speed
dial numbers. All programmable features of CCI's payphones may be altered by the
Company on a secure basis from a remote location by means of a personal
computer. Specifically, each of CCI's payphones may be monitored daily from
computers at the corporate office to determine the amount of money in the cash
box, the number and types of calls made and the service condition of the
payphone.
Operations are monitored by a series of computerized communications
between the payphones, operating centers and databases located at the Company's
headquarters. The Company utilizes two different non-proprietary, third-party
software systems in its payphones, Payphone Network Manager ("PNM") and
Xpressnet, to detect operating problems, remotely update rates and determine the
amount of coin collected. During its monthly processing procedures, the system
calculates the commissions payable to the various property owners and prints the
appropriate checks. The system produces an analysis of each site, including
profitability and service calls, and acts as an additional internal check on
coin collection.
Inmate telephone service is also provided with microprocessor-based
technology. The actual telephone instruments are "dumb" coinless phones that
are connected to a "smart" controller. Each instrument has the programmable
options of a payphone, as well as additional controls programmed into the inmate
systems that determine who can originate calls, the numbers that can be dialed,
when calls can be placed, and the maximum duration of the calls. Inmate calls
are typically processed as collect calls paid for by the recipient of the call.
The inmate phone technology utilized by the Company automatically forwards
inmate calls directly to a validation service which may block the call if the
call is to an unauthorized number or if the recipient is not current on his or
her local telephone bill. All of the Company's inmate systems are monitored
daily from the Company's inmate control center in Louisville, Kentucky to ensure
operability of the phones.
The telecommunications industry has been characterized by steady
technological change, frequent new service introductions and evolving industry
standards. The Company believes that its future success will depend on its
ability to anticipate such changes and offer responsive services on a timely
basis that meet these evolving industry standards.
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SUPPLIERS
The Company's principal suppliers provide phones, housings, local line
access and long distance services. In addition, pursuant to the Services
Agreement, Perot provides certain outsourcing services and software related to
the management information services of the Company's payphone operations.
CCI generally purchases its payphone equipment from domestic
manufacturers and obtains its payphones and electronic boards primarily from
Protel, Inc. and Elcotel, Inc. Management believes there are an adequate number
of vendors to supply the industry and CCI has identified alternative sources if
supply is interrupted from any of its primary vendors, although transitioning
from the Company's existing primary vendors to new vendors on short notice, if
necessary, could be difficult and could involve unforeseen additional expenses.
Management is not aware that any of the Company's primary vendors of phone
equipment and related parts and services are currently experiencing financial
difficulties.
The Company currently purchases local line access from various major
LECs including BellSouth, Ameritech, Bell Atlantic, Southwestern Bell, US West,
and GTE. Long distance service is generally provided to CCI by U.S. Long
Distance Corp. ("USLD") and Sprint. Operator services are generally provided by
USLD and AT&T as well as certain LECs in the territories in which they operate.
CCI believes that it has access to several providers of long distance services
and operator services at competitive rates and expects to have such access in
the foreseeable future. In addition, new sources of local line access are
emerging as competition is authorized for local service. However, the continuing
availability of these new sources cannot be assured.
COMPETITION
Competition on the payphone side of the Company's business consists of
(i) competition with RBOCs, LECs and other independent payphone operators for
profitable payphone locations and (ii) competition with long distance carriers
such as AT&T, MCI and Sprint (the primary providers of dial around services) for
non-coin revenue. Competition on the inmate side of the Company's business
consists primarily of competition with other inmate phone service providers,
including LECs and IXCs, for the right to provide service to correctional
facilities. Upon consummation of the Purchase Agreement and the transactions
contemplated thereby, the Company will not own any inmate phones or have any
inmate phone operations.
Management believes the principal competitive factors in the payphone
business in terms of obtaining payphone locations are the (i) level of
commission payments to property owners, (ii) ability to serve accounts with
locations in multiple states and territories, (iii) quality of service and the
availability of specialized services provided to property owners and payphone
users, and (iv) responsiveness to customer service needs. CCI believes it is
competitive in each of these areas.
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Independent providers such as CCI have historically maintained an advantage over
RBOCs in that they can offer business operators commissions on coin and non-
coin, local and long distance calls. Previously, RBOCs were prohibited from
obtaining revenues or commissions on interLATA calls. However, a 1996 FCC ruling
will now allow RBOCs to choose the interLATA carrier at their payphones in
conjunction with the location owner, and participate in the revenue streams from
this traffic. See "Regulation." In addition, while long distance carriers can
currently pay commissions to property owners for long distance calls, they
usually do not install payphone equipment at a property owner's location and,
therefore, cannot obtain revenues from coin calls, the majority of which are
local calls.
The competition for non-coin revenue by the major IXCs has had a major
adverse effect upon the revenue and profitability of the Company's payphone
division. AT&T, Sprint and MCI have undertaken substantial marketing efforts in
establishing their dial around platforms. The 1-800 CALL ATT and 1-800 COLLECT
(MCI) access code dialing patterns have, in the Company's two most recent fiscal
years, caused a dramatic reduction in the number of non-coin calls that the
Company generates through its payphones. The financial impact to CCI has been
significant and adverse. Non-coin revenue from the Company's payphone
operations has declined from approximately $120.00 per phone per month in fiscal
1993 to approximately $88.70 per phone per month in fiscal 1997. Of this
$88.70 amount, approximately $33.00 can be attributed to dial around
compensation as prescribed by the FCC order dated September 20, 1996, which has
been vacated by the Court of Appeals. (See Regulation)
The payphone markets in which the Company operates are highly
competitive. Certain of the Company's competitors have greater financial and
other resources than CCI. In addition, implementation of various aspects of the
Telecom Act, particularly the payphone-specific provisions, could have material
positive and negative effects on the Company's payphone business and results of
operations. See "Regulation."
REGULATION
The Company's operations are significantly influenced by federal and
state regulation of payphone and inmate phone services, as well as the
regulation of related telecommunications services. Traditionally, regulation of
these services has been governed by state regulatory bodies or the FCC, based on
the intrastate or interstate nature of the service. However, in early 1996, the
Telecom Act was enacted. The Telecom Act substantially restructured the
telecommunications industry and included specific provisions regarding changes
in the regulation of payphone and inmate phone service to be implemented and
administered by the FCC on both an interstate and intrastate basis. For example,
under the Telecom Act, the FCC has the power to preempt state regulations that
are inconsistent with the FCC's legislative mandates.
The FCC's broadened authority under the Telecom Act has expanded its
participation in payphone and inmate phone issues. In 1992, the FCC first
recognized the impact of dial around
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calling on independent payphones by enacting a flat rate of $6.00 per payphone
per month to be paid by the IXCs, based on their pro-rata share of the long
distance market. On September 20, 1996, the FCC released an order establishing a
new flat rate of $45.85 per phone per month to be paid by certain IXCs to
independent payphone providers. The flat rate was ordered to be in effect until
October 7, 1997, when all IXCs were required to transition to a per call payment
system at a rate of 35 cents per call for one year. Beginning October 7, 1998,
per call compensation was ordered to be based on the local rate charged at the
individual payphone or at a rate agreed to between the payphone provider and the
carrier. On July 1, 1997, the United States Court of Appeals for the District of
Columbia Circuit ("Court") issued an opinion which, among other things, affirmed
the deregulation of the local coin rate on October 7, 1997, and remanded both
the interim dial around compensation rate of $45.85 per month per payphone and
the default compensation rate of $.35 per call to the FCC for further review.
Following the release of the Court's opinion, a number of interested parties
filed motions for rehearing and/or clarification of the July 1, 1997 decision.
On September 16, 1997, the Court clarified that it had, in fact, intended that
the dial around compensation provisions of the FCC's orders be vacated, pending
further FCC action. On the same day, the Court denied motions for rehearing on
the local coin rate, thus affirming that the rate will be deregulated on October
7, 1997. Upon completion of the FCC's review, Management anticipates that the
revised dial around compensation plan will provide equitable compensation for
the calls that originate at its payphones. However, there can be no assurances
that such a decision will actually be forthcoming. The Company continues to be
governed by both federal and state regulatory requirements as applicable.
STATE REGULATION
State public service commissions ("PSCs") have traditionally maintained
primary responsibility for regulating the rates, terms and conditions for
intrastate independent payphone services. The states generally permit
independent payphone providers to supply local and long distance payphone
service in accordance with a variety of state-specific regulations that govern
rates charged for certain coin and non-coin calls, as well as a broad range of
technical and operational requirements. In addition, PSC-approved tariffs
establish charges for the purchase of access lines from the LECs and the rates
paid by the Company for local and intrastate usage that may be resold to the end
user through the payphone. As a result of the implementation of the Telecom
Act, all states are now required to allow payphone competition.
Operator services rates for non-coin local and intrastate toll calls
placed from payphones are also typically capped by state PSCs. Most states that
permit competition for intrastate operator services regulate operational aspects
of the provision of those services in a manner similar or identical to
regulations adopted by the FCC pursuant to the Telephone Operator Consumer
Services Improvement Act of 1990 ("TOCSIA").
The Company's inmate operations are also governed by state-specific
regulations. Similar to payphone and/or operator services, the PSCs often
regulate the rates charged for intrastate
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calls placed from confinement facilities. The operational characteristics of
inmate communications systems must also comply with the PSCs' rules.
In accordance with the FCC's requirements under the Telecom Act, state
PSCs are currently reviewing the charges that independent payphone providers are
required to pay for local access lines and associated services from the LECs.
The FCC's mandate requires state PSCs to ensure that such access line rates are
"cost based". State PSCs are also authorizing competition in local service. As
local competition emerges, more options should become available to the Company
to obtain local access service at competitive rates. No assurance can be given,
however, that viable options will actually become available.
FEDERAL REGULATION
Although the FCC historically has been less active than the state PSCs
in regulating the provision of independent payphone service, the passage of the
payphone-specific provisions of the Telecom Act signaled a significant change in
the FCC's role in the regulation of payphones and inmate phones. Specifically,
Section 276 of the Act required the FCC to implement rules that accomplished the
following:
(1) Establish a per call compensation system to ensure payphone
providers are fairly compensated for every intrastate and interstate call made
from their payphones (excluding 911 and Telecommunications Relay Services
("TRS") calls for hearing-impaired individuals);
(2) Cease traditional interstate and intrastate subsidies for LEC
payphones from LEC regulated rate base operations;
(3) Establish nonstructural safeguards to eliminate discrimination
between RBOC and independent payphone providers;
(4) Consider the RBOCs' right to select and contract with interLATA
carriers for their own payphones, subject to: a) the FCC's finding that such
presubscription rights are in the public interest; and b) maintaining existing
contracts between location owners and interLATA carriers until their expiration;
(5) Authorize all payphone providers to choose the intraLATA carrier of
choice subject to requirements of, and contractual rights negotiated with,
location owners;
(6) Determine whether "public interest" payphones should be maintained
and under what conditions; and
(7) Preempt any state regulations which are inconsistent with the FCC's
rules adopted under Section 276.
On September 20, 1996 the FCC released its Report and Order adopting
----------------
regulations to implement the above section of the Telecom Act. First, the FCC
prescribed new interim dial around compensation for independent payphone
providers for both "access code" and "subscriber 800" dial around calls, on a
flat rate basis, at a rate of $45.85 per payphone per month to be paid by
certain long distance carriers. The $45.85 per month was based on an estimated
industry-wide
13
<PAGE>
average of 131 calls per month at $.35 per call. This interim flat-rate
compensation was to be effective until October 7, 1997, and replaced all other
dial around compensation currently existing at the federal or state level. The
new compensation was effective November 8, 1996 and was scheduled to remain in
effect until October 7, 1997. At that time, all payphones (including LEC and
independent provider payphones) were to transition to a per-call compensation
system, with the rate initially set at $.35 per call. The FCC determined that
after October 7, 1998, the per call rate for dial around would be the same as
the local rate charged at the payphone or at a rate negotiated between the
payphone provider and the IXC. However, on July 1, 1997, the United States Court
of Appeals for the District of Columbia Circuit ("Court") issued an opinion
which, among other things, affirmed the deregulation of the local coin rate on
October 7, 1997, and remanded the both the interim dial around compensation plan
and $.35 as the default per call compensation rate to the FCC for further
review. Following release of the Court's opinion, a number of interested parties
filed motions for rehearing and/or clarification of the July 1, 1997 decision.
On September 16, 1997, the Court clarified that it had, in fact, intended that
the dial around compensation provisions of the FCC's orders be vacated, pending
further FCC action. On the same day, the Court denied motions for rehearing on
the local coin rate, thus affirming that the rate will be deregulated on October
7, 1997. The FCC also recognized that existing regulations did not prohibit an
IXC from blocking subscriber 800 numbers from payphones if the IXC wanted to
avoid paying per call compensation on these calls. Dial around compensation was
not to be paid on inmate calls since inmate phone providers are not required
under TOCSIA to allow access to all long distance carriers or other toll-free
numbers.
Second, the FCC decided that local coin rates should generally be
deregulated no later than October 7, 1997. Thus, the Company should be able to
set an appropriate market-based rate for its local coin calls from its payphones
at that time, subject to competitive issues. State PSCs remained free to order
deregulation of local coin rates at an earlier date and were also permitted to
obtain an exemption from deregulation by demonstrating market failures within
their state that would not allow the development of market-based rates for local
coin calls. The FCC's Order was unclear regarding the specific showing states
must make to obtain an exemption.
Third, by October 7, 1997, state PSCs were required to take any
additional action necessary to ensure that payphone competition is promoted.
These actions include modification or elimination of existing payphone
regulations that impose market entry or exit barriers.
Fourth, the FCC required LEC payphone operations to be removed from the
regulated rate base no later than April 15, 1997. A key effect of this process
is that the LECs' regulated ratepayers are "repaid" by the deregulated payphone
business for the value of the payphones on which the LECs are no longer entitled
to earn a rate of return. The FCC determined that this repayment must be based
on the "net book value" of the LEC payphone equipment, which is the original
cost of the physical equipment, minus accumulated depreciation. Further, the
FCC required all RBOCs to file "Comparably Efficient Interconnection" ("CEI")
plans to describe their methods of compliance with nondiscrimination and
accounting requirements, as well as other
14
<PAGE>
safeguards against subsidies and discrimination in favor of their own payphone
operations. The LECs were also required to ensure that access lines provided to
their own payphones must be available to independent payphone providers on an
equal basis.
Fifth, the FCC's order authorized RBOCs to select the interLATA carrier
to serve their payphones, with the selection to be made in conjunction with
location providers. This right was effective upon FCC approval of the individual
RBOC's "CEI" plans as described above. Existing contracts between location
providers and payphone providers or long distance carriers which were in effect
as of February 8, 1996 are grandfathered and will remain in force.
Sixth, the FCC mandated that all payphone providers be allowed to select
their intraLATA carrier of choice, and that such selection authority preempts
state regulation that may require independent providers to route intraLATA calls
to the LEC. However, the FCC did not preempt state regulations that, for public
safety reasons, require routing of "0-" calls to the LEC, provided that the
state does not direct that the LEC carry such calls when the call is determined
to be a non-emergency call.
Seventh, the FCC determined that state PSCs should administer programs
for maintaining "public interest payphones" within certain guidelines. "Public
interest payphone" is defined as "a payphone which (1) fulfills a public policy
objective in health, safety, or public welfare, (2) is not provided for a
location provider with an existing contract for the provision of a payphone, and
(3) would not otherwise exist as a result of the operation of the competitive
marketplace." Each PSC is required to complete a review of whether such
payphones are adequately provided in its state by September 20, 1998.
The above summary of pertinent provisions of the FCC's Report and Order
----------------
is not intended to be exhaustive, but illustrative in nature to describe
particular elements that the Company believes will have a material impact upon
its operations.
Many requests for reconsideration of specific elements of the Report and
----------
Order were presented to the FCC following its September 20, 1996 ruling. On
- -----
November 8, 1996, the FCC released its Order On Reconsideration which denied all
------------------------
but two of the reconsideration petitions, concluding they contained no new
evidence or arguments not contemplated in the original order. Certain
clarifications were made regarding the requirements for LEC tariffing of
payphone services and unbundled network functionalities, as well as the method
of transfer of LEC payphones to a deregulated status. Importantly, the Order
restated that the LECs' intrastate tariffs for payphone services must be cost-
based, nondiscriminatory, and comply with the "new services test," which
requires such services to be priced at no more than direct cost plus a
reasonable allocation of overhead expense.
The Company believes that the FCC's implementation of this legislation
will address certain fundamental inequities in the payphone and inmate phone
markets and lead to a more
15
<PAGE>
equitable competitive environment for all providers. However, there can be no
assurance that the FCC's actions, as they are implemented and effected in the
business environment, will actually result in overall positive results.
Moreover, any improvement in the competitive environment may be offset by the
potential for increased competitive pressures by RBOC and LEC payphone
divisions, which may also benefit from the deregulation mandated by the Telecom
Act. Specifically, the ability of the RBOCs to participate in choosing an
interLATA carrier, the appropriate valuation of RBOC asset transfers from the
regulated rate base to a nonstructural subsidiary, and the effectiveness of
actual safeguards against cross-subsidization and discrimination are crucial
issues which will affect the Company's ability to effectively compete in the
future.
While the provisions of the Telecom Act and the rules implementing those
provisions are anticipated to most significantly affect the Company's
operations, other pending FCC matters may also have a substantial impact.
The FCC has also issued a Second Notice of Proposed Rulemaking regarding
"Billed Party Preference" ("BPP") and associated call rating issues. Currently,
0+ and 0- interstate calls from payphones are sent to the long distance carrier
selected by the independent payphone provider. Under BPP, these calls would be
sent instead to the long distance carrier chosen by the party paying for the
call. The billed party would bypass the Company's selected long distance
carrier network entirely and, without the ability to capture and control the
call, the Company would not be in a position to offer location owners
commissions on operator services revenues. Previously, the FCC tentatively
concluded that a nationwide system of BPP for interstate operator-assisted calls
was in the public interest, but requested further comments specifically
addressing the costs versus the benefits of BPP. The Second Notice proposes
"rate benchmarks" and/or caller notification, such as oral rate disclosures, as
potential alternatives to BPP implementation. Comments have been filed and
remain under consideration by the FCC.
If implemented, BPP could have an adverse impact on the Company's
business. The Company believes that implementation of BPP is not likely to be
achieved, since it would involve significant expense and technical changes as
evidenced by the record in the FCC proceeding. However, rate benchmarks or
caller notification of charges could be implemented by the FCC for interstate
operator assisted calls. Such a ruling could impact the financial performance of
the Company, depending on the specific level of the benchmark or the particular
notification requirements. There is no mandated schedule for a decision in this
docket. Therefore, without further FCC action, the Company is unable to
reasonably assess any potential impact that BPP, rate benchmarks or
notifications, if implemented, might have on its payphone and inmate phone
operations.
Actions by agencies on both the state and federal level have had, and
are expected to continue to have, both positive and negative effects on the
Company. In particular, the FCC's decisions regarding dial around compensation
(and the decisions of the United States Court of
16
<PAGE>
Appeals for the District of Columbia Circuit with respect to such compensation)
impact the Company's cash flow and, correspondingly, CCI's ability to meet its
financial obligations as they mature. See "Management's Discussion and
Analysis - Liquidity." Although management is not presently aware of any action
contemplated by any state or federal agency which would have a material adverse
effect on the Company (other than those discussed above), there is no guarantee
that such an action will not be taken.
EMPLOYEES
At June 30, 1997, CCI had 325 full-time employees, including 34
executive and administrative personnel, 79 sales and customer service personnel
and 212 field and operations personnel, of which 19 employees are dedicated to
providing installations, maintenance and repair services to the Company's inmate
phones. Upon consummation of the Purchase Agreement with Talton and the
transactions contemplated thereby, employees dedicated to the Company's inmate
phone business will transition over to Talton Holdings, Inc. within 90 days.
None of the Company's employees are represented by a union. Certain of the
Company's management information systems functions are handled on an outsourced
basis by Perot and its employees. See "Business-Background."
17
<PAGE>
APPENDIX A
GLOSSARY
Access Charges -- The charges paid to the LECs for the use of the local
network.
Bad Debt -- Charges incurred by the consumer and billed in good faith by
the Company that are not paid due to the unwillingness or the inability of the
consumer to pay such charges.
Business Operators -- Owners of pay telephones, owners of premises on which
pay telephones are located and multi-telephone facilities such as hotels and
hospitals with which an OSP contracts to process and transmit operator assisted
long distance telephone calls. Also known as subscribers.
FCC -- Federal Communications Commission.
IXC--Interexchange Carrier -- A company that provides long distance
services between exchanges.
LATA-Local Access and Transport Area -- Geographical area defined in the
AT&T divestiture decree between which the Bell System Operating Companies are
precluded from providing service.
LEC-Local Exchange Carrier -- A company (including a Bell System Operating
Company) providing local telephone services and intraLATA long distance service.
OSP--Operator Service Provider -- A company providing operator assisted
calls.
Operator Assisted -- "0-" and "0+" telephone service.
PSC--Public Service Commission -- A state regulatory body empowered to
establish and enforce rules and regulations pertinent to public utility
companies and others.
RBOC--Regional Bell Operating Company -- Any of seven regional Bell holding
companies that the AT&T divestiture decree established to serve as parent
companies for the Bell System Operating Companies.
Tariff -- The schedule of rates and regulations set by communications
companies and filed with the appropriate federal and state regulatory agencies;
the published official list of charges, terms and conditions governing provision
of a specific communications service or facility, which functions in lieu of a
contract between the Business Operator or user and the supplier or carrier.
18
<PAGE>
0 - telephone call -- A long distance telephone call made by dialing 0 and
using a live operator to receive the billing information and complete the call.
0 + telephone call -- A long distance telephone call made by dialing 0 plus
the telephone number, and using an operator, either live or automated, to
collect billing information and to complete the call.
1 + telephone call -- A long distance telephone call made by dialing 1 plus
the area code and telephone number which is billed directly to the owner of the
telephone from which the originating call is made.
19
<PAGE>
ITEM 2. PROPERTIES.
- -------------------
The Company leases approximately 17,500 square feet in Roswell, Georgia,
which houses its executive offices, payphone operations, accounting, data
processing and warehouse space. The term of the lease extends through December
31, 1997, at an annual rent of approximately $122,000. In addition, the Company
leases approximately 9,900 square feet in Louisville, Kentucky, at which its
inmate phone operations are based. The term of this lease extends through April
30, 1999, at an annual rent of approximately $104,000. The Company leases
additional office and warehouse space in other locations in its operating areas.
The Company believes that its facilities are adequate to meet its needs for the
foreseeable future.
ITEM 3. LEGAL PROCEEDINGS.
- --------------------------
From time to time, the Company is a party to routine litigation
incidental to its business. As of the date of this Report, the Company was not
engaged in any legal proceedings that are expected, individually or in the
aggregate, to have a material adverse effect on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
- ------------------------------------------------------------
None.
PART II
-------
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS.
- -----------------------------------------------------------------------------
The Common Stock of the Company is traded on the NASDAQ National Market
under the symbol "CCIX." The Company has never declared or paid any cash
dividends on its capital stock. The Company anticipates that all of its
earnings will be retained for the development and expansion of the Company's
business and does not anticipate paying any cash dividends in the foreseeable
future. The Company's 1996 Credit Agreement contains certain restrictive
covenants which, among other things, require the Company to maintain certain
financial ratios and prohibit the payment of dividends. The chart below sets
forth the high and low stock prices for each quarter for the two most recent
fiscal years.
<TABLE>
<CAPTION>
Quarter Ended High Low
------------- ---- ---
<S> <C> <C>
September 30, 1995 9 1/2 6 1/2
December 31, 1995 7 4 1/4
March 31, 1996 7 1/2 4 1/2
June 30, 1996 8 1/2 6 5/8
September 30, 1996 8 5
December 31, 1996 8 3/8 6
March 31, 1997 12 7 1/2
June 30, 1997 11 5/8 8 1/2
</TABLE>
20
<PAGE>
The closing sales price for the Company's Common Stock on September 25,
1997 was $8.25 per share. As of September 20, 1997, the Company had
approximately 45 shareholders of record not including approximately 4,075,000
shares held by 1,300 shareholders in "street name."
In connection with the Company's 1996 Credit Agreement, on April 17,
1997 First Union National Bank, the Company's secured lender, exercised Warrants
to purchase 225,000 unregistered shares of the Company's Common Stock.
21
<PAGE>
Item 6. Selected Financial Data.
- ---------------------------------
The following selected financial data are derived from the consolidated
financial statements of the Company. The data should be read in conjunction
with the consolidated financial statements, related notes and other financial
information included herein:
<TABLE>
<CAPTION>
Fiscal Year ended June 30,
----------------------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- ------- -------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Revenue:
Coin calls $ 34,575 $ 35,509 $ 33,326 $22,296 $17,429
Non coin calls 65,895 5/ 66,645 47,951 23,572 12,238
Other 3,378 8/ 3,186 145 256 211
-------- -------- -------- ------- -------
103,848 105,340 81,422 1/ 46,124 29,878
Costs and expenses:
Line access charges 31,533 35,924 27,411 15,790 9,734
Commissions 20,839 22,299 15,112 7,001 4,957
Service and collection 19,219 19,362 12,002 6,908 5,640
Selling, general and administrative 5,868 4,779 4,634 3,929 3,000
Bad debt expense 17,208 8,575 4,640 1,768 412
Depreciation and amortization 12,374 11,742 9,795 5,209 3,649
Impairment loss on assets held for sale 6/ 2,400 - - - -
Impairment loss 3/ - 14,184 - - -
-------- -------- -------- ------- -------
109,441 116,865 73,594 40,605 27,392
Operating income (loss) (5,593) (11,525) 7,828 5,519 2,486
Other Income, net 4/ 5,473 - - - -
Impairment loss of loan origination fees 7/ (1,156) - - - -
Interest expense (7,130) (6,343) (3,528) (1,013) (1,362)
-------- -------- -------- ------- -------
Income (loss) before income tax expense and
extraordinary item (8,406) (17,868) 4,300 4,506 1,124
Income tax expense - 78 1,128 938 40
-------- -------- -------- ------- -------
Income (loss) before extraordinary item (8,406) (17,946) 3,172 3,568 1,084
Extraordinary charge from early retirement of debt - - - (789) -
-------- -------- -------- ------- -------
Net income (loss) $ (8,406) $(17,946) $ 3,172 $ 2,779 $ 1,084
======== ======== ======== ======= =======
Historical net income (loss) per share $ (1.38) $ (2.96) $ 0.52 $ 0.28 $ (1.41)
======== ======== ======== ======= =======
Weighted average shares outstanding 6,101 6,055 6,064 3,634 993
======== ======== ======== ======= =======
Operating Data:
EBITDA 2/ $ 14,654 $ 14,401 $ 17,623 $10,728 $ 6,135
Balance Sheet Data:
Total assets $104,333 $109,728 $122,967 $63,643 $30,157
Current portion of notes payable and
long-term debt 71,697 3,088 1,271 671 2,608
Notes payable and long-term debt, less
current portion - 70,197 70,197 18,557 13,500
Total shareholders' equity (deficit) 19,550 26,537 44,275 40,037 (3,017)
</TABLE>
22
<PAGE>
- -----------------------------
1/ Revenues are shown after giving effect to a $817,000 charge for sales and
use taxes and federal excise taxes assessed for prior periods. See
"Management's Discussion and Analysis of Financial Condition - Tax
Matters."
2/ EBITDA represents earnings before interest, taxes, depreciation and
amortization and is a commonly used measure of performance in the
telecommunications industry. EBITDA also excludes impairment losses and
extraordinary charges realized. EBITDA is not determined in accordance
with Generally Accepted Accounting Principles ("GAAP") nor, as a result, is
it included as a line item in the Company's consolidated financial
statements. EBITDA should not be construed as an alternative to operating
income or cash provided by operating activities.
3/ An impairment loss of $14.2 million was recognized during the third quarter
of fiscal 1996 in accordance with SFAS No. 21 where the sum of undiscounted
cash flows for certain long-lived assets was less than their recorded book
value.
4/ In the fourth quarter of fiscal 1997, the Company recognized approximately
$5.5 million in payments, net of related expenses, forfeited by PhoneTel
Technologies, Inc. ("PhoneTel") as a result of the termination of a
proposed merger between PhoneTel and the Company.
5/ Included in Non-Coin Revenue in fiscal 1997 is dial-around compensation
accrued at the rate of $45.85 per phone per month for the period from
November, 1996 through June, 1997. While the $45.85 rate was recorded
pursuant to an Federal Communications Commission ("FCC") order, the U.S.
District Court Of Appeals for the District of Columbia Circuit on July 1,
1997 and September 16, 1997 remanded and then vacated the FCC's dial around
compensation rate for further review by the FCC. If the FCC fails to
implement a dial around compensation amount that approximates at least
$45.85 per phone per month or $.35 per call, then the impact of such a
ruling could have a material adverse effect on the Company's financial
position.
6/ An impairment loss of $2.4 was realized in fiscal 1997 in accordance with
SFAS No. 121. The impairment loss was determined based on the estimated
fair value to be received for long-lived assets to be disposed of under the
August 21, 1997 Asset Purchase Agreement with Talton Holdings, Inc.
7/ In the fourth quarter of fiscal 1997, the Company recognized an impairment
loss of loan origination fees in an approximate amount of $1.2 million.
(as the 1996 Credit Agreement is in default).
8/ The company recognized realized gains of $1.2 million and an unrealized
gain of $1.4 million in fiscal 1997 on its trading securities.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS.
----------------------
RESULTS OF OPERATIONS
The Company derives substantially all of its revenue from calls placed
from its payphone and inmate phone network. Coin revenue is derived from calls
made by depositing coins in the telephone. Non-coin revenue is derived from
calls that are placed using either a calling card or credit card or as a collect
call where the called party will be charged for the call. The call may
23
<PAGE>
also be billed to a third party. Additionally the Company has realized revenue
from long distance carriers pursuant to federal and state regulation as
compensation for dial around calls made from its payphones. However, the Court
of Appeals for the District of Columbia Circuit recently released an opinion
vacating the FCC's decision on the amount of dial around compensation payable to
payphone providers. The FCC must reevaluate available information and establish
a new amount and method of payment to assure fair compensation for dial around
calls. See "Regulation."
The Company's operating expenses include line access charges,
commissions, field service and collection expenses and selling, general and
administrative expenses. Line access charges include interconnection and local
measured usage charges paid to LECs, long distance transmission charges,
billing, collection and validation costs and operator services charges.
Commissions are fees paid regularly to business operators and inmate facilities
generally based on a percentage of revenue generated by the Company's payphones
and inmate phones and have increased over prior years as competition among
payphone operators for attractive payphone locations and among inmate phone
providers for facilities has increased. Field service and collection expenses
include the costs of collecting and processing coins, maintaining and repairing
the telephones and technical support for polling, software maintenance and
diagnostics performed on the Company's payphones. Service and collection
functions for the Company's payphone operations were outsourced to Perot in July
1995 pursuant to the Services Agreement. However, the Company and Perot amended
the Services Agreement, and in January 1997, the Company began to reassume
responsibilities for tasks that were previously assigned to Perot under the
Services Agreement including responsibility for field operations. Under the
Services Agreement, Perot will continue to handle the management information
services function of the Company's payphone division and complete the final
documentation and enhancements to the Perot/CCI Oracle based payphone
information system.
After completing its initial public offering in December 1993, the
Company embarked on an acquisition program, acquiring the businesses and
operations of 15 companies that added over 7,700 payphones and more than 4,300
inmate phones to CCI's operations. The Company discontinued its acquisition
program in fiscal 1996 and 1997, focusing instead on consolidating its
operations and enhancing the profitability of its existing payphone and inmate
phone bases. The reduction in acquisition activity in fiscal 1996 reduced the
Company's year-to-year growth in terms of its weighted average number of
installed payphones and inmate phones, which in turn reduced revenue in fiscal
1997. This reduction in revenue, however, was partially offset by changes
in the Company's regulatory environment, including increases in the Company's
local coin rate charges and dial around compensation amounts. See "Regulation."
Changes in regulation are ongoing for the Company with the passage of
the Telecom Act. On September 20, 1996, the FCC issued a Report and Order
----------------
implementing the payphone-specific provisions of the Telecom Act. Among its
directives, the FCC prescribed dial around compensation for all access code and
800 subscriber calls from payphones at a flat rate of $45.85 per payphone per
month for the first year, with a per call compensation system to be implemented
by October 7, 1997 under which compensation was to be paid at a rate of $.35 per
call.
24
<PAGE>
However, on July 1, 1997, the United States Court of Appeals for the District of
Columbia Circuit ("Court") issued an opinion which, among other things, affirmed
the deregulation of the local coin rate on October 7, 1997, and remanded both
the interim dial around compensation rate of $45.85 per payphone per month and
the default rate of $.35 per call to the FCC for further review. Following
release of the Court's opinion, a number of interested parties filed motions for
rehearing and/or clarification of the July 1, 1997 decision. On September 16,
1997, the Court clarified that it had, in fact, intended that the dial around
compensation provisions of the FCC's orders be vacated. On the same day, the
Court denied motions for rehearing on the local coin rate, thus affirming that
the rate will be deregulated on October 7, 1997. These and other regulatory
changes will significantly impact the Company's operations for the foreseeable
future. See "Regulation."
