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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K/A
(AMENDMENT NO. 1 TO FORM 10-K)
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
Commission File Number 001-15527
VIALOG CORPORATION
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-3305282
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
32 CROSBY DRIVE
BEDFORD, MASSACHUSETTS 01730
(Address of principal executive offices)
(781) 761-6200
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name of each exchange on
Title of each class which registered
Common American Stock Exchange
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
Company 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 Company's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [_]
As of March 30, 2001, the aggregate market value of the voting and non-
voting common equity held by non-affiliates of the Company was $72,003,515.
Shares of voting and non-voting common equity held by each executive officer
and director and by each person who beneficially owns 10% or more of the
outstanding Common Stock have been excluded in that such persons may be deemed
to be affiliates. This determination of affiliate status is not necessarily a
conclusive determination for other purposes. The aggregate market value has
been computed based on a price per share of $7.09, the closing sales price of
the Company's common stock on March 30, 2001. On such date, the Company had
10,219,944 shares of common stock outstanding.
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PART I
This Annual Report on Form 10-K contains forward-looking statements as
defined by the Private Securities Litigation Reform Act of 1995. Forward-
looking statements should be read with the cautionary statements and important
factors included in this Form 10-K. (See Item 7.--Management's Discussion and
Analysis of Financial Condition and Results of Operations, Safe Harbor for
Forward-Looking Statements.) Forward-looking statements include statements
concerning plans, objectives, goals, strategies, future events or performance
and underlying assumptions and other statements which are other than
statements of historical facts. Such forward-looking statements may be
identified, without limitation, by the use of the words "anticipates,"
"estimates," "expects," "intends," "plans," "predicts," "projects," and
similar expressions. The Company's expectations, beliefs and projections are
expressed in good faith and are believed by the Company to have a reasonable
basis, including management's examination of historical operating trends, data
contained in the Company's records and other data available from third
parties, but there can be no assurance that management's expectations, beliefs
or projections will result or be achieved or accomplished.
Item 1. Business.
Recent Business Developments
As previously announced, on October 1, 2000, Vialog Corporation reached a
definitive agreement to be acquired by France-based Genesys S.A. (Genesys
Conferencing), the largest independent global teleconferencing specialist. The
combination of Genesys and Vialog will create the world's largest specialist
provider of conferencing services, based on 1999 revenues.
The merger agreement provides that Vialog shareholders will receive Genesys
American Depositary Shares (ADSs) in exchange for their Vialog shares upon
closing. The exchange ratio will be determined on the basis of the volume-
weighted average share price of Genesys shares on Euronext-Paris for the 10
consecutive trading days ending on the second trading day prior to the day of
the closing. If the transaction had closed on April 13, 2001, the exchange
ratio would have been 0.6703 ADSs for each Vialog share, resulting in Vialog
shareholders receiving approximately 24.8% of Genesys' outstanding shares,
after giving effect to Genesys' recent acquisition of Astound Incorporated.
The ADSs will begin trading on the Nasdaq Stock Market, under the symbol
"GNSY" after the merger.
A combined proxy statement and registration statement on Form F-4 relating
to the acquisition was declared effective by the U.S. Securities and Exchange
Commission on February 12, 2001. On March 23, 2001, Vialog's shareholders
approved the acquisition of Vialog by Genesys, and Genesys' shareholders
approved the capital increase required for the acquisition of Vialog.
Additionally, on March 22, 2001, Vialog and Genesys received commitments
from a bank group for a $125 million senior credit facility that will permit
Vialog Corporation to refinance its outstanding debt following its acquisition
by Genesys. Availability of the credit facility is subject to due diligence,
documentation and other customary conditions for a facility of this kind.
The closing of the acquisition of Vialog by Genesys is expected to occur in
conjunction with the closing of the senior credit facility, which is expected
to occur by the end of April 2001.
Introduction
Vialog Corporation (including its subsidiaries, "Vialog" or the "Company"),
a Massachusetts corporation, is a leading independent provider of value-added
conferencing services. Since its founding on January 1, 1996, the Company has
grown substantially, primarily through acquisitions. On November 12, 1997,
Vialog acquired
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six private conference service bureaus. On February 10, 1999, Vialog completed
an initial public offering of its common stock and acquired three additional
private conference service bureaus.
In order to increase operating efficiencies, during 1999, Vialog
successfully consolidated the operations of the nine acquired companies into
four operating subsidiaries, which the Company refers to as operating centers.
In 2000, Vialog combined its corporate headquarters and Cambridge,
Massachusetts operating center into a new facility located in Bedford,
Massachusetts. Vialog's three other operating centers are located in Reston,
Virginia, Montgomery, Alabama and Chanhassen, Minnesota. A brief description
of each of the Company's operating centers is set forth below:
The Reston Center had net revenues of approximately $27.4 million in 1999
and approximately $33.8 million in 2000. The Reston Center specializes in
providing conferencing services to numerous organizations, including
financial institutions, government agencies, trade associations and
professional service firms. The Reston Center is also primarily responsible
for the development and provision of services in the fast-growing
videoconferencing marketplace. As of March 31, 2001, the Reston Center had
approximately 176 employees.
The Montgomery Center had net revenues of $15.2 million in 1999 and
approximately $21.9 million in 2000. The Montgomery Center specializes in
providing conferencing services to the retail industry and to various
telecommunications providers. As of March 31, 2001, the Montgomery Center
had approximately 124 employees and is the primary support center for
Vialog's innovative Ready-To-Meet(TM) reservationless conferencing service.
The Chanhassen Center had net revenues of approximately $10.3 million in
1999 and approximately $15.7 million in 2000. The Chanhassen Center
services a general corporate clientele with a specialty in the
communications industry. As of March 31, 2001, Vialog's Chanhassen Center
had approximately 81 employees.
The Bedford Center had net revenues of approximately $6.9 million in 1999
and approximately $6.2 million in 2000. The Bedford Center services a
general business clientele and is responsible for providing Vialog's web
conferencing services. As of March 31, 2001, the Bedford Center had
approximately 39 employees.
The five operating centers closed during 1999 in connection with the
Company's consolidation of operations accounted for additional revenues of
$8.8 million in 1999. The conferencing traffic from these centers is now
handled by the four remaining operating centers.
Description of Business
Company Overview
Vialog is a leading independent provider of audio, video and web
conferencing services. Vialog believes it is the largest company in North
America focused solely on conferencing services, with four operating centers,
state-of-the-art digital conferencing technology, a web portal site
(WebConferencing.com) and an experienced national sales force. Vialog believes
it differentiates itself from its competitors by providing innovative
products, superior customer service and an extensive range of enhanced and
customized conferencing solutions. Vialog has built a large, stable client
base ranging from Fortune 500 companies to small institutions. Customers also
include certain major long distance telecommunications providers who have
outsourced their conferencing services to the Company. During 2000, Vialog
provided services to more than 7,000 customers representing over 37,000
accounts.