On March 16, 1997, the Company entered into an Agreement and Plan of
Merger (the "Merger") with PhoneTel Technologies, Inc. ("PhoneTel") and PhoneTel
Acquisition Corp. ("Acquisition") pursuant to which Acquisition commenced a
tender offer to purchase all of the outstanding shares of Common Stock of the
Company (including the associated rights to purchase shares of Common Stock).
The Merger Agreement, as amended by First Amendment to Agreement and Plan of
Merger dated as of May 15, 1997 was terminated without any shares of the
Company's Common Stock being purchased effective August 21, 1997.
On August 21, 1997, the Company, InVision Telecom, Inc. (a wholly owned
subsidiary of the Company), and Talton Holdings, Inc. ("Talton") entered into
an Asset Purchase Agreement (the "Purchase Agreement") whereby Talton agreed to
purchase substantially all of the assets of the Company's inmate phone business
for approximately $42 million (subject to adjustment as provided in the Purchase
Agreement). The Purchase Agreement is scheduled to close on or about
October 31, 1997 and is subject to certain closing conditions including the
consent of the Company's principal lender and the execution of satisfactory
employment agreements with certain members of InVision's management team. Upon
consummation of the Purchase Agreement and the transactions contemplated
thereby, the Company will not own any inmate phones or have any inmate phone
operations.
FISCAL 1997 COMPARED TO FISCAL 1996
Total revenues for fiscal 1997 decreased to $103.8 million from $105.3
million for fiscal 1996, a decrease of 1.4% The decrease in total revenues
reflects decreases of 2.6% in revenues derived from coin calls and 1.1% in
revenues from non-coin calls. Coin revenue decreased primarily because of a
decreased number of payphones in fiscal 1997. Management believes that non-coin
revenue from the Company's payphones was adversely affected in fiscal 1996 and
1997 by increases in dial around calls influenced by national advertising
promotions of long distance operator service providers. In addition, non-coin
revenue from its inmate lines was adversely affected by the implementation of a
direct billing program and new credit policy. (See Bad Debt Expense) These
decreases in non-coin revenues were substantially offset by increased
compensation for dial-around calls. (See Regulation)
25
<PAGE>
In fiscal 1997, the Company installed 2,905 new payphones up from 2,423
in fiscal 1996. Net of removals, incremental net growth from internal sales
declined by 479 payphones in fiscal 1997 compared to an decline of 1,174
payphones in fiscal 1996. Additionally, net inmate lines decreased by 358 lines
in fiscal 1997 compared to 11 net new inmate lines in fiscal 1996. A continuing
program of removing unprofitable payphones decreased the weighted average number
of installed payphones to 20,493 in fiscal 1997 from 21,319 in fiscal 1996, a
decrease of 3.9%. Management does not currently anticipate that the Company's
weighted average number of installed payphones will substantially increase in
fiscal 1998, and the consummation of the pending sale to Talton of the Company's
inmate phone operations will eliminate all of the Company's inmate phones from
its installed base.
Line access charges decreased to $31.5 million in fiscal 1997 from $35.9
million in fiscal 1996 due a reduced number of payphones comprising the
Company's network and lower negotiated rates. These charges decreased to 30.4%
of total revenues in fiscal 1997 as compared to 34.1% in fiscal 1996.
Commissions paid to customers decreased to $20.8 million in fiscal 1997
compared to $22.3 million in fiscal 1996. These amounts represented 20.1% of
total revenues in fiscal 1997 compared to 21.2% in fiscal 1996. The dollar
decrease was primarily due to the decreased number of phones on the Company's
network. The percentage decrease (as well as a portion of the dollar decrease)
was attributable to a change in revenue mix .
Service and collection expenses decreased to $19.2 million or 18.5% of
total revenues from $19.3 million or 18.4% of total revenues in fiscal 1996.
The dollar decrease was primarily due to the decreased number of phones on the
Company's network.
Selling, general and administrative expense increased to $5.9 million in
fiscal 1997 compared to $4.8 million in fiscal 1996, and increased as a
percentage of total revenues to 5.7% from 4.5%. The increases reflect the
Company's investment in an infrastructure to allow for future internal growth
and to complement any possible acquisition growth plans.
Bad debt expense in fiscal 1997 increased to $17.2 million or 16.6% of
total revenues from $8.6 million or 8.1% of total revenues in fiscal 1996. The
increase was primarily due to the greater uncollectible revenues attributable to
the Company's inmate phones related to an increased level of LEC chargebacks
from prior periods received in the current year. The Company's inmate phone
revenue, which is generated entirely by non-coin calls, is subject to
chargebacks by these collecting agencies for up to 24 months. During the second
and third quarters of fiscal 1997, certain LECs that the Company uses for
billing inmate calls changed from allocated to specific bad debt chargebacks
resulting in higher levels of bad debt expense.
Depreciation and amortization expense increased to $12.4 million in
fiscal 1997 from $11.7 million in fiscal 1996. Depreciation expense was $7.3
million in fiscal 1997 and $7.7 in 1996. Amortization expense was $5.1 in fiscal
1997 and $4.0 in 1996.
26
<PAGE>
In the fourth quarter of fiscal 1997, the Company recognized an
impairment loss on assets held for sale of $2.4 million in accordance with
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of."
related to the potential sale of inmate assets to Talton Holdings, Inc., as
described above. Where the potential purchase price was less than the book value
of inmate assets, an impairment was recognized.
In the fourth quarter of fiscal 1997, the Company recognized payments
from PhoneTel Technologies, Inc. ("PhoneTel") of approximately $5.5 million as
other income. The amount was paid to the Company during fiscal 1997 pursuant to
a Plan of Merger between PhoneTel and the Company. Upon termination of the Plan
of Merger, Phonetel forfeited these payments to the Company. The forfeited
amount was recorded net of associated expenses.
The preceding factors combined to produce an operating loss of $5.6
million or 5.4% of total revenues in fiscal 1997, compared to an operating loss
of $11.5 million or 10.9% in fiscal 1996. Earnings before interest, taxes,
depreciation and amortization ("EBITDA") increased 2.1% to $14.7 million in
fiscal 1997 compared to $14.4 million in fiscal 1996. EBITDA is not determined
in accordance with Generally Accepted Accounting Principles ("GAAP") nor, as a
result, is it included as a line item in the Company's consolidated financial
statements. EBITDA is not presented as an alternative to GAAP operating income
or cash flows from operations as shown on the Company's statements of cash
flows. However, it is a commonly accepted measure of performance in the
telecommunications industry.
In the fourth quarter of fiscal 1997, the Company recognized an
impairment loss of loan origination fees in an amount of approximately $1.2
million (as the 1996 Credit Agreement is in default).
Interest expense increased to $7.1 million in fiscal 1997 compared to
$6.3 million in fiscal 1996, primarily due to increases in the interest rate on
the Company's floating rate debt.
As a result of the foregoing, the Company reported a net loss of $8.4
million or $1.38 per share on 6.1 million shares outstanding in fiscal 1997,
compared to a net loss of $17.9 million or $2.96 per share on 6.1 million shares
outstanding in fiscal 1996.
FISCAL 1996 COMPARED TO FISCAL 1995
Total revenues for fiscal 1996 increased to $105.3 million from $81.4
million for fiscal 1995, an increase of 29.4% The increase in total revenues
resulted primarily from the increased number of weighted average phones added to
the Company's phone network during fiscal 1996 from acquisitions completed prior
to fiscal 1996. The increase in total revenues reflects increases of 6.5% in
revenues derived from coin calls and 39.1% in revenues from non-coin calls.
Non-coin revenue was proportionately higher in fiscal 1996 due to the increase
in the weighted average number of the Company's inmate phones, which generate
non-coin revenue only. However, management believes that non-coin revenue from
the Company's payphones continued to be adversely affected in fiscal 1996 by
increases in dial around calls influenced by national advertising
27
<PAGE>
promotions of long distance operator service providers.
In fiscal 1996, the Company installed 2,423 new payphones (unrelated to
acquisitions) down from 3,996 in fiscal 1995. Net of removals, incremental net
growth from internal sales declined by 1,174 payphones in fiscal 1996 compared
to an increase of 797 payphones in fiscal 1995. Additionally, 11 net new inmate
lines were installed that were attributable to the Company's sales and marketing
efforts during fiscal 1996 compared to 748 in fiscal 1995. An aggressive
program of removing unprofitable payphones and inmate lines decreased the
weighted average number of installed payphones to 21,319 in fiscal 1996 from
23,230 in fiscal 1995, a decrease of 8.23%.
Line access charges increased to $35.9 million in fiscal 1996 from $27.4
million in fiscal 1995 due to the increased number of average phones in the
Company's inmate division. These charges increased to 34.1% of total revenues
in fiscal 1996 as compared to 33.3% in fiscal 1995.
Commissions paid to customers increased to $22.3 million in fiscal 1996
compared to $15.1 million in fiscal 1995. These amounts represented 21.3% of
total revenues in fiscal 1996 compared to 18.6% in fiscal 1995. The dollar
increase was primarily due to the increased number of average phones in the
Company's inmate division. The percentage increase (as well as a portion of the
dollar increase) was attributable to higher commission rates paid on revenues
derived primarily from the Company's inmate phones, which comprised a larger
portion of the Company's total phone base in fiscal 1996 as compared to fiscal
1995.
Service and collection expenses increased to $19.3 million or 18.3% of
total revenues from $12.0 million or 14.7% of total revenues in fiscal 1995.
The dollar increase was due to the increased number of average phones in the
Company's inmate division.
Selling, general and administrative expenses increased to $4.7 million
in fiscal 1996 compared to $4.6 million in fiscal 1995, a decrease as a
percentage of total revenues to 4.5% from 5.7%. The percentage decrease
primarily reflects a decrease in the internal marketing efforts in first half of
fiscal 1996.
Bad debt expense in fiscal 1996 increased to $8.6 million or 8.1% of
total revenues from $4.6 million or 5.7% of total revenues in fiscal 1995. The
increase was primarily due to the increase in the revenues attributable to
inmate phones verses payphones. The bad debt associated with the Company's
payphones has historically averaged between 6% and 8% of the affected revenue.
The Company's inmate phones, whose entire revenue is generated by non-coin
calls, is subject to bad debt which has historically averaged between 12% and
15%.
Depreciation and amortization expenses increased to $11.7 million in
fiscal 1996 from $9.8 million in fiscal 1995. This increase was primarily due to
an additional depreciation expense of $2.8 million associated with the addition
of phones and related property and equipment pursuant to acquisitions made in
prior fiscal years. Also contributing to the increase was additional
amortization expenses of $1.8 million related to the amortization of goodwill
and other
28
<PAGE>
intangible costs associated with these acquisitions.
In the third quarter of fiscal 1996, the Company recognized an
impairment loss of $14.2 million in accordance with Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of." Cash flows generated by
payphones and inmate lines on an acquisition by acquisition basis was determined
based on the Company's best estimates of future income and expenses including
the impact of a continued reduction in operator service provider revenue as a
result of "dial around." Where the sum of future undiscounted cash flows of
these long-lived assets were less than their recorded book values, an impairment
was recognized. Approximately $12.4 million was for related operating equipment
and approximately $1.8 million was for related intangible assets.
The preceding factors combined to produce an operating loss of $11.5
million or 10.9% of total revenues in fiscal 1996, compared to operating income
of $7.8 million or 9.6% in fiscal 1995. Earnings before interest, taxes,
depreciation and amortization ("EBITDA") declined 18.2% to $14.4 million in
fiscal 1996 compared to $17.6 million in fiscal 1995. EBITDA is not determined
in accordance with Generally Accepted Accounting Principles ("GAAP") nor, as a
result, is it included as a line item in the Company's consolidated financial
statements. EBITDA is not presented as an alternative to GAAP operating income
or cash flows from operations as shown on the Company's statements of cash
flows. However, it is a commonly accepted measure of performance in the
telecommunications industry.
Interest expense increased to $6.3 million in fiscal 1996 compared to
$3.5 million in fiscal 1995 primarily due to increases in the level of debt
associated with the acquisitions discussed above, as well as increases in the
interest rate on floating rate debt.
As a result of the foregoing, the Company reported a net loss of $17.9
million or $2.96 per share on 6.1 million shares outstanding in fiscal 1996,
compared to net income of $3.2 million or $.52 per share on 6.1 million shares
outstanding in fiscal 1995.
NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued a new
accounting pronouncement, SFAS No. 128, "Earnings Per Share", which will change
the current method of computing earnings per share. The new standard requires
presentation of "basic earnings per share" and "diluted earnings per share"
amounts, as defined. SFAS No. 128 will be effective for the Company's quarter
ending December 31, 1997, and, upon adoption, all prior period earnings per
share data presented shall be restated to conform with the provisions of the new
pronouncement. Application earlier than the Company's quarter ending December
31, 1997 is not permitted. The Company does not expect adoption of the new
pronouncement will have a material impact on the Company's results of
operations.
29
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
During fiscal 1997, the Company primarily financed its operations from
operating cash flow. The Company has a 1996 Credit Agreement ("1996 Credit
Agreement") with principal outstanding borrowings of $71.7 million at June 30,
1997, compared to $73.2 million at June 30, 1996. Net cash provided by
operating activities for fiscal 1997 was approximately $10.3 million compared to
$9.4 million for fiscal 1996.
The Company's working capital was approximately $(28.2) million with a
current ratio of .7 to 1 as of June 30, 1997. This compares to a working
capital balance of $1.5 million and a current ratio of 1.1 to 1 as of June 30,
1996. The change in the Company's working capital is primarily a result of the
$71.7 million debt of the 1996 Credit Agreement being classified as a current
liability as of June 30, 1997 and the reclassification of inmate long-lived
assets to assets held for sale. The Company's principal commitments as of June
30, 1997 consisted of a commitment under the Services Agreement to purchase
approximately $500,000 in equipment from Perot, and a commitment to satisfy the
1996 Credit Agreement. With the exception of the 1996 Credit Agreement, which
is in default, the Company believes that its current cash balances, cash flow
from operations, and proceeds from the sale of substantially all of its inmate
assets will be sufficient to meet its working capital and capital expenditure
requirements for fiscal 1998. The Company further believes that it will be able
to further amend the 1996 Credit Agreement subsequent to the sale of the inmate
assets. However, no assurance can be given as to the likelihood of the Company
further amending the 1996 Credit Agreement or as an alternative obtaining
another secured lender.
In August 1996, the Company entered into the 1996 Credit Agreement with
its principal lender and amended the 1996 Credit Agreement on October 8, 1996
and on July 1, 1997. The July 1, 1997 amendment extended the maturity date of
the $12 million payment due until September 1, 1997. In connection with this
extension, the Company paid $1.5 million of the $12 million due. On September 1,
1997, the Company did not make the $10.5 million payment due under the 1996
Credit Agreement. Accordingly, the Company is in default under the 1996 Credit
Agreement by virtue of this payment not being made, and as a result of breaching
certain financial covenants contained in the 1996 Credit Agreement. Management
of the Company believes that if the sale of substantially all of the assets of
its inmate phone business can be consummated (as to which no assurance can be
given), the Company will be able to repay scheduled amounts due under the 1996
Credit Agreement. However, the Company believes that it will remain in default
under the 1996 Credit Agreement as a result of continuing to breach certain
financial covenants unless the Company can negotiate an agreement with its
principal lender as to which no assurance can be given.
The report of the Company's independent certified public accountants
contains an explanatory paragraph as to the Company's ability to continue as a
going concern. According to the report, the Company has experienced operating
losses, has a working capital deficiency and has not complied with certain
covenants of the 1996 Credit Agreement. Certain of the Company's assets might
be worth substantially less than the amounts shown on the Company's balance
sheet if the Company is unable to continue as a going concern. The financial
statements
30
<PAGE>
have not been adjusted to reflect the outcome of this uncertainty.
INFLATION
Although the Company cannot determine the precise effects of inflation,
it does not believe that inflation has had a material effect on its revenues or
results from operations during any of the periods reported.
"SAFE HARBOR STATEMENT"
The following "Safe Harbor Statement" is made pursuant to the Private
Securities Litigation Reform Act of 1995. Certain of the statements contained
in the body of this Report are forward-looking statements (rather than
historical facts) that are subject to risks and uncertainties that could cause
actual results to differ materially from those described in the forward-looking
statements. With respect to such forward-looking statements, the Company seeks
the protections afforded by the Private Securities Litigation Reform Act of
1995. The list set forth below is intended to identify certain of the principal
factors that could cause actual results to differ materially from those
described in the forward-looking statements included elsewhere herein. These
factors are not intended to represent a complete list of all risks and
uncertainties inherent in the Company's business, and should be read in
conjunction with the more detailed cautionary statements included elsewhere
herein.
Liquidity: Pursuant to the 1996 Credit Agreement, the Company owed the
---------
principal balance of approximately $71.7 million as of June 30, 1997, and the
principal balance of $68.7 million as of September 23, 1997. The Company is
presently in default under the Credit Agreement. The Company expects to realize
proceeds from the sale of substantially all of its inmate assets in the
approximate amount of approximately $42 million, subject to adjustment as set
forth in the Purchase Agreement. A significant portion of these proceeds will
be used to repay a portion of the balance due under the 1996 Credit Agreement.
The Company also expects to retain part of the proceeds for working capital.
The amount of working capital retained will directly depend upon the FCC's
further ruling on dial around compensation and the timing on the collection
thereto. If the implementation of the FCC's new dial around compensation rules
are further delayed or if the net impact of the rules on the prospective results
of operations and financial condition of the Company is adverse, the ability of
the Company to raise additional capital and meet its payment obligations under
the 1996 Credit Agreement may be materially adversely affected.
Bad Debt Expense: The Company has witnessed an increase in the amount
----------------
of bad debt for its inmate phone revenue over the past year to approximately
30%. To address the issue of bad debt, the Company implemented a program for
direct billing that enabled it to bill the called number directly and set
parameters for blocking calls based on collection results. The combination of
the direct billing program and the new credit policy resulted in approximately a
20% reduction in call volume in the fourth fiscal quarter. Although the Company
implemented the direct billing program with the belief that it will reduce the
amount of bad debt attributable to
31
<PAGE>
its inmate phones, no assurance can be given as to the success of the direct
billing program. Subsequent to June 30, 1997, the Company, in consultation with
Talton, decided to increase its credit limits and discontinued much of it's
direct billing program in favor of using Talton to bill and collect its call
records. If the pending sale of substantially all of the assets to Talton is not
successfully consummated, the Company may experience higher inmate bad debt
expenses as a result of this change.
Dial Around Compensation: The FCC's implementation of the payphone-
------------------------
specific provisions of the Telecom Act began with the issuance of a Report and
----------
Order on September 20, 1996, with one of the most important elements being the
- -----
assurance of "fair compensation" for virtually all calls from payphones. In
this regard, the FCC decision initially mandated dial around compensation for
both access code calls and 800 subscriber calls at a flat rate of $45.85 per
payphone per month, with a transition to a per-call system at the rate of $.35
per call beginning October 7, 1997. The Order stated that on October 7, 1998,
this rate was either to be adjusted to equal the local coin rate being charged
at the particular payphone, or to a higher or lower dial around compensation
rate negotiated between the Company and the carriers who were required to pay.
The initial flat-rate payment level significantly increased dial around
compensation revenues, and the Company believed that a per-call system at a $.35
level would further increase these revenues, despite market forces and factors
outside the Company's control which could substantially affect the resulting
revenue impact. These factors include, but are not limited to, the FCC's
recognition that existing regulations do not prohibit an IXC from blocking
subscriber 800 numbers from payphones if the IXC wants to avoid paying per-call
compensation. However, on July 1, 1997, the United States Court of Appeals for
the District of Columbia Circuit ("Court") issued an opinion which, among other
things, affirmed the deregulation of the local coin rate on October 7, 1997, and
remanded both the interim dial around compensation rate of $45.85 per payphone
per month and the default compensation rate of $.35 per call to the FCC for
further review. On September 16, 1997, the Court clarified that it had, in
fact, intended that the dial around compensation provisions of the FCC's orders
be vacated.. The Company has entered its cost data for dial around calls into
the record at the FCC and is awaiting a further FCC ruling on this issue. If
the FCC fails to implement a dial around compensation amount that approximates
at least $45.85 per phone per month or $.35 per call, the impact of such a
ruling would have a material adverse effect on the Company's financial position.
Local Coin Rate: In ensuring "fair compensation" for all calls, the FCC
---------------
also determined that local coin rates from payphones should be generally
deregulated by October 7, 1997, but provided for possible modifications or
exemptions from deregulation upon a detailed showing by an individual state.
The states could move to deregulation earlier than one year, but a state may
also obtain an exemption from deregulation by "demonstrat[ing] to the Commission
that there are market failures within the state that would not allow market-
based rates." Where deregulation is implemented, management believes the
Company is likely to experience increases in its coin revenue per phone.
However, given the FCC's failure to specify particular requirements for
obtaining an exemption, the Company is unable to adequately predict the
32
<PAGE>
responses of individual states or the market and thus, the ultimate revenue
impact of local coin rate deregulation. The Company intends to price its local
coin calls as appropriate in each market. On July 1, 1997, the United States
Court of Appeals for the District of Columbia Circuit ("Court") issued an
opinion which, among other things, affirmed the deregulation of the local coin
rate on October 7, 1997. On September 16, 1997, the Court denied motions for
rehearing on the local coin rate, thus affirming that the rate will be
deregulated effective October 7, 1997. While local coin rates will be
determined by the LECs in their individual market areas, the Company could raise
its local coin rates without the LECs changing their rates. Such actions could
result in a decreased number of local calls placed which could offset the
revenue increase from a higher coin rate.
Other Telecom Act Provisions: There are a significant number of Telecom
------------- ---------------
Act provisions, as implemented by the FCC, that may substantially impact the
Company. See "Regulation." Among the most important are the cessation of
subsidies upon the removal of LEC payphones from the regulated rate base by
April 15, 1997, the RBOCs development of specific plans detailing their
compliance with nondiscrimination and accounting requirements and other
safeguards against subsidies and discrimination, and the RBOCs authority to
select interLATA carriers serving their payphones in conjunction with location
owners. As a whole, the Telecom Act provisions should significantly change the
competitive framework of the public communications industry. The Company
believes that the FCC's orders will address certain of the fundamental
inequities in the payphone industry and will, over time, lead to a more
equitable competitive environment for all providers. However, since
implementation will be ongoing for a number of years, there can be no assurance
that the FCC's actions will actually result in positive results for the Company.
Billed Party Preference Proceeding: The FCC has issued a Second Notice
----------------------------------
of Proposed Rulemaking regarding "Billed Party Preference" ("BPP") and
associated call rating issues, including potential "rate benchmarks" and caller
notification requirements for 0+ and 0- interstate long distance calls. If BPP
is implemented, the billed party would bypass CCI's selected long distance
carrier and the Company would fail to receive any commissions from the carrier.
See "Regulation." The Company believes that the implementation of BPP is not
likely to be achieved, since it would involve significant expense and
technological changes as evidenced by the record in the FCC proceeding. However,
should the "rate benchmark" or caller notification requirements be implemented
by the FCC for such operator-assisted calling, the Company could be negatively
impacted, depending upon the specific level of the benchmark or the particular
notification requirements. Without further FCC action, for which a timetable is
not mandated, the Company is unable to reasonably assess any potential impact
that BPP, rate benchmarks or notifications, if implemented, might have on its
payphone and inmate phone operations.
33
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
- ----------------------------------------------------
The financial statements and supplementary financial information
required by this item are filed as part of this Report on pages F-1 through F-23
and page S-1 immediately preceding the signature page to this Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- -----------------------------------------------------------------------
FINANCIAL DISCLOSURE.
- --------------------
None.
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
- ------------------------------------------------------------
To be included in a subsequent amendment to this Form 10-K Report.
ITEM 11. EXECUTIVE COMPENSATION.
- --------------------------------
To be included in a subsequent amendment to this Form 10-K Report.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
- ------------------------------------------------------------------------
To be included in a subsequent amendment to this Form 10-K Report.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
- --------------------------------------------------------
To be included in a subsequent amendment to this Form 10-K Report.
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K.
- ----------------------------------------------------------------------------
(a) The following documents are filed as part of this Report:
1. Financial Statements
* Report of Independent Auditors
* Consolidated Balance Sheets as of June 30, 1997 and 1996
* Consolidated Statements of Operations for the Years Ended
June 30, 1997, 1996 and 1995
* Consolidated Statements of Shareholders' Equity for the
Years Ended June 30, 1997, 1996 and 1995
* Consolidated Statements of Cash Flows for the Years Ended
June 30, 1997, 1996 and 1995
* Notes to Consolidated Financial Statements
34
<PAGE>
2. Financial Statement Schedules:
* Schedule II - Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission
are not required under the related instructions or are
inapplicable and therefore have been omitted.
3. Exhibits:
Exhibit
Number Description
------- -----------
2.1 Agreement and Plan of Merger dated March 14,
1997 by and between the Company, PhoneTel
Technologies, Inc. and PhoneTel Acquisition
Corp./10/
2.2 Asset Purchase Agreement dated August 21, 1997
by and between the Company, InVision Telecom,
Inc., and Talton Holdings, Inc./11/
3.1 Amended and Restated Articles of
Incorporation./1/
3.2 Amended and Restated Bylaws of the Company./1/
4.1 Shareholders Rights Agreement dated as of July
25, 1995 between the Company and First Union
National Bank of North Carolina, as Rights Agent.
/2/
4.1(a) Amendment No. 1 to Shareholders Rights
Agreement dated as of March 13, 1997 by and
between the Company and First Union Bank of
North Carolina, as Rights Agent. /10/
10.1 Second Amended and Restated Credit Agreement
dated as of August 15, 1996 by and among the
Company, Communications Central of Georgia, Inc.,
and InVision Telecom, Inc., as borrowers, and
First Union National Bank of Georgia.
10.1(a) First Amendment to the Second Amended and
Restated Credit Agreement, dated as of October 8,
1996, by and among the Company,
Communications Central of Georgia, Inc., and
InVision Telecom, Inc., as borrowers, and First
Union National Bank of Georgia./13/
35
<PAGE>
10.1(b) Second Amendment to the Second Amended and
Restated Credit Agreement by and among the
Company, Communications Central of Georgia, Inc.,
and InVision Telecom, Inc., as borrowers, and
First Union National Bank of Georgia./12/
10.2(a) First Warrant Agreement dated as of August 15,
1996, between the Company and First Union./13/
10.2(b) First Amendment to First Warrant Agreement dated
as of October 8, 1996, between the Company and
First Union./13/
10.4* Communications Central Inc. 1993 Stock Option
Plan./1/
10.4(c)* Communications Central Inc. Stock Option Plan
Amended and Restated as of October 11, 1995 /9/
10.5 Communications Central Inc. Stock Option Plan for
Directors./8/
10.6 Lease between Northmeadow Associates Joint
Venture and the Company dated July 25, 1988 for
the business premises located at 1150 Northmeadow
Parkway, Suite 118, Roswell, Georgia 30076./1/
10.6(a) Second Amendment to Lease between
Northmeadow Associates Joint Venture and the
Company dated October 1, 1993 for the Company
Headquarters./3/
10.6(b) Third Amendment to Lease between Northmeadow
Associates Joint Venture and the Company dated
July 15, 1994 for the Company Headquarters./3/
10.6(c) Letter Amendment from Weeks Corporation to
the Company dated July 3, 1997 for the Company
Headquarters.
36
<PAGE>
10.7 Registration Rights Agreement dated as of August
15, 1996, between the Company and First
Union./13/
10.8 Registration Rights Agreement between the
Company and certain other parties dated April 15,
1991 as amended by First Amendment to
Registration Rights Agreement dated June 18,
1992, as amended by Second Amendment to
Registration Rights Agreement dated November 25,
1992 as amended by Third Amendment to
Registration Rights Agreement dated April 16,
1993./1/
10.8(a) Fourth Amendment to Registration Rights
Agreement dated February 28, 1994./4/
10.8(b) Fifth Amendment to Registration Rights Agreement
dated July 27, 1994./3/
10.12* Employment Agreement dated November 6, 1995,
between Communications Central of Georgia, Inc.
and Rodger L. Johnson./6/
10.13* Stock Option Agreement dated as of November 6,
1995, between the Company and Rodger L.
Johnson./7/
10.14* Stock Option Agreement dated as of January 2,
1996, between the Company and Anthony J.
Palermo./13/
10.15* Stock Option Agreement dated as of January 15,
1996, between the Company and C. Douglas
McKeever./13/
10.16* Stock Option Agreement dated as of August 15,
1996, between the Company and Robert E.
Bowling.
11.1 Computation of Historical Earnings Per Share.
21.0 List of Subsidiaries of the Company.
23.1 Consent of Ernst & Young LLP.
27 Summary Financial Data.
37
<PAGE>
* Compensatory plan or arrangement or management contract required to be filed
as an exhibit pursuant to Item 14(c) of Form 10-K.
(1) Incorporated herein by reference to the exhibit of the same number in the
Company's Registration Statement on Form S-1 (Registration No. 33-57984).
(2) Incorporated herein by reference to exhibit of the same number in the
Company's Registration Statement on Form 8-A registering certain "Rights to
Purchase Common Stock," as filed on August 7, 1995.
(3) Incorporated herein by reference to exhibit of the same number in the
Company's Annual Report on Form 10-K for the year ended June 30, 1994.
(4) Incorporated herein by reference to Exhibit 10(a) of Amendment No. 1 to the
Company's Current Report on Form 8-K/A filed April 14, 1994 (File No. 0-
22730).
(5) Incorporated herein by reference to Exhibit 99.1 of Amendment No. 1 on Form
8-K/A to the Company's Current Report on Form 8-K, date of earliest event
reported July 21, 1995, filed on August 25, 1995 (File No. 0-22730).
(6) Incorporated herein by reference to Exhibit 99.1 on Form 8-K, date of event
reported November 6, 1995 (File No. 0-22730).
(7) Incorporated herein by reference to Exhibit 99.2 on Form 8-K, date of event
reported November 6, 1995 (File No. 0-22730).
(8) Incorporated herein by reference to Appendix A of the Company's definitive
Proxy Statement for its fiscal 1994 Annual Meeting of Shareholders.
(9) Incorporated herein by reference to Appendix B of the Company's definitive
Proxy Statement for its fiscal 1995 Annual Meeting of Shareholders.
(10) Incorporated herein by reference to Exhibit (c)(11) in the Company's
Schedule 14D-9 filed on March 20, 1997.
(11) Incorporated herein by reference to Exhibit 99.1 in the Company's Current
Report on Form 8-K, date of event reported August 21, 1997.
(12) Incorporated herein by reference to Exhibit 99.1 in the Company's Current
Report on Form 8-K, date of event reported July 1, 1997.
(13) Incorporated herein by reference to exhibit of the same number in the
Company's Annual Report on Form 10-K for the year ended June 30, 1996.
38
<PAGE>
(b) Forms 8-K:
The Company filed a Current Report on Form 8-K, date of event reported
March 14, 1997. The above mentioned Report on Form 8-K was filed to
report the Company's execution of an Agreement and Plan of Merger with
PhoneTel Technologies, Inc. ("PhoneTel"), and the commencement of a
Tender Offer by a wholly-owned subsidiary of PhoneTel pursuant to the
Agreement and Plan of Merger Agreement.
39
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Communications Central Inc.
Date: October 3, 1997 By: /s/ Rodger L. Johnson
--------------------------
Rodger L. Johnson
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Date: October 3, 1997 /s/ Rodger L. Johnson
--------------------------
Rodger L. Johnson
Chief Executive Officer and Director
(principal executive officer)
Date: October 3, 1997 /s/ C. Douglas McKeever
--------------------------
C. Douglas McKeever
Vice President of Finance
(principal financial and accounting
officer)
Date: September 24, 1997 /s/ Robert C. Fisher, Jr.
--------------------------
Robert C. Fisher, Jr.
Director
Date: October 3, 1997 /s/ Richard W. Oliver
--------------------------
Richard W. Oliver
Director
Date: September 25, 1997 /s/ Ronald C. Warrington
--------------------------
Ronald C. Warrington
Director
Date: September 26, 1997 /s/ Peter A. Schober
--------------------------
Peter A. Schober
Director
40
<PAGE>
EXHIBIT 10.1
================================================================================
$75,000,000
SECOND AMENDED AND RESTATED
CREDIT AGREEMENT
DATED AS OF AUGUST 15, 1996
AMONG
COMMUNICATIONS CENTRAL INC.,
COMMUNICATIONS CENTRAL OF GEORGIA, INC., AND
INVISION TELECOM, INC.,
AS BORROWERS,
AND
FIRST UNION NATIONAL BANK OF GEORGIA,
AS LENDER
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
ARTICLE 1.
<S> <C>
Section 1.1. Definitions................................................... 1
Section 1.2. Accounting Terms and Determinations........................... 12
Section 1.3. Other Definitional Terms...................................... 13
ARTICLE 2.
Section 2.1. Tranche A Loan................................................ 13
Section 2.2. Tranche B Loans............................................... 13
Section 2.3. Tranche C Loan................................................ 14
Section 2.4. Use of Proceeds............................................... 14
Section 2.5. Prime Rate Advance or LIBOR Advance........................... 14
Section 2.6. Loans in Excess of Above Limits............................... 14
Section 2.7. Notes; Repayment of Principal and Interest.................... 14
Section 2.8. Requests for Tranche B Loans.................................. 15
Section 2.9. Disbursement of Tranche B Loans............................... 16
Section 2.10. Voluntary Reductions in Tranche B Commitment.................. 16
Section 2.11. Letters of Credit............................................. 17
Section 2.12. Co-Borrower Matters........................................... 17
ARTICLE 3.
Section 3.1. Interest...................................................... 17
Section 3.2. Fees.......................................................... 18
Section 3.3. Payments, Prepayments and Computations ....................... 20
Section 3.4. Collateral and Guaranties..................................... 21
Section 3.5. Capital Adequacy.............................................. 22
Section 3.6. Unavailability................................................ 22
Section 3.7. Increased Costs............................................... 23
Section 3.8. Loan Account.................................................. 23
Section 3.9. Funding Losses................................................ 23
Section 3.10. Assumptions Concerning Funding of LIBOR Advances.............. 24
Section 3.11. Agreements Regarding Interest and Other Charges............... 24
ARTICLE 4.
Section 4.1. Conditions Precedent to Initial Loan.......................... 25
Section 4.2. Conditions Precedent to All Loans............................. 26
ARTICLE 5.
Section 5.1. Organization; Subsidiaries; Authorization; Valid and Binding
Obligations.................................................. 27
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
Section 5.2. Financial Statements.......................................... 28
Section 5.3. Actions Pending............................................... 28
Section 5.4. Outstanding Funded Debt....................................... 28
Section 5.5. Title to Properties........................................... 28
Section 5.6. Taxes......................................................... 29
Section 5.7. Conflicting Agreements and Other Matters...................... 29
Section 5.8. ERISA......................................................... 29
Section 5.9. Governmental Consent.......................................... 30
Section 5.10. Compliance with Laws and Regulations.......................... 30
Section 5.11. Possession of Licenses, Leases, Franchises, Etc............... 31
Section 5.12. Intellectual Property Rights.................................. 31
Section 5.13. Environmental Compliance...................................... 31
Section 5.14. Solvency...................................................... 32
Section 5.15. Margin Regulations and Investment Company Act, Etc............ 32
Section 5.16. Labor Matters................................................. 32
Section 5.17. Brokers....................................................... 32
Section 5.18. Disclosure.................................................... 32
Section 5.19. No Burdensome Restrictions.................................... 33
Section 5.20. Insurance..................................................... 33
Section 5.21. Revisions or Updates of Schedules............................. 33
Section 5.22. Percentage Ownership of Shares................................ 33
Section 5.23. Security Interest............................................. 33
Section 5.24. Places of Business............................................ 34
ARTICLE 6.
Section 6.1. Financial Statements and Notices.............................. 34
Section 6.2. Inspection of Property........................................ 37
Section 6.3. Books and Records............................................. 38
Section 6.4. Maintenance of Insurance...................................... 38
Section 6.5. Maintenance of Corporate Existence, Properties, Licenses, Etc. 38
Section 6.6. Payment of Taxes and Claims................................... 38
Section 6.7. Type of Business.............................................. 39
Section 6.8. Compliance with Laws, Contracts, Etc.......................... 39
Section 6.9. Financial Covenants........................................... 39
Section 6.10. Additional Credit Parties..................................... 40
Section 6.11. Interest Rate Contracts....................................... 40
Section 6.12 Covenants with respect to Certain Subsidiaries................ 41
ARTICLE 7.
Section 7.1. Funded Debt................................................... 41
Section 7.2. Liens......................................................... 41
Section 7.3. Merger, Consolidation, Etc.................................... 42
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
Section 7.4. ERISA Matters................................................. 43
Section 7.5. Dividends, Etc................................................ 43
Section 7.6. Acquisitions, Investments, Etc................................ 43
Section 7.7. Sale and Lease-Back Transactions.............................. 44
Section 7.8. Transactions With Affiliates.................................. 44
Section 7.9. Fiscal Year Change............................................ 44
Section 7.10. Use of Proceeds............................................... 44
Section 7.11. Guaranties.................................................... 44
Section 7.12. Sales or Other Dispositions of Assets........................ 44
ARTICLE 8.
Section 8.1. Events of Default............................................. 45
Section 8.2. Remedies...................................................... 47
ARTICLE 9.
Section 9.1. Cross-Guaranty................................................ 48
Section 9.2. Waivers of Certain Rights, Etc................................ 48
ARTICLE 10.
Section 10.1. Notices....................................................... 49
-------
Section 10.2. No Waiver; Remedies Cumulative................................ 51
Section 10.3. Payment of Expenses; Indemnity................................ 51
Section 10.4. Further Assurances............................................ 52
Section 10.5. Successors and Assigns; Sale of Interest...................... 52
Section 10.6. Amendments.................................................... 52
Section 10.7. Time of Essence............................................... 53
Section 10.8. Governing Law................................................. 53
Section 10.9. Counterparts.................................................. 53
Section 10.10.Effectiveness; Survival....................................... 53
Section 10.11.Severability.................................................. 53
Section 10.12.Independence of Covenants..................................... 53
Section 10.13.Headings Descriptive.......................................... 53
Section 10.14.Termination of Agreement...................................... 54
Section 10.15.Entire Agreement.............................................. 54
Section 10.16.Jury Trial Waiver, Consent to Forum........................... 54
</TABLE>
iii
<PAGE>
Exhibits
- --------
Exhibit A- Compliance Certificate Form
Exhibit B- Stock Pledge Agreement Form
Exhibit C- Security Agreement Form
Exhibit D- Form of Tranche A Note
Exhibit E- Form of Tranche B Note
Exhibit F- Form of Tranche C Note
Exhibit G- Form of Notice of Borrowing
Exhibit H- Form of Notice of Loan Conversion/Continuation
Exhibit I-1- First Warrant Agreement Form
Exhibit I-2- Second Warrant Agreement Form
Exhibit J- Registration Rights Agreement Form
Exhibit K- Form of Closing Certificate
Exhibit L- Form of Opinion of Credit Parties' Counsel
Schedules
- ---------
Schedule 5.1 - Subsidiaries
Schedule 5.3 - Actions Pending
Schedule 5.6 - Taxes
Schedule 5.8 - ERISA Matters
Schedule 5.12- Intellectual Property Rights
Schedule 5.22- Stock Ownership
Schedule 5.24- Business Locations
Schedule 7.1 - Permitted Funded Debt
Schedule 7.2 - Permitted Liens
Schedule 7.11- Permitted Guaranties
iv
<PAGE>
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
THIS SECOND AMENDED AND RESTATED CREDIT AGREEMENT made and entered into as
of August 15, 1996, by and among COMMUNICATIONS CENTRAL INC., a Georgia
corporation ("CCI "), COMMUNICATIONS CENTRAL OF GEORGIA, INC., a Georgia
---
corporation ("CCG"), INVISION TELECOM, INC., a Georgia corporation ("InVision")
--- --------
(CCI, CCG, InVision being herein collectively called "Borrowers" and
---------
individually called "Borrower"), and FIRST UNION NATIONAL BANK OF GEORGIA, a
--------
national banking association ("the Lender").
----------
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, pursuant to a Credit Agreement, dated as of March 22, 1994, by and
among CCI, CCG and Lender, as amended by the First Modification of Credit
Agreement, dated as of November 30, 1994, among such parties, and as further
amended by the Second Modification of Credit Agreement, dated as of January 13,
1995, among such parties and as further amended and restated by that certain
Amended and Restated Credit Agreement dated as of July 21, 1995 (the "1995
----
Credit Agreement"), among such parties and Central Payphone Services, Inc. a
- ----------------
Georgia corporation ("CPS"), InVision and Pay Phones Plus, Inc., a Tennesse
corporation ("PPP"), the Lender agreed to provide certain loans to CCI, CCG,
CPS, InVision and PPP; and
WHEREAS, the Borrowers and the Lender desire that the 1995 Credit Agreement
be amended and restated in its entirety, all in accordance with and subject to
the terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, the parties to this Agreement hereby agree to amend and
restate the 1995 Credit Agreement in its entirety as follows:
ARTICLE 1.
DEFINITIONS; CONSTRUCTION
SECTION 1.1 DEFINITIONS. For purposes of this Agreement, the following
terms shall have the indicated meanings as set forth below:
"Adjusted LIBOR" shall mean, for any Interest Period, the rate per annum
--------------
(rounded upwards to the nearest 1/16th of one percentage point, if necessary)
equal to the quotient obtained by dividing (i) the offered rate for Dollar
deposits for a period comparable to such Interest Period appearing on the
Reuters Screen LIBO Page (or, if no such rate appears on such screen or such
screen is no longer published, as quoted or published by such other recognized
independent quote service as may be selected by the Lender from time to time) as
<PAGE>
of 11:00 a.m., London time, on the day that is two (2) Business Days prior to
the beginning of such Interest Period (but if at least two such rates appear on
such screen or are so quoted at such time, the offered rate for such Interest
Period shall be the arithmetic mean of such rates) by (ii) a percentage equal to
one (1) minus the then average stated maximum amount (stated as a decimal) of
all reserve requirements applicable to any member of the Federal Reserve System
in respect of Eurocurrency liabilities as defined in Regulation D of the Board
of Governors of the Federal Reserve System (or any successor categories for such
liabilities under such Regulation D).
"Advance" shall mean a Prime Rate Advance or a LIBOR Advance, and
-------
"Advances" shall mean more than one Advance.
--------
"Affiliate" of any Person means any other Person directly or indirectly
---------
controlling, controlled by, or under common control with, such Person, whether
through the ownership of voting securities, by contract or otherwise.
"Agreement" shall mean this Credit Agreement, as amended, supplemented
---------
or modified from time to time.
"Applicable Four-Quarter Period" shall mean, as at any date of
------------------------------
determination thereof, the four most-recently completed consecutive fiscal
quarters of CCI for which the Lender has received financial statements for CCI
pursuant to Section 6.1 hereof.
"Applicable Margin" shall mean, with respect to all Advances of a
-----------------
particular type for a particular kind of Loan which may be outstanding at any
time, the applicable percentage determined for that type of Advance and kind of
Loan from the chart set forth below:
<TABLE>
<CAPTION>
Applicable Margin for Applicable Margin for
Kind of Loan Prime Rate Advances LIBOR Advances
- ------------ --------------------- ---------------------
<S> <C> <C>
Tranche A Loan 0.50% 3.25%
Tranche B Loan 0.50% 3.25%
Tranche C Loan 1.25% 4.00%
</TABLE>
"Bankruptcy Code" shall mean the Bankruptcy Code of 1978, as amended
---------------
(11 U.S.C. (S)(S) 101 et seq.).
-- ---
"Borrowers" shall mean, collectively, CCI, CCG, and InVision.
---------
"Business Day" shall mean any day excluding (a) Saturday, Sunday and any
------------
other day on which banks are required or authorized to close in Atlanta,
Georgia, and (b) if the
2
<PAGE>
applicable Business Day relates to any LIBOR Advance or the determination of any
Interest Period or the calculation of the Adjusted LIBOR therefor, any day on
which trading is not carried on by and between banks in Dollars in the London
interbank market.
"Capital Expenditures" shall mean, for any fiscal period of any Person, all
--------------------
expenditures made and liabilities incurred by such Person during such period for
the acquisition of tangible or intangible assets which are not, in accordance
with GAAP, treated as expense items for such Person in the period made or
incurred or as a prepaid expense applicable to a future period, and such term
shall include that portion of any Capitalized Lease Obligations of such Person
originally incurred during such period that is capitalized under GAAP, all as
determined on a consolidated basis.
"Capitalized Lease Obligations" shall mean, for any fiscal period of any
-----------------------------
Person, any Indebtedness of such Person represented by obligations under a lease
that is required to be capitalized for financial reporting purposes in
accordance with GAAP, and the amount of such Indebtedness for purposes hereof
shall be the capitalized amount of such obligations as determined on a
consolidated basis in accordance with GAAP.
"CCG" shall mean Communications Central of Georgia, Inc., a Georgia
---
corporation, and its successors and permitted assigns.
"CCI" shall mean Communications Central Inc., a Georgia corporation, and
---
its successors and permitted assigns.
"Closing Date" shall mean the date that this Agreement has been signed by
------------
Borrowers and the Lenders.
"Code" shall mean the Internal Revenue Code of 1986, as amended from time
----
to time.
"Collateral" shall mean (i) any and all of the property which is pledged or
----------
collaterally assigned to Lender or in which the Lender is otherwise granted a
Lien to secure the Obligations pursuant to any and all of the Security
Documents, and (ii) any and all cash and non-cash proceeds of the foregoing.
"Commitment Fees" shall mean the fees required to be paid by the Borrowers
---------------
to the Lender pursuant to Section 3.2(b) hereof.
"Compliance Certificate" shall mean a certificate of the president, chief
----------------------
executive officer or chief financial officer of the Borrowers in substantially
the form of Exhibit A attached hereto.
---------
3
<PAGE>
"Contractual Obligation" of any Person shall mean any provision of any
----------------------
written agreement, instrument, security, or undertaking to which such Person is
a party or by which it or any of the property owned by it is bound.
"CPS" shall mean Central Payphone Services, Inc., a Georgia corporation,
---
and its successors and assigns.
"Credit Documents" shall mean, collectively, this Agreement, the Notes, any
----------------
Letters of Credit, the Security Documents, and the Warrant Documents.
"Credit Event" shall mean each borrowing of a Loan hereunder.
------------
"Credit Expiration Date" shall mean June 30, 1999, as such date may be
----------------------
extended, accelerated or amended from time to time pursuant to this Agreement.
"Credit Parties" shall mean, collectively, Borrowers and all other direct
--------------
or indirect Subsidiaries of CCI.
"Default" shall mean any condition or event which, with notice or lapse of
-------
time or both, would constitute an Event of Default.
"Dollar" and "U.S. Dollar" and the sign "$" shall mean lawful money of the
------ ----------- -
United States of America.
"EBIT" shall mean, for any fiscal period of any Person, an amount equal to
----
the sum of such Person's Net Income (Loss) plus, to the extent subtracted in
----
determining such Net Income (Loss), (i) such Person's taxes based on income and
(ii) such Person's Interest Expense, all as determined on a consolidated basis
in accordance with GAAP.
"EBITDA" shall mean, for any fiscal period of any Person, an amount equal
------
to the sum of such Person's EBIT plus, to the extent subtracted in determining
----
such Person's Net Income (Loss), such Person's depreciation and amortization
expenses, all as determined on a consolidated basis in accordance with GAAP.
"Environmental Laws" means all federal, state, local and foreign laws
------------------
relating to pollution or protection of the environment, including laws relating
to emissions, discharges, releases or threatened releases of pollutants,
contaminants, chemicals, or industrial, toxic or hazardous substances or wastes
into the environment (including without limitation ambient air, surface water,
ground water or land), or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
pollutants, contaminants, chemicals or industrial, toxic or hazardous substances
or wastes, and any and all regulations, codes, plans, orders, decrees,
judgments, injunctions, notices or demand letters issued, entered, promulgated
or approved thereunder.
4
<PAGE>
"Equipment" - shall mean any "equipment", as such term is defined in
---------
Section 9-109(2) of the Uniform Commercial Code, of any Borrower, whether now
owned or existing or hereafter acquired or arising or in which any Borrower now
has or hereafter acquires any rights, and, in any event, shall include, without
limitation, all of any Borrower's equipment, fixtures, leasehold improvements,
furniture, machinery, trade fixtures, pay telephones and equipment of any
Borrower relating to or used in connection with pay telephones, including, but
not limited to, pay telephones installed at various locations pursuant to Site
License Agreements and uninstalled telephones and replacement parts for
telephones, together with any and all accessories, accessions parts and
appurtenances thereto, substitutions therefor and replacements thereof.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
-----
amended and in effect from time to time.
"ERISA Affiliate" shall mean, with respect to any Person, each trade or
---------------
business (whether or not incorporated) which is a member of a group of which
such Person is a member and which is under common control within the meaning of
the regulations promulgated under Section 414 of the Code.
"Event of Default" shall have the meaning provided in Article VIII hereof.
----------------
"Facility Fees" shall mean, collectively, the fees required to be paid by
-------------
Borrowers to the Lender pursuant to Section 3.2 (a) hereof.
"Federal Funds Rate" means, for any day, the rate per annum (rounded
------------------
upwards, if necessary, to the nearest 1/100th of 1%) equal to the weighted
average of the rates on over-night Federal funds transactions with member banks
of the Federal Reserve System arranged by Federal funds brokers on such day, as
published by the Board of Governors of the Federal Reserve System or the Federal
Reserve Bank of New York on the Business Day next succeeding such day, provided
--------
that (i) if the day for which such rate is to be determined is not a Business
Day, the Federal Funds Rate for such day shall be such rate on such transactions
on the immediately preceding Business Day as so published on the next succeeding
Business Day, and (ii) if such rate is not published for any day, the Federal
Funds Rate for such day shall be the average of the quotations for such day on
such transactions received by the Lender from three (3) federal funds brokers of
recognized standing selected by the Lender.
"Funded Debt" shall mean all Indebtedness for money borrowed, Indebtedness
-----------
secured by Purchase Money Liens, Capitalized Lease Obligations, conditional
sales contracts and similar title retention debt instruments, all as determined
for CCI on a consolidated basis. The calculation of Funded Debt shall include
all Funded Debt of the Credit Parties plus all Funded Debt of other Persons to
the extent guaranteed by a Credit Party, to the extent secured by any assets of
a Credit Party, or to the extent supported by a letter of credit issued for the
account of a Credit Party. The calculation of Funded Debt shall also include
5
<PAGE>
the redemption amount with respect to any capital stock of any Borrower or its
Subsidiaries required to be redeemed within (12) months from the date of any
calculation thereof.
"Funded Debt-to-EBITDA Ratio" shall mean, as determined for each
---------------------------
fiscal quarter of CCI, the ratio of (i) CCI's Funded Debt as of the end of such
period to (ii) CCI's EBITDA for the 4-quarter period ending with such period,
all as determined on a consolidated basis in accordance with GAAP.
"Funded Debt-to-Capital Ratio" shall mean, as of any particular date,
----------------------------
the ratio of CCI's Funded Debt as of such date to the sum of such Funded Debt
plus CCI's Net Worth as of such date, all as determined on a consolidated basis.
"GAAP" shall mean, as in effect from time to time, United States
----
generally accepted accounting principles (which the parties acknowledge and
agree shall include the requirement that such principles be consistently
applied).
"Guarantors" shall mean any and all direct or indirect Subsidiaries of
----------
CCI which are required to guarantee some or all of the Obligations pursuant to
Sections 3.4 and 6.10 hereof.
"Guaranty" shall mean any contractual obligation, contingent or
--------
otherwise, of a Person with respect to any Indebtedness or other obligation or
liability of another Person, including without limitation, any such
Indebtedness, obligation or liability directly or indirectly guaranteed,
endorsed, co-made or discounted or sold with recourse by that Person, or in
respect of which that Person is otherwise directly or indirectly liable,
including Contractual Obligations (contingent or otherwise) arising through any
agreement to purchase, repurchase, or otherwise acquire such Indebtedness,
obligation or liability or any security therefor, or any agreement to provide
funds for the payment or discharge thereof (whether in the form of loans,
advances, stock purchases, capital contributions or otherwise), or to maintain
solvency, assets, level of income, or other financial condition, or to make any
payment other than for value received.
"Guaranty Agreements" shall mean any and all Guaranty Agreements which
-------------------
may be hereafter executed by the Guarantors in favor of the Lender pursuant to
Sections 3.4 and 6.10 hereof, and any modification or replacement thereof or
therefor.
"Indebtedness" of any Person shall mean, without duplication:
------------
(1) all obligations of such Person which in accordance with GAAP
would be shown on the balance sheet of such Person as a liability
(including, without limitation, obligations for borrowed money and for
the deferred purchase price of property or services, and obligations
evidenced by bonds, debentures, notes or other similar instruments);
6
<PAGE>
(2) all rental obligations of such Person under leases required
to be capitalized under GAAP;
(3) all Guaranties of such Person (including contingent
reimbursement obligations under undrawn letters of credit);
(4) Indebtedness of others secured by any Lien upon property
owned by such Person, whether or not assumed; and
(5) obligations or other liabilities of such Person under
Interest Rate Contracts or similar agreements.
"Interest Coverage Ratio" shall mean, as determined on a consolidated
-----------------------
basis for each fiscal quarter of CCI and calculated on the basis of the 4-
quarter period ending therewith, the ratio of (a) the amount of (i) CCI's
EBITDA, less (ii) CCI's Capital Expenditures to (b) CCI's Interest Expense for
----
such period.
"Interest Expense" shall mean, for any fiscal period of any Person,
----------------
the total interest expense of such Person, as determined on a consolidated basis
in accordance with GAAP.
"Interest Period" shall mean, in the case of the determination of any
---------------
Adjusted LIBOR rate, a one (1), two (2) or three (3) month period as selected by
Borrowers; provided, however, that (i) in the event an Interest Period would end
--------
on a day which is not a Business Day, the Interest Period shall be deemed to end
on the immediately succeeding Business Day, unless such extension would cause
such Interest Period to end in the next calendar month, in which case the
Interest Period shall be deemed to end on the immediately preceding Business
Day, (ii) any Interest Period which begins on a day for which there is no
numerically corresponding day in the calendar month in which such Interest
Period ends shall, subject to part (iii) below, expire on the immediately
preceding Business Day, and (iii) Borrowers shall not be entitled to select any
Interest Period applicable to any LIBOR Advance which extends beyond the due
date thereof.
"Interest Rate Contracts" shall mean any interest rate swap
-----------------------
agreements, interest rate cap agreements, interest rate pledge agreement,
interest rate collar agreements, and other similar agreements and arrangements
entered into by any and all of Borrowers to protect such Borrower or Borrowers
against fluctuations in interest rates.
"InVision" shall mean InVision Telecom, Inc., a Georgia corporation,
--------
and its successors and assigns.
"Lender" shall mean First Union National Bank of Georgia, a national
------
banking association, and its successors and assigns.
7
<PAGE>
"Letter of Credit" shall mean any letter of credit which may be now
----------------
or hereafter issued by the lender for the account of any Borrower and any
extension, renewal, modification or replacement thereof or therefor.
"Letter of Credit Obligations" shall mean all outstanding obligations
----------------------------
incurred by the Lender or any of its Affiliates at the request of any Borrower,
whether direct or indirect, contingent or otherwise, due or not due, in
connection with the issuance by the Lender of Letters of Credit, including,
without limitation, the undrawn amount of any outstanding Letter of Credit, any
amount disbursed by the Lender pursuant to a Letter of Credit for which the
Lender has not been reimbursed pursuant to Section 2.11 hereof. The amount of
such Letter of Credit Obligations at any time shall equal the maximum amount
which may be payable by the Lender pursuant to the Letters of Credit at such
time.
"LIBOR Advance" shall mean any Loan hereunder (or portion thereof)
-------------
which bears interest based on Adjusted LIBOR.
"Lien" shall mean any mortgage, pledge, security interest, security
----
deposit, encumbrance, lien or charge of any kind (including any agreement to
give any of the foregoing, any conditional sale or other title retention
agreement, any lease in the nature thereof, and the filing of or agreement to
give any financing statement under the Uniform Commercial Code of any
jurisdiction).
"Loans" shall mean, collectively, the Tranche A Loan, the Tranche B
-----
Loan and the Tranche C Loan, and "Loan" shall mean any one of the Loans, as the
----
context may require.
"Margin Regulations" shall mean Regulation G, Regulation T, Regulation
------------------
U or Regulation X of the Board of Governors of the Federal Reserve System, as
the same may be in effect from time to time.
"Material Adverse Effect" shall mean a material adverse effect upon,
-----------------------
or a material adverse change in, any of the (i) business, results of operations,
properties, prospects or financial condition of CCI and its direct or indirect
Subsidiaries taken as a whole, (ii) legality, validity, binding effect or
enforceability of any Credit Document, (iii) ability of the Borrowers and the
other Credit Parties taken as a whole to perform their payment obligations under
the Credit Documents, or (iv) Collateral, the Liens of the Lender in the
Collateral or the priority of such Liens.
"Multiemployer Plan" shall have the meaning given such term in Section
------------------
4001(a)(3) of ERISA.
"Net Income (Loss)" shall mean, for any fiscal period of any Person,
-----------------
the net income (or loss) of such Person on a consolidated basis for such period
(taken as a single accounting period) determined in conformity with GAAP, but
excluding therefrom (to the extent otherwise included therein and without
duplication) (i) any gains or losses, together with any
8
<PAGE>
related provisions for taxes, realized by such Person upon any sale of its
assets other than in the ordinary course of business, (ii) any other non-
recurring gains or losses, and (iii) any income or loss of any other Person
acquired prior to the date such other Person becomes a Subsidiary of the Person
whose Net Income (Loss) is being measured or is merged into or consolidated with
the Person whose Net Income (Loss) is being measured or all or substantially all
of such other Person's assets are acquired by the Person whose Net Income (Loss)
is being measured.
"Net Worth" shall mean, as of any date and with respect to any Person,
---------
such Person's total shareholders' equity (including capital stock, additional
paid-in capital and retained earnings, after deducting treasury stock) which
would appear as such on a balance sheet of such Person as of such date prepared
on a consolidated basis in accordance with GAAP.
"Notes" shall mean the Tranche A Note, the Tranche B Note and the
-----
Tranche C Note.
"Notice of Tranche B Loan Borrowing" shall have the meaning given such
----------------------------------
term in Section 2.8 hereof.
"Notice of Loan Conversion/Continuation" shall have the meaning given
--------------------------------------
such term in Section 2.8 hereof.
"Obligations" shall mean, collectively, all amounts now or hereafter
-----------
owing to the Lender by any or all of the Borrowers or any other Credit Party
pursuant to the terms of or as a result of this Agreement, the Notes, or any
other Credit Document, including without limitation, the unpaid principal
balance of any and all Loans and all interest, fees, expenses and other charges
relating thereto or accruing thereon, as well as any and all other indebtedness,
liabilities, and obligations of any or all of the Borrowers or any other Credit
Party, whether direct or indirect, absolute or contingent, or liquidated or
unliquidated, which may be now existing or may hereafter arise under or as a
result of any of the Credit Documents, and together with any and all renewals,
extensions, modifications or refinancings of any of the foregoing.
"O.C.G.A." shall mean the Official Code of Georgia Annotated as
-------- ----------------------------------
amended from time to time.
"Officer's Certificate" shall mean a certificate signed in the name of
---------------------
the Borrowers by their respective president, chief executive officer or chief
financial officer.
"PBGC" shall mean the Pension Benefit Guaranty Corporation or any
----
successor thereto.
"Permitted Lien" shall mean any Lien of a kind which is not prohibited
--------------
under Section 7.2 hereof.
9
<PAGE>
"Person" shall mean any individual, partnership, firm, corporation,
------
association, joint venture, trust or other entity, or any government or
political subdivision or agency, department or instrumentality thereof.
"Plan" shall mean any "employee benefit plan" (as defined in Section
---- ---------------------
3(3) of ERISA), including, but not limited to, any defined benefit pension plan,
profit sharing plan, money purchase pension plan, savings or thrift plan, stock
bonus plan, employee stock ownership plan, Multiemployer Plan, or any plan,
fund, program, arrangement or practice providing for medical (including post-
retirement medical), hospitalization, accident, sickness, disability, or life
insurance benefits.
"PPP" shall mean Pay Phones Plus, Inc., a Tennessee corporation, and
---
its successors and assigns.
"Prime Rate" shall mean (with any change in the Prime Rate to be
----------
effective as of the date of such change) the higher of (i) the rate which the
Lender publicly announces from time to time to be its prime rate, prime lending
rate, or base rate, as in effect from time to time, and (ii) the sum of the
Federal Funds Rate, as in effect from time to time, plus one half of one percent
(0.5%) per annum. The Lender's Prime Rate is a reference rate and does not
necessarily represent the lowest or best rate actually charged to any customer;
and the Lender may make commercial loans or other loans at rates of interest at,
above or below the Lender's Prime Rate.
"Prime Rate Advance" shall mean any Loan hereunder (or a portion
------------------
thereof) which bears interest based on the Prime Rate.
"Purchase Money Indebtedness" shall mean (i) any Indebtedness incurred
---------------------------
for the sole purpose of paying all or any part of the purchase price of any
fixed assets, (ii) any other Indebtedness incurred for the sole purpose of
financing or refinancing all or any part of the purchase price of any fixed
assets, (iii) any Capitalized Lease Obligations, and (iv) any renewals,
extensions or refinancings thereof (but not any increases in the principal
amounts thereof outstanding at that time);
"Purchase Money Lien" shall mean a Lien upon fixed assets which
-------------------
secures the Purchase Money Indebtedness relating thereto but only if such Lien
shall at all times be confined solely to the fixed assets the purchase price of
which was financed or refinanced through the incurrence of the Purchase Money
Indebtedness secured by such Lien and only if such Lien secures solely such
Purchase Money Indebtedness.
"Registration Rights Agreement" shall have the meaning assigned to
-----------------------------
such term in Section 3.2 (a) (ii) hereof.
"Requirement of Law" for any person shall mean the articles or
------------------
certificate of incorporation and by-laws or other organizational or governing
documents of such Person,
10
<PAGE>
and any law, treaty, rule or regulation, or determination of any arbitrator or a
court or other governmental authority, in each case applicable to or binding
upon such Person or any of its property or to which such Person or any of its
property is subject.
"SEC" shall mean the Securities and Exchange Commission or any
---
successor thereto.
"Security Agreements" shall mean any and all Security Agreements now
-------------------
or hereafter executed by the Borrowers pursuant to Section 3.4 or 6.10 hereof in
the form of Exhibit C attached hereto, as well as any and all Security
---------
Agreements which may be hereafter executed by the Guarantors, or any of them, in
favor of the Lender pursuant to Sections 3.4 and 6.10 hereof, and any
modifications or replacements thereof or therefor.
"Security Documents" shall mean, collectively, the Guaranty
------------------
Agreements, the Stock Pledge Agreements, the Security Agreements and each other
guaranty, security or other collateral document, whether now existing or
hereafter executed and delivered, guaranteeing or securing any or all of the
Obligations.
"Site License Agreement" shall mean any agreement, whether now in
----------------------
existence or hereafter created, under which any Credit Party is allowed by
another Person to use any part of such Person's premises as a public, pay or
other telephone site.
"Stock Pledge Agreements" shall mean the Stock Pledge Agreement to be
-----------------------
executed and delivered by CCI pursuant to Section 3.4 hereof, in the form of
Exhibit B attached hereto, and any modifications or replacements thereof or
therefor.
"Subordinated Debt" shall mean, with respect to CCI or any of its
-----------------
Subsidiaries, any and all Funded Debt of such Person which is subordinated in
right of payment to all Obligations on written subordination terms and
conditions which are satisfactory in all respects to the Lender.
"Subsidiary" means, as applied to CCI, (i) CCG, CPS, InVision, PPP and
----------
any other corporation of which 50% or more of the outstanding stock (other than
directors' qualifying shares) having ordinary voting power to elect a majority
of its board of directors (or other governing body), regardless of the existence
at the time of a right of the holders of any class or classes (however
designated) of securities of such corporation to exercise such voting power by
reason of the happening of any contingency, or any partnership of which 50% or
more of the outstanding partnership interests is, at the time, directly or
indirectly owned by CCI or by one or more Subsidiaries of CCI, and (ii) any
other entity which is directly or indirectly controlled or capable of being
controlled by CCI or by one or more Subsidiaries of CCI.
"Taxes" shall mean any present or future taxes, levies, imposts,
-----
duties, fees, assessments, deductions, withholdings or other charges of whatever
nature, including without limitation income, gross receipts, excise, property,
sales, transfer, license, payroll,
11
<PAGE>
withholding, social security, and franchise taxes, now or hereafter imposed or
levied by the United States of America or any state, local or foreign government
or by any department, agency or other political subdivision or taxing authority
thereof or therein and all interest, penalties, additions to tax, and other
similar liabilities with respect thereto.
"Tranche A Loan" shall mean the loan to be made pursuant to Section
--------------
2.1 hereof.
"Tranche A Note" shall have the meaning assigned to such term in
--------------
Section 2.1 hereof.
"Tranche A Maturity Date" shall mean June 30, 1999.
-----------------------
"Tranche B Commitment" shall mean the obligation of the Lender to make
--------------------
Tranche B Loans to Borrowers, subject to the terms and conditions hereof, up to
an aggregate principal amount not to exceed at any one time for all Tranche B
Loans, the sum of thirteen million dollars ($13,000,000), subject to such
reductions therein as may occur from time to time under the terms of this
Agreement.
"Tranche B Loan" shall mean any loan made pursuant to Section 2.2
--------------
hereof, and "Tranche B Loans" shall mean, collectively, all loans made pursuant
---------------
to Section 2.2 hereof.
"Tranche B Note" shall have the meaning assigned to such term in
--------------
Section 2.2 hereof.
"Tranche B Maturity Date" shall mean June 30, 1999
-----------------------
"Tranche C Loan" shall mean the loan to be made pursuant to Section
--------------
2.3 hereof.