Audioconferencing is currently the Company's principal service offering.
However, Vialog is leveraging long-term relationships with its customers in
the traditional audioconferencing business to expand into "new
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media" market opportunities including video and web-based services. Vialog
also offers an innovative, reservation-less audioconferencing service, Ready-
To-Meet(TM), as well as enhanced audioconferencing services such as digital
replay and audio streaming. Media enhanced services now offered by Vialog
include videoconferencing, fax and e-mail broadcast, as well as a family of
web conferencing services. The Company's user-friendly web portal site,
WebConferencing.com, provides web access to all of the Company's conferencing
services.
Vialog has embraced a strategy of "solutions selling" that offers customized
conferencing solutions to each of its customers. This includes various
vertical industry applications in the medical and financial marketplaces, as
well as other customized applications like conference event planning and
coaching. Further, customized formats are specifically designed for such
applications as investor relation's calls, auctions and interactive
educational programs. Vialog has designed its service delivery infrastructure
to be flexible so that comprehensive, custom solutions for each customer may
be easily designed and implemented across a variety of technologies including
the web.
Industry Overview
Services
The conferencing industry, which includes audio, video and web conferencing,
provides a range of services to facilitate multiparty communications with
participants in different locations. Through conferencing services, customers
conduct routine meetings, run training sessions, and share information when
face-to-face meetings would be too costly, impractical or inconvenient. In a
September 2000 report, Wainhouse Research, a market research firm that follows
the conferencing industry, forecasts the North American market for these
services will grow from U.S.$1.7 billion in 1999 to U.S.$4.4 billion in 2003,
a compound annual growth rate of 26.6%.
Audioconferencing
Audioconferencing connects multiple parties on a single telephone call
through specialized telephone equipment known as a "bridge." Each bridge has
multiple ports, which allow conference participants to connect to a conference
call. Calls may be established manually by an operator who places calls to or
receives calls from conference participants. Vialog believes that
technological advances, combined with the greater overall awareness and
acceptance of audioconferencing as a business tool, have contributed to the
increased usage of conferencing over the last several years.
Vialog believes that the demand for audioconferencing services has also
increased as a result of a wide range of trends, including globalization of
operations, increased workforce training requirements, the advent of
geographically dispersed work teams, shared decision-making, and the growing
role of strategic partnerships. Users of audioconferencing are able to replace
travel to existing meetings, with attendant savings of actual and opportunity
cost, and increase communication with parties with whom they would otherwise
not meet, thereby yielding greater organizational productivity. Vialog
believes that the facilities, network and labor costs associated with
audioconferencing services, combined with a lack of expertise and a desire to
focus on their core businesses, have caused most organizations to outsource
audioconferencing.
Videoconferencing
Videoconferencing is similar to audioconferencing except that one or more
callers may be viewed on a video monitor by the other participants. The
Company believes that the broad adoption of videoconferencing as a meeting
tool has historically been constrained by several factors, including limited
access to video sites,
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expensive and proprietary equipment, limited and costly network facilities,
incompatibility of systems and poor video quality. The adoption of industry
standards, technological advances (which have brought down the cost of
equipment and required bandwidth) and increased processing speed (which has
improved quality) has all contributed to the development of desktop
videoconferencing applications. Interactive multipoint videoconferencing also
became feasible in 1995 with the introduction of more cost-effective video
technology and low-cost, PC-based video cameras and sound cards.
Web Conferencing
Web conferencing, which enables multiple users to conference and collaborate
using both visuals and voice, is the most recent advancement in conferencing.
Additionally, audio streaming enables participants to listen to an
audioconference being "streamed" live over the web. Listen-only participants
can access the audioconference by logging on to a web site and listening via a
multimedia PC.
The Company's Conferencing Services
Audioconferencing
Vialog offers a broad range of audioconferencing and related services,
primarily to businesses in the financial, retail, professional services and
pharmaceutical industries, as well as to government agencies and trade
associations. Vialog generates revenues from its infrastructure of
approximately 16,000 ports of capacity by charging on a per-line, per-minute
basis. Vialog's audioconferencing services are divided into two major service
categories: operator-attended and operator-on-demand. Each category offers
standard services such as dialing out to late participants and conducting a
roll call at no additional cost, as well as enhanced services at additional
cost. For those conference calls requiring a reservation, the Company's web
portal site, WebConferencing.com, may be used for greater convenience.
There are three different types of operator-attended service: Meet-Me, Dial
Out and a combination of the two. Meet-Me audioconferences allow participants
to join a conference either by dialing a toll free number provided by the
Company or by using their own local or long distance service providers. For
Dial Out audioconferences, the Company's operators contact participants and
join them together in a conference. A combination of the two service types is
also available.
Participants may join an operator-on-demand conference either by dialing a
toll free number provided by the Company or by using their own local or long
distance service providers, then entering a passcode on their touch-tone
keypad. For additional security and to verify attendance, participants may be
required to enter a Personal Identification Number (PIN) after they enter the
conference passcode. While operators are not necessary for an operator-on-
demand audioconference, they can be reached for assistance by pressing "*0."
In November 1999, Vialog launched a service that eliminates a reservation
and/or an operator to place a conference call between 40 or less parties. This
product, Ready-to-Meet(TM), offers instant audioconferencing through a toll
free or local dial-in number and access codes assigned by Vialog. The Company
sells this product through its existing sales force, private label
partnerships, and directly through its web portal site, WebConferencing.com.
Consistent with its solutions selling approach, the Company offers
customization of audioconferences through the following enhanced services for
an extra charge:
Communication line. During a conference, the Company can keep a separate
line open with the conference host to verify participant attendance,
provide updates on the number of participants who have joined, and have
other discussions relative to the conference that may be inappropriate to
conduct in the conference.
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Digital replay. The Company can digitally record a conference and make it
available for playback over the telephone or otherwise by parties who were
unable to attend the conference.
Electronic Q&A. Participants can join a queue to ask questions or speak
with the moderator by pressing codes on their touch-tone keypads.
Participant list. The Company can send a list of participants via fax or
email, either during or at the conclusion of the conference.
Participant notification. The Company can call or fax reminders to
participants in advance of the conference.
Polling/voting. Participants can respond to questions by pressing codes
on their touch-tone keypads. Tabulations and results are available
immediately or at the conclusion of the conference.
Recording. The Company can record the conference on an audiocassette tape
or compact disc, and send recordings via regular, overnight or second-day
mail.