"Tranche C Note" shall have the meaning assigned to such term in
--------------
Section 2.3 hereof.
"Tranche C Maturity Date" shall mean November 30, 1996.
-----------------------
"Warrant Agreements" shall have the meaning assigned to such
------------------
term in Section 3.2 (a) (ii) hereof, and "Warrant Agreement" shall mean
-----------------
either one of the Warrant Agreements.
"Warrant Documents" shall mean the Warrant Agreements, any warrant
-----------------
issued pursuant to the Warrant Agreements, and the Registration Rights
Agreement.
SECTION 1.2. ACCOUNTING TERMS AND DETERMINATIONS. Unless otherwise
defined or specified herein, all accounting terms shall be construed herein, all
accounting determinations hereunder shall be made, all financial statements
required to be delivered hereunder shall be prepared, and all financial records
shall be maintained in accordance with GAAP; provided, however, that compliance
-------- -------
with any and all financial covenants and calculations set forth in Section 6.9
hereof, and in the definitions used in such covenants and calculations, shall be
calculated, made and applied on a consolidated basis in accordance with GAAP as
in effect
12
<PAGE>
on the date of this Agreement applied on a basis consistent with the preparation
of the financial statements referred to in Section 6.1 hereof unless and until
the parties hereto enter into a written amendment agreement with respect thereto
pursuant to Section 10.6 hereof.
SECTION 1.3. OTHER DEFINITIONAL TERMS. The words "hereof", "herein"
and "hereunder" and words of similar import when used in this Agreement shall
refer to this Agreement as a whole and not to any particular provision of this
Agreement. Any pronoun used herein shall be deemed to cover all genders and all
singular terms used herein shall include the plural and vice versa. Unless
otherwise expressly indicated herein, all references herein to a period of time
which runs "from" or "through" a particular date shall be deemed to include such
date, and all references herein to a period of time which runs "to" or "until" a
particular date shall be deemed to exclude such date. Unless otherwise defined
or specified herein, all other terms used herein shall have the meanings, if
any, given such terms in the Uniform Commercial Code as in effect on this date
in the State of Georgia as the same may be hereafter amended or supplemented
from time to time.
ARTICLE 2.
LOANS
SECTION 2.1. TRANCHE A LOAN. Subject to and upon the terms and
conditions set forth in this Agreement, the Lender agrees to make (by means of
conversion of a portion of revolving loans outstanding under the 1995 Credit
Agreement), on the Closing Date, a term loan (the "Tranche A Loan) to Borrowers
in an aggregate principal amount equal to fifty million dollars ($50,000,000).
The Tranche A Loan shall be evidenced by a promissory note, substantially in the
form of Exhibit D attached hereto, payable to the Lender in the original
---------
principal amount of the Tranche A Loan (together with any extension, renewal,
modification, or replacement thereof or therefor, the "Tranche A Note"). Once
repaid, the Tranche A Loan may not be reborrowed.
SECTION 2.2. TRANCHE B LOANS. Subject to and upon the terms and
conditions set forth in this Agreement, and otherwise at the complete and sole
discretion of the Lender, the Lender may, upon the Borrowers' request, advance
to Borrowers, from time to time prior to the Tranche B Maturity Date, Tranche B
Loans; provided however that the aggregate outstanding principal balance of the
-------- -------
Tranche B Loans and the Letter of Credit Obligations shall not exceed at any
time the Tranche B Commitment as in effect at such time (as such Tranche B
Commitment may be reduced pursuant to this Agreement). The Tranche B Loans shall
be evidenced by a promissory note, substantially in the form of Exhibit E
---------
attached hereto, payable to the Lender in a principal amount equal to the
Tranche B Commitment (together with any extension, renewal, modification or
replacement thereof or therefor, the "Tranche B Note"). Prior to the Tranche B
Maturity Date, Tranche B Loans at the complete and sole discretion of the
Lender, may be borrowed and, to the extent repaid, reborrowed in accordance with
the terms hereof.
13
<PAGE>
SECTION 2.3. TRANCHE C LOAN. Subject to and upon the terms and
conditions set forth in this Agreement, the Lender hereby agrees to make (by
means of conversion of a portion of revolving loans outstanding under the 1995
Credit Agreement), on the Closing Date, to Borrowers a term loan (the "Tranche C
Loan") in the aggregate principal amount of twelve million dollars
($12,000,000). The Tranche C Loan made by the Lender shall be evidenced by a
promissory note substantially in the form of Exhibit F attached hereto, payable
---------
to the Lender in the original principal amount of the Tranche C Loan (together
with any extension, renewal, modification or replacement thereof or therefor,
the "Tranche C Note"). Once repaid, the Tranche C Loan may not be reborrowed.
SECTION 2.4. USE OF PROCEEDS. The proceeds of the Loans shall be
used for the general corporate purposes of Borrowers. No portion of the
proceeds of any Loan may be used by any Borrower in any manner which would cause
such Loan or the application of the proceeds thereof to violate any of
Regulations G, T, U or X of the Board of Governors of the Federal Reserve
System.
SECTION 2.5. PRIME RATE ADVANCE OR LIBOR ADVANCE. Subject to the
limitations set forth herein, each Loan shall, at the option of the Borrowers,
be made or continued as, a Prime Rate Advance or LIBOR Advance or both. Each
LIBOR Advance shall not be less than $500,000 or a greater integral multiple of
$100,000. Each Prime Rate Advance shall be not less than $100,000 or a greater
integral multiple of $10,000. At no time shall the number of LIBOR Advances
outstanding for all Loans at any one time exceed six (6) without Lender's
written approval.
SECTION 2.6. LOANS IN EXCESS OF ABOVE LIMITS. If at any time and
for any reason the aggregate outstanding principal amount of any Loan shall
exceed any of the applicable limits set forth above, such excess nevertheless
shall constitute part of the Loans and the Obligations and shall be evidenced by
the Notes and secured by the Collateral, but the Borrowers shall immediately
upon receipt of notice thereof from the Lender, or immediately upon any
Borrower's acquiring actual knowledge thereof, prepay the applicable Loan or
Loans to the extent necessary to eliminate such excess.
SECTION 2.7. NOTES; REPAYMENT OF PRINCIPAL AND INTEREST.
(a) The Borrowers' joint and several obligation to pay to the Lender
the principal of and interest on the Loans shall be evidenced by the records of
the Lender and by the Notes.
(b) The entire outstanding principal balance of the Tranche A Loan,
the Tranche B Loan and the Tranche C Loan, together with all remaining accrued
and unpaid interest thereon, shall be due and payable, respectively, on the
Tranche A Maturity Date, the Tranche B Maturity Date and the Tranche C Maturity
Date. Pending the date on which a Loan is due and payable in full as provided
herein, (i) accrued interest on the portion of such Loan consisting of Prime
Rate Advances shall be payable to the Lender in arrears on the first (1st) day
of each calendar quarter, commencing October 1, 1996, and continuing to be
due
14
<PAGE>
on the first (1st) day of each calendar quarter thereafter; and (ii) accrued
interest on the portion of such Loan consisting of LIBOR Advances shall be
payable to the Lender in arrears on the last day of each Interest Period
applicable thereto; and
(c) Beginning January 1, 1997, and continuing on the first (1st) day of
each month thereafter until December 1, 1997, principal payments in the amount
of five hundred thousand dollars ($500,000) each shall be due and payable with
respect to the Tranche A Loan; beginning January 1, 1998, and continuing on the
first (1st) day of each month thereafter until December 1, 1998, principal
payments in the amount of seven hundred fifty thousand dollars ($750,000) each
shall be due and payable with respect to the Tranche A Loan; and beginning
January 1, 1999, and continuing on the first (1st) day of each month thereafter
until the Credit Expiration Date principal payments in the amount of one million
dollars ($1,000,000) each shall be due and payable with respect to the Tranche A
Loan. All remaining unpaid principal of the Tranche A Loan will be due and
payable on the Tranche A Maturity Date.
SECTION 2.8 REQUESTS FOR TRANCHE B LOANS. (a) Whenever Borrowers desire
to obtain a Tranche B Loan (other than one resulting from a continuation or
conversion pursuant to Section 2.8(b) below), they shall give the Lender prior
written or telecopied notice (or telephonic notice promptly confirmed in writing
or by telecopy) of such borrowing (a "Notice of Tranche B Loan Borrowing") such
----------------------------------
Notice of Tranche B Loan Borrowing to be given prior to 11:00 a.m. (Eastern
Time) on the requested date of such borrowing in the case of a Prime Rate
Advance and three Business Days prior to the requested date of such borrowing in
the case of a LIBOR Advance. Any such notice received after 11:00 a.m. (Eastern
time) shall be deemed received on the next Business Day. Each Notice of Tranche
B Loan Borrowing shall be in substantially the form of Exhibit G attached hereto
---------
(duly completed), shall be irrevocable and shall specify the principal amount of
the requested Tranche B Loan (which must meet Section 2.5's minimum amount
requirements), the date of the requested Tranche B Loan (which shall be a
Business Day) and whether the borrowing is to consist of a Prime Rate Advance or
LIBOR Advance (and, in the latter case, the Interest Period to be applicable
thereto). If the Borrowers shall fail to specify in any Notice of Tranche B Loan
Borrowing: (x) an applicable Interest Period in the case of a LIBOR Advance,
then such notice shall be deemed to be a request for an Interest Period of one
month; or (y) whether such borrowing shall consist of a Prime Rate Advance or
LIBOR Advance, then such notice shall be deemed to be a request for a Prime Rate
Advance hereunder.
(b) Whenever the Borrowers desire to convert all or a portion of any
outstanding Prime Rate Advance into a LIBOR Advance, or to continue outstanding
any LIBOR Advance for a new Interest Period, the Borrowers shall give the Lender
at least three (3) Business Days' prior written or telecopied notice (or
telephonic notice promptly confirmed in writing or by telecopy) of each such
Loan (or portion thereof) to be converted into or continued as a LIBOR Advance.
Such notice (a "Notice of Loan Conversion/
--------------------------
15
<PAGE>
Continuation) shall be given prior to 11:00 a.m. (Eastern Time) on the date
- ------------
specified above, and any such notice received after 11:00 a.m. (Eastern Time)
shall be deemed received on the next Business Day. Each such Notice of Loan
Conversion/Continuation shall be in substantially the form of Exhibit H attached
---------
hereto (duly completed), shall be irrevocable and shall specify the type of loan
and aggregate principal amount of the Loan (or portion thereof) to be converted
or continued (which must meet Section 2.5's minimum amount requirements), the
date of the requested conversion or continuation, whether the Loan (or portion
thereof is being converted into or continued as a LIBOR Advance and the Interest
Period to be applicable thereto. If upon the expiration of any Interest Period
in respect of any LIBOR Advance the Borrowers shall have failed to deliver a
Notice of Loan Conversion/Continuation with respect thereto, the Borrowers shall
be deemed to have elected to convert such LIBOR Advance into a Prime Rate
Advance hereunder. If the Borrowers shall fail to specify in any Notice of Loan
Conversion/Continuation (i) an applicable Interest Period with respect thereto,
then such notice shall be deemed to be a request for an Interest Period of one
month or (ii) whether or not a LIBOR Advance is being converted into or
continued as a LIBOR Advance, then such notice shall be deemed to be a request
for a Prime Rate Advance hereunder. So long as any Default or Event of Default
shall have occurred and be continuing, no Loan may be converted into or
continued as (upon the expiration of the current Interest Period applicable
thereto) a LIBOR Advance. No conversion of any LIBOR Advance shall be permitted
except on the last day of the Interest Period in respect thereof.
SECTION 2.9 DISBURSEMENT OF TRANCHE B LOANS.
(a) No later than 2:00 p.m. (Eastern Time) on the date of each borrowing
of Tranche B Loans (other than resulting from the continuation or conversion
pursuant to Section 2.8(b) hereof), the Lender will make available to the
Borrowers the amount of such borrowing by depositing such amount to the account
of CCI with the Lender or by otherwise making the amount available to the
Borrowers as specified in the Notice of Tranche B Loan Borrowing therefor.
(b) All borrowings of Loans under this Agreement from the Lender shall
constitute part of a single loan transaction between Borrowers and the Lender.
SECTION 2.10 VOLUNTARY REDUCTIONS IN TRANCHE B COMMITMENT. Upon at least
thirty (30) days' prior written notice to the Lender, Borrowers may, at option,
terminate the Tranche B Commitment in full or reduce the Commitment in
increments of not less than $1,000,000; provided, however, that (i) the
--------
aggregate outstanding principal balance of the Tranche B Loans shall not exceed
the reduced amount of the Tranche B Commitment after giving effect to any such
termination or reduction (and Borrowers shall immediately prepay the Tranche B
Loans to the extent necessary to eliminate such excess as required under Section
2.6 above), and (ii) any such termination or reduction shall be irrevocable.
16
<PAGE>
SECTION 2.11 LETTERS OF CREDIT. If requested to do so by any Borrower,
Lender may, in its discretion, issue one or more Letters of Credit for the
account of such Borrower; provided, however, that the sum of the aggregate
--------
outstanding principal balance of Tranche B Loans at any one time plus the
aggregate amount of all such Letters of Credit Obligations then outstanding
shall not exceed the Tranche B Commitment in effect at such time, and any
amounts paid by the Lender with respect to any draw under any such Letter of
Credit shall be deemed to be a Tranche B Loan hereunder and shall bear interest
and shall be repayable in accordance with the terms hereof and of the Tranche B
Note unless such amount is immediately reimbursed by such Borrower on demand
therefor by the Lender.
SECTION 2.12 CO-BORROWER MATTERS.
(a) The Borrowers agree that they are co-borrowers hereunder and will
be jointly and severally liable under this Agreement and the Notes. Each of the
Borrowers hereby appoints each of the other Borrowers to be its agent to (i)
request Loans hereunder and receive the proceeds thereof, (ii) give or receive
any notices hereunder or under the Notes, and (iii) otherwise communicate with
the Lender on behalf of it and the other Borrowers with respect to the Loans,
any Collateral therefor or any other transaction contemplated by this Agreement
or any of the other Credit Documents. Each Loan made hereunder to any Borrower
shall be deemed to be a borrowing hereunder by all of the Borrowers, and each of
the Borrowers hereby authorizes each of the other Borrowers to effectuate any
borrowing on its behalf hereunder. The Lender shall be entitled to rely upon any
request, notice or other communication received by it hereunder from any or all
of the Borrowers as being given on behalf of all of the Borrowers. The Lender
further shall be entitled to treat its giving of any notice hereunder to one
Borrower as notice to the other Borrowers.
(b) Notwithstanding anything to the contrary contained herein, each
Borrower shall be jointly and severally liable to the Lender for all
Obligations, it being agreed by all of the parties hereto that the Loans inure
to the benefit of all of the Borrowers and that the Lender is relying on the
joint and several liability of the Borrowers in extending credit hereunder.
ARTICLE 3.
GENERAL CREDIT TERMS
SECTION 3.1 INTEREST.
(a) The Borrowers, jointly and severally, agree to pay interest in respect
of all unpaid principal amounts of the Loans from the respective dates such
principal amounts were
17
<PAGE>
advanced until the respective dates such principal amounts are repaid at a rate
per annum equal to the applicable rate indicated below:
(i) For Loans (or portions thereof) consisting of Prime Rate Advances
- -- the Prime Rate in effect from time to time plus the Applicable Margin with
respect thereto; and
(ii) For Loans (or portions thereof) consisting of LIBOR Advances --
the relevant Adjusted LIBOR plus the Applicable Margin with respect thereto.
(b) Any overdue principal and, to the extent not prohibited by applicable
law, any overdue interest in respect of any of the Loans and all other overdue
Obligations may, in Lender's discretion exercised upon notice to Borrowers, bear
interest from each date that such amounts are overdue at the higher of (i) the
Prime Rate plus an additional two percentage points (2.0%) per annum or (ii) in
----
the case of overdue principal and interest with respect to any Loan, the rate
otherwise then applicable to such Loan plus an additional two percentage points
(2.0%) per annum.
(c) Interest on each Loan shall accrue from and including the date of
such Loan to but excluding the date of any repayment thereof; provided, however,
-------- -------
if a Loan is repaid on the same day it is made, one day's interest shall be paid
on such Loan.
(d) The Lender, upon determining the Adjusted LIBOR for any Interest
Period, shall promptly notify by telephone (confirmed in writing) or in writing
the Borrowers thereof. Any such determination shall, absent manifest error or
fraud, be final, conclusive and binding for all purposes.
SECTION 3.2 FEES.
(a) In consideration of the Lender's entering into this Agreement and
making the initial Loan hereunder, the Borrowers, jointly and severally, agree
to pay to the Lender the following Facility Fees:
(i) With respect to the Tranche A Loan, the Borrowers shall pay the
Lender a Facility Fee in immediately available funds in an amount equal to ten
thousand dollars ($10,000) per month, payable monthly beginning on September 1,
1996 and continuing until the Tranche A Loan has been repaid in its entirety.
With respect to the Tranche B Loan, the Borrowers shall pay the Lender on the
Closing Date the remaining Facility Fee in immediately available funds in the
amount of one hundred twenty-five thousand dollars ($125,000); and
(ii) On the Closing Date, CCI shall execute and deliver to the Lender
(A) a First Warrant Agreement in the form of Exhibit I-1 hereto pursuant to
-----------
which CCI shall agree to issue a warrant or warrants granting to the Lender the
right to purchase, upon the terms and conditions set forth in such Warrant
Agreement, as a Facility Fee with respect to the
18
<PAGE>
Tranche A Loan, 150,000 shares of voting common stock of CCI for a purchase
price of $.01 per share, and (B) a Second Warrant Agreement in the form of
Exhibit I-2 hereto pursuant to which CCI shall agree to issue a warrant or
- -----------
warrants granting to the Lender the right to purchase, upon the terms and
conditions set forth in such Warrant Purchase Agreement, as a Facility Fee with
respect to the Tranche C Loan, 150,000 shares of voting common stock of CCI for
a purchase price per share equal to $6.21 (provided, however, that in the event
the Tranche C Loan is not paid on the Tranche C Maturity Date, the purchase
price of such shares shall be $.01 per share), and (C) a Registration Rights
Agreement (the "Registration Rights Agreement") in the form of Exhibit J hereto
---------
pursuant to which CCI agrees to cause the shares of common stock of CCI acquired
by the Lender pursuant to exercise of the warrants issued by CCI to the Lender
under the Warrant Agreements to be registered with the Securities and Exchange
Commission as provided therein. In the event the aggregate amount of the Loans
prior to or on November 30, 1995 is $47,500,000 or less. CCI will have the
option, exercisable by delivery of written notice to the Lender on or before
December 15, 1996, to repurchase fifty thousand (50,000) of the warrants granted
to the Lender with respect to the Tranche A Loan at a purchase price equal to
$.01 per warrant. In the event the Tranche C Loan is paid in full on or before
the Tranche C Maturity Date, CCI shall have the right, exercisable by delivery
of written notice by CCI to the Lender on or before December 15, 1996, to
repurchase the 150,000 warrants granted with respect to the Tranche C Loan for a
purchase price of $.01 per warrant.
All of the Facility Fees provided for herein shall be deemed fully earned upon
the Lender's execution and delivery of this Agreement and the making of the
initial Loan hereunder.
(b) In consideration of the Lender's committing to make Tranche B Loans
hereunder available to the Borrowers, the Borrowers, jointly and severally,
agree to pay to the Lender in immediately available funds a non-refundable
Commitment Fee from the date hereof to the Tranche B Maturity Date computed on
the daily average unused portion of the Tranche B Commitment in effect during
the period for which such payment is made (as such Tranche B Commitment may be
reduced pursuant to this Agreement), at a rate per annum equal to one quarter of
one percent (0.25%), which Commitment Fee shall be payable by Borrowers to the
Lender quarterly in arrears commencing on October 1, 1996, and continuing to be
due on the first (1st) day of each calendar quarter thereafter so long as the
Tranche B Commitment is in effect as well as on the Tranche B Maturity Date.
(c) No Facility Fee or Commitment Fee payable hereunder is, or shall be
deemed to be, interest or a charge for the use of money, but rather shall
constitute an "other charge" within the meaning of O.C.G.A. (S) 7-4-2(a)(1).
-------
19
<PAGE>
SECTION 3.3 PAYMENTS, PREPAYMENTS AND COMPUTATIONS.
(a) Except as may be otherwise specifically provided herein, all payments
by the Borrowers with respect to the Loans or any other Obligations under this
Agreement or any of the other Credit Documents shall be made without defense,
set-off or counterclaim to the Lender not later than 2:00 p.m. (Eastern Time) on
the date when due and shall be made in lawful money of the United States of
America in immediately available funds.
(b) Whenever any payment to be made hereunder or under any Note or any
of the other Credit Documents shall be stated to be due on a day which is not a
Business Day, the due date thereof (except as otherwise set forth herein with
respect to LIBOR Advances) shall be extended to the next succeeding Business Day
and, with respect to payments of principal, interest thereon shall be payable at
the applicable rate during such extension.
(c) All computation of interest or fees due hereunder or under any of
the other Credit Documents shall be made on the basis of a year of 360 days and
the actual number of days elapsed; provided, however, that all computations of
-------- -------
interest due on Prime Rate Advances under the Notes shall be made on the basis
of a year of 365/366 days.
(d) Any of the Loans may be prepaid in whole or in part at any time
without premium or penalty; provided, however, that:
-----------------
(i) Any prepayment made on any Loan shall be applied, first, to
interest accrued thereon through the date thereof and then to the principal
balance thereof, and any partial prepayment of a Tranche C Loan or Tranche
A Loan shall be applied to installments due with respect to such Loans in
the inverse order of their maturities;
(ii) Any prepayment of the LIBOR Advances made at any one time must
be in an aggregate principal amount of not less than $500,000 or any
greater integral multiple of $100,000 and any prepayment of the Prime
Rate Advances made at any one time must be in an aggregate principal amount
of not less than $100,000 or any greater integral multiple of $10,000;
(iii) A prepayment of a LIBOR Advance may be made without penalty or
premium by the Borrowers only on the last day of the Interest Period
applicable thereto and, if any such prepayment is made on a day that is not
the last day of the applicable Interest Period, the Borrowers, jointly and
severally, shall pay to the Lender, if requested by the Lender, such
additional compensation as may be required under Section 3.9 hereof;
(iv) Any prepayment shall be applied to the kind of Loan (i.e.,
Tranche A Loan, Tranche B Loan or Tranche C Loan) as directed in writing by
the Borrowers, but in the absence of such direction such prepayment shall
be applied, first, to prepay
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Tranche C Loans, and then to prepay Tranche A Loans, and then to prepay
Tranche B Loans; and
(v) If at the time the Lender receives a principal prepayment on
any one kind of its Loans hereunder when the Lender has both Prime Rate
Advances and LIBOR Advances outstanding with respect to such Loan, such
prepayment shall be applied to such advances as directed in writing by the
Borrowers, but in the absence of such direction such prepayment shall be
applied, first, to prepay such Prime Rate Advances and then to prepay such
LIBOR Advances (with the portion allocated to LIBOR Advances to be applied
to those having the shortest Interest Periods first unless otherwise
directed in writing by the Borrowers).
SECTION 3.4 COLLATERAL AND GUARANTIES.
(a) Each of the Borrowers shall execute and deliver a Security Agreement
in favor of the Lender pursuant to which all of the Obligations shall be secured
by the Borrowers' grant to Lender of security interests in all present or future
accounts, equipment, fixtures, contract rights, chattel paper, instruments,
documents, general intangibles and all other personal property of the Borrowers.
CCI and shall execute and deliver in favor of the Lender a Stock Pledge
Agreement pursuant to which CCI grants to the Lender, as security for the
Obligations, a first priority pledge of and security interest in all of the
issued and outstanding shares of capital stock of its Subsidiaries. CCI also
shall execute and deliver to the Lender stock powers in blank covering the
shares pledged pursuant to the Stock Pledge Agreements, together with the
certificates representing such shares, to be held by the Lender, and shall
execute and/or deliver any and all financing statements and such other documents
as the Lender may reasonably request from time to time in order to perfect or
maintain the perfection of Lender's security interests under the Stock Pledge
Agreement and the Security Agreements.
(b) In the event CCI creates or acquires any new or additional direct or
indirect Subsidiary after the date hereof which does not become an additional
Borrower hereunder pursuant to Section 6.10 hereof, Borrowers shall cause such
new or additional Subsidiary, if and to the extent required by the Lender under
Section 6.10 hereof, to become a Guarantor of the Obligations and to execute in
favor of the Lender a Guaranty Agreement (in form and substance satisfactory to
the Lender) covering all of the Obligations and a Security Agreement (in form
and substance satisfactory to the Lender) covering the same types of Collateral
as are covered by the Security Agreements executed by the Borrowers, and the
Borrowers shall cause such new or additional Subsidiary to execute or deliver
any and all financing statements and such other documents and shall take such
other actions as the Lender may reasonably request from time to time in order to
perfect or maintain the perfection of Lender's security interest under the
Security Agreement executed by such new or additional Subsidiary. The Borrowers
shall also, immediately upon acquisition of any such Subsidiary, cause all of
the issued and outstanding capital stock of such Subsidiary to be
21
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added to the Stock Pledge Agreement and shall deliver any and all certificates
representing the shares of stock of such Subsidiary to the Lender for possession
by the Lender.
SECTION 3.5 CAPITAL ADEQUACY. Without limiting any other provisions of
this Agreement, in the event that the Lender determines after the date hereof
that the introduction or change after the date of this Agreement of any law,
treaty, governmental (or quasi-governmental) rule, regulation, guideline or
order regarding capital adequacy, or any change therein or in the interpretation
or application thereof after the date of this Agreement, or compliance by the
Lender with any request or directive regarding capital adequacy (whether or not
having the force of law and whether or not failure to comply therewith would be
unlawful) from a central bank or governmental authority or body having
jurisdiction which is introduced or changed after the date of this Agreement,
does or shall have the effect, of reducing the rate of return on the Lender's
capital as a consequence of its obligations hereunder to a level below that
which the Lender could have achieved but for such law, treaty, rule, regulation,
guideline or order or such change or compliance (taking into consideration the
Lender's policies with respect to capital adequacy and assuming the full
utilization of the Lender's capital immediately before such adoption, change or
compliance) by an amount reasonably deemed by the Lender to be material, then
the Lender shall promptly after its determination of such occurrence notify the
Borrowers thereof. The Borrowers, jointly and severally, agree to pay to the
Lender as an additional fee from time to time, within ten (10) days after
written notice and demand by the Lender, such amount as the Lender certifies to
be the amount that will compensate it for such reduction in connection with its
obligations hereunder. A certificate of the Lender claiming compensation under
this Section 3.5 shall be conclusive in the absence of manifest error or fraud
and shall set forth the nature of the occurrence giving rise to such
compensation, the additional amount or amounts to be paid to it hereunder and
the method by which such amounts were determined. In determining such amount,
the Lender may use reasonable averaging and attribution methods. The Lender
shall not request any additional compensation under this Section unless the
Lender has or intends to do the same on substantially all of the Lender's other
loan accounts having similar terms and involving similarly situated borrowers,
and the Lender shall calculate any additional compensation requested under this
Section in substantially the same manner in which the Lender calculates any
additional compensation requested by the Lender on such other loan accounts.
SECTION 3.6 UNAVAILABILITY. If (i) the Lender determines that the making
or maintenance by it of any LIBOR Advance hereunder would violate any applicable
law, rule or regulation or the interpretation or application thereof (whether or
not having the force of law), or (ii) the Lender determines that deposits of a
type and maturity appropriate to fund interest rate options and Interest Periods
hereunder are not available in the London interbank market or that Adjusted
LIBOR does not fully reflect the Lender's cost of maintaining particular
interest rate options and/or Interest Periods hereunder, then the availability
of the Adjusted LIBOR-based interest rate option and/or Interest Periods
hereunder may be suspended by the Lender (by written notice to the Borrowers)
for new Interest Periods until such time as market conditions or legal
considerations permit it to be reinstated. The Lender
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shall not suspend any LIBOR interest rate option and/or Interest Periods
pursuant to this Section unless the Lender has or intends to do the same with
respect to substantially all of Lender's other loan accounts having similar
terms and involving similarly situated borrowers.
SECTION 3.7 INCREASED COSTS. If, due to either (i) the introduction of or
any change (other than a change by way of imposition of or increase in reserve
requirements already included in computing the Adjusted LIBOR) in or in the
interpretation of any law or regulation after the date hereof or (ii) the
compliance with any guideline or request from any central bank or other
governmental authority issued after the date hereof (whether or not having the
force of law), there shall be any increase in the cost to the Lender of agreeing
to make or making, funding or maintaining any LIBOR Advance hereunder, then
within ten (10) days after written notice and demand by the Lender, Borrowers,
jointly and severally, agree to pay to the Lender from time to time additional
amounts as are sufficient to compensate the Lender for such increased cost. Each
such notice and demand shall be accompanied by a certificate of the Lender
setting forth in reasonable detail the basis for computing the additional amount
claimed by the Lender, and each such certificate shall, in the absence of
manifest error or fraud, be conclusive evidence of the amount of such cost. The
Lender shall not request any additional compensation under this Section unless
the Lender has or intends to do the same on substantially all of the Lender's
other loan accounts having similar terms and involving similarly situated
borrowers, and the Lender shall calculate any additional compensation requested
under this Section in substantially the same manner in which the Lender
calculates any additional compensation requested by the Lender on such other
loan accounts.
SECTION 3.8 LOAN ACCOUNT.
(a) The Lender shall open and maintain on its books loan accounts in the
names of the Borrowers and such loan accounts shall show as debits thereto the
Lender's Loans made to the Borrowers under this Agreement and as credits thereto
all payments received by the Lender and applied thereto so that the balance of
the loan accounts of the Borrowers with the Lender at all times shall reflect
the principal amounts of the Loans then outstanding from the Lender to the
Borrowers.
(b) The entries made in the account pursuant to paragraph (a) above shall
be prima facie evidence, in the absence of manifest error, of the existence and
amounts of the Obligations of the Borrowers therein recorded and any payments
thereon.
SECTION 3.9 FUNDING LOSSES. The Borrowers, jointly and severally, agree to
compensate the Lender, upon its written request to the Borrowers (which request
shall set forth the basis for requesting such amounts in reasonable detail and
which request shall be made in good faith and, absent manifest error or fraud,
shall be final, conclusive and binding upon the parties hereto), for all losses,
expenses and liabilities (including, without limitation, any interest paid by
the Lender to lenders of funds borrowed by it to make or carry its LIBOR
Advances hereunder, in either case to the extent not recovered by the Lender in
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connection with the reemployment of such funds and including loss of
anticipated profits), which the Lender may sustain: (i) if for any reason (other
than a default by the Lender) a borrowing of any LIBOR Advance does not occur on
the date specified therefor in a Notice of Loan Borrowing or a Notice of Loan
Conversion/Continuation, (ii) if any repayment (including any voluntary or
mandatory prepayment) of any LIBOR Advance occurs on a date which is not the
last day of an Interest Period applicable thereto, or (iii) if, for any reason,
the Borrowers default in their obligation to repay any LIBOR Advance when due as
required by the terms of this Agreement.
SECTION 3.10 ASSUMPTIONS CONCERNING FUNDING OF LIBOR ADVANCES. The
calculation of all amounts payable to the Lender under this Agreement with
respect to any Advance shall be made as though the Lender had actually funded
its relevant LIBOR Advances through the purchase of deposits in the relevant
market bearing interest at the rate applicable to such LIBOR Advance in an
amount equal to the amount of the LIBOR Advance and having a maturity comparable
to the relevant Interest Period and through the transfer of such LIBOR Advance
from an offshore office of the Lender to a domestic office of the Lender in the
United States of America; provided, however that the Lender may fund each of its
--------
LIBOR Advances in any manner it sees fit, and the foregoing assumption shall be
used only for calculation of amounts which may be payable under this Agreement.
SECTION 3.11 AGREEMENTS REGARDING INTEREST AND OTHER CHARGES. Pursuant to
O.C.G.A. (S) 7-4-2, Borrowers and the Lender hereby agree that the
- --------
only charges imposed or to be imposed by the Lender upon Borrowers for the use
of money in connection with the Loans is and will be the interest required to be
paid under the provisions of Section 3.1 hereof as well as the related
provisions of the Notes. In no event shall the amount of interest due and
payable under this Agreement, the Notes or any of the other Credit Documents
exceed the maximum rate of interest allowed by applicable law (including,
without limitation, O.C.G.A. (S)(S) 7-4-18) and, in the event any such payment
is made by any Borrower or any other Credit Party or received by the Lender,
such excess sum shall be credited as a payment of principal. It is the express
intent hereof that the Borrowers not pay and the Lender not receive, directly or
indirectly or in any manner, interest in excess of that which may be lawfully
paid under applicable law. All interest and other charges, fees or other amounts
deemed to be interest which are paid or agreed to be paid to the Lender under
this Agreement, the Note or any of the other Credit Documents shall, to the
maximum extent permitted by applicable law, be amortized, allocated and spread
on a pro rata basis throughout the entire actual term of the Loans (including
--- ----
any extension or renewal period).
ARTICLE 4.