Transcription. The conference can be transcribed in its entirety and
provided in written format, on a 3 1/2" diskette or via e-mail.
Videoconferencing
The Company also offers videoconferencing services, which enable remote
sites equipped with industry standard compliant video equipment to conduct
interactive multipoint sharing of video images and audio among three or more
participants. Similar to audioconferencing, this service is charged on a per-
line, per-minute basis, with enhanced services charged on a fee basis.
Videoconferencing requires the use of a video bridge and telecommunications
facilities of greater bandwidth than that required for a standard
audioconference and is consequently billed at much higher rates. The Company
provides its video services from its Reston Center.
Videoconferences can be assembled in two ways: Meet-Me and Dial Out. Meet-Me
videoconferences are those in which participating sites dial in to the
Company's video bridge at a scheduled date and time, using an assigned
telephone number. Each site may be greeted by an operator or be connected
directly, without the operator's presence. Dial Out videoconferences are those
in which a Company operator dials out to participating sites prior to a
videoconference and connects them to the conference. As part of its "solutions
approach," the Company tests the standards of all participating sites to
assure compatibility and quality standards.
The Company offers PC-based application sharing via the Company's
videoconferencing bridges. Multiple users can view and edit the same document
on their own PCs while participating in an audio or video conference, enabling
them to present, discuss and/or modify documents in real-time.
Web Conferencing
Vialog's web portal site WebConferencing.com enables customers to customize
all of their conferencing needs through a convenient, easy-to-use customer
interface. An e-commerce section within the site allows new customers to
immediately sign up for and purchase Vialog conferencing services. Vialog also
has a web affiliate program designed to partner with other web companies to
sell private-labeled access to Vialog's WebConferencing.com website.
Web conferencing, which enables multiple users to conference and collaborate
using both visuals and voice is the most recent advancement in conferencing.
Audio streaming enables participants to listen to an audioconference being
"streamed" live over the Internet. Listen-only participants can access the
audioconference by logging on to a web site and listening via a multimedia PC.
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Enhanced Services
In customizing solutions for customers, the Company complements its audio,
video and web conferencing services with enhanced services, such as voicemail
broadcast, email broadcast, fax broadcast and interactive voice response.
Voicemail broadcast. The Company's voicemail broadcast service delivers a
personalized message quickly to a large number of recipients via the
telephone. This service delivers a custom voice message instantly to any
individual with a phone number, either live or to a voicemail box.
Email broadcast. This service enables customers to send emails to a large
number of recipients simultaneously.
Fax broadcast. This service enables customers to send faxes to a large
number of recipients simultaneously.
Interactive voice response ("IVR"). Vialog's IVR service uses voice and
touch-tone prompts to provide and/or retrieve important information via a
telephone. Applications for IVR include digital replay of an
audioconference; automated registration for events and programs; and test
administration whereby Vialog's IVR system is used to generate a test
containing specific sets of questions or customized on a user-by-user basis
from a database of categorized questions.
Sales and Marketing
The Company's retail national sales organization offers a full range of
conferencing services to its customers. The Company's wholesale account
executives offer these same services to facilities-based carriers and non-
facilities-based telecommunications service providers who desire to offer
outsourced conferencing services to their customers under their own brands.
Establishing a national brand. The Company's marketing and sales strategy
centers on establishing Vialog as the brand identified with high value and
expert delivery of conferencing services. The Company's marketing program
focuses on customers who have the potential for high use. This marketing
program employs targeted database marketing techniques based on the combined
customer data of the operating centers, emerging trends and other market
segment information.
Retail sales. The Company employs a national retail sales strategy utilizing
both an outside and inside sales group. This new strategy has consolidated the
Company's existing sales force and at the same time provided new national
account coverage and presence in additional geographic markets. The sales
force leverages Vialog's increased network capacity by cross-selling existing
accounts with new and enhanced services, expanding the Company's penetration
of key industries (for example, pharmaceutical companies) and targeting key
vertical industries and accounts. An outside sales group of approximately 50
professionals operates from four regional offices, and is primarily
responsible for origination of new business. An inside sales group of
approximately 27 professionals responds to inbound requests, assists customers
in implementing Vialog's service offerings and supports the outside sales
force.
Wholesale sales. The Company has a wholesale sales organization, which is
capitalizing on what the Company believes to be significant opportunities for
revenue growth by providing outsourced services to IXCs, LECs, and RBOCs.
While conferencing services make up a small portion of these companies'
overall business, they are an important part of a full-service service
provider's portfolio. The Company offers these companies the ability to
efficiently outsource all conferencing services and support. The Company
currently has contracts to provide outsourced services to a number of
facilities-based and non-facilities-based telecommunications service
providers.
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E-commerce. The Company has embraced the web, and is using e-commerce to
extend Vialog's sales distribution. Both through WebConferencing.com and
private-label offerings through web strategic partners, Vialog's services can
be cost-effectively sold to customers too small to be targeted via direct
sales.
Customers
The Company provided services to over 7,000 customers in 2000. The customers
ranged in size from major multinational corporations and Fortune 500 companies
to small businesses, professional organizations, public institutions and
individuals. A breakdown of the Company's top 20 customers (based on 2000
consolidated net revenues), including both wholesale and retail customers, by
industry is as follows: financial services (six), professional services
(five), telecommunications (four), retail (two), pharmaceutical (two), and
high technology (one). No account represented more than 10% of the Company's
consolidated net revenues in 2000. The top 10 customers of the Company
represented approximately 16% of the Company's pro forma net revenues in 1999
and 17% of the Company's net revenues in 2000.
Competition
The conferencing service industry is highly competitive and subject to rapid
change. In the audioconferencing market, the Company currently competes, or
expects to compete in the near future, with the following categories of
companies: (i) IXCs, such as AT&T, MCI WorldCom, Sprint, Global Crossing and
Cable & Wireless, (ii) independent LECs and (iii) other private conference
service bureaus ("PCSBs"). The IXCs generally do not market conferencing
services separately, but rather offer such services as part of a "bundled"
telecommunications offering. The IXCs have not emphasized enhanced services or
customized communications solutions to meet customer needs. However, there can
be no assurance that these competitors will not alter their current strategies
and begin to focus on services-specific selling, customized solutions and
operator-attended services, the occurrence of any of which could increase
competition. Under the Telecommunications Act of 1996, the RBOCs may also be
allowed to provide long distance services within the regions in which they
also provide local exchange services ("in-region long distance services") upon
the satisfaction of certain conditions, including the specific approval of the
Federal Communications Commission, the introduction of or a defined potential
for facilities-based local competition, the offering of local services for
resale, and compliance with access and interconnection requirements for
facilities-based competitors. Upon entrance into the long distance market, the
ability of an RBOC to gain immediate and significant conferencing market share
could be enhanced by its status as the incumbent primary provider of local
services to its customers.