CONDITIONS PRECEDENT TO LOANS
The obligation of the Lender to make any Loan to Borrowers hereunder shall
be subject to the satisfaction of the following conditions precedent:
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SECTION 4.1 CONDITIONS PRECEDENT TO INITIAL LOAN. At the time of the
initial Loan under this Agreement, and subject to such exceptions as may be
granted by Lender, the Lender shall have received the following (all documents
to be in form and substance satisfactory to the Lender):
(a) this Agreement duly completed and executed;
(b) the duly completed and executed Notes, the duly executed and completed
Security Agreement of each Borrower, the duly executed and completed Stock
Pledge Agreement of each of CCI and CCG and the duly executed and completed
Warrant Documents;
(c) satisfactory evidence of the recording of such Uniform Commercial Code
financing statements in the Office of the Clerk of the Superior Court of Fulton
County, Georgia as the Lender may deem necessary or appropriate to perfect or
maintain the perfection of the Lender's Liens under the aforesaid Security
Agreements and Stock Pledge Agreements as well as written reports of
examinations of the public records of such filing offices as the Lender may deem
necessary or appropriate indicating that there are no other Liens of record
covering any of the Collateral covered by such Security Agreements and Stock
Pledge Agreements (except Permitted Liens);
(d) duly executed stock certificates representing all of the issued and
outstanding shares of capital stock of the Subsidiaries, together with undated
stock powers executed in blank, in form and substance acceptable to the Lender
covering all such shares;
(e) certificates of the Borrowers in substantially the form of Exhibit K
---------
attached hereto duly executed and appropriately completed;
(f) the favorable opinion of the outside counsel for the Borrowers in the
form of Exhibit L attached hereto (subject to such changes therein as may be
---------
acceptable to the Lender);
(g) a copy of the Certificate or Articles of Incorporation of each of the
Borrowers (certified as of a recent date by the Secretary of State or other
appropriate official of the state of such Credit Party's incorporation),
together with current good standing certificates or certificates of existence
for each of the Borrowers issued as of a recent date by the Secretary of State
or other appropriate official of such Credit Party's jurisdiction of
incorporation;
(h) copies of all documents and instruments, including all consents,
authorizations and filings, required under any Requirement of Law or by any
Contractual Obligation of any of the Borrowers, in connection with the
execution, delivery, performance, validity and enforceability of the Credit
Documents and the other documents to be executed and delivered hereunder, and
such consents, authorizations, filings and orders shall be reasonably
satisfactory in form and substance to the Lender and shall be in full force and
effect and all applicable waiting periods shall have expired;
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(i) all corporate proceedings and all other legal matters in connection
with the authorization, legality, validity and enforceability of the Credit
Documents shall be reasonably satisfactory in form and substance to Lender;
(j) an initial Compliance Certificate of the Borrowers, duly executed and
completed;
(k) Borrowers' payment of the Initial Facility Fees due pursuant to Section
3.2(a)(i) hereof; and
(l) a certificate executed by the President of each Borrower certifying as
to the Equipment owned by each such Borrower and the locations at which such
Equipment is maintained;
(m) certified copies of each of the casualty and liability insurance
policies of Borrowers, effective as of a date on or prior to the Closing Date,
together, in the case of such casualty policies, with loss payable endorsements
in form and substance acceptable to the Lender, naming the Lender as loss payee;
(n) landlords' and warehousemen's consents and waivers and similar waivers,
dated as of a date on or before the Closing Date, with respect to each parcel of
real estate leased by Borrowers, or any of them, or warehouses at which
Inventory or Equipment is located; and
(o) such other documents, certificates, approvals or filings as the Lender
may reasonably request.
SECTION 4.2 CONDITIONS PRECEDENT TO ALL LOANS. At the time of (and after
giving effect to) the making of any Loan (including, without limitation, each
advance of a Tranche B Loan) under this Agreement, the following conditions
shall have been satisfied or shall exist:
(a) there shall then exist no Default or Event of Default;
(b) all representations and warranties by the Borrowers or the other Credit
Parties contained herein or in the other Credit Documents (other than those
representations and warranties which are, by their terms, expressly limited to
the date made or given) shall be true and correct in all material respects with
the same effect as though such representations and warranties had been made on
and as of the date of such Loan;
(c) since the date of the most recent financial statements described in
Section 5.2 or received pursuant to Section 6.1, there shall have been no change
which has had or could reasonably be expected to have a Material Adverse Effect;
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(d) there shall be no action, investigation, or proceeding instituted or
pending before any court or other governmental authority or, to the knowledge of
any Borrower, threatened (i) which has had or reasonably could be expected to
have a Material Adverse Effect or (ii) seeking to prohibit or restrict any
Credit Party's ownership or operation of any material portion of its business or
assets or to compel any Credit Party to dispose of or hold separate all or any
material portion of its businesses or assets, which has had or reasonably could
be expected to have a Material Adverse Effect; and
(e) the Loan to be made and the use of proceeds thereof shall not
contravene, violate or conflict with, or involve any Credit Party or the Lender
in a violation of, any law, rule, injunction, or regulation, or determination of
any court of law or other governmental authority.
Each request for a Loan and the acceptance by any Borrower of the proceeds
thereof shall constitute a representation and warranty by the Borrowers to the
Lender, as of the date of such Loan, that the conditions specified in Sections
4.1 (in the case of the initial Loan) and 4.2 (in the case of each Loan) have
been satisfied.
ARTICLE 5.
REPRESENTATIONS AND WARRANTIES
Borrowers (as to themselves and all of CCI's other direct or indirect
Subsidiaries) hereby, jointly and severally, represent and warrant to the Lender
as follows:
SECTION 5.1. ORGANIZATION; SUBSIDIARIES; AUTHORIZATION; VALID AND BINDING
OBLIGATIONS.
(a) Each of the Borrowers is a corporation duly organized and validly
existing in good standing under the laws of the State of Georgia. Each other
direct or indirect Subsidiary of CCI (if any) is duly organized and validly
existing in good standing under the laws of the jurisdiction in which it is
incorporated.
(b) Except as may be disclosed on Schedule 5.1 attached hereto, CCI has no
------------
direct or indirect Subsidiaries (and CCI hereby covenants that no other
Subsidiaries will be hereafter created or acquired by CCI without obtaining
Lender's prior written consent thereto and complying with any other applicable
requirements of Section 6.10 hereof) and no interest in any partnership or joint
venture with or investment in any Person.
(c) Each of the Credit Parties is duly qualified as a foreign corporation
and in good standing in each jurisdiction where the ownership of property or the
nature of the business transacted by it makes such qualification necessary,
except where the failure to be so qualified would not have a Material Adverse
Effect, and each Credit Party has the corporate
27
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power to own its respective property and to carry on its respective business as
now being conducted.
(d) Each of the Credit Parties has all requisite corporate power and
authority to execute and deliver the Credit Documents to which it is a party and
to perform its obligations under such Credit Documents. The Credit Documents to
which each Credit Party is a party have been duly authorized by all requisite
corporate action on the part of such Credit Party and duly executed and
delivered by authorized officers of such Credit Party.
(e) Each of the Credit Documents to which each Credit Party is a party
constitutes a valid obligation of such Credit Party, legally binding upon and
enforceable against such Credit Party in accordance with its terms, except as
such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally or by general principles of equity.
SECTION 5.2 FINANCIAL STATEMENTS. Borrowers have furnished the Lender with
copies of (i) the audited annual consolidated balance sheets of CCI as at June
30, 1995, and the related audited annual consolidated statements of income and
cash flows of CCI for the fiscal year then ended, including in each case the
related schedules and notes, and (ii) the unaudited consolidated interim balance
sheet of CCI as of March 31, 1996, and the related unaudited consolidated
interim statements of income and cash flows for the year-to-date period then
ended. The foregoing financial statements fairly present the financial condition
of the Credit Parties as at the dates thereof and the results of their
operations for such periods in conformity with GAAP (subject, in the case of
interim financial statements, to normal year-end adjustments). Since June 30,
1995, there has been no Material Adverse Effect.
SECTION 5.3 ACTIONS PENDING. Except as may be disclosed on Schedule 5.3
---------------
attached hereto, there is no action, suit, investigation or proceeding pending
or, to the knowledge of any Borrower, threatened against any of the Credit
Parties, or any properties or rights of any of the Credit Parties, by or before
any court, arbitrator or administrative or governmental body which has had or
could reasonably be expected to result in any Material Adverse Effect.
SECTION 5.4 OUTSTANDING FUNDED DEBT. None of the Credit Parties has
outstanding any Funded Debt except as has been disclosed on the financial
statements described in Section 5.2 above or as may be permitted by Sections 6.9
and 7.1 below.
SECTION 5.5 TITLE TO PROPERTIES. Each of the Credit Parties has good and
marketable title to all of its respective properties and assets (other than
properties and assets disposed of in the ordinary course of business), subject
to no Lien of any kind except Liens granted under the Security Documents or
permitted pursuant to Section 7.2 below. All leases, licenses or other
agreements (including without limitation Site License Agreements) necessary in
any material respect for the conduct of the respective businesses of the Credit
Parties are valid and, to each Borrower's knowledge, are in full force and
effect, there has not been
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asserted against any Credit Party any claim of default and there exists no
default or event or condition which, with notice or lapse of time or both, would
constitute a default under such leases, licenses or other agreements which claim
or default has had or could reasonably be expected to have a Material Adverse
Effect. PPP neither owns nor has any other interest in any assets, and has no
liabilities. Except as otherwise set forth herein. CPS neither owns or has any
other interest in any material assets and has no material liabilities.
SECTION 5.6 TAXES. Except as may be disclosed on Schedule 5.6 attached
------------
hereto, each of the Credit Parties has filed all federal, state and other income
tax returns which, to the knowledge of any Borrower, are required to be filed,
and each has paid all taxes as shown on such returns and on all assessments
received by it to the extent that such taxes have become due, except such taxes
as are not due or which are being contested in good faith by appropriate
proceedings for which adequate reserves have been established in accordance with
GAAP as required by Section 6.6 below.
SECTION 5.7 CONFLICTING AGREEMENTS AND OTHER MATTERS. Neither the
execution nor delivery of this Agreement, nor fulfillment of or compliance with
the terms and provisions of this Agreement, will conflict with, or result in a
breach of the terms, conditions or provisions of, or constitute a default under,
or result in any violation of, or result in the creation of any Lien (other than
any Lien arising under any Credit Document) upon any of the properties or assets
of any Credit Party pursuant to, the charter or by-laws of any Credit Party, any
award of any arbitrator or any agreement, instrument, order, judgment, decree,
statute, law, rule or regulation to which any Credit Party is subject; provided,
--------
however, that the Borrowers have not obtained the consent of any other party to
- -------
the collateral assignment of those Site License Agreements requiring such
consent, it being understood that only an immaterial portion of the Site License
Agreements require such consent. None of the Credit Parties is a party to, or
otherwise subject to any provision contained in, any instrument evidencing
indebtedness of any Credit Party, any agreement relating thereto or any other
contract or agreement (including its Articles or Certificate of Incorporation or
By-Laws) which limits the amount of, or otherwise imposes restrictions on the
incurring of, Indebtedness of such Credit Party of the type to be created under
this Agreement or any other Credit Document executed by such Credit Party.
SECTION 5.8 ERISA. Except as disclosed on Schedule 5.8 attached hereto:
------------
(a) None of the Credit Parties nor any of their respective ERISA Affiliates
maintains or contributes to, or has during the past two years maintained or
contributed to, any Plan that is subject to Title IV of ERISA;
(b) Each Plan maintained by any Credit Party has at all times been
maintained, by its terms and in its operation, in compliance with all applicable
laws, and the Credit Parties are subject to no tax or penalty with respect to
any Plan of such Credit Party or any ERISA Affiliate thereof, including without
limitation, any tax or penalty under Title I or Title IV of ERISA or under
Chapter 43 of the Code, or any tax or penalty resulting from a loss of
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deduction under Sections 162, 404, or 419 of the Code, where the failure to
comply with such laws, and such taxes and penalties, together with all other
liabilities referred to in this Section 5.8 (taken as a whole), has had or could
reasonably be expected to have a Material Adverse Effect;
(c) The Credit Parties are subject to no liabilities (including withdrawal
liabilities) with respect to any Plans of any Credit Party or any of their ERISA
Affiliates, including without limitation, any liabilities arising from Title I
or IV of ERISA, other than obligations to fund benefits under an ongoing Plan
and to pay current contributions, expenses and premiums with respect to such
Plans, where such liabilities, together with all other liabilities referred to
in this Section 5.8 (taken as a whole), has had or could reasonably be expected
to have a Material Adverse Effect; and
(d) The Credit Parties and, with respect to any Plan which is subject to
Title IV of ERISA, each of their respective ERISA Affiliates, have made full and
timely payment of all amounts (i) required to be contributed under the terms of
each Plan and applicable law, and (ii) required to be paid as expenses
(including PBGC or other premiums) of each Plan, where the failure to pay such
amounts (when taken as a whole, including any penalties attributable to such
amounts) has had or could reasonably be expected to have a Material Adverse
Effect, and no Plan subject to Title IV of ERISA has an "amount of unfunded
benefit liabilities" (as defined in Section 4001(a)(18) of ERISA), determined as
if such Plan terminated on any date on which this representation and warranty is
deemed made, in any amount which, together with all other liabilities referred
to in this Section 5.8 (taken as a whole), has had or could reasonably be
expected to have a Material Adverse Effect if such amount were then due and
payable, and the Credit Parties are subject to no liabilities with respect to
post-retirement medical benefits in any amounts which, together with all other
liabilities referred to in this Section 5.8 (taken as a whole), have had or
could reasonably be expected to have a Material Adverse Effect if such amounts
were then due and payable.
SECTION 5.9 GOVERNMENTAL CONSENT. Except for any recording or filing which
may be required by applicable law to perfect or maintain the perfection of the
Lender's Liens in the Collateral, no consent, approval or authorization of, or
declaration or filing with, any governmental authority is required for the valid
execution, delivery and performance by any Credit Party of the Credit Documents
executed by such Person or the consummation of any of the transactions
contemplated by the Credit Documents.
SECTION 5.10 COMPLIANCE WITH LAWS AND REGULATIONS. Each of the Credit
Parties complies with all federal, state, local, and other laws, ordinances and
other governmental rules or regulations to which any of them is subject,
including without limitation, Environmental Laws and laws and regulations
relating to equal employment opportunity and employee safety and each Credit
Party will promptly comply with all such laws and regulations which may be
legally imposed on such Credit Party in the future, except where the failure to
so comply has not had or could not reasonably be expected to have a Material
Adverse Effect.
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SECTION 5.11. POSSESSION OF LICENSES, LEASES, FRANCHISES, ETC. Each
Credit Party possesses any and all licenses, leases, franchises, certificates,
permits and other authorizations from any governmental or regulatory authorities
or from any other Person (including without limitation any and all Site License
Agreements) that are necessary in any material respect for the ownership,
maintenance and operation of their respective properties and assets and none of
the Credit Parties is in violation of any thereof in any material respect.
SECTION 5.12. INTELLECTUAL PROPERTY RIGHTS. Except as set forth on
Schedule 5.12 attached hereto, the Credit Parties have obtained and hold in full
- -------------
force and effect all material patents, trademarks, service marks, trade names,
copyrights, licenses and other such rights which are necessary for the operation
of their respective businesses as presently conducted and, to the best of
Borrowers' knowledge, no product, process, method, service or other item
presently sold or employed by any Credit Party in connection with its business
infringes any patent, trademark, service mark, trade name, copyright, license or
other such right owned by any other Person and there is not presently pending
or, to the knowledge of any Borrower, threatened any claim or litigation against
or affecting any Credit Party contesting such Person's right to sell or use any
such product, process, method, substance or other item except where such non-
possession, infringement or contest has not had or could not reasonably be
expected to have a Material Adverse Effect. None of such intellectual property
licenses, patents, patent applications, copyrights, trademarks, trademark
applications, trade names, licenses or registrations have been registered with
any governmental authority.
SECTION 5.13. ENVIRONMENTAL COMPLIANCE. Each of the Credit Parties
has obtained all material permits, licenses and other authorizations which are
required under Environmental Laws, and each of the Credit Parties is in
compliance in all material respects with all terms and conditions of such
permits, licenses and authorizations and are also in compliance in all material
respects with all other limitations, restrictions, conditions, standards,
prohibitions, requirements, obligations, schedules and timetables contained in
any applicable Environmental Laws. None of the Credit Parties is aware of, or
has received notice of, any past, present or future events, conditions,
circumstances, activities, practices, incidents, actions or plans which, with
respect to any Credit Party, may interfere with or prevent compliance or
continued compliance in all material respects with Environmental Laws, or may
give rise to any material common law or legal liability, or otherwise form the
basis of any material claim, action, demand, suit, proceeding, hearing, study or
investigation, based on or related to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling, or the emission,
discharge, release or, threatened release into the environment, of any
pollutant, contaminant, chemical, or industrial, toxic or hazardous substance or
waste. There is no civil, criminal or administrative action, suit, demand,
claim, hearing, notice or demand proceeding pending or, to the knowledge of any
Borrower, threatened against any Credit Party relating in any way to
Environmental Laws.
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SECTION 5.14. SOLVENCY. After giving effect to the transactions
contemplated by the Credit Documents (i) the property of each Credit Party, at a
fair valuation, will exceed its debts, (ii) each Credit Party's capital will not
be unreasonably small to conduct its business, (iii) no Credit Party will have
incurred debts, or have intended to incur debts, beyond its ability to pay such
debts as they mature, and (iv) the then-current fair salable value of each
Credit Party's assets will be materially greater than the amount that will be
required to pay its probable liabilities (including debts) as they become
absolute and matured. For purposes of this Section, "debt" means any liability
on a claim, and "claim" means (x) the right to payment, whether or not such
right is reduced to judgment, liquidated, unliquidated, fixed, contingent,
matured, unmatured, disputed, undisputed, legal, equitable, secured or
unsecured, or (y) the right to an equitable remedy for breach of performance if
such breach gives rise to a right to payment, whether or not such right to an
equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured,
disputed, undisputed, secured or unsecured.
SECTION 5.15. MARGIN REGULATIONS AND INVESTMENT COMPANY ACT, ETC.No
part of the proceeds of any Loan will be used for any purpose which violates, or
which would be inconsistent or not in compliance with, the provisions of the
applicable Margin Regulations. No Credit Party is an "investment company" or a
company "controlled" by an "investment company" (as each of the quoted terms is
defined or used in the Investment Company Act of 1940, as amended). No Credit
Party is subject to regulation under the Public Utility Holding Company Act of
1935, the Federal Power Act, or any foreign, federal or local statute or
regulation limiting its ability to incur Indebtedness for money borrowed, to
guarantee such Indebtedness or to grant Liens on any of its assets to secure
such Indebtedness, as contemplated by this Agreement or by any other Credit
Document.
SECTION 5.16. LABOR MATTERS. None of the Credit Parties has
experienced any strike, labor dispute, slow down or work stoppage due to labor
disagreements, and, to the knowledge of any Borrower, there is no strike,
dispute, slow down or work stoppage threatened against any Credit Party. Except
as set forth on Schedule 5.3 attached hereto, there are no claims or lawsuits
------------
which have been asserted or instituted against any Credit Party on the basis
that it did not perform in respect of any undertakings made toward its employees
or their representatives and no basis for such claim or lawsuits exists. Each
Credit Party has acted in all material respects in accordance with any
agreements entered into with representatives of its employees relating to their
relations with and obligations toward their employees.
SECTION 5.17. BROKERS. There are and will be no claims against the
Lender for brokerage commissions, finder's fees or investment banking fees in
connection with the transactions contemplated by this Agreement.
SECTION 5.18. DISCLOSURE. Neither this Agreement nor any other
document, certificate or statement furnished to the Lender by or on behalf of
any Borrower or any other Credit Party in connection herewith contains any
untrue statement of a material fact or omits to state
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a material fact necessary in order to make the statements contained herein and
therein not materially misleading. There is no fact peculiar to any Borrower or
any of the other Credit Parties which could reasonably be expected to have a
Material Adverse Effect and which has not been set forth in this Agreement or in
the other documents, certificates and statements furnished to the Lender by or
on behalf of any Borrower prior to the date hereof in connection with the
transactions contemplated hereby.
SECTION 5.19. NO BURDENSOME RESTRICTIONS. None of the Credit Parties
is a party to or bound by any Contractual Obligation or Requirement of Law which
has resulted in or could reasonably be expected to result in any Material
Adverse Effect.
SECTION 5.20. INSURANCE. Each of the Credit Parties maintains
insurance with respect to its respective properties and businesses, with
financially sound and reputable insurers, having coverages against losses or
damages of the kinds customarily insured against by reputable companies engaged
in the same or similar businesses, such insurance being in amounts no less than
those amounts which are customary for such companies under similar
circumstances. Each of the Credit Parties has paid all insurance premiums due
and owing with respect to such insurance policies and coverages and such
policies and coverages, are in full force and effect.
SECTION 5.21. REVISIONS OR UPDATES OF SCHEDULES. Should any of the
information or disclosures provided on any Schedule attached hereto become
incorrect in any material respect, the Borrowers shall provide promptly to the
Lender in writing such revisions to such Schedule as may be necessary to correct
same, provided that no Schedule shall be deemed to have been amended, modified
--------
or superseded by any such correction, nor shall any breach of warranty or
representation resulting from the inaccuracy or incompleteness of any such
Schedule be deemed to have been cured thereby, unless and until the Lender in
its sole discretion shall have accepted in writing such revisions to such
Schedule.
SECTION 5.22. PERCENTAGE OWNERSHIP OF SHARES. The authorized and
issued and outstanding capital stock of each Subsidiary of CCI is as shown on
Schedule 5.22 attached hereto, and all of the shares of issued and outstanding
- -------------
capital stock of the Subsidiaries are validly issued, fully paid and non-
assessable and are owned directly by CCI, except for the capital stock of PPP,
all of which is owned directly by CCG.
SECTION 5.23. SECURITY INTEREST. The Security Agreements create a
valid security interest in the Collateral securing payment of the Obligations.
All filings and other actions necessary to perfect such security interest
have been taken (i) in those states in which the Borrowers have any Collateral
other than payphones and related Equipment, and (ii) in those states in which
the Borrowers have Collateral consisting of 400 or more payphones in the
aggregate for all Borrowers. The Lender has a valid security interest in the
Collateral of the respective Borrowers, which security interest is a first
priority security interest in those states
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referred to in clauses (i) and (ii) above, subject only to Permitted Liens. The
Stock Pledge Agreement creates a valid security interest in the Collateral (as
defined in the Stock Pledge Agreement). which security interest, upon possession
by the Lender of the certificates representing shares of stock included in such
Collateral, will constitute a perfected first priority security interest in such
Collateral.
SECTION 5.24 PLACES OF BUSINESS. Each Borrower's principal place of
business, chief executive office and office where it keeps all of its books and
records is set forth on Schedule 5.24 attached hereto, and none of the Borrowers
-------------
and none of their respective predecessors have had any other chief executive
office or principal place of business except as set forth on Schedule 5.24
-------------
during the five (5) years immediately preceding the date hereof. Schedule 5.24
-------------
also includes a listing of all states in which the Borrowers have (i) any leased
locations or (ii) individually or in the aggregate, at least 400 payphones. The
Borrowers have supplied to the Lender a true, correct and complete list of all
places of business and all locations at which any Collateral is located.
ARTICLE 6.
AFFIRMATIVE COVENANTS
For so long as this Agreement is in effect, and unless the Lender
expressly consents in writing to the contrary, the Borrowers, jointly and
severally, covenant and agree to comply (and cause each of CCI's other direct or
indirect Subsidiaries to comply) with the following covenants:
SECTION 6.1 FINANCIAL STATEMENTS AND NOTICES. Borrowers shall
promptly deliver to the Lender:
(a) within thirty (30) days after the end of each month, consolidated
statements of income and cash flows of CCI and its Subsidiaries for such period
and for the period from the beginning of such fiscal year to the end of such
period, and a consolidated balance sheet of CCI and its consolidated
Subsidiaries as at the end of such period, setting forth in the case of each
monthly statement in comparative form figures for the corresponding period in
the preceding fiscal year, all in reasonable detail, prepared in accordance with
GAAP (subject to changes resulting from normal year-end adjustments), but not
audited, and accompanied by a duly completed and executed Compliance Certificate
dated as of the date of the delivery of such financial statements;
(b) within fifty (50) days after the end of each fiscal quarter of
CCI (or within such additional period thereafter of up to 30 days in which CCI
is permitted to file its quarterly report for such period with the SEC),
consolidated statements of income and cash flows of CCI and its Subsidiaries for
such period, and for the period from the beginning of such fiscal year to the
end of such period, and a consolidated balance sheets of CCI and its
consolidated
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Subsidiaries as at the end of such year, setting forth in each case in
comparative form corresponding figures from the preceding annual audit, all in
reasonable detail, prepared in accordance with GAAP (subject to changes
resulting from normal year-end adjustments), but not audited, and accompanied by
a duly completed and executed Compliance Certificate dated as of the dated of
the delivery of such financial statements:
(c) within ninety-five (95) days after the end of each fiscal year of
CCI (or within such additional period thereafter of up to 30 days in which CCI
is permitted to file its annual report for such period with the SEC),
consolidated and consolidating statements of income and cash flows of CCI and
its consolidated Subsidiaries for such year, and consolidated and consolidating
balance sheets of CCI and its consolidated Subsidiaries as at the end of such
year, setting forth in each case in comparative from corresponding figures from
the preceding annual audit, all in reasonable detail, prepared in accordance
with GAAP and reasonably satisfactory in scope to the Lender and audited in
accordance with generally accepted auditing standards and certified to CCI by
independent public accountants of recognized standing selected by CCI and
reasonably acceptable to the Lender whose certificate shall be unqualified,
which financial statements shall be accompanied by a duly completed and executed
Compliance Certificate dated as of the date of the delivery of such financial
statements;
(d) not less than thirty (30) days prior to the beginning of each
fiscal year of Borrowers, Borrowers also shall provide Lender with a copy of the
Borrowers' annual budget and business plan for such fiscal year which shall
include month-by-month projections for each of the Borrowers separately and for
CCI on a consolidated basis;
(e) promptly upon receipt thereof, a copy of each other report
submitted to CCI or any of its consolidated Subsidiaries by its independent
public accountants in connection with any annual, interim or special audit made
by them of the books of CCI or any such Subsidiary (including, without
limitation any management report prepared in connection with such accountants'
annual audit of CCI and its consolidated Subsidiaries);
(f) within thirty (30) days after the end of each calendar quarter, a
written reconciliation of the public, pay or other telephones installed and the
public, pay or other telephones removed by the Credit Parties;
(g) promptly upon transmission thereof, copies of all such financial
statements, proxy statements, notices and reports as CCI shall send to its
public stockholders, if any, and copies of all registration statements and all
reports which CCI files with the SEC (or any governmental body or agency
succeeding to the functions of the SEC);
(h) promptly upon obtaining knowledge of an Event of Default, an
Officer's Certificate specifying the nature and period of existence thereof and
what action the Borrowers propose to take with respect thereto;
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(i) immediately upon becoming aware that the holder of any evidence of
indebtedness or any security of any Credit Party has given notice or taken any
other action with respect to a claimed default or event of default with respect
to such indebtedness or security or event which, with the giving of notice or
passage of time, or both, would constitute a default with respect to such
indebtedness or security, an Officer's Certificate specifying the notice given
or action taken by such holder and the nature of the claimed default or event
and what action such Credit Party is taking or proposes to take with respect
thereto, provided that in each and every case noted above the aggregate
--------
outstanding principal balance of the indebtedness or security involved (or all
such indebtedness or securities combined) must equal or exceed $500,000;
(j) promptly after learning thereof, any (i) notice that any Credit
Party is not in compliance in all material respects with all terms and
conditions of any permit, license or authorization which is required under
Environmental Laws, or that any Credit Party is not in compliance in all
material respects with all other limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations, schedules and timetables
contained in any applicable Environmental Laws; (ii) notice of any past, present
or future events, conditions, circumstances, activities, practices, incidents,
actions or plans which, with respect to any Credit Party, may materially
interfere with or prevent compliance in all material respects or continued
compliance in all material respects with any applicable Environmental Laws; and
(iii) notice or claim of any civil, criminal or administrative action, suit,
demand, claim, hearing, notice or demand letter, notice of violation,
investigation, or proceeding pending or threatened against any Credit Party
relating in any way to any applicable Environmental Laws;
(k) promptly after (i) the occurrence thereof, notice of the
institution by any Person of any action, suit or proceeding or any governmental
investigation or any arbitration, before any court or arbitrator or any
governmental or administrative body, agency, or official, against any Credit
Party, or any material property of any Credit Party, in which the amount in
controversy is stated to be more than $500,000 individually or in the aggregate
or, where no amount in controversy is stated, or the amount in controversy is
less than $500,000, which might, if adversely determined, have a Material
Adverse Effect or (ii) the receipt of actual knowledge thereof, notice of the
threat of any such action, suit, proceeding, investigation or arbitration, each
such notice under this subsection to specify, if known, the amount of damages
being claimed or other relief being sought, the nature of the claim, the Person
instituting the action, suit, proceeding, investigation or arbitration, and any
other significant features of the claim;
(j) (i) promptly after the occurrence thereof with respect to any
Plan of any Credit Party or any ERISA Affiliate thereof, or any trust
established thereunder, notice of (x) a "reportable event" described in Section
4043 of ERISA and the regulations issued from time to time thereunder (other
than a "reportable event" not subject to the provisions for 30-day notice to the
PBGC under such regulations), or (y) any other event which could subject any
Credit Party to any tax, penalty or liability under Title I or Title IV of ERISA
or Chapter 43
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of the Code, or any tax or penalty resulting from a loss of deduction under
Sections 162, 404 or 419 of the Code, where any such taxes, penalties or
liabilities exceed or could exceed $500,000 in the aggregate;
(ii) promptly after such notice must be provided to the PBGC, or to
a Plan participant, beneficiary or alternative payee, any notice required under
Section 101(d), 302(f)(4), 303, 307, 4041(b)(1)(A) or 4041(c)(1)(A) of ERISA or
under Section 401(a)(29) or 412 of the Code with respect to any Plan of any
Credit Party or any ERISA Affiliate thereof;
(iii) promptly after receipt, any notice received by any Credit Party
or any ERISA Affiliate thereof concerning the intent of the PBGC or any other
governmental authority to terminate a Plan of such Credit Party or ERISA
Affiliate thereof which is subject to Title IV of ERISA, to impose any liability
on such Credit Party or ERISA Affiliate under Title IV of ERISA or Chapter 43 of
the Code;
(iv) promptly upon the filing thereof with the Internal Revenue
Service ("IRS") or the United States Department of Labor ("DOL"), a copy of IRS
--- ---
Form 5500 or annual report for each Plan of any Credit Party or ERISA Affiliate
thereof which is subject to Title IV of ERISA; and
(v) upon the request of the Lender, (x) true and complete copies of
any and all documents, government reports and IRS determination or opinion
letters or rulings for any Plan of any Credit Party from IRS, PBGC or DOL, (y)
any reports filed with the IRS, PBGC or DOL with respect to a Plan of any Credit
Party or any ERISA Affiliate thereof, or (z) a current statement of withdrawal
liability for each Multiemployer Plan of any Credit Party or any ERISA Affiliate
thereof;
(m) promptly upon the existence or occurrence thereof, notice of the
existence or occurrence of (i) any Contractual Obligation or Requirement of Law
described in Section 5.19, (ii) any failure of any Credit Party to hold in full
force and effect those material Site License Agreements, trademarks, service
marks, patents, trade names, copyrights, licenses and similar rights necessary
for the normal conduct of its business which failure has had or could reasonably
be expected to have a Material Adverse Effect, or (iii) any strike, labor
dispute, slow down, or work stoppage as described in Section 5.16 hereof which
has had or could reasonably be expected to have a Material Adverse Effect; and
(n) with reasonable promptness, such other information relating to the
operations, management, business, properties or financial condition of any
Credit Party or any Plan as the Lender may reasonably request in writing from
time to time.
SECTION 6.2 INSPECTION OF PROPERTY. Each Credit Party will permit any
Person designated by the Lender in writing to visit and inspect any of the
properties of such Credit Party, to examine the corporate books and records of
such Credit Party and such other
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documents as the Lender may reasonably request and make copies thereof or
extracts therefrom, and to discuss the affairs, finances and accounts of any of
such corporations with the officers of such Credit Party and with such Credit
Party's independent public accountants, all at such reasonable times and as
often as the Lender may reasonably request.
SECTION 6.3 BOOKS AND RECORDS. Each Credit Party shall keep its
books, records and accounts in accordance with GAAP and practices applied on a
basis consistent with preceding years.
SECTION 6.4 MAINTENANCE OF INSURANCE. Each Credit Party shall
maintain with financially sound and responsible insurers reasonably acceptable
to the Lender, insurance with respect to its properties and business against
such casualties and contingencies (including worker's compensation and public
liability, larceny, embezzlement or other criminal misappropriation) and in such
amounts as is customary in the case of similarly situated corporations engaged
in the same or similar businesses and shall deliver certificates of insurance
for such policies to the Lender, containing endorsements, in form satisfactory
to the Lender, providing that such insurance shall not be cancelable except upon
thirty (30) days' prior written notice to the Lender. Each policy containing
property insurance coverage shall name the Lender as loss payee pursuant to a
lender's loss payee clause satisfactory to the Lender. From time to time, upon
written request by the Lender at reasonable intervals, each Credit Party will
deliver an Officer's Certificate specifying the details of such insurance in
effect.