In the videoconferencing and web conferencing markets, the Company competes
with existing providers of audio teleconferencing services, as well as newer
competitors dedicated to video and/or web conferencing. The Company believes
that the principal competitive factors influencing the market for its services
are brand identity, quality of customer service, breadth of service offerings,
price and vendor reputation. There can be no assurance that the Company will
be able to compete successfully with respect to any of these factors.
Competition may result in significant price reductions, decreased gross
margins, loss of market share and reduced acceptance of the Company's
services.
The Company derived approximately 9% of its 2000 net revenues from IXCs and
LECs which outsource conferencing services provided to their respective
customers. These telecommunications companies have the financial capability
and expertise to deliver such services internally. There can be no assurance
that the Company's current IXC and LEC customers will not begin to provide the
conferencing services now being provided by the Company and pursue such market
actively and in direct competition with the Company, which could have a
material adverse effect on the Company's business, financial condition,
results of operations and prospects. Moreover, the Company believes that part
of its growth will occur from RBOCs which may enter the long distance market
and outsource their conferencing services. There can be no assurance that any
telecommunications company will be able to offer conferencing services
legally, now or in the future, will choose to do so or that those choosing to
do so will outsource their conferencing services or choose the Company as
their provider in case they do outsource conferencing.
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The Company also believes that many of its current and prospective customers
have sufficient resources to purchase the equipment and hire the personnel
necessary to establish and maintain conferencing capabilities sufficient to
meet their own respective conferencing needs. If the manufacturers of PBXs
develop improved, cost-effective PBX capabilities for handling conferences
with the quality of existing bridges used in the conferencing business, the
Company's customers could choose to purchase such equipment and hire the
personnel necessary to service their conferencing needs through internal
telephone systems. The loss of such customers could have a material adverse
effect on the Company's business, financial condition, results of operations
and prospects. Additionally, if web technology can be modified to accommodate
multipoint voice transmission comparable to existing bridges used in the
conferencing business, there could be a material adverse effect on the
Company's business, financial condition, results of operations and prospects.
Many of the Company's current and potential competitors have substantially
greater financial, sales, marketing, managerial, operational and other
resources, as well as greater name recognition, than the Company and may be
able to respond more effectively than the Company to new or emerging
technologies and changes in customer requirements. In addition, such
competitors may be capable of initiating or withstanding significant price
decreases or devoting substantially greater resources than the Company to the
development, promotion and sale of new services. Because bridges are not
prohibitively expensive to purchase or maintain, companies previously not
involved in conferencing could choose to enter the marketplace and compete
with the Company. There can be no assurance that new competitors will not
enter the Company's markets or that consolidations or alliances among current
competitors will not create significant new competition. In order to remain
competitive, the Company will be required to provide superior customer service
and to respond effectively to the introduction of new and improved services
offered by its competitors. Any failure of the Company to accomplish these
tasks or otherwise to respond to competitive threats may have a material
adverse effect on the Company's business, financial condition, results of
operations and prospects.
Suppliers
The Company's services require two material components, which it purchases
from outside suppliers:
Telecommunications Services. A significant portion of the Company's direct
costs are attributable to the purchase of local and long distance telephone
services. The operating centers have purchased telecommunications services
from a number of vendors, including AT&T, Sprint, and Qwest Communications
International, Inc. The Company believes that multiple suppliers will continue
to compete for the Company's telecommunications contracts. Since the minutes
of use generated by the Company will be substantially higher than the largest
of the operating centers, the Company's experience is that it has been able to
negotiate telecommunications contracts with lower prices and improved service
guarantees. In light of what the Company believes to be increased competition
among long distance service providers, the Company has been entering into
shorter-term contracts for long distance services in order to obtain the
benefit of anticipated reduced costs over time. However, there can be no
assurance that competition in the long distance services market will continue
to increase, that any increased competition will reduce the cost of long
distance services or that the Company's purchasing strategy will result in
cost savings. If the costs of long distance services increase over time, the
Company's current purchasing strategy (which calls for shorter-term contracts)
may place it at a competitive disadvantage with respect to competitors that
have entered into longer-term contracts for long distance services. There can
be no assurance that the Company's analysis of the future costs of long
distance services will be accurate, and the failure to predict future cost
trends accurately could have a material adverse effect on the Company's
business, financial condition, results of operations and prospects.
Bridging Hardware and Software Support Systems. The Company uses bridge
equipment produced by three different manufacturers. At present, the equipment
being utilized is not functionally identical, but is compatible with
substantially all network standards. As of March 31, 2001, approximately 42%
and 41% of the operating centers' port capacity was manufactured by Octave
Communications, Inc. and MultiLink, Inc., respectively. MultiLink, Inc. was
acquired by Spectel Corporation in 2000. However, a number of other vendors
offer similar bridging equipment. In December 1999, the Company entered into
an eighteen month non-exclusive
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volume purchase agreement with Octave Communications which provides for
graduated bridge price discounts based on the number of ports purchased by
Vialog during the term of the agreement.
Employees
As of March 31, 2001, the Company had 647 employees, 409 of whom were
employed full time or part time as operators or reservationists. None of the
Company's employees are represented by unions. The Company has experienced no
work stoppages and believes its relationships with its employees are good.
Regulation
In general, the telecommunications industry is subject to extensive
regulation by federal, state and local governments. Although there is little
or no direct regulation in the United States of the core group communications
services offered by the Company, various government agencies, such as the FCC,
have jurisdiction over some of the Company's current and potential suppliers
of telecommunications services, and government regulation of those services
has a direct impact on the cost of the Company's group communications
services. There can be no assurance that the FCC or other government agencies
will not seek in the future to regulate the Company as a common carrier and
regulate the prices, conditions or other aspects of the group communications
services offered by the Company, that the FCC will not impose registration,
certification or other requirements on the provision of those services, or
that the Company would be able to comply with any such requirements.
Additionally, government regulations in countries other than the United States
vary widely and may restrict the Company's ability to offer its services in
those countries. The Company believes that it is currently in material
compliance with applicable communications laws and regulations.
Item 2. Properties.
The Company's corporate headquarters are currently located in Bedford,
Massachusetts. In connection with the consolidation plan which commenced in
1999, the Company combined its corporate offices and its Cambridge,
Massachusetts operating center into a new leased facility during 2000. The new
facility has approximately 27,900 square feet (11,150 for corporate offices
and 16,750 for the operations center) under a lease expiring in May 2005.
The operating centers are located in leased facilities in Virginia, Alabama,
Massachusetts and Minnesota. The Company's four operating centers are not
fully utilized with its approximately 66,100 square foot facility in Reston,
Virginia approximately 75% utilized, its approximately 23,600 square foot
facility in Montgomery, Alabama approximately 70% utilized, its approximately
16,720 square foot facility in Bedford, Massachusetts approximately 55%
utilized and its approximately 25,400 square foot facility in Chanhassen,
Minnesota approximately 50% utilized. As a result of the closing of five
operating centers in connection with the consolidation of operations in 1999,
the Company also currently holds leases on an 8,219 square foot facility in
Atlanta, Georgia, an 11,088 square foot facility in Oradell, New Jersey and a
7,916 square foot facility in Houston, Texas, each of which has been
substantially or completely vacated. The Company intends to find tenants to
sublease the vacated facilities through the lease maturity dates or to
negotiate terminations of these leases with the respective landlords. The
Company occupies the operating centers and other facilities under leases which
provide for a total of approximately 183,700 square feet at rates ranging from
$9.00 to $28.00 per square foot with expiration dates, excluding month-to-
month leases, ranging from March 2001 to July 2008. The Company's total lease
expense related to its facilities was approximately $2.3 million and $2.5
million for the years ended December 31, 1999 and 2000, respectively. The
Company believes its properties are adequate for its needs. The Company's
facilities are located either within one mile of central telephone switching
locations or on a sonet fiberoptic loop in metropolitan locations, except for
its Bedford, Massachusetts facility which is in process of connecting to a
sonnet fiberoptic loop. Each facility has dual sources of power or back-up
generating capabilities. While the Company's telephone and power requirements
may preclude it from locating in some areas, the Company believes alternative
locations are available for its facilities at competitive prices.
10
Item 3. Legal Proceedings.
The Company is not currently a party to any material legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted during the fourth quarter of 2000 to a vote of
security holders, through the solicitation of proxies or in any other manner.
11
PART II
Item 5. Market for Company's Common Equity and Related Stockholder Matters.
General
The Company's authorized capital stock as of December 31, 2000 consisted of
30,000,000 shares of common stock, $0.01 par value and 10,000,000 shares of
preferred stock, $0.01 par value. As of December 31, 2000, the Company had
outstanding 9,859,481 shares of common stock and no shares of preferred stock.
The Company has reserved an aggregate of 4,750,000 shares of common stock for
issuance pursuant to its stock plans. (See Item 11--Director and Executive
Compensation, Stock Plans).
On February 10, 1999, the Company completed an initial public offering
("IPO") of its common stock. From February 8, 1999 to December 9, 1999, the
Company's common stock was quoted on the Nasdaq Stock Market's National Market
("Nasdaq") under the symbol "VLOG". Since December 10, 1999, the Company's
common stock has been traded on the American Stock Exchange under the symbol
"VX". Prior to the IPO, there was no established public trading market for the
Company's common stock. The high and low last sale prices for the Company's
common stock for the period from February 8, 1999, the date the Company's
common stock was first quoted on Nasdaq, through March 30, 2001, the last
trading day of the first quarter of 2001, are as follows:
High Low
----- -----
1999
First Quarter (from February 8)............................... $6.19 $3.75
Second Quarter................................................ 6.00 3.50
Third Quarter................................................. 4.50 2.63
Fourth Quarter................................................ 4.13 2.81
2000
First Quarter................................................. 7.75 3.00
Second Quarter................................................ 6.06 2.87
Third Quarter................................................. 8.81 3.81
Fourth Quarter................................................ 10.93 9.37
2001
First Quarter................................................. 9.90 6.10
As of March 30, 2001, the Company had outstanding 10,219,944 shares of
common stock held by approximately 136 shareholders of record.
Dividends
The Company did not declare any dividends on any class of equity during
2000, and does not intend to pay dividends in the foreseeable future.
Additionally, pursuant to the terms of the Indenture related to the Company's
November 1997 $75 million bond financing and the senior credit facility the
Company currently maintains with Coast Business Credit, the Company is
prohibited from declaring or paying any dividends or distributions other than
dividends or distributions payable solely in certain of the Company's
qualified capital stock.
Sales of Unregistered Securities
In 2000, the Company issued or sold an aggregate of 343,693 shares of common
stock at a price of $.01 per share to five warrant holders upon the exercise
of warrants issued as part of the Company's November 1997 $75 million bond
financing. These sales were completed without registration under the
Securities Act in reliance on Section 4(2) of the Securities Act of 1933
promulgated under the Securities Act of 1933 for transactions not involving a
public offering.
12
Item 6. Selected Financial Data.
Contemporaneously with the closing of the November 1997 bond financing,
Vialog consummated agreements to acquire six private conference service
bureaus, all of which became wholly-owned subsidiaries of Vialog Corporation.
Prior to November 12, 1997, Vialog did not conduct any operations, and all
activities conducted by it related to the acquisitions and the completion of
financing transactions to fund the acquisitions.
The following selected financial data of Vialog for the years ended December
31, 1996, 1997, 1998, 1999 and 2000 have been derived from its audited
consolidated financial statements.
Year Ended December 31,
----------------------------------------------------------
1996 1997 1998 1999 2000
---------- ---------- ---------- ---------- ----------
(in thousands, except share
and per share data)
Consolidated Statement
of Operations Data:
Net revenues............ $ -- $ 4,816 $ 46,820 $ 68,629 $ 77,587
Cost of revenues,
excluding
depreciation........... -- 2,492 24,321 32,387 34,304
Selling, general and
administrative
expenses............... 1,308 7,178 15,196 23,442 28,275
Depreciation expense.... -- 273 2,835 4,190 5,430
Amortization of goodwill
and intangibles........ -- 306 2,490 4,060 4,205
Non-recurring charges... -- 8,000 1,200 2,982 --
---------- ---------- ---------- ---------- ----------
Operating income
(loss)................. (1,308) (13,433) 778 1,568 5,373
Interest income
(expense), net......... 1 (1,866) (12,629) (13,524) (14,204)
---------- ---------- ---------- ---------- ----------
Loss before income
taxes.................. (1,307) (15,299) (11,851) (11,956) (8,831)
Income tax benefit
(expense).............. 522 (522) (26) (164) (325)
---------- ---------- ---------- ---------- ----------
Net loss................ $ (785) $ (15,821) $ (11,877) $ (12,120) $ (9,156)
Net loss per share--
basic and diluted...... $ (0.38) $ (5.48) $ (3.27) $ (1.53) $ (0.97)
Weighted average shares
outstanding............ 2,088,146 2,889,005 3,632,311 7,947,333 9,435,278
Other Financial Data:
EBITDA(1)............... $ (1,308) $ (4,854) $ 6,103 $ 9,818 $ 15,008
Cash flows provided by
(used in) operating
activities............. (178) (4,148) (5,418) 149 5,558
Cash flows used in
investing activities... (7) (53,762) (7,848) (37,455) (10,703)
Cash flows provided by
financing activities... 522 67,140 3,931 37,621 5,057
December 31,
----------------------------------------------------------
1996 1997 1998 1999 2000
---------- ---------- ---------- ---------- ----------
(in thousands)
Consolidated Balance
Sheet Data:
Cash and cash
equivalents............ $ 337 $ 9,567 $ 232 $ 547 $ 459
Working capital
(deficit)(3)........... (249) 7,259 (2,378) (3,923) (84,400)
Total assets............ 1,263 75,083 69,266 99,221 107,011
Total long-term debt,
including current
portion(2)............. -- 71,936 75,654 78,159 81,209
Stockholders' equity
(deficit).............. 287 (4,882) (16,592) 5,043 (1,992)
- --------
(1) EBITDA represents income from continuing operations before income taxes,
depreciation and amortization. EBITDA is not a measurement presented in
accordance with generally accepted accounting principles and should not
be considered as an alternative to net income as a measure of operating
results or as an alternative to cash flows as a better measure of
liquidity. EBITDA does not represent funds available for management's
13
discretionary use. The Company believes that EBITDA is accepted by the
telecommunications industry as a generally recognized measure of
performance and is used by analysts to report publicly on the performance
of telecommunications companies.