SECTION 6.5 MAINTENANCE OF CORPORATE EXISTENCE, PROPERTIES, LICENSES,
ETC. Except to the extent otherwise permitted hereby, each Credit Party will do
or cause or cause to be done all things reasonably necessary to preserve, renew
and keep in full force and effect the corporate existence of such Credit Party
and the patents, trademarks, service marks, trade names, service names,
copyrights, licenses, leases, permits, franchises and other rights, including
without limitation any and all Site License Agreements, that continue to be
useful in some material respect to the business of such Credit Party, and at all
times maintain, preserve and protect all patents, trademarks, service marks,
trade names, service names, copyrights, licenses, leases, permits, franchises
and other rights, including without limitation any and all Site License
Agreements, that continue to be useful in some material respect to the business
of such Credit Party, and preserve all the remainder of its property useful in
the conduct of its business and keep the same in good repair, working order and
condition (ordinary wear and tear excepted), and from time to time, make, or
cause to be made, all needful and proper repairs, renewals, replacements,
betterments and improvements thereto so that the business carried on in
connection therewith may be properly and advantageously conducted at all times.
SECTION 6.6 PAYMENT OF TAXES AND CLAIMS. Each Credit Party will pay
and discharge or cause to be paid and discharged all taxes, assessments and
governmental charges or levies imposed upon it or upon its respective income and
profits or upon any of its property, real, personal or mixed or upon any part
thereof, before the same shall become in
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default as well as all lawful claims for labor, materials and supplies or
otherwise, which, if unpaid, might become a Lien or charge upon such properties
or any part thereof, provided that no Credit Party shall be required to pay and
--------
discharge or cause to be paid and discharged any such tax, assessment, charge,
levy or claim so long as the validity thereof shall be timely contested in good
faith by appropriate proceedings and it shall have set aside on its books
adequate reserves with respect to any such tax, assessment, charge, levy or
claim, so contested; and provided, further, that payment with respect to any
--------
such tax, assessment, charge, levy or claim shall be made before any property of
such Credit Party shall be seized or sold in satisfaction thereof.
SECTION 6.7 TYPE OF BUSINESS. Each Borrower will remain, and will cause
each other direct or indirect Subsidiary of CCI to be and remain, substantially
in the same businesses in which the Borrowers are engaged as of the date of this
Agreement or in such other types of business which are reasonably related or
incidental thereto.
SECTION 6.8 COMPLIANCE WITH LAWS, CONTRACTS, ETC. Each Credit Party shall
comply in all material respects, with all Requirements of Law and Contractual
Obligations applicable to or binding on any of them, except where the failure to
so comply would not have a Material Adverse Effect.
SECTION 6.9 FINANCIAL COVENANTS. CCI shall comply with the following
financial covenants (all to be tested and applied on a consolidated basis):
(a) CCI's Interest Coverage Ratio shall be not less than (i) 1.25:1.00 for
any particular fiscal quarter or year ending during the period from June 30,
1996 to June 29, 1997, and (ii) 1.75:1.00 for any particular fiscal quarter or
year on or after June 30, 1997. For purposes of this Section 6.9(a), Interest
Expense of CCI shall not include any amortized portion of CCI's expense related
to the issuance of any warrants pursuant to the Warrant Documents.
(b) CCI's Funded Debt-to-Capital Ratio shall not exceed at any time (i)
0.77:1.00 during the period from June 30, 1996 to December 30, 1996, (ii)
0.60:100 during the period from December 31, 1996 through June 29, 1997; (iii)
0.55:1.00 during the period from June 30, 1997 through December 30, 1997, and
(iv) 0.50:1.00 on or after December 31, 1997.
(c) CCI's Net Worth shall be not less than $25,500,000 at all times during
its fiscal quarter ending June 30, 1996, and CCI's Net Worth at all times during
each fiscal quarter of CCI ending thereafter shall be not less than the sum of
(a) its minimum required Net Worth hereunder for its immediately preceding
fiscal quarter plus (b) one hundred percent (100%) of CCI's Net Income after
taxes for such immediately preceding fiscal quarter (but such sum shall not be
reduced if CCI suffers a Net Loss in such quarter) plus (c) the aggregate amount
of equity raised by Borrowers, or any of them, after March 31, 1996.
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(d) CCI's Capital Expenditures shall not exceed (i) $3,000,000 for CCI's
two fiscal quarter period ending on December 31, 1996, and (ii) $3,500,000 for
any two fiscal quarter period of CCI thereafter.
(e) CCI's Funded Debt-to-EBITDA Ratio shall be not less than (i) 5.00:1.00
for any particular fiscal quarter or year ending during the period from June 30,
1996 to December 30, 1996; (ii) 3.50:1.00 for any particular fiscal quarter or
year ending during the period from December 31, 1996 through June 29, 1997;
(iii) 3.00:1.00 for any particular fiscal quarter to year ending during the
period from June 30,1997 to December 30, 1997; and (ii) 2.75:1.00 for any
particular fiscal quarter of year ending on or after December 31, 1997. For
purposes of this Section 6.9(e), EBITDA shall be adjusted by the amount of
$4,686,942.00 for certain non-recurring expenses incurred by Borrower during its
fiscal quarter ending March 31, 1996.
SECTION 6.10 ADDITIONAL CREDIT PARTIES. In the event CCI creates or
acquires any new or additional Subsidiary after the date of this Agreement,
Borrowers shall (i) obtain Lender's express prior written consent to such
creation or acquisition; (ii) if and to the extent required by Lender, cause
such new or additional Subsidiary to become either an additional Borrower
hereunder or a Guarantor of the Obligations (and in that connection Borrowers
shall cause such new or additional Subsidiary to grant the Lender a security
interest in all of such Subsidiary's assets and to execute or deliver such
Credit Documents as Lender may reasonably request to effectuate such new or
additional Subsidiary's becoming an additional Borrower or a Guarantor and grant
and perfection of such security interest); and (iii) grant the Lender a security
interest in all of the issued and outstanding shares of capital stock of such
Subsidiary and deliver any certificate representing such shares to the Lender,
together with duly executed undated stock powers in blank and take any and all
such other actions as may be required by the Lender to grant to the Lender a
valid and perfected first priority security interest in such shares.
SECTION 6.11 INTEREST RATE CONTRACTS. The Borrowers shall maintain in
full force and effect the Interest Rate Contract by and between the Borrowers,
or certain of the Borrowers, and the Lender, which Interest Rate Contract
matures on February 9, 1998. On or before February 9, 1998, the Borrowers shall
have entered into one or more replacement Interest Rate Contracts with a
financial institution acceptable to Lender and (i) which are sufficient to
protect the Borrowers against fluctuations in interest rates with respect to
principal and interest payments in an aggregate notional amount equal to fifty
percent (50%) of the sum of (A) the then outstanding principal balance of the
Tranche A Loan, (B) the Tranche B Loan Commitment then in effect, and (C) the
then outstanding principal balance of the Tranche C Loan; (ii) each of which
Interest Rate Contracts has an initial maturity date of no earlier than June 30,
1999, and (iii) which are otherwise in form and substance acceptable to Lender.
Once an Interest Rate Contract has been entered into by the Borrowers, the
Borrowers shall maintain in full force and effect such Interest Rate Contract.
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SECTION 6.12 COVENANTS WITH RESPECT TO CERTAIN SUBSIDIARIES. Each of the
Credit Parties agrees that CCG shall dissolve PPP within thirty (30) days from
the date of this Agreement, and that prior to such time, no Credit Party shall
make any capital contributions or otherwise transfer any of its assets to PPP.
Each of the Credit Parties agrees that no Credit Party shall make any capital
contributions or otherwise transfer any of its assets to CPS: provide, however,
------- -------
that the Borrowers may transfer an amount not to exceed $100,000 to CPS in any
fiscal year for the sole purpose of maintaining CPS's tariffs.
ARTICLE 7.
NEGATIVE COVENANTS
For so long as this Agreement is in effect, and unless the Lender expressly
consents in writing to the contrary, the Borrowers, jointly and severally,
covenant and agree to comply (and cause each of CCI's other direct or indirect
Subsidiaries to comply) with the following covenants:
SECTION 7.1 FUNDED DEBT. None of the Credit Parties will create, incur,
assume or suffer to exist any Funded Debt, except
(a) Any Funded Debt evidenced by or arising under this Agreement or any of
the other Credit Documents;
(b) Any Funded Debt described in Schedule 7.1 attached hereto;
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(c) Any Capitalized Lease Obligations permitted hereunder;
(d) Any Subordinated Debt incurred by any Credit Party in amounts and on
other terms and conditions which are reasonably satisfactory in all material
respects to the Lender;
(e) Any Indebtedness of any Borrower as a counterparty, under any Interest
Rate Contracts; and
(f) Any renewals or extensions of any Indebtedness described in paragraphs
(b), (c), (d), (e) or (f) above provided that the principal amount thereof is
not increased beyond any applicable limit set forth above.
SECTION 7.2 LIENS. None of the Credit Parties will create, assume or
suffer to exist any Lien upon any of its property or assets, whether now owned
or hereafter acquired, except for the following (each, a "Permitted Lien"):
(a) Liens for taxes (including ad valorem taxes), assessments or other
governmental charges or levies not yet due or which are being actively contested
in good faith by
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appropriate proceedings, if adequate reserves with respect thereto are
maintained on the books of such Credit Party in accordance with GAAP;
(b) Statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, materialmen and other Liens imposed by law created in the ordinary
course of business for amounts not yet due or which are being contested in good
faith by appropriate proceedings, if adequate reserves with respect thereto are
maintained on the books of such Credit Party in accordance with GAAP;
(c) Liens incurred or deposits made in the ordinary course of business
in connection with workers' compensation, unemployment insurance and other types
of social security benefits or obligations or to secure the performance of
tenders, statutory obligations, surety and appeal bonds, bids, leases,
government contracts, performance and return-of-money bonds and other similar
obligations, provided that such Liens were not incurred in connection with the
--------
borrowing of money or the obtaining of advances;
(d) Zoning ordinances, easements, licenses, restrictions on the use of
real property and minor irregularities in title thereto which do not materially
impair the use of such property in the operation of the business of such Credit
Party or the value of such property;
(e) Inchoate liens arising under ERISA to secure current service pension
liabilities as they are incurred under the provisions of Plans from time to time
in effect;
(f) Rights reserved to or vested in any municipality or governmental,
statutory or public authority to control or regulate any property of such Credit
Party, or to use such property in a manner which does not materially impair the
use of such property for the purposes for which it is held by such Credit Party;
(g) Liens created under the Security Documents or identified in Schedule
--------
7.2 attached hereto and made a part hereof by reference; and
- ---
(h) Purchase Money Liens on Equipment purchased from Elcotel, Inc.
("Elcotel") from time to time under that certain Sales and Licensing Agreement
dated April 2, 1989 by and between CCI and Elcotel, a true, complete and correct
copy of which has been delivered to the Lender and its counsel (the "Elcotel
Agreement"), but only so long as (1) CCI pays for any Equipment no later than
the earlier of (x) ninety (90) days from the date of any such purchase and (y)
in accordance with the terms agreed to by Elcotel; and (2) Elcotel does not file
or cause to be filed any financing statement, or does not otherwise take any
steps to perfect its Lien in any such Equipment.
SECTION 7.3 MERGER, CONSOLIDATION, ETC. None of the Credit Parties will
merge, consolidate or exchange shares with any other corporation, or sell, lease
or transfer or otherwise dispose of all or substantially all of its assets to
any Person, except
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(a) any Borrower may merge consolidate with, or sell, lease, transfer
or otherwise dispose of all or any substantial part of its assets, to the other
Borrower;
(b) any Credit Party (other than a Borrower) may merge or consolidate
with a Borrower (provided that such Borrower shall be the surviving
corporation therefrom) or with any other Credit Party; and
(c) any Credit Party (other than a Borrower) may sell, lease,
transfer or otherwise dispose of all or any substantial part of its assets to a
Borrower or another Credit Party.
SECTION 7.4 ERISA MATTERS. None of the Credit Parties shall take or
fail to take any action with respect to any Plan of any Credit Party or, with
respect to its ERISA Affiliates, any Plan which is subject to Title IV of ERISA
or to continuation health care requirements for group health plans under the
Code, including without limitation (i) establishing any such Plan, (ii) amending
any such Plan (except where required to comply with applicable law), (iii)
terminating or withdrawing from any such Plan, or (iv) incurring an amount of
unfunded benefit liabilities, as defined in Section 4001(a)(18) of ERISA, or any
withdrawal liability under Title IV of ERISA with respect to any such Plan,
without first obtaining the written approval of the Lender, where such actions
or failures could result in a Material Adverse Effect.
SECTION 7.5 DIVIDENDS, ETC. CCI shall not declare or pay any
dividend on its capital stock, or make any payment to purchase, redeem, retire
or acquire any of its Subordinated Debt or capital stock, other than (i)
dividends payable solely in shares of its capital stock; or (ii) the repurchase
of warrants pursuant to a Warrant Agreement.
SECTION 7.6 ACQUISITIONS, INVESTMENTS, ETC. None of the Credit
Parties shall make or have outstanding any loan or advance to, or own, purchase
or acquire any stock, obligations (other than accounts receivable generated in
the ordinary course of business) or securities of, or any interest in, or make
any capital contribution to or acquire all or substantially all of the assets
of, any other Person, except that (x) CCI may own 100% of the outstanding
capital stock of or may make capital contributions to or other investments in
CCG, CPS, InVision, PPP, or any other Subsidiary created or acquired in
compliance with Section 6.10, and (y) any Credit Party may:
(i) acquire and own stock, obligations or securities
received in settlement of debt created in the ordinary course of business which
is owing to such Credit Party;
(ii) own, purchase or acquire (A) commercial paper, banker's
acceptances or certificates of deposit issued by the Lender (or its parent
holding company) or by any other United States commercial bank or enter into
repurchase agreements with the Lender or such other banks with respect to
obligations described in this paragraph (ii), (B) obligations of
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reputable issuers located in the United States which obligations have a short-
term rating of A-1 or better by Standard & Poor's Corporation or P-1 by Moody's
Investors Service, Inc., (C) obligations of the United States government or any
agency thereof, and (D) obligations guaranteed by the United States government
or any agency thereof, in each case such obligations described in this paragraph
(ii) to be due within one year and one day from the date of acquisition;
(iii) endorse negotiable instruments for collection or
deposit in the ordinary course of business;
(iv) make advances to any other Credit Party; expressly
permitted by Section 6.12. to CPS; and
(v) make advances in the ordinary course of such Credit
Party's business to its officers and employees to cover travel, entertainment or
moving expenses to be incurred by them in connection with such Credit Party's
business.
SECTION 7.7 SALE AND LEASE-BACK TRANSACTIONS. None of the Credit
Parties will enter into or permit to remain in effect any arrangement with any
lender or investor or to which such lender or investor is a party providing for
the leasing by any Credit Party of real or personal property which has been or
is to be sold or transferred by any Credit Party to such lender or investor or
to any Person to whom funds have been or are to be advanced by such lender or
investor on the security of such property or rental obligations of any Credit
Party.
SECTION 7.8 TRANSACTIONS WITH AFFILIATES. None of the Credit Parties
will, directly or indirectly, purchase, acquire or lease any property from, or
sell, transfer or lease any property to, or otherwise deal with, in the ordinary
course of business or otherwise, any Affiliate (other than another Credit
Party), except upon terms not less favorable to such Credit Party than if the
relationship of Affiliate did not exist.
SECTION 7.9 FISCAL YEAR CHANGE. CCI shall not change its fiscal year
end from June 30.
SECTION 7.10 USE OF PROCEEDS. Borrowers shall not use the proceeds of
any of the Loans for any purpose other than as and to the extent permitted by
Section 2.4 hereof.
SECTION 7.11 GUARANTIES. None of the Credit Parties shall become or
remain liable with respect to any Guaranty, except for (i) endorsements of
instruments or items of payment for deposit or collection in the ordinary course
of business, (ii) any Guaranty Agreements executed pursuant to this Agreement,
(iii) any Guaranty of any Indebtedness of another Credit Party if and to the
extent the underlying Indebtedness is not prohibited under Section 7.1 hereof;
and (iv) any other Guaranties described on Schedule 7.11 attached hereto.
-------------
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SECTION 7.12 SALES OR OTHER DISPOSITION OF ASSETS. The Credit Parties
shall not sell, lease or otherwise dispose of any of their assets or property,
other than in the ordinary course of its business: provided, however, that the
-------- -------
Credit Parties may dispose of assets or property for cash consideration such
that the total value of such cash consideration received by all of the Credit
Parties in any fiscal year does not exceed, in the aggregate, $4000,000;
provided, further, however, that, so long as there does not then exist any
- -------- ------- -------
Default or Event of Default, any Credit Party may make like-kind exchanges of
pay telephones related equipment for new, reconditioned or upgraded pay
telephones and related equipment, so long as (i) the aggregate fair market value
of the property received by Credit Party in such like-kind exchange is greater
than or equal to the aggregate fair market value of the property transferred,
and (ii) such Credit Party makes a mandatory prepayment of the Loans in an
amount equal to the amount of any cash proceeds received in connection with any
such like-kind exchange. Such mandatory prepayment shall be applied first, to
the Tranche C Loans, second to the Tranche A Loans, and third, the Tranche B
Loans. Any expenditure made by such Credit Party in connection with such a like-
kind exchange shall be deemed a Capital Expenditure.
ARTICLE 8.
EVENTS OF DEFAULT
SECTION 8.1 EVENTS OF DEFAULT. Each of the following events shall
constitute an Event of Default under this Agreement:
(i) failure by Borrowers to pay any of the Obligations
(whether principal, interest, fees or other amounts) when and as the same become
due and payable (whether at maturity, on demand, or otherwise),
(ii) any Credit Party shall (1) apply for or consent to the
appointment of or the taking of possession by a receiver, custodian, trustee or
liquidator of such Credit Party or of all or a substantial part of the property
of such Credit Party, (2) admit in writing the inability of such Credit Party,
or be generally unable, to pay the debts of such Credit Party as such debts
become due, (3) make a general assignment for the benefit of the creditors of
such Credit Party, (4) commence a voluntary case under the Bankruptcy Code (as
now or hereafter in effect), (5) file a petition seeking to take advantage of
any other law relating to bankruptcy, insolvency, reorganization, winding-up, or
composition or adjustment of debts, (6) fail to controvert in a timely or
appropriate manner, or acquiesce in writing to, any petition filed against such
Credit Party in an involuntary case under the Bankruptcy Code, or (7) take any
action for the purpose of effecting any of the foregoing; provided, however,
-------- -------
that so long as CPS does not then have any right to or interest in any assets,
including, without limitation, any tariffs, licenses or governmental consents,
the occurrence of any of the events
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listed in clauses (1) through (7) above, solely with respect to CPS, shall not
constitute an Event of Default hereunder: or
(iii) a proceeding or case shall be commenced, without the
application of any Credit Party, in any court of competent jurisdiction, seeking
(1) the liquidation, reorganization, dissolution, winding-up or composition or
readjustment of debts of such Credit Party, (2) the appointment of a trustee,
receiver, custodian, liquidator or the like of such Credit Party or of all or
any substantial part of the assets of such Credit Party, or (3) similar relief
in respect of such Credit Party under any law relating to bankruptcy,
insolvency, reorganization, winding-up or composition and adjustment of debts,
and such proceeding or case shall continue undismissed, or an order, judgment or
decree approving or ordering any of the foregoing shall be entered and continue
in effect, for a period of sixty (60) days from commencement of such proceeding
or case or the date of such order, judgment or decree, or any order for relief
against such Credit Party shall be entered in an involuntary case or proceeding
under the Bankruptcy Code; or
(iv) any representation or warranty made by any Borrower
herein or by any Credit Party in any of the other Credit Documents shall be
false or misleading in any material respect on the date as of which made (or
deemed made); or
(v) any default shall occur in the performance or
observance of any term, condition or provision contained in Section 6.9 or
Article VII of this Agreement; or
(vi) any default shall occur in the performance or
observance of any term, condition or provision contained in this Agreement and
not referred to in clauses (i) through (v) above, which default shall continue
for thirty (30) days after the earlier of the date any Borrower acquires
knowledge thereof or the Lender gives any Borrower written notice thereof;
(vii) any material provision of this Agreement or any other
Credit Document shall at any time for any reason cease to be valid and binding
in accordance with its terms on any Borrower or any Guarantor, or the validity,
enforceability, or priority thereof shall be contested by any Borrower or any
Guarantor, or any Borrower or any Guarantor shall terminate or repudiate (or
attempt to terminate or repudiate) any Credit Document executed by it; or
(viii) the occurrence of an Event of Default under (and after
giving effect to any notice and/or cure rights expressly provided in) any of the
other Credit Documents; or
(ix) default in the payment of principal of or interest on
any other obligation of any Credit Party (other than the Obligations for money
borrowed (or any obligation under conditional sale or other title retention
agreement or any obligation secured by purchase money mortgage or deed to secure
debt or any obligation under notes payable or drafts accepted representing
extensions of credit or on any Capitalized Lease Obligation), or default
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in the performance of any other agreement, term or condition contained in any
indenture or agreement under which any such obligation is created, guaranteed or
secured if the effect of such default is to cause such obligation to become due
prior to its stated maturity; provided that in each and every case noted above
--------
the aggregate then outstanding principal balance of the obligation involved (or
all such obligations combined) must equal or exceed $500,000]; or
(x) default in the payment of principal of or interest on
any obligation of any Credit Party for money borrowed from the Lender or any
Affiliate of the Lender (other than an Obligation) or on any Capitalized Lease
Obligation with a Lender or any Affiliate of the Lender, or default in the
performance of any other agreement, term, or condition contained in any
agreement under which any such obligation is created, guaranteed or secured if
the effect of such default is to entitle the Lender to then cause such
obligation to become due prior to its stated maturity [the parties intend that a
default may constitute an Event of Default under this paragraph (x) even if such
default would not constitute an Event of Default under paragraph (ix)
immediately above]; or
(xi) a judgment or order for the payment of money in excess
of $500,000 or otherwise having a Material Adverse Effect shall be rendered
against any Credit Party and such judgment or order shall not be released,
vacated, stayed or fully bonded-off within thirty (30) days after the date of
its issue or entry; or
(xii) failure by CCI to own, beneficially and of record, one
hundred percent (100%) of the outstanding capital stock of each of the Person,
or by any two or more Persons acting in concert, of beneficial ownership (within
the meaning of Rule 13d-3 of the SEC under the Securities Exchange Act of 1934)
of twenty percent (20%) or more of the outstanding voting stock of CCI; or
(xiii) a Plan of any Credit Party or a Plan subject to Title
IV of ERISA of any of its ERISA Affiliates: (1) shall fail to be funded in
accordance with the minimum funding standard required by applicable law, the
terms of such Plan, Section 412 of the Code or Section 302 of ERISA for any plan
year or a waiver of such standard is sought or granted with respect to such Plan
under applicable law, the terms of such Plan or Section 412 of the Code or
Section 303 of ERISA; or (2) is being, or has been, terminated or is the subject
of termination proceedings under applicable law or the terms of such Plan; or
(3) shall require any Credit Party to provide security under applicable law, the
terms of such Plan, Section 401 or 412 of the Code or Section 306 or 307 of
ERISA; or (4) results in a liability to any Credit Party under applicable law,
the terms of such Plan or Title IV of ERISA; and in any of the cases described
in clauses (1), (2), (3) or (4) above there shall result from any such failure,
waiver, termination or other event a liability to the PBGC or a Plan that has
had or could reasonably be expected to have a Material Adverse Effect; or
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(xiv) Elcotel, Inc. files or causes to be filed one or more
financing statements, or takes any other action or causes any other action to be
taken to perfect any Purchase Money Lien permitted under Section 7.2(h).
SECTION 8.2 REMEDIES. Upon the occurrence of an Event of Default, the
Lender may, in its discretion, exercise one or more of the following remedies:
(i) by written notice to the Borrowers, terminate the Lender's
commitment hereunder to make any further Loans to the Borrowers, whereupon such
commitment shall terminate immediately and any remaining accrued but unpaid
Commitment Fees shall become forthwith due and payable without any other notice
or demand of any kind; and
(ii) by written notice to the Borrowers, declare the principal
of and any accrued interest on the Notes and all other Obligations, to be,
whereupon the same shall become, immediately due and payable without further
demand, presentment, protest or notice of any kind, all of which are hereby
expressly waived by the Borrowers; and
(iii) exercise all or any of its rights and remedies as it may
otherwise have under any of the other Credit Documents or any applicable law;
provided, however, that upon the occurrence of an Event of Default specified in
- --------
Section 8.1(ii) or Section 8.1(iii) above, the result which would occur upon the
giving of notice pursuant to Section 8.2(i) and (ii) shall occur automatically
without the giving of any such notice. No failure or delay on the part of the
Lender to exercise any right or remedy hereunder or under the Credit Documents,
or any of them, shall operate as a waiver thereof, nor shall any single or
partial exercise of any right or remedy hereunder preclude any further exercise
thereof or the exercise of any further right or remedy hereunder or under the
Credit Documents, or any of them. No exercise by the Lender of any remedy under
the other Credit Documents, or any of them, shall operate as a limitation on any
rights or remedies of the Lender under this Agreement, except to the extent of
moneys actually received by the Lender under the other Credit Documents.
ARTICLE 9.
CROSS-GUARANTY
SECTION 9.1 CROSS-GUARANTY. In consideration of the execution and
delivery by Lender of this Agreement and the making of the Loans hereunder, each
Borrower, jointly and severally, hereby guarantees absolutely and
unconditionally to the Lender the due and punctual payment, when and as due
(whether upon demand, upon maturity, by reason of acceleration or otherwise), of
all Obligations now or hereafter owing by each of the other Borrowers to the
Lender and agrees to pay any and all reasonable expenses (including, but not
limited to, reasonable attorney's fees and expenses) which may be incurred by
the Lender
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in enforcing its rights under this guaranty (this "Guaranty"). The liability of
each Borrower under this Guaranty shall be joint and several, unlimited and
unconditional, and this Guaranty shall be a continuing guaranty of any and all
notes given as evidence of or as an extension or renewal of any of the
Obligations.
SECTION 9.2 WAIVERS OF CERTAIN RIGHTS, ETC. Each Borrower expressly
waives any and all rights of subrogation, reimbursement, indemnity, exoneration
or contribution or any other claim which such Borrower may now or hereafter have
against any of the other Borrowers or any other Person directly or contingently
liable for any of the Obligations, or against any Collateral or any other
property of any of the other Borrowers or such other Person, arising from the
existence, payment, performance or enforcement of such Borrower's obligations
and liabilities under this Agreement or any of the other Credit Documents.
ARTICLE 10
MISCELLANEOUS
SECTION 10.1 NOTICES. All notices, requests and other communications
-------
hereunder shall be in electronic, telephonic (confirmed in writing) or written
(including telecopier or similar writing) form and shall be given to the party
to whom sent, addressed to it, if directed to the Lender, to:
First Union National Bank of Georgia
4570 Ashford Dunwoody Road
Atlanta, Georgia 30346
Attn: Caperton Putt
Telecopy: (404) 865-2388
with a copy to:
First Union National Bank of Georgia
999 Peacgtree Street, N.E.
Atlanta, Georgia 30309
Attn: Dan Evans
Telecopy: (404) 827-7220
with an additional copy to:
Troutman Sanders, LLP
600 Peachtree Street, N.E.
Suite 5200
Atlanta, Georgia 30308-2216
Attn: John C. Beane, Esq.
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Telecopy: (404) 885-3900
and if directed to CCG, to: Communications Central of Georgia, Inc.
1150 Northmeadow Parkway
Suite 118
Roswell, Georgia 30076
Attn: President
Telecopy: (404) 751-9082
with a copy to:
Hunton & Williams
600 Peachtree Street, N.E.
Suite 4100
Atlanta, Georgia 30308
Attn: J. Stephen Hufford, Esq.
Telecopy: (404) 888-4190
and if directed to CCI, to: Communications Central Inc.
1150 Northmeadow Parkway
Suite 118
Roswell, Georgia 30076
Attn: President
Telecopy: (404) 751-9082
with a copy to:
Hunton & Williams
600 Peachtree Street, N.E.
Suite 4100
Atlanta, Georgia 30308
Attn: J. Stephen Hufford, Esq.
Telecopy: (404) 888-4190
and if directed to InVision, to: InVision Telecom, Inc.
1150 Northmeadow Parkway
Suite 118
Roswell, Georgia 30076
Attn: President
Telecopy: (404) 751-9082
with a copy to:
Hunton & Williams
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600 Peachtree Street, N. E.
Suite 4100
Atlanta, Georgia 30308
Attn: J. Stephen Hufford, Esq.
Telecopy: (404) 888-4190
Each such notice, request or communication shall be effective (i) if given by
telecopy, when such communication is transmitted to the telecopy number herein
specified (any such notice, request or communication sent by telecopy shall be
confirmed promptly thereafter by personal delivery or mailing in accordance with
the other provisions of this Section, but such confirmation requirement shall
not affect the date on which such telecopy shall be deemed to be effective for
purposes hereof), (ii) if given by mail, three (3), Business Days after such
communication is deposited in the United States mail with first class postage
prepaid, return receipt requested, addressed as aforesaid, (iii) if sent for
overnight delivery by Federal Express or other reputable national overnight
delivery service, one (1) Business Day after such communication is entrusted to
such service for overnight delivery and with recipient signature required,
addressed as aforesaid, or (iv) if given by any other means, when delivered at
the address of the party to whom such notice is being delivered.
SECTION 10.2 NO WAIVER; REMEDIES CUMULATIVE. No failure or delay on
the part of the Lender in exercising any right or remedy hereunder and no course
of dealing between any Credit Party and the Lender shall operate as a waiver
thereof, nor shall any single or partial exercise of any right or remedy
hereunder or under the Note preclude any other or further exercise thereof or
the exercise of any other right or remedy hereunder. The rights and remedies
herein expressly provided are cumulative and not exclusive of any rights or
remedies which the Lender would otherwise have. No notice to or demand on any
Credit Party not required hereunder or under the Notes in any case shall entitle
any Credit Party to any other or further notice or demand in similar or other
circumstances or constitute a waiver of the rights of the Lender to any other or
further action in any circumstances without notice or demand.
SECTION 10.3 PAYMENT OF EXPENSES; INDEMNITY.
(a) Borrowers, jointly and severally, agree to:
(i) pay all reasonable out-of-pocket costs and expenses of
the Lender incurred in connection with the negotiation, structuring,
documenting, closing, administration or modification of, or in connection with
the preservation of rights under, enforcement of, or any refinancing,
renegotiation, restructuring or termination of, this Agreement or any other
Credit Document or any instruments referred to therein or any amendment, waiver
or consent relating thereto, including, without limitation, the reasonable
fees and disbursements of counsel for the Lender (a non-binding estimate of
which fees of counsel, as they relate solely to the negotiation, structuring,
documentation and closing of this Agreement, the
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Credit Documents and the Warrant Documents on or prior to August 11, 1996, is
set forth in that certain letter dated July 11, 1996 from Messrs. Troutman
Sanders LLP and addressed to Mr. David Driggers): provided, that the Lender
--------
shall not request that the Borrowers pay any of the Lender's costs incurred
solely in connection with the administration of this Agreement and the other
Credit Documents when no Default or Event of Default is existing (other than
reasonable attorney's fees and expenses) unless Lender imposes similar
administration costs on substantially all of Lender's other loan accounts having
similar terms and involving similarly-situated borrowers and the amount of such
administration costs shall be comparable to those imposed on such other loan
accounts; and
(ii) pay and hold the Lender harmless from and against any
and all present and future stamp, documentary, property, ad valorem or other
----------
similar non-income taxes with respect to this Agreement, the Notes or any other
Credit Documents, any Collateral described therein, or any payments due
thereunder, and save the Lender harmless from and against any and all
liabilities with respect to or resulting from any delay or omission to pay such
taxes.
(b) In addition to the other amounts payable by the Borrowers under
this Agreement (including, without limitation, subsection (a) above), the
Borrowers hereby, jointly and severally, agree to pay and indemnify the Lender
from and against all claims, liabilities, losses, costs and expenses (including,
without limitation, reasonable attorneys' fees and expenses) which the Lender
may (other than as a result of the gross negligence or willful misconduct of
such Person) incur or be subjected to as a consequence, directly or indirectly,
of (i) any actual or proposed use of any proceeds of the Loans or any Credit
Party's entering into or performing under any Credit Document, (ii) any breach
by any Credit Party of any warranty, term or condition in, or the occurrence of
any other default under, this Agreement or any of the other Credit Documents,
including without limitation all reasonable attorney' s fees or expenses
resulting from the settlement or defense of any claims or liabilities arising as
a result of any such breach or default, (iii) allegations of participation or
interference by the Lender in the management, contractual relations or other
affairs of any Credit Party, (iv) the Lender's holding any Lien on or
administering any of the Collateral, (v) allegations that the Lender has joint
liability with any Credit Party to any third party for any reason, or (vi) any
suit, investigation or proceeding as to which the Lender is involved as a
consequence, directly or indirectly, of its execution of this Agreement or any
of the other Credit Documents, the making of any Loan, the holding of any Lien
on any of the Collateral or any other event or transaction contemplated by this
Agreement or any of the Credit Documents.