(2) Net of unamortized original issue discount of $4.2 million, $3.1 million,
$2.0 million and $940,000 at December 31, 1997, 1998, 1999 and 2000,
respectively.
(3) Includes $74.1 million carrying value of Senior Notes that mature in
November 2000. See Item 1 "Recent Business Developments" regarding our
plan to refinance these notes.
Access and CSI Selected Financial Data
Vialog reports operating results commencing with its inception on January 1,
1996. For the purpose of providing five full years of selected historical
financial data, as required under the Securities Act, the following historical
selected financial data is presented for the two largest acquired companies,
Telephone Business Meetings, Inc. ("Access") and Conference Source
International, Inc. ("CSI"). The selected data as of December 31, 1995 and
1996 and for the years ended December 31, 1995 and 1996 and the period January
1, 1997 to November 12, 1997, the date of their respective acquisitions, are
derived from, and should be read in conjunction with, Access' and CSI's
respective audited financial statements and the notes thereto appearing
elsewhere in this Report. The data presented below is neither comparable to
nor indicative of the Company's post-acquisition financial position or results
of operations.
Year Ended January 1,
December 31, 1997 to
------------------ November 12,
1995 1996 1997
------- --------- ------------
(In thousands, except share
and per share data)
Access Statement of Operations Data:
Net revenues................................. $ 6,508 $ 9,073 $ 10,945
Cost of revenues, excluding depreciation..... 3,021 3,564 4,791
Selling, general and administrative
expenses.................................... 2,484 3,332 4,124
Depreciation and amortization expense........ 496 630 823
------- --------- ---------
Operating income............................. 507 1,547 1,207
Interest expense, net........................ 152 174 132
------- --------- ---------
Earnings before income taxes................. 355 1,373 1,075
Income tax expense (benefit)................. (48) -- --
------- --------- ---------
Net income................................... $ 403 $ 1,373 $ 1,075
Net income per share--basic and diluted...... $644.80 $2,746.00 $2,150.00
Weighted average shares outstanding.......... 625 500 500
Access Other Financial Data:
EBITDA(1).................................... $ 1,003 $ 2,177 $ 2,030
Cash flows provided by operating activities.. 821 2,048 2,932
Cash flows used in investing activities...... (1,432) (795) (1,704)
Cash flows provided by (used in) financing
activities.................................. 771 (839) (1,549)
December 31,
------------------
1995 1996
------- ---------
(In thousands)
Access Balance Sheet Data:
Cash and cash equivalents.................... $ 390 $ 804
Working capital.............................. 141 759
Total assets................................. 3,672 4,605
Total long-term debt, including current
portion..................................... 2,416 2,052
Stockholders' equity......................... 872 1,770
14
January 1,
Year Ended 1997 to
December 31, November 12,
------------------ ------------
1995 1996 1997
------- --------- ------------
(In thousands, except share
and per share data)
CSI Statement of Operations Data:
Net revenues................................. $ 3,808 $ 5,868 $ 5,579
Cost of revenues, excluding depreciation..... 1,617 2,438 2,052
Selling, general and administrative
expenses.................................... 905 998 831
Depreciation expense......................... 292 393 356
------- --------- ---------
Operating income............................. 994 2,039 2,340
Interest expense, net........................ 160 165 120
------- --------- ---------
Net income................................... $ 834 $ 1,874 $ 2,220
Net income per share--basic and diluted...... $834.00 $1,874.00 $2,220.00
Weighted average shares outstanding.......... 1,000 1,000 1,000
CSI Other Financial Data:
EBITDA(1).................................... $ 1,286 $ 2,432 $ 2,696
Cash flows provided by operating activities.. 721 2,128 2,897
Cash flows used in investing activities...... (225) (41) (311)
Cash flows provided by (used in) financing
activities.................................. (144) (2,144) (2,801)
December 31,
------------------
1995 1996
------- ---------
(In thousands)
CSI Balance Sheet Data:
Cash and cash equivalents.................... $ 375 $ 318
Working capital (deficit).................... (322) 445
Total assets................................. 2,037 2,293
Total long-term debt, including current
portion..................................... 1,446 1,405
Stockholders' equity (deficit)............... 360 676
- --------
(1) EBITDA represents income from continuing operations before income taxes,
depreciation and amortization. EBITDA is not a measurement presented in
accordance with generally accepted accounting principles and should not
be considered as an alternative to net income as a measure of operating
results or as an alternative to cash flows as a better measure of
liquidity. EBITDA does not represent funds available for management's
discretionary use. The Company believes that EBITDA is accepted by the
telecommunications industry as a generally recognized measure of
performance and is used by analysts to report publicly on the performance
of telecommunications companies.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Vialog Corporation was founded on January 1, 1996. On November 12, 1997,
Vialog Corporation consummated agreements to acquire six private conference
service bureaus, all of which became wholly-owned subsidiaries of Vialog
Corporation. Prior to the original acquisitions, Vialog Corporation did not
conduct any operations, and all activities conducted by it were related to the
original acquisitions. On February 10, 1999, Vialog Corporation completed an
initial public offering of its common stock and consummated agreements to
acquire three private conference service bureaus, all of which became wholly-
owned subsidiaries of Vialog Corporation. The following Management's
Discussion and Analysis of Financial Condition and Results of Operations
should be read in conjunction with the consolidated financial statements and
related notes thereto for the years ended December 31, 1998, 1999 and 2000,
and the financial statements and related notes thereto of certain operating
centers prior to their acquisition for the years ended December 31, 1995,
1996, 1997 and 1998 and "Selected Financial Data" appearing elsewhere in this
Report.
15
On October 1, 2000, Vialog Corporation reached a definitive agreement to be
acquired by France-based Genesys S.A. (Genesys Conferencing), the largest
independent global teleconferencing specialist. The combination of Genesys and
Vialog will create the world's largest specialist provider of conferencing
services, based on 1999 revenues. The combined proxy statement and
registration statement relating to the acquisition, filed by Genesys S.A. on
Form F-4, was declared effective by the U.S. Securities and Exchange
Commission on February 12, 2001. On March 23, 2001, Vialog shareholders
approved the acquisition of Vialog by Genesys and the Genesys shareholders
approved the capital increase required for the acquisition of Vialog.
Additionally, on March 22, 2001, Vialog and Genesys received commitments from
a bank group for a $125 million senior credit facility that will permit Vialog
Corporation to refinance its outstanding debt following its acquisition by
Genesys. Availability of the credit facility is subject to due diligence,
documentation and other customary conditions for a facility of this kind. The
closing of the acquisition of Vialog by Genesys is expected to occur in
conjunction with the closing of the senior credit facility, which is expected
to occur by the end of April 2001.
Introduction
The Company's net revenues are derived primarily from fees charged to
customers for audioconferencing services as well as videoconferencing and
enhanced and customized communication services. Cost of revenues, excluding
depreciation, consists primarily of long distance telephone and network
charges, salaries and benefits for conference operators and reservationists
and maintenance of telephone bridging equipment. Selling, general and
administrative expenses consist primarily of compensation and benefits to
sales and marketing personnel, executive officers and general and
administrative employees, marketing expenses, occupancy costs and professional
fees.
Prior to the acquisitions, the operating centers were managed as independent
private companies, and, as such, their results of operations reflect different
tax structures (S corporations and C corporations) which have influenced,
among other things, their levels of historical compensation. Certain officers
and employees of the operating centers agreed to reductions in their
compensation and benefits in connection with the acquisitions. The difference
between the historical compensation and benefits of such individuals and the
compensation and benefits they agreed to accept subsequent to the acquisitions
is referred to as "Compensation Differential." This Compensation Differential
and the related income tax effect are included in Note 2 of the Company's
consolidated financial statements included elsewhere herein.
Vialog Corporation
Results of Operations
Year Ended December 31, 2000 Compared to Year Ended December 31, 1999
Net revenue. Net revenue for fiscal 2000 increased to $77.6 million as
compared to $68.6 million for fiscal year 1999, an increase of 13%. The
increase was primarily due to increased call volumes for audio and video
conferencing services as well as the acquisition of three private conference
service bureaus on February 10, 1999, the full year results of which are
reflected in 2000. For comparative purposes, the 1999 net revenues
attributable to the consolidated operating centers have been included with the
surviving operating centers' net revenues. The major components of the
increase were (i) an increase in the Reston operating center's net revenues of
$3.2 million from $30.6 million in 1999 to $33.8 million in 2000, an increase
of 10%, (ii) an increase in the Montgomery operating center's net revenues of
$3.3 million, from $18.6 million in 1999 to $21.9 million in 2000, an increase
of 18% and (iii) an increase in the Chanhassen operating center's net revenues
of $3.1 million, from $12.6 million in 1999 to $15.7 million in 2000, an
increase of 25%. These increases were partially offset by a decrease in the
Bedford operating center's net revenues of $600,000 which was primarily
attributable to decreased volume and transitioning of some traffic to other
centers.
16
Cost of revenues, excluding depreciation. Cost of revenues, excluding
depreciation, increased approximately $1.9 million, or 6%, from $32.4 million
in 1999 to $34.3 million in 2000, but decreased as a percentage of revenue
from 47.2% in 1999 to 44.2% in 2000. For comparative purposes, the 1999 cost
of revenues, excluding depreciation, attributable to the consolidated
operating centers have been included with the surviving operating centers'
cost of revenues, excluding depreciation. The dollar increase was primarily
due to (i) an increase in the Reston operating center's cost of revenues,
excluding depreciation, of $1.1 million related to increased
telecommunications costs and personnel and related costs associated with
increased call volumes, (ii) an increase in the Chanhassen operating center's
cost of revenues, excluding depreciation, of approximately $900,000 related to
increased volume, and (iii) an increase of approximately $400,000 related to
information technology related costs and other technology infrastructure
improvements. These increases were partially offset by (i) a net decrease in
the Bedford operating center's cost of revenues, excluding depreciation, of
approximately $300,000 which was primarily attributable to decreased volume
and transitioning of some traffic to other centers and (ii) a decrease in the
Montgomery operating center's cost of revenues, excluding depreciation, of
approximately $200,000 which was attributable to long distance cost savings
experienced as a result of migrating traffic to lower cost long distance
service providers during 1999 and 2000. The decrease as a percentage of
revenues was primarily due to an overall reduction in telecommunications cost
per minute resulting from the negotiation of lower cost telecommunication
contracts and the favorable impact resulting from the acquisition of the three
operating centers on February 10, 1999.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $4.8 million, or 21%, from $23.4 million in
1999 to $28.3 million in 2000. The increase primarily reflects the increases
in (i) personnel, commissions and related expenses associated with higher
sales volume, (ii) expansion of the Company's marketing, market research and
communications programs, (iii) investments in the Ready-to-Meet product and
web conferencing segment, (iv) increased staffing and outside services in the
general and administrative area, (v) approximately $700,000 in additional
provision for uncollectible accounts resulting primarily from the
implementation of a new billing system in 2000 and (vi) a $1.7 million write-
off of costs relating to the Company's exchange offer for its senior notes
which was discontinued because of the Company's pending acquisition by Genesys
Conferencing. During 1999, the Company wrote off approximately $1.2 million of
costs associated with the departure of the Company's Chief Executive Officer
and other management staff.
Depreciation and amortization expense. Depreciation expense increased $1.2
million from $4.2 million in 1999 to $5.4 million in 2000. The increase was
primarily due to additions to property and equipment as well as a full year of
depreciation during 2000 on the acquired property and equipment related to the
acquisition of the three operating centers on February 10, 1999. In addition,
amortization of goodwill and intangibles increased approximately $145,000 from
$4.1 million to $4.2 million which represents adjustments to the fair value
and estimated useful lives of goodwill at the end of 1999 related to the three
operating centers acquired on February 10, 1999.