SECTION 10.4 FURTHER ASSURANCES. Upon notice from the Lender,
Borrowers will, at any and all times, execute and deliver all such further
documents, assignments, recordings, filings, transfers and assurances as may be
reasonably necessary for the better assuring and confirming of all of the
rights, revenues and other funds pledged or assigned to or mortgaged for
the payment of its obligations hereunder, or intended so to be. If any Borrower
fails to do so after demand by Lender, such Borrower hereby authorizes and
empowers the Lender to file any financing statement or any amendments thereto
with respect to any of the Collateral
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and the Lender's Liens therein or in accordance with the Uniform Commercial Code
of the State of Georgia or any other applicable jurisdiction without the
signature of such Borrower.
SECTION 10.5 SUCCESSORS AND ASSIGNS; SALE OF INTEREST.
(a) This Agreement shall be binding upon and inure to the benefit of
and be enforceable by the respective successors and permitted assigns of the
parties hereto; provided that none of the Borrowers may assign or transfer any
of its rights or obligations hereunder without the prior written consent of the
Lender.
(b) The Lender may sell, assign or grant participations in all or any
part of the Lender's rights, titles or interests hereunder and under the other
Credit Documents without the prior written consent of the Borrowers.
SECTION 10.6 AMENDMENTS. No amendment or waiver of any provision of
this Agreement or the other Credit Documents, nor consent to any departure by
any party hereto, or any other Credit Party therefrom, shall in any event be
enforceable against any party to this Agreement unless the same shall be in
writing and signed by such party, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given.
SECTION 10.7 TIME OF ESSENCE. Time is of the essence of this Agreement
and each of the other Credit Documents.
SECTION 10.8 GOVERNING LAW. This Agreement is intended to be performed
in the State of Georgia, and shall be construed and enforced in accordance with,
and the rights of the parties shall be governed by, the laws of the State of
Georgia without regard to principles of conflicts of laws thereof.
SECTION 10.9 COUNTERPARTS. This Agreement may be executed in any
number of counterparts and by the different parties hereto on separate
counterparts, each of which when so executed and delivered shall be an original,
but all of which shall together constitute one and the same instrument.
SECTION 10.10 EFFECTIVENESS; SURVIVAL.
(a) This Agreement shall become effective on the date on which all of
the parties hereto shall have signed a copy hereof (whether the same or
different copies) and the Lender shall have received the same.
(b) All representations and warranties made herein, in the
certificates, reports, notices, and other documents delivered pursuant to this
Agreement shall survive the execution and delivery of this Agreement, the other
Credit Documents, and such other
53
<PAGE>
agreements and documents, the making of the Loans hereunder and the execution
and delivery of the Note.
SECTION 10.11 SEVERABILITY. In case any provision in or Obligation
under this Agreement or the other Credit Documents shall be invalid, illegal or
unenforceable, in whole or in part, in any jurisdiction, the validity, legality
and enforceability of the remaining provisions or obligations, or of such
provision or obligation in any other jurisdiction, shall not in any way be
affected or impaired thereby.
SECTION 10.12 INDEPENDENCE OF COVENANTS. All covenants hereunder
shall be given independent effect so that if a particular action or condition is
not permitted by any of such covenants, the fact that it would be permitted by
an exception to, or be otherwise within the limitation of, another covenant,
shall not avoid the occurrence of a Default or an Event of Default if such
action is taken or condition exists.
SECTION 10.13 HEADINGS DESCRIPTIVE. The headings of the several
sections and subsections of this Agreement are inserted for convenience only and
shall not in any way affect the meaning or construction of any provision of this
Agreement.
SECTION 10.14 TERMINATION OF AGREEMENT. At such time as (i) the
Lender is no longer obligated under this Agreement (whether by the terms hereof
or as a result of a release of such obligations by the Borrowers) to make any
further Loans, and (ii) all Obligations have been paid and satisfied in full,
this Agreement shall terminate and the Lender shall surrender to the Borrowers
the Notes and any Guaranty Agreements which the Lender then holds, and the
Lender shall promptly release, or cause to be released, all Liens granted by any
Credit Party under the Credit Documents as security for any of the Obligations;
provided, however, that any and all indemnity obligations of any Credit Party to
- --------
the Lender arising hereunder or under any of the other Credit Documents shall
survive the termination of this Agreement or such other Credit Documents.
SECTION 10.15 ENTIRE AGREEMENT. This Agreement and the other Credit
Documents constitute the entire agreement among the Credit Parties and the
Lender with respect to the Tranche B Commitment, the Loans, the other
Obligations and the Collateral and supersede all prior agreements,
representations and understandings related to such subject matters, including
the commitment letter between Borrowers and the Lender dated June 27, 1996, the
1995 Credit Agreement and the other Credit Documents (as defined in the 1995
Credit Agreement) executed in connection therewith.
SECTION 10.16 JURY TRIAL WAIVER, CONSENT TO FORUM.
(a) THE BORROWERS AND THE LENDER IRREVOCABLY WAIVE ALL RIGHT OF TRIAL
BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR IN
CONNECTION WITH THIS AGREEMENT OR ANY OF THE
54
<PAGE>
OTHER CREDIT DOCUMENTS OR ANY MATTER ARISING HEREUNDER OR THEREUNDER TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW.
(b) THE BORROWERS AND THE LENDER ALSO AGREE THAT ANY LEGAL ACTION OR
PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OF THE OTHER CREDIT DOCUMENTS
OR TO ENFORCE ANY JUDGMENT OBTAINED AGAINST ANY BORROWER OR ANY OTHER CREDIT
PARTY IN CONNECTION WITH THIS AGREEMENT MAY BE BROUGHT BY THE LENDER OR ANY
BORROWER IN THE COURTS OF THE STATE OF GEORGIA SITTING IN FULTON COUNTY OR IN
THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF GEORGIA, OR IN ANY
OTHER COURT THE JURISDICTION OF WHICH SUCH BORROWER OR SUCH OTHER CREDIT PARTY
OR ANY OF ITS PROPERTY IS OR MAY BE SUBJECT. EACH OF THE BORROWERS AND THE
LENDER IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE COURTS OF THE STATE OF
GEORGIA SITTING IN FULTON COUNTY AND OF THE UNITED STATES DISTRICT COURT FOR THE
NORTHERN DISTRICT OF GEORGIA, AND IRREVOCABLY WAIVES ANY PRESENT OR FUTURE
OBJECTION TO VENUE IN ANY SUCH COURT, AND ANY PRESENT OR FUTURE CLAIM THAT ANY
SUCH COURT IS AN INCONVENIENT FORUM, IN CONNECTION WITH ANY ACTION OR PROCEEDING
RELATING TO THIS AGREEMENT OR ANY OF THE OTHER CREDIT DOCUMENTS.
55
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered on their behalf and each of the Borrowers has caused
its corporate seal to be hereunto affixed, all as of the date first above
stated.
BORROWERS:
(CORPORATE SEAL) COMMUNICATIONS CENTRAL INC.
Attest:
By: /s/ Rodger L. Johnson
/s/ C.D. Milleen -----------------------------------
- ---------------------------------- Title: PRESIDENT
Title: Vice President - Finance
COMMUNICATIONS CENTRAL OF
(CORPORATE SEAL) GEORGIA, INC.
Attest:
By: /s/ Rodger L. Johnson
/s/ C.D. Milleen -----------------------------------
- ---------------------------------- Title: PRESIDENT
Title: Vice President - Finance
(CORPORATE SEAL) INVISION TELECOM, INC.
Attest:
By: /s/ Rodger L. Johnson
/s/ C.D. Milleen -----------------------------------
- ---------------------------------- Title: PRESIDENT
Title: Vice President - Finance
[Signatures continued on following page]
<PAGE>
[Signatures continued from previous page]
FIRST UNION NATIONAL BANK OF
(CORPORATE SEAL) GEORGIA
By: /s/
---------------------------------------
Title: Vice President
<PAGE>
EXHIBIT 10.6(C)
[LETTER HEAD OF WEEKS CORPORATION]
July 3, 1997
Mr. Rodger Johnson Certified/Return Receipt
President/CEO
Communication Central
1150 Northmeadow Parkway
Suite 118
Roswell, Georgia 30076
RE: Lease Extension
1150 Northmeadow Parkway
Dear Mr. Johnson:
This letter will serve as official notice that Communication Central located at
the above referenced address whose current lease expires on September 30, 1997
may holdover in said space for an additional ninety (90) day period (12/31/97).
The base rental for this holdover period will remain the same as the current
lease and said amount is $10,185.00 per month.
We appreciate the opportunity to assist you with this holdover until a long term
lease can be finalized.
Should you have any questions, please do not hesitate to give me a call.
Sincerely,
/s/ Tricia Clayton
- ----------------------
Tricia Clayton
Vice President of Property Management
cc: Klay Simpson - Sr. Vice President of Marketing
Weeks Corporation
<PAGE>
EXHIBIT 10.16
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT (the "Agreement") made and entered into
effective as of the 15th day of August, 1996 by and between COMMUNICATIONS
CENTRAL INC., a Georgia corporation (the "Company") and ROBERT BOWLING, a
Georgia resident (the "Optionee").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Company has adopted a stock option plan known as the
Communications Central Inc. 1993 Stock Option Plan, which Plan was amended and
restated as of October 11, 1995 (hereinafter referred to as the "Plan"), which
Plan has the purpose of advancing the interests of the Company and its
shareholders by strengthening the ability of the Company and its subsidiaries to
attract and retain officers and key employees with training, experience and
ability, and to furnish an additional incentive to those officers and key
employees of the Company and its subsidiaries upon whose judgement, initiative
and efforts the successful conduct and growth of its and their business largely
depend, by encouraging officers and key employees to have a material interest in
the increase in value of, and to become owners or increase their ownership of,
the Common Stock, $.01 par value, of the Company (the "Common Stock"); and
WHEREAS, Optionee is an officer or key employee of the Company or its
subsidiaries, and the Company desires to have Optionee remain as an officer or
key employee and to afford Optionee the opportunity to acquire or enlarge
Optionee's stock ownership in the Company, so that Optionee may have a direct
proprietary interest in the Company's success.
NOW, THEREFORE, in consideration of the premises and of the covenants and
agreements hereinafter set forth, the parties hereto covenant and agree as
follows:
1. Grant of Option. Subject to the terms and conditions set forth
---------------
herein, the Company grants to Optionee a stock option (the "Option") to purchase
from the Company all or any part of 15,000 shares of Common Stock (the
"Shares"). The Option shall be an incentive stock option as defined in Section
422 of the Internal Revenue Code of 1986, as amended.
2. Term and Exercise of Option; Vesting.
------------------------------------
(a) The term of the Option granted herein shall commence as of the
date of this Agreement and end on August 15, 2006 (the "Option Period").
- --------------------------------------------------------------------------------
THIS OPTION AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS OPTION MAY NOT
HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR UNDER ANY STATE
SECURITIES OR BLUE SKY LAWS. NEITHER THIS OPTION NOR ANY OF SUCH SHARES MAY BE
SOLD, ASSIGNED, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF
REGISTRATION UNDER SAID ACT AND UNDER THE APPLICABLE STATE SECURITIES OR BLUE
SKY LAWS OR EXEMPTIONS FROM SUCH REGISTRATION.
<PAGE>
(b) The Option to purchase the Shares shall vest over a three (3) year
period according to the following schedule:
33 1/3% beginning on August 15, 1997
33 1/3% beginning on August 15, 1998
33 1/3% beginning on August 15, 1999
(c) Optionee shall not be entitled to exercise any portion of the Option
which is not fully vested in accordance with the schedule set forth in Paragraph
2(b) above as of the date that Optionee's employment with the Company or any of
its subsidiaries is terminated, whether by the Company for cause, not for cause,
or otherwise, or whether by Optionee.
(d) Notwithstanding the vesting schedule set forth in Paragraph 2(b)
above, but subject to the provisions of Paragraph 2(c) hereof, Option shall
automatically vest and become exercisable in its entirety upon the occurrence of
the events which make the option immediately exercisable in full under the terms
of the Plan.
(e) Any portion of the Option that is exercisable that is not exercised in
a year may be exercised in any subsequent year during the Option Period.
(f) Subject to the provisions of Paragraph 2(b) above, the Option hereby
granted shall be exercised by Optionee delivering to the Board of Directors of
the Company, from time to time, on any business day, written notice specifying
the number of Shares Optionee then desires to purchase and reaffirming that the
representations made in Paragraph 7 hereof are true and correct as of the date
of exercising the Option. A copy of the form of written notice to be used is
attached hereto as Exhibit A.
3. Option Price.
------------
(a) Optionee shall pay $6.125 per share (subject to adjustment pursuant
to Paragraph 6 hereof) for the Shares acquired pursuant to this Agreement.
(b) Payment of the option price of the Shares shall be made in cash at the
time an option is exercised, or through the use of a cashless exercise option,
or upon such other terms and conditions as may be mutually agreeable to the
Company and Optionee.
(c) To the extent that Shares are used in making full or partial payment
of the option price, the Shares will be valued at the fair market value thereof
on the date of exercise, determined by the Company's Board of Directors.
-2-
<PAGE>
4. Termination of Option.
---------------------
(a) Except as otherwise provided below, the Option hereby granted
shall terminate and be of no force or effect upon the happening of the
first of the following events:
(i) The expiration of the Option Period;
(ii) Three (3) months after the effective date of termination
of Optionee's employment or position as an officer or key employee of
the Company or any subsidiary of the Company, except in the case of
Optionee's death or total and permanent disability.
(iii) If Optionee ceases to be a key employee or officer of the
Company or any subsidiary of the Company by reason of death or if
Optionee dies within three (3) months of retirement with the consent
of the Company or any subsidiary of the Company, or if Optionee
becomes permanently and totally disabled, any unexpired portion of the
Option held by Optionee and not exercised may be exercised by a
legatee or legatees under Optionee's last will and testament or by his
personal representative or representatives (to the extent the option
would have been exercisable by Optionee as of the date of Optionee's
death or date that Optionee became totally and permanently disabled,
as the case may be) at any time within one (1) year after the date of
Optionee's death or the date of Optionee's retirement with consent,
whichever occurs first, or the date that Optionee became totally and
permanently disabled.
(b) The Option evidenced hereby is nontransferable except as provided
in Paragraph 4(a)(iii) above with respect to the death of Optionee and
shall be exercisable during the lifetime of Optionee only by Optionee.
5. Rights As a Shareholder. Optionee shall have no rights as a
-----------------------
shareholder of the Company with respect to any Shares covered by this Option
until the issuance of a stock certificate to him for such Shares.
6. Change in Capitalization.
------------------------
(a) As provided in the second and third subparagraphs of Paragraph 3
of the Plan, and upon the occurrence of any of the conditions listed
therein, the Committee in its sole discretion shall make any adjustments as
may be appropriate in the number and kind of Shares as to which this Option
shall be exercisable and in the option rights granted. These adjustments
shall be made without change in the total price applicable to the Option
and with a corresponding adjustment in the option price per Share. Any
adjustment may provide for the elimination of fractional Shares.
-3-
<PAGE>
(b) As provided in the fifth subparagraph of Paragraph 3 of the Plan,
upon the occurrence of any of the conditions listed therein, this Option
shall be immediately exercisable in accordance with that subparagraph,
subject to the limitations imposed thereunder and under this Section.
7. Investment Representations. The Optionee hereby represents and
--------------------------
warrants to the Company as follows:
(a) Access to Information. Because of the Optionee's business
---------------------
relationship with the Company and with the management of the Company,
Optionee has had access to all material and relevant information concerning
the Company, thereby enabling the Optionee to make an informed investment
decision with respect to his investment in the Company, and all data
requested by the Optionee from the Company or its representatives
concerning the business and financial condition of the Company and the
terms and conditions of the Option granted to him has been furnished. The
Optionee acknowledges that he has had the opportunity to ask questions of
and receive answers from, and to obtain additional information from, the
Company or its representatives concerning the present and proposed business
and financial condition of the Company.
(b) Financial Sophistication. The Optionee is knowledgeable and
------------------------
sophisticated in business and financial matters, such that he is capable of
weighing the merits and risks of investing in the Shares.
(c) Understanding of Investment Risks. The Optionee understands
---------------------------------
that:
(i) An investment in the Shares represents a highly
speculative investment, and there can be no assurance as to the
success of the Company in its business;
(ii) There will be possible future dilution in the net tangible
book value per share compared to the per share option price;
(iii) The option price should not be considered an indication of
the actual value of the Shares issuable upon exercise.
(d) Understanding of Nature of Shares. The Optionee understands
---------------------------------
that:
(i) The Shares issuable upon exercise of the Option may not
yet have been registered under the Securities Act of 1933, as amended
(the "Act"), or any state securities laws and will not be issued and
sold in reliance upon certain of the exemptions contained in the Act
under applicable state securities laws, and that the representations
and warranties of the Optionee contained herein, which will have
-4-
<PAGE>
to be renewed as to the Shares at the time(s) of exercise of the
Option, are essential to any claim of exemption by the Company under
said Act and such state securities laws;
(ii) The Shares may be "restricted securities," as that term is
defined in Rule 144 promulgated under the Act or otherwise subject to
the provisions of Rule 144 promulgated under the Act;
(iii) This Option cannot be exercised and the Shares will not be
sold to the Optionee and the Optionee cannot resell or transfer the
Shares without registration under the Act and applicable state
securities laws or unless the Company receives an opinion of counsel
acceptable to it (as to both counsel and the opinion) that such
registration is not necessary;
(iv) The Shares and any certificates issued in replacement
therefor, shall bear the following legend, in addition to any other
legend required by law or otherwise deemed applicable by the Company:
"The Shares represented by this certificate have not been
registered under the Securities Act of 1933 (the "Act") or applicable
state securities laws and may not be sold, transferred or otherwise
disposed of unless a registration statement under the Act and
applicable state securities laws with respect to such Shares has
become effective or unless the Company is in receipt of an opinion of
counsel satisfactory to it to the effect that such Shares may be sold
without registration under the Act and applicable state securities
laws."
(v) Only the Company can register the Shares under the Act and
applicable state securities laws;
(vi) Except as otherwise herein set forth, the Company has not
made any representations to the Optionee that the Company will
register the Shares under the Act or any applicable state securities
laws, or with respect to compliance with any exemption therefrom;
(vii) There are stringent conditions for Optionee obtaining an
exemption for the resale of the Shares under the Act and any
applicable state securities laws; and
(viii) The Company may, from time to time, make stop transfer
notations in its transfer records to ensure compliance with the Act,
any applicable state securities laws, and any additional restrictions
agreed to with or imposed by the Company's institutional lenders, and
state securities administrators.
-5-
<PAGE>
(e) Investment Intent. The Optionee represents and warrants that:
-----------------
(i) He is acquiring the Option for his own account and not on
behalf of any other person;
(ii) He is acquiring the Option for investment and not with a
view to distribution or with the intent to divide his participation
with others by reselling or otherwise distributing the Shares;
(iii) Neither the Optionee nor anyone acting on his behalf has
paid or will pay any commission or other remuneration to any person in
connection with the acquisition of the Option or the Shares.
(f) Optionee understands at the time of exercise of this Option at
the request of the Company he will have to make all the representations and
warranties contained in this Paragraph 7 as if applicable to the Shares to
be issued as a condition of their issuance by the Company.
8. Compliance with Securities Laws. Anything in this Agreement to the
-------------------------------
contrary notwithstanding, if, at any time specified herein for the issuance of
Shares to Optionee, any Federal or state securities law or any regulation or
requirement of the Securities and Exchange Commission or any other governmental
authority having jurisdiction shall require either the Company or Optionee to
take any action in connection with the Shares then to be issued, the issuance of
the Shares shall be deferred until that action shall have been taken; however,
the Company shall be under no obligation to take action, and the Company shall
have no liability whatsoever as a result of the nonissuance of the Shares,
except to refund to Optionee any consideration tendered in respect of the option
price.
9. Notices. Any notice which either party hereto may be required or
-------
permitted to give to the other shall be in writing, and may be delivered
personally or by mail, postage prepaid, certified mail, return receipt
requested, addressed as follows: to the President of the Company, or to the
Company (attention of the President), at 1150 Northmeadow Parkway, Suite 118,
Roswell, Georgia 30076, or at any other address as the Company, by notice to
Optionee, may designate in writing from time to time; to Optionee, at Optionee's
address as shown on the records of the Company, or at any other address as
Optionee, by notice to the Company, may designate in writing from time to time.
10. Compliance with Section 422 of the Code. Anything to the contrary
---------------------------------------
notwithstanding, the Incentive Option granted hereunder may not be exercised in
any manner which would cause the Incentive Option not to qualify as an incentive
stock option under Section 422 of the Internal Revenue Code of 1986, as amended.
-6-
<PAGE>
11. Successors. This Agreement shall be binding upon and inure to the
----------
benefit of the heirs, legal representatives, successors and permitted assigns of
the parties.
12. Severability. In the event that any one or more of the provisions or
------------
portion thereof contained in this Agreement shall for any reason be held to be
invalid, illegal or unenforceable in any respect, the same shall not invalidate
or otherwise affect any other provisions of this Agreement, and this Agreement
shall be construed as if the invalid, illegal or unenforceable provision or
portion thereof had never been contained herein.
13. Entire Agreement. Subject to the terms and conditions of the Plan,
----------------
which is incorporated herein by reference, this Agreement expresses the entire
understanding and agreement of the parties hereto. This Agreement may be
executed in two or more counterparts, each of which shall be deemed an original,
but all of which shall constitute one and the same instrument.
14. Governing Law. This Agreement shall be governed and construed in
-------------
accordance with the laws of the State of Georgia in all respects.
[SIGNATURES ON FOLLOWING PAGE]
-7-
<PAGE>
IN WITNESS WHEREOF, the parties have executed and sealed this Agreement on
the date and year set forth above.
` COMPANY:
COMMUNICATIONS CENTRAL INC.
BY: /S/ Rodger L. Johnson
-----------------------------
RODGER L. JOHNSON
PRESIDENT AND CHIEF EXECUTIVE OFFICER
OPTIONEE:
/S/ Robert Bowling
-------------------------------(SEAL)
ROBERT BOWLING
-8-
<PAGE>
EXHIBIT "A"
COMMUNICATIONS CENTRAL INC.
FORM OF EXERCISE OF OPTION
--------------------------
Communications Central Inc.
1150 Northmeadow Parkway
Suite 118
Roswell, Georgia 30076
Gentlemen:
Referring to the Stock Option Agreement dated July 11, 1996 between
Communications Central Inc. (the "Company") and the undersigned, granting to me
the right to purchase a total of 10,000 shares of common stock, $.01 par value,
of the Company at an option price of $6.125 per share, I hereby exercise my
right to purchase pursuant to said Agreement __________ shares at said price and
deliver to you herewith cash, or check payable to the Company, in the total
amount of $__________, representing the full purchase price of said shares. If I
have not delivered cash or a check payable to the Company with this notice, I
hereby request that the Company withhold the number of shares that have an
aggregate value equal to the aggregate option price of the number of shares for
which this notice is given from the number of shares issued to me.
Date:_________________
Signature_____________________
Name__________________________
Address:______________________
Social Security No.:__________
-9-
<PAGE>
Exhibit 11.1
COMMUNICATIONS CENTRAL INC.
COMPUTATION OF HISTORICAL EARNINGS PER SHARE
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 1996
------------------------------------------------------------------------------
1997 1996 1995 1994 1993
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Primary and fully diluted:
Weighted average common stock
outstanding during the period 6,101 6,055 5,714 3,100 441
Net effect of dilutive stock
options and stock warrants
computed in accordance with
the treasury stock method - - 350 280 -
Dilutive effect of common stock
equivalents issued subsequent
to NovemberE1,E1992 computed
in accordance with the
treasury stock method as
required by the SEC(1) - - - 254 552
------------------------------------------------------------------------------
Total 6,101 6,055 6,064 3,634 993
==============================================================================
Net income (loss) $(8,406) $(17,946) $3,172 $2,779 $ 1,084
Less: Accretion on redeemable
warrants - - - (144) (202)
Less: Preferred stock dividends - - - (615) (923)
Less: Accretion on redeemable
preferred stock - - - (985) (1,355)
------------------------------------------------------------------------------
Net income (loss) available for
common stock and common stock
equivalents $(8,406) $(17,946) $3,172 $1,035 $(1,396)
==============================================================================
Per share amount $ (1.38) $ (2.96) $ .52 $ .28 $ (1.41)
==============================================================================
</TABLE>
(1) Pursuant to Securities and Exchange Commission Staff Accounting Bulletin No.
83, common stock equivalents issued at prices below the assumed initial
public offering price per share ("cheap stock") during the twelve month
period immediately preceding the initial filing date of the Company's
Registration Statement for its public offering have been included as
outstanding for all periods presented prior to the initial public offering.
<PAGE>
Annual Report on Form 10-K
Communications Central Inc.
Years ended June 30, 1997 and 1996
Item 8
Financial Statements and Supplementary Data
F-1
<PAGE>
Report of Independent Auditors
Board of Directors
Communications Central Inc.
We have audited the accompanying consolidated balance sheets of Communications
Central Inc. as of June 30, 1997 and 1996, and the related consolidated
statements of operations, shareholders' equity, and cash flows for each of the
three years in the period ended June 30, 1997. Our audits also included the
financial statement schedule in the Index at Item 14(a). These financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Communications Central Inc. at June 30, 1997 and 1996, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended June 30, 1997, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule,
when considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
The accompanying financial statements and schedule have been prepared assuming
Communications Central Inc. will continue as a going concern. As more fully
described in Note 2, the Company has incurred operating losses and has a working
capital deficiency. In addition, the Company is not in compliance with certain
terms of the loan agreement with its bank. These conditions raise substantial
doubt about the Company's ability to continue as a going concern. The financial
statements and schedule do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets or the amounts
and classification of liabilities that may result from the outcome of this
uncertainty.
Ernst & Young LLP
Atlanta, Georgia
September 19, 1997
F-2
<PAGE>
COMMUNICATIONS CENTRAL INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30,
--------
1997 1996
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash $ 5,403,731 $ 2,266,327
Accounts, receivable, less allowance for doubtful accounts
of $3,586,000 and $2,140,000 at June 30, 1997 and 1996, 9,275,643 10,612,382
Prepaid expenses 1,180,487 707,699
Assets held for sale 38,791,285 -
Other current assets 1,961,522 870,815
-------------- --------------
Total current assets 56,612,668 14,457,223
Operating equipment:
Telecommunication equipment 63,776,675 73,262,895
Uninstalled equipment 552,721 665,415
64,329,396 73,928,310
-------------- --------------
Less accumulated depreciation and amortization ( 33,418,171) ( 29,922,368)
-------------- --------------
30,911,225 44,005,942
Leasehold improvements, computer equipment and software
and office furniture and equipment, net of accumulated
depreciation and amortization of approximately $3,172,000
and $2,162,000 at June 30, 1997 and 1996, respectively 2,183,441 2,367,534
Deferred loan costs,
net of accumulated amortization of $243,000
at June 30, 1996 - 260,153
Intangible assets
Site license contracts, net 3,345,221 7,053,568
Agreements not to compete, net 513,284 1,046,450
Goodwill, net 8,680,937 36,555,441
Other assets, net 2,086,523 3,981,290
-------------- --------------
Total assets $ 104,333,299 $ 109,727,601
============= =============
See accompanying notes
</TABLE>
F-3
<PAGE>
<TABLE>
<CAPTION>
June 30,
--------
1997 1996
---- ----
<S> <C> <C>
Liabilities and shareholders' equity
Current liabilities:
Notes payable to shareholders $ - $ 8,333
Note payable - 79,650
Accounts payable 4,674,064 3,324,204
Accrued expenses 4,799,916 2,878,447
Current portion of long term debt 71,697,389 3,000,000
Accrued commissions 2,009,907 2,637,010
Accrued interest 880,172 634,295
Accrued compensation 142,822 102,351
Accrued income taxes payable 578,984 328,984
-------------- --------------
Total current liabilities 84,783,254 12,993,274
Long term debt - 70,197,389
Commitments and contingencies - -
Shareholders' equity
Common Stock, $.01 par value:
Authorized shares - 50,000,000
Issued and outstanding shares -
6,284,222 and 6,054,556 at
June 30, 1997 and 1996,
respectively 62,842 60,545
Additional paid in capital 51,483,958 50,067,383
Accumulated deficit ( 31,996,755) ( 23,590,990)
-------------- --------------
Total shareholders' equity 19,550,045 26,536,938
-------------- --------------
Total liabilities and shareholders'
equity $ 104,333,299 $ 109,727,601
============== ==============
See accompanying notes
</TABLE>
F-4
<PAGE>
<TABLE>
<CAPTION>
COMMUNICATIONS CENTRAL INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended June 30,
-------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Revenue:
Coin calls $ 34,575,398 $ 35,509,110 $33,326,399
Non coin calls 65,894,619 66,644,945 47,951,407
Other 3,377,759 3,185,516 144,433
------------- ------------- -------------
103,847,776 105,339,571 81,422,239
Costs and expenses:
Line access charges 31,532,544 35,923,596 27,411,215
Commissions 20,839,017 22,299,044 15,111,992
Service and collection 19,218,670 19,362,209 12,001,623
Selling, general and administrative 5,868,275 4,778,522 4,633,821
Bad debt expense 17,208,408 8,575,422 4,640,610
Depreciation and amortization 12,374,243 11,741,785 9,795,025
Impairment loss - 14,183,996 -
Impairment loss on assets held for sale 2,400,000 - -
Total costs and expenses 109,441,157 116,864,574 73,594,286
------------- ------------- -------------
Operating income (loss) ( 5,593,381) (11,525,003) 7,827,953
Other Income, net 5,473,408 - -
Impairment loss of loan origination fees ( 1,155,652) - -
Interest expense ( 7,130,140) ( 6,343,142) ( 3,527,644)
------------- ------------- -------------
Income (loss) before income tax expense ( 8,405,765) (17,868,145) 4,300,309
Income tax expense - 78,352 1,127,896
------------- ------------- -------------
Net income (loss) $( 8,405,765) $(17,946,497) $ 3,172,413
============= ============= =============
Net income (loss) per common share $( 1.38) $( 2.96) $ 0.52
============= ============= =============
Weighted average shares outstanding 6,101,451 6,054,556 6,064,447
============= ============= =============
</TABLE>
See accompanying notes.
F-5
<PAGE>
COMMUNICATIONS CENTRAL INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
---------------------------------------------
Additional Total
Paid-In Accumulated Shareholders'
Shares Amount Capital Deficit Equity
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at June 30, 1994 5,424,021 $ 54,240 $48,799,468 $ (8,816,906) $ 40,036,802
Issuance of Common Stock in acquisition 46,809 468 549,538 - 550,006
Issuance of Common Stock upon exercise of options 180,335 1,803 301,153 - 302,956
Issuance of Common Stock upon exercise of warrants 226,891 2,269 (2,281) - (12)
Tax benefit from employees' stock option plans - - 213,000 - 213,000
Net income - - - 3,172,413 3,172,413
----------------------------------------------------------------------------
Balance at June 30, 1995 5,878,056 $ 58,780 $49,860,878 $ (5,644,493) $ 44,275,165
Issuance of Common Stock upon exercise of options 176,500 1,765 206,505 - 208,270
Net loss - - - (17,946,497) (17,946,497)
----------------------------------------------------------------------------
Balance at June 30, 1996 6,054,556 $ 60,545 $50,067,383 $(23,590,990) $ 26,536,938
Issuance of Warrants - - 1,378,125 - 1,378,125
Issuance of Common Stock upon exercise of options 666 7 3,490 - 3,497
Issuance of Common Stock upon exercise of warrants 229,000 2,290 34,900 - 1,415,375
Net loss - - - (8,405,765) (8,405,765)
----------------------------------------------------------------------------
Balance at June 30, 1997 6,284,222 $ 62,842 $51,483,958 $(31,996,755) $ 19,550,045
============================================================================
</TABLE>
See accompanying notes.
F-6
<PAGE>
<TABLE>
<CAPTION>
COMMUNICATIONS CENTRAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended June 30,
-------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Operating activities
Net income (loss) $( 8,405,765) $(17,946,497) $ 3,172,413
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 12,374,243 11,741,785 9,795,025
Other ( 7,463) - ( 16,336)
Impairment loss - 14,183,996 -
Impairment loss on assets held for sale 2,400,000 - -
Impairment loss of loan origination fees 1,155,652 - -
Changes in operating assets and liabilities:
Accounts receivable 1,336,739 23,923 ( 6,690,852)
Prepaid expenses, other current assets and other assets ( 1,778,607) ( 2,136,962) ( 2,506,920)
Accounts payable 1,349,860 2,459,091 ( 1,611,327)
Accrued expenses 1,830,713 1,119,946 1,325,688
Other liabilities - - 2,261,656
------------- ------------- -------------
Net cash provided by operating activities 10,255,372 9,445,282 5,729,347
Investing activities
Purchases of telecommunication equipment, leasehold
improvements and office furniture and equipment, net ( 3,373,207) ( 7,496,323) (11,402,674)
Acquisitions of telecommunication equipment, site
licenses, agreement not to compete and goodwill - ( 462,000) (41,187,892)
Purchases of site licenses, net ( 2,230,825) ( 2,294,360) ( 1,957,274)
Proceeds from sale of equipment 33,300 285,000 115,526
------------- ------------- -------------
Net cash used in investing activities ( 5,570,732) ( 9,967,683) (54,432,314)
Financing activities
Payments on notes payable ( 1,587,983) ( 423,583) ( 7,678,146)
Proceeds from long term debt - 3,000,000 51,640,463
Issuance of Common Stock 40,747 208,270 302,944
------------- ------------- -------------
Net cash provided by (used in) financing activities ( 1,547,236) 2,784,687 44,265,261
------------- ------------- -------------
(Decrease) increase in cash 3,137,404 2,262,286 ( 4,437,706)
Cash at beginning of year 2,266,327 4,041 4,441,747
------------- ------------- -------------
Cash at end of year $ 5,403,731 $ 2,266,327 $ 4,041
============= ============= =============
Supplemental disclosure
Cash paid for interest $ 6,388,854 $ 6,725,240 $ 2,591,138
============= ============= =============
Cash paid for income taxes $ - $ - $ 1,170,900
============= ============= ============
</TABLE>
See accompanying notes.
F-7
<PAGE>
Communications Central Inc.
Notes to Consolidated Financial Statements
June 30, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Communications Central Inc. (the "Company") is an independent payphone and
inmate phone operator operating in 42 states and the District of Columbia.
Revenues from the operation of payphones and inmate phones are recorded based on
equipment usage and from routing calls to operator service companies and long
distance carriers.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries, Communications Central of Georgia, Inc., InVision
Telecom, Inc. and Central Payphone Services, Inc. Significant intercompany
accounts and transactions have been eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
INVESTMENTS
At June 30, 1997 and 1996, the Company held warrants to purchase common stock of
a vendor. The Company has classified this investment as trading. Trading
investments are held for resale in anticipation of short-term market movements.
Trading investments are stated at fair value. Gains or losses, both realized
and unrealized, are included in Other Revenue. The Company recognized a
realized gain of $1.2 million and an unrealized gain of $1.4 million in fiscal
1997.
OPERATING EQUIPMENT
Operating equipment is stated at cost. Depreciation is computed on the straight-
line method over the estimated useful life of the assets. The estimated useful
life of all telecommunication equipment is 10 years. The Company capitalizes the
cost of initial installation as part of the cost of telecommunication equipment.
Repairs and maintenance are expensed as incurred.
F-8
<PAGE>
Communications Central Inc.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMERS
The Company derives a majority of its operating revenues from commercial
customers in the United States and large long distance telecommunications
companies. Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of accounts receivable.
Accounts receivable are unsecured and the Company is at risk to the extent such
amounts become uncollectible. The Company's allowance for doubtful accounts is
based upon management's estimates and historical experience.
INTANGIBLE ASSETS
Intangible assets consist of costs allocated to agreements not to compete, site
license contracts relating to installed and acquired equipment, and goodwill,
which represents the excess of the purchase price paid for acquired equipment
over the fair value of the acquired equipment.
Amortization for agreements not to compete is computed using the straight-line
method over the life of the agreements, ranging from 3 to 7 years. Accumulated
amortization on agreements not to compete at June 30, 1997 and 1996 was
approximately $1,359,000 and $1,019,000, respectively. In the case of the site
licenses acquired in an acquisition, the estimated fair value of the site
license is capitalized. Amortization for site license contracts is computed
using the straight-line method over the estimated life of the contracts, ranging
from 6 to 7 years. Accumulated amortization on site license contracts at June
30, 1997 and 1996 was approximately $4,891,000 and $2,683,000, respectively.
Amortization for goodwill is computed using the straight-line method over lives
of 15 and 40 years. Accumulated amortization on goodwill at June 30, 1997 and
1996 was approximately $3,844,000 and $2,298,000, respectively.
IMPAIRMENT OF LONG-LIVED ASSETS
In March 1995, the FASB issued Statement of Financial Accounting Standards
("SFAS") No. 121, "Accounting for Impairment of Long-Lived Assets and Long-Lived
Assets To Be Disposed Of", which requires impairment losses to be recorded on
long-lived assets used in operations when indications of impairment are present
and the undiscounted cash flows estimated to be generated by those assets are
less than the assets' carrying amount. SFAS No. 121 also addresses the
accounting for long-lived assets that are expected to disposed of. The Company
adopted SFAS No. 121 in the third quarter of fiscal 1996.
Periodically, the Company assesses the appropriateness of the carrying amounts
of long-lived assets and related amortization periods based on the undiscounted
value of the
F-9
<PAGE>
Communications Central Inc.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
current and anticipated future cash flows generated by the business. If there
are indicated impairments, a write-down is recorded to the extent the carrying
amount exceeds fair value. Fair value is based on either a quoted value, if
available, or the estimated future cash flows of the business discounted at a
market rate of interest.
An impairment loss of $14.2 million during the third quarter of fiscal 1996 was
recognized in accordance with SFAS No. 121. Cash flow generation by payphones
and inmate lines, on an acquisition by acquisition basis, was calculated based
on the Company's best estimate of future income and expenses including the
impact of a continued reduction in operator service provider revenue as a result
of "dial around." Where the sums of future undiscounted cash flows of these
long-lived assets were less than their recorded book values, an impairment loss
was recognized. Such losses consisted of approximately $12.4 million for
operating equipment and approximately $1.8 million for related intangible
assets.
An impairment loss on assets held for sale of $2.4 million was recognized during
the fourth quarter of fiscal 1997 in accordance with SFAS No. 121. The
impairment loss was determined based on the estimated fair value to be received
for long-lived assets to be disposed of under an August 21, 1997 Asset Purchase
Agreement with Talton Holdings, Inc. ("Talton") to purchase substantially all of
the assets of the Company's inmate division. (See Note 16.) All of the long-
lived assets of the Company's inmate division have been classified as assets
held for sale in current assets. The results of operations for the inmate
division were (millions):
<TABLE>
<CAPTION>
1997 1996 1995
------- ----- -----
<S> <C> <C> <C>
Revenue $ 46.2 $47.9 $21.1
Income/(Loss) Before Income Taxes (13.4) 1.5 3.3
</TABLE>
INCOME TAXES
The Company uses the liability method to account for income taxes. Under this
method, deferred tax assets and liabilities are determined based on differences
between financial reporting and tax basis of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse.
NET INCOME (LOSS) PER SHARE
Net income (loss) per share is computed using the weighted average number of
common shares and , if dilutive, common equivalent shares outstanding during the
period.
F-10
<PAGE>
Communications Central Inc.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCK BASED COMPENSATION
During 1997, the Company adopted SFAS No. 123, "Accounting for Stock-Based
Compensation", which provides an alternative to APB Opinion No. 25, "Accounting
for Stock Issued to Employees" in accounting for stock-based compensation to
employees. As permitted by SFAS 123, the Company continues to account for stock
option grants in accordance with APB Opinion No. 25 and has elected the pro
forma disclosure alternative of the effect of SFAS No. 123. Accordingly,
adoption of the standard in fiscal 1997 did not affect the Company's results of
operations or financial position.
NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued a new
accounting pronouncement, SFAS No. 128, "Earnings Per Share", which will change
the current method of computing earnings per share. The new standard requires
presentation of "basic earnings per share" and "diluted earnings per share"
amounts, as defined. SFAS No. 128 will be effective for the Company's quarter
ending December 31, 1997, and, upon adoption, all prior period earnings per
share data presented shall be restated to conform with the provisions of the new
pronouncement. Application earlier than the Company's quarter ending December
31, 1997 is not permitted. The Company does not expect that the adoption of the
new pronouncement will have a material impact on the Company's results of
operations.
RECLASSIFICATIONS
Certain changes in the presentation of the June 30, 1996 amounts have been made
to conform to the June 30, 1997 presentation.
2. GOING CONCERN AND MANAGEMENT'S PLAN
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern; they do not include
adjustments relating to the recoverability of recorded asset amounts and
classification of recorded assets and liabilities to reflect the possible future
effects if the Company is not able to continue as a going concern.
The Company reported a net loss of $8.4 million for the year ended June 30,
1997, and reported a net loss of $17.9 for the preceding year. The Company
violated certain terms and conditions of its bank 1996 Credit Agreement
resulting in the outstanding balance of $71.7 million as of June 30, 1997 being
classified a current liability. At June 30, 1997 there was a working capital
deficiency of $28.2 million. These conditions raise substantial doubt about the
Company's ability to continue as a going concern.
F-11
<PAGE>
Communications Central Inc.
2. GOING CONCERN AND MANAGEMENT'S PLAN (CONTINUED)
Management's plan for addressing these conditions is as follows:
Sale of the Company's inmate operations. Pursuant to the Asset Purchase
- ----------------------------------------
Agreement between the Company and Talton Holdings, Inc., the Company has agreed
to sell certain assets of the inmate operations to Talton for approximately $42
million. (See Note 16) The sale is scheduled to be consummated on or about
October 31, 1997, and is contingent upon a number of items. The cash from the
sale of these assets is planned to reduce a portion of the outstanding debt and
provide working capital.
Take advantage of deregulated local coin rates. In appropriate markets, the
- -----------------------------------------------
Company intends to increase the coin rate charged on or about October 7, 1997.
Aggressively pursue "fair compensation" as mandated in the Telecommunications
- -----------------------------------------------------------------------------
Act of 1996 for dial around calls. Through participation in industry groups
- -----------------------------------
and individually, the Company will pursue compensation for dial around calls
from appropriate interexchange providers.
Renegotiate or replace the 1996 Credit Agreement. Management intends to
- -------------------------------------------------
renegotiate the terms of the 1996 Credit Agreement with its existing lender or
replace the agreement with a new secured lender.
Although the results of these actions cannot be predicted, the Company believes
that the above steps are appropriate and, if successful, will help improve
operating results and cash flow.
3. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reported in the balance sheet for cash and cash
equivalents, accounts receivable and accounts payable approximate fair values
due to the short maturities of these instruments. The carrying amounts reported
in the balance sheet for notes payable and long-term debt approximate fair
values. Fair values for notes payable and long-term debt are estimated based on
the present value of expected cash flows.
4. ACCOUNTS RECEIVABLE AND BAD DEBT EXPENSE
At June 30, 1997, the accounts receivable balance was $12.9 million with an
allowance for doubtful accounts of $3.6 million. Of that amount, $6.4 million
represents receivables generated from inmate calling along with an allowance of
$3.4 million. The remaining $6.5 million represents receivables generated from
the Company's pay telephones which
F-12
<PAGE>
Communications Central Inc.
4. ACCOUNTS RECEIVABLE AND BAD DEBT EXPENSE (CONTINUED)
includes $5.7 million due from interexchange carrier's for "dial-around
compensation". In the fourth quarter of fiscal 1997, the Company changed its
estimate of bad debt expenses by recording expenses of $6.8 million related to
its inmate calling business primarily to reflect its experience with increased
levels of chargebacks for prior periods reported by LECS primarily in the second
and third quarters of the 1997 fiscal year.
increases in the levels of LEC
chargebacks for prior periods received during the 1997 fiscal year.
At June 30, 1996, the accounts receivable balance was $12.7 million with an
allowance for doubtful accounts of $2.1 million. Of that amount, $9.9 million
represents receivables generated from inmate calling along with an allowance of
$2.0 million. The remaining $2.8 million represents receivables from the
Company's pay telephones which includes $1.2 million due from interexchange
carriers for "dial-around compensation".
5. NOTES PAYABLE
JUNE 30,
--------
1997 1996
---- ----
Unsecured notes to payable shareholders $ - $ 8,333
Notes payable $ - 79,650
------ -------
- 87,983
Less current portion - 87,983
------ -------
$ - $ -
====== =======
6. BANK DEBT
In July 1995, the Company entered into an agreement (the "1995 Loan") with a
bank that amended and restated the terms of a previous agreement. The 1995 Loan
contains affirmative and negative covenants including provisions for maintaining
minimum consolidated net worth, interest coverage ratios, and fixed charge
coverage. In addition, it provided that the Company could not declare or pay
dividends and it restricted capital expenditures, indebtedness, third party
guarantees and asset dispositions.
In August 1996, the Company entered into a Credit Agreement (the "1996 Credit
Agreement") that amended and restated the 1995 Loan. The 1996 Credit Agreement
permitted borrowing of up to $75,000,000 until November 30, 1996. It required a
payment of $12,000,000 on or before July 1, 1997. The 1996 Credit Agreement is
secured by essentially all of the assets of the Company including the stock of
its operating subsidiaries. The 1996 Credit Agreement further requires
principal payments of $500,000 per month beginning January 1997, and $750,000
per month beginning in January 1998,
F-13
<PAGE>
Communications Central Inc.
6. BANK DEBT (CONTINUED)
through the 1996 Credit Agreement's maturity in July 1999. In conjunction with
the 1996 Credit Agreement, the Company incurred loan origination costs of
approximately $257,000. These costs, which include loan closing fees, legal and
professional fees, are being amortized over the life of the 1996 Credit
Agreement.
On October 8, 1996, the Company's lender agreed to amend the 1996 Credit
Agreement to extend the maturity of the $12,000,000 payment due on November 30,
1996 to July 1, 1997, and to adjust the financial covenants accordingly.
In consideration for the amendments during fiscal year 1997, the lender received
warrant agreements to purchase up to 225,000 shares of the Company's Common
Stock at a nominal price. The cost of approximately $1.4 million associated
with these warrants will be amortized over the life of the 1996 Credit
Agreement.
In June 1997, the above terms were modified by the Second Amendment to the 1996
Credit Agreement which extended the timing of the July 1, 1997 payment to
September 1, 1997 upon the payment of a principal amount of $1,500,000. The
Company was not able to repay the remaining payment due of $10,500,000 on
September 1, 1997. As a result, the Company is in default under the 1996
Credit Agreement. In addition, the Company was not in compliance with the
financial covenants under the 1996 Credit Agreement, as amended, as of June 30,
1997. Because of this default, the Company has recognized the impairment of
deferred loan costs of $1.2 million at June 30, 1997.
As a result of the above, all of the debt under the 1996 Credit Agreement, as
amended, is shown as current.
7. LEASE COMMITMENTS
The Company leases office space and certain equipment under operating leases.
Total rent expense for the years ended June 30, 1997, 1996, and 1995 was
approximately $ 668,000 $587,000, and $899,000, respectively.
Future minimum payments, by year and in the aggregate, under the noncancellable
operating leases with initial or remaining terms of one year or more consist of
the following at June 30, 1997:
F-14
<PAGE>
Communications Central Inc.
7. LEASE COMMITMENTS (CONTINUED)
Year ending June 30,
1998 $1,295,000
1999 1,067,000
2000 89,000
----------
$2,451,000
==========
8. PREFERRED STOCK
As of June 30, 1997 the Company had 2,000,000 shares of Preferred Stock
authorized and none issued and outstanding.
9. COMMON STOCK
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) and related Interpretations
in accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under SFAS No. 123, "Accounting
for Stock-Based Compensation", requires use of option valuation models that were
not developed for use in valuing employee stock options. Under APB 25, the
Company recognizes compensation expense to the extent the exercise price of the
Company's employee stock options is less than the market price of the underlying
stock on the date of grant.
STOCK OPTIONS
During fiscal 1992, the Board of Directors issued 348,500 options to purchase
Common Stock at an exercise price of $1.18 per share. These options are
exercisable and became fully vested upon consummation of the Company's initial
public offering on December 16, 1993. The option holders exercised the
remaining 176,500 of the vested options during fiscal 1996.
On October 19, 1993, the Board of Directors approved the establishment of the
1993 Stock Option Plan. The 1993 Stock Option Plan was amended and restated as
of October 11, 1995 (the "1993 Plan") to increase the shares for issuance upon
exercise of options granted to 850,000 shares. Options are to be granted at an
exercise price per share that is not less than the fair market value on the date
of the grant. All Options granted under the 1993 Plan must be exercised no later
than the tenth anniversary of the date of the grant. Options may be granted with
different vesting terms, but generally provide for vesting
F-15
<PAGE>
Communications Central Inc.
9. COMMON STOCK (CONTINUED)
over a three year period. During 1996, the Company repriced 65,000 options,
with exercise prices which ranged from $11.88 to $15.00, to fair market value on
the date of the repricing.
On October 19, 1993, the Board of Directors established the Stock Option Plan
for Directors (the "DirectorsO Plan"), which provides for the grant of non-
qualified stock options to purchase up to 50,000 shares of Common Stock to
directors who are not also employees of the Company. Under the Directors' Plan,
eligible directors could elect to receive stock options in lieu of annual
director compensation. The option exercise price is defined as 50% of the fair
market value of a share on the date of grant. During fiscal 1995 and 1996,
7,997 and 25,402 options were granted under the Directors' Plan, respectively.
Under the Directors' Plan, on the date of the grant of options at less than fair
market value, the Company will, to the extent compensation expense has not
already been recorded, recognize compensation expense ratably over the vesting
period in an amount equal to the difference between the fair market value on the
date of grant and the option exercise price.
Pro forma information regarding net income and earnings per share is required by
SFAS No. 123, which also requires that the information be determined as if the
Company has accounted for its employee stock options granted subsequent to June
30, 1995 under the fair value method of that Statement. The fair value for
these options was estimated at the date of grant using a Black-Scholes option
pricing model with the following weighted-average assumptions for 1996 and 1997,
respectively; risk-free interest rates of 5.54% and 6.48%; a dividend yield of
0%; volatility factors of the expected market price of the Company's common
stock of 0.555; and a weighted-average expected life of the options of 3 years.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information follows (in thousands except for earnings per share
information):
F-16
<PAGE>
Communications Central Inc.
9. COMMON STOCK (CONTINUED)
1997 1996
---- ----
Pro forma net loss $(8,818,000) $(18,386,000)
Pro forma loss per share $ (1.45) $ (3.04)
Because SFAS is applicable only to options granted subsequent to June 30, 1995,
its pro forma effect will not be fully reflected until fiscal year 1998.
A summary of the Company's stock option activity under the 1993 Stock Option
Plan, for the years ended June 30 follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------
1997 1996 1995
---- ---- ----
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE
------- -------------- ------- -------------- ------- -------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, Beginning of year 735,000 $ 6.45 287,584 $ 12.60 204,750 $ 11.12
Granted 85,000 6.86 660,000 6.11 183,500 14.30
Exercised (666) 5.25 - - (8,333) 12.00
Canceled (2,334) 5.25 (212,584) 5.30 (92,333) 12.76
-------------------------- ----------------------- --------------------
Outstanding, end of year 817,000 6.49 735,000 $ 6.45 287,584 $ 12.60
========================== ======================= ====================
Exercisable, end of the year 333,207 $ 7.53 67,999 $ 8.48 46,166 $ 12.08
========================== ======================= ====================
Weighted-average fair value of options
granted during the year $ 3.76 $ 2.61
--------- --------
</TABLE>
Options outstanding at June 30, 1997 have a weighted average remaining
contractual life of approximately 8.17 years and are exercisable at prices
ranging from $5.25 to $15.00.
WARRANTS
In fiscal 1991, the Company issued stock purchase warrants to its bank to
purchase up to 316,188 shares of Common Stock at an exercise price of $.01 per
share, subject to adjustment in certain events. All of the warrants expire on
May 1, 2001. The warrant holders had the right to put the warrants to the
Company; however, termination of these put rights occurred automatically upon
the closing of the Company's initial public offering on December 16, 1993, and
the Company therefore transferred $1,204,117 from redeemable warrants to
additional paid-in capital on Common Stock. Upon the closing of the Company's
initial public offering, the warrant was partially exercised and converted into
79,047 shares of Common Stock (see above). During fiscal 1994, the warrant was
further exercised and converted into an additional 10,114 shares of Common
Stock. During fiscal 1995, 226,891 warrants were exercised and converted into an
additional 226,891 shares of Common Stock. An additional 136 warrants were
recovered, but not converted into Common Stock.
F-17
<PAGE>
Communications Central Inc.
9. COMMON STOCK (CONTINUED)
In September 1996, the Company issued stock purchase warrants to it's lender to
purchase 225,000 shares of Common Stock at an exercise price of $.01 per share.
(See Note 4) The warrants were exercised and converted into 225,000 shares of
Common Stock on March 17, 1997. As of June 30, 1997 no warrants to purchase
shares of Common Stock remain outstanding.
In July 1995, the Company issued warrants to purchase 44,500 shares of Common
Stock at $8.75 per share to a vendor. During fiscal 1997, warrants to purchase
4,000 shares were exercised.
On June 30, 1997, the Company had reserved a total of 882,902 shares of Common
Stock for future issuance upon exercise of the stock options and warrants.
10. OTHER INCOME
In March 1997, the Company announced an Agreement and Plan of Merger, ("Merger
Agreement") with PhoneTel Technologies, Inc. ("PhoneTel"). On August 21, 1997,
the Company announced that its Merger Agreement had been terminated without any
shares of the Company's stock being purchased. In the fourth quarter of fiscal
1997, the Company received payments totaling $6 million from PhoneTel. As a
result of the amendment and then termination of the agreement, PhoneTel
forfeited these payments to the Company. The payments were recorded as "Other
Income", net of related expenses.
11. INCOME TAXES
The components of income taxes are as follows:
YEAR ENDED JUNE 30,
-------------------
1997 1996 1995
---- ---- ----
Current:
Federal $ - $ 78,352 $1,127,896
State - - -
------- -------- ----------
- 78,352 1,127,896
Deferred:
Federal - - -
State - - -
------- -------- ----------
- $ 78,352 $1,127,896
------- -------- ----------
F-18
<PAGE>
Communications Central Inc.
11. INCOME TAXES (CONTINUED)
At June 30, 1997, the Company had net operating loss carryforwards ("NOLs") of
approximately $32.9 million for federal income tax purposes. These NOLs expire
in varying amounts beginning in 2002 as follows:
Year ended June 30,
2002 $ 185,000
2003 944,000
2004 3,475,000
2005 2,052,000
2006 889,000
2007 2,735,000
2008 2,285,000
2009 579,000
2010 806,000
2011 11,751,000
2012 7,212,000
-----------
$32,913,000
===========
Section 382 of the Internal Revenue Code, as amended ("Section 382"), limits the
amount of federal taxable income that may be offset by the preexisting NOL's of
a corporation following a change in ownership ("Ownership Change") of the
corporation. Approximately $12.9 million of the Company's NOL's are currently
subject to limitation under Section 382 because the Company experienced an
Ownership Change in fiscal 1991 due to the issuance of convertible preferred
stock and in fiscal 1994 due to the issuance of common stock in the Company's
initial public offering. Based upon the Ownership Change that occurred in
fiscal 1991 and 1994, the Company has estimated the NOL's subject to the Section
382 limitation will not exceed $469,000 per year. The remaining NOL of $20.0
million can offset future taxable income without limitation.
Income tax expense differs from the amount computed by applying the statutory
Federal income tax rates for the following reasons:
F-19
<PAGE>
Communications Central Inc.
11. INCOME TAXES (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Income tax expense at statutory federal
income tax rate applied to income before
income taxes $(2,857,960) $(6,075,169) $ 1,462,105
Increase (decrease) resulting from:
State tax expense, less federal tax benefit ( 336,230) ( 626,339) 192,879
Change in valuation allowance 3,086,504 6,694,557 ( 612,903)
Other 107,686 85,303 85,824
----------- ----------- -----------
$ - $ 78,352 $ 1,127,896
=========== =========== ===========
</TABLE>
Deferred income taxes reflect the net effect of temporary differences between
the carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes. Significant components of the
Company's deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
JUNE 30,
--------
1997 1996
---- ----
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $13,641,425 $ 9,766,394
Reserves and vacation pay 1,095,360 1,212,897
AMT credit 1,117,135 1,117,135
Book over tax assets 6,409,097 5,126,872
----------- -----------
Gross deferred tax assets 22,263,017 17,223,298
Valuation allowance 10,749,143 7,662,639
----------- -----------
Total deferred tax assets 11,513,874 9,560,659
Deferred tax liabilities:
Tax over book depreciation 10,481,678 8,601,976
Deferred bonus expense 1,032,196 958,683
----------- -----------
Total deferred tax liabilities 11,513,874 9,560,659
----------- -----------
Net deferred tax balance $ - $ -
=========== ===========
</TABLE>
12. ACQUISITIONS
During the year ended June 30, 1995 the Company acquired certain assets of
various independent payphone and inmate phone operators including:
F-20
<PAGE>
Communications Central Inc.
12. ACQUISITIONS (CONTINUED)
<TABLE>
<CAPTION>
AMOUNT
ALLOCATED TO
PURCHASE INTANGIBLES
ACQUISITION DATE SELLING COMPANY PRICE ACQUIRED
- ---------------------------------------------------------------------------------------------------------------
YEAR ENDED JUNE 30, 1995:
<S> <C> <C> <C>
July 1994 Pay-Tel of Illinois $ 4,162,000 $ 778,000
July 1994 InVision Telecommunications, Inc. 4,246,000 3,770,000
August 1994 Pay Phones Plus, Inc. 5,899,000 3,358,000
November 1994 Telso, Inc. 12,590,000 7,303,000
April 1995 Robert Cefail & Associates 18,905,000 13,025,000
</TABLE>
The purchase method of accounting was used to record each of the above
acquisitions. Accordingly, the purchase price was allocated to the assets
acquired based on estimated fair values at the purchase dates. Operating results
for the respective companies have been included in the Company's results of
operations from the respective purchase dates.
The following represents the unaudited pro forma results of operations for the
year ended June 30, 1995, assuming the above acquisitions has occurred at the
beginning of the year preceding the year of acquisition:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 1995
------------------------
<S> <C>
Net revenues $104,929,000
Income before extraordinary item 9,158,000
Net Income 9,158,000
Net income per share 1.51
</TABLE>
13. EMPLOYEE SAVINGS PLAN
Effective January 1, 1993, the company formed a contributory savings plan (the
"Plan"), which qualifies under Section 401(k) of the Internal Revenue Code,
covering substantially all of its employees. The company matches 50% of employee
contributions to a maximum of 6% of employee earnings each Plan year. Company
contributions to the Plan were approximately $83,500 and $84,000 for the years
ended June 30, 1997 and 1996, respectively.
F-21
<PAGE>
Communications Central Inc.
14. CONTINGENCIES AND UNCERTAINTIES OF DIAL AROUND COMPENSATION
The Company is from time to time subject to claims and suits arising in the
ordinary course of its business. In the opinion of management, the ultimate
resolution of any such pending matters will not have a material effect on the
Company's financial position.
The Federal Communications Commission ("FCC") issued an order on "dial around"
compensation ("FCC Order"), which provided an interim plan by which the
interexchange carriers ("IXC's") paid an aggregate monthly amount of $45.85 per
phone to the owners of each payphone. The Company received $1.7 million for the
partial month of November 1996 and the full month of December 1996. For the
months of January 1997, February 1997 and March 1997 the Company received an
amount of approximately $36.12 per phone per month as several of the IXC's
refused to pay while the FCC Order was being appealed. The Company has accrued
at the rate of $45.85 per phone per month through June 30, 1997. The receivable
owing from all of the IXCs at June 30, 1997 was approximately $5,700,000. Of
that amount, approximately $1,800,000 was collected in July 1997, leaving a
balance of approximately $3,900,000 remaining to be collected.
In a July 1, 1997 decision, the U.S. Court of Appeals for the District of
Columbia Circuit ("Court") reviewed certain Orders of the FCC related to the
implementation of the payphone-specific provisions of the Telecommunications Act
of 1996. Among other things, the Court remanded the issue of rates for
compensation for 800 and access code calls to independent payphone providers
("dial around compensation") back to the FCC for further consideration.
Further, in a supplemental opinion dated September 16, 1997, the Court clarified
its opinion on dial around compensation by stating that it was vacating, rather
than remanding, the FCC's previous dial around compensation rates while the FCC
further reviews the issue. The Company is continuing to analyze these complex
rulings, and attempting to determine the effect, if any, that they may have on
the Company's financial statements and results of operations.
If the FCC fails to implement a dial around compensation amount that
approximates at least the $45.85 per phone per month or 35 cents per call, then
the impact of such a ruling could have a material adverse effect on the
Company's financial position. For every dollar that the FCC changes its
compensation plan from $45.85 per phone per month, the Company's revenue from
non-coin calls could be impacted positively or negatively by approximately
$155,000 for the period from November 8, 1996 through June 30, 1997.
15. RELATED PARTIES
During the year ended June 30, 1995 the Company paid consulting fees of
approximately $25,000 per year to a shareholder who also holds a position on the
Board of Directors of the Company.
F-22
<PAGE>
Communications Central Inc.
16. SUBSEQUENT EVENTS
On August 21, 1997, the Company, InVision Telecom, Inc. (a wholly owned
subsidiary of the Company) and Talton Holdings, Inc. ("Talton") entered into an
Asset Purchase Agreement (the "Purchase Agreement") whereby Talton agreed to
purchase substantially all of the assets of the Company's inmate phone business
for approximately $42 million (subject to adjustment as provided in the Purchase
Agreement). The Purchase Agreement is scheduled to close on or about October 31,
1997 and is subject to certain closing conditions including the consent of the
Company's principal lender and the execution of satisfactory employment
agreements with certain members of InVision's management team. Upon consummation
of the Purchase Agreement and the transactions contemplated thereby, the Company
will not own any inmate phones or have any inmate phone operations.
F-23
<PAGE>
COMMUNICATIONS CENTRAL INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED JUNE 30,1997, 1996 AND 1995
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
- -----------------------------------------------------------------------------------------------------------------------
Balances at Charged to Charged to
Beginning Costs and Other Account Other Changes Balance at
of Period Expenses Describe Add (Deduct) End of Period
---------------------------------------------------------------------------------
Year ended June 30,1997:
Reserves and allowances deducted
from asset accounts:
Allowance for doubtful accounts $2,140,000 $17,208,000 $ - $(15,762,000) (1) $ 3,586,000
Deferred tax asset valuation
allowance 7,663,000 3,086,000 - - 10,749,000
---------------------------------------------------------------------------------
Total $9,803,000 $20,294,000 $ - $(15,762,000) (1) $14,335,000
=================================================================================
Year ended June 30,1996:
Reserves and allowances deducted
from asset accounts:
Allowance for doubtful accounts $2,418,000 $ 8,575,000 $ - $ (8,853,000) (1) $ 2,140,000
Deferred tax asset valuation
allowance 968,000 6,695,000 $ - - 7,663,000
---------------------------------------------------------------------------------
Total $3,386,000 $15,270,000 $ - $ (8,853,000) (1) $ 9,803,000
=================================================================================
Year ended June 30,1995:
Reserves and allowances deducted
from asset accounts:
Allowance for doubtful accounts $ 601,000 $ 4,641,000 $ - $ (2,824,000) (1) $ 2,418,000
Deferred tax asset valuation
allowance 1,581,000 (613,000) $ - - 968,000
---------------------------------------------------------------------------------
Total $2,182,000 $ 4,028,000 $ - $ (2,824,000) (1) $ 3,386,000
=================================================================================
</TABLE>
S-1
<PAGE>
Exhibit 21
LIST OF SUBSIDIARIES OF THE COMPANY
-----------------------------------
Central Payphone Services, Inc.
Communications Central of Georgia, Inc.
InVision Telecom, Inc.
<PAGE>
Exhibit 23.1
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statements
(Form S-8 No. 33-80462, 33-80568, and 33-80564) pertaining to the Discounted
Stock Option Plan for Directors, 1991 Incentive Stock Option Plan and 1993 Stock
Option Plan of Communications Central Inc. of our report dated September 19,
1997 with respect to the consolidated financial statements and schedule of
Communications Central Inc. in this Annual Report (Form 10-K) for the year ended
June 30, 1997.
Ernst & Young LLP
Atlanta, Georgia
October 1, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
condensed statement of income for the twelve months ended June 30, 1997 and the
condensed balance sheet as of June 30, 1997 and is qualified in its entirety by
reference of such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 5,403,731
<SECURITIES> 0
<RECEIVABLES> 12,861,643
<ALLOWANCES> 3,586,000
<INVENTORY> 552,721
<CURRENT-ASSETS> 56,612,668
<PP&E> 63,776,675
<DEPRECIATION> 33,418,171
<TOTAL-ASSETS> 104,333,299
<CURRENT-LIABILITIES> 84,783,254
<BONDS> 0
0
0
<COMMON> 62,842
<OTHER-SE> 19,487,203
<TOTAL-LIABILITY-AND-EQUITY> 104,333,299
<SALES> 103,847,776
<TOTAL-REVENUES> 103,847,776
<CGS> 52,371,561
<TOTAL-COSTS> 107,041,157
<OTHER-EXPENSES> 2,400,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,130,140
<INCOME-PRETAX> (8,405,765)
<INCOME-TAX> 0
<INCOME-CONTINUING> (8,405,765)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,405,765)
<EPS-PRIMARY> (1.38)
<EPS-DILUTED> (1.38)
</TABLE>