Non-recurring charges. The results for the year ended December 31, 1999
include a non-recurring charge of approximately $3.0 million, which was
incurred during the second quarter of 1999 and related to the consolidation of
four of the Company's operating centers. The operating centers affected
include Oradell, New Jersey and Danbury, Connecticut, which the Company closed
in the third quarter of 1999; and Houston, Texas, and Palm Springs,
California, which were closed in the fourth quarter of 1999. In conjunction
with these closings, the Company expanded its other facilities to accommodate
the transitioned business. In addition, the Company relocated its corporate
offices during the second quarter of 2000 and combined its Cambridge operating
center with its corporate offices during the third quarter of 2000. The non-
recurring charge included (i) approximately $1.2 million associated with
facility lease costs from the exit dates through the lease termination dates
(net of estimated sublease income), (ii) $860,000 associated with personnel
reductions of approximately 130 conference coordinators, customer service,
technical support, and general and administrative positions, (iii) $683,000
associated with the impairment of intangible assets, (iv) $150,000 associated
with legal fees and other exit costs, and (v) $114,000 associated with the
write-off of leasehold improvements. As of December 31, 2000, the Company paid
out approximately $1.7 million related primarily to personnel reductions and
facility closings and wrote off approximately $891,000 of intangible assets
and leasehold improvements related to the closed operating centers.
17
Components of the non-recurring charge recorded in 1999 and amounts incurred
through December 31, 2000 are as follows:
Amount Amount
1999 Incurred Balance Incurred Adjustments Balance
Charge 1999 12/31/99 2000 to Charge 12/31/00
------ -------- -------- -------- ----------- --------
($000's)
People related costs.... $ 860 $ 401 $ 459 $ 512 $ 53 $--
Facility related costs.. 1,175 139 1,036 495 (147) 394
Other related costs..... 150 150 -- -- --
Impairment of intangible
assets and leasehold
improvements........... 797 695 102 196 94 --
------ ------ ------ ------ ----- ----
Totals................ $2,982 $1,385 $1,597 $1,203 $ -- $394
====== ====== ====== ====== ===== ====
Interest expense, net. Interest expense, net increased $680,000 from $13.5
million in 1999 to $14.2 million in 2000. The increase was primarily due to
(i) $701,000 of interest expense related to borrowings from the Company's
revolving credit facility and (ii) $75,000 in increased loan fees related to
the credit facility. These increases were partially offset by (i) $67,000 in
reduced interest expense related to expired capital lease obligations and (ii)
increased interest income of approximately $29,000 due to increased cash
balances.
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
Net revenue. Net revenue for fiscal 1999 increased to $68.6 million as
compared to $46.8 million for fiscal year 1998, an increase of 47%. The
increase was primarily due to increased call volumes for audio and video
conferencing services, as well as the acquisition of three private conference
service bureaus on February 10, 1999. The major components of the increase
were (i) an increase in the Reston operating center's net revenues from $18.4
million to $27.4 million, an increase of 49% (ii) and an increase of $15.8
million related to the Chanhassen (formerly Chaska), Houston and Palm Springs
operating centers which were acquired on February 10, 1999 and included in the
Company's consolidated results beginning February 11, 1999. These increases
were partially offset by a revenue decrease of approximately $3.3 million from
the loss of two outsourcing customers that merged with competitors of the
Company.
Cost of revenues, excluding depreciation. Cost of revenues, excluding
depreciation, increased approximately $8.1 million, or 33%, from $24.3 million
in 1998 to $32.4 million in 1999, but decreased as a percentage of revenue
from 51.9%, in 1998 to 47.2% in 1999. The dollar increase was primarily due to
(i) an increase in the Reston Center's cost of revenues of $3.9 million
related to increased volume, and (ii) an increase of $5.9 million relating to
the Chanhassen, Houston and Palm Springs operating centers which were acquired
on February 10, 1999 and included in the Company's consolidated results
beginning February 11, 1999. These increases were offset by a cost of revenue
decrease of $1.2 million in the Montgomery operating center caused primarily
by the loss of two major customers that merged with competitors of the
Company. The decrease as a percentage of revenues was primarily due to an
overall reduction in telecommunications cost per minute resulting from the
negotiation of lower cost telecommunication contracts and the favorable impact
resulting from the acquisition of the three operating centers on February 10,
1999.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $8.2 million, or 54%, from $15.2 million in
1998 to $23.4 million in 1999. The increase primarily reflects the increases
in (i) personnel, commissions and related expenses associated with higher
sales volume, (ii) expansion of the Company's marketing, market research and
communications programs, (iii) investments in the Ready-to-Meet and
WebConferencing segments, (iv) increased staffing and outside services in the
general and administrative area and (v) $1.2 million of costs associated with
the departure of the former Chief Executive Officer and other management
staff.
Depreciation and amortization expense. Depreciation expense increased $1.4
million from $2.8 million in 1998 to $4.2 million in 1999. The increase was
primarily due to additions to property and equipment as well as
18
the acquired property and equipment related to the acquisition of the three
operating centers on February 10, 1999. In addition, amortization of goodwill
and intangibles increased $1.6 million from $2.5 million to $4.1 million which
represents amortization expense related to the three operating centers
acquired on February 10, 1999.
Non-recurring charges. The results for the year ended December 31, 1999
include a non-recurring charge of approximately $3.0 million, which was
incurred during the second quarter of 1999 and related to the consolidation of
four of the Company's operating centers as discussed more fully above.
The results for the year ended December 31, 1998 include a non-recurring
charge of $1.2 million related to the consolidation of the Atlanta and
Montgomery operating centers. In accordance with the consolidation plan, the
Atlanta operating center remained staffed through January 1999, after which
time the Atlanta facility was vacated and its traffic managed by conference
coordinators in the Montgomery operating center as well as other operating
centers. The non-recurring charge included (i) $373,000 associated with
personnel reductions of approximately 45 operator, customer service, technical
support and general and administrative positions in the Atlanta operating
center, (ii) $400,000 associated with lease costs for the Atlanta facility
from the exit date through the lease termination date (net of estimated
sublease income), (iii) $135,000 associated with legal fees and other exit
costs, (iv) $77,000 associated with the disposal of furniture and equipment in
both the Atlanta and Montgomery operating centers, and (v) $215,000 associated
with the impairment of intangible assets (assembled workforce) in the Atlanta
operating center. As of December 31, 2000, approximately $628,000 of such
costs had been paid.
Components of the non-recurring charge recorded in 1998, amounts incurred
through December 31, 2000, and adjustments to the charge are as follows:
Amount Amount Amount
1998 Incurred Balance Incurred Adjustments Balance Incurred Balance
Charge 1998 21/31/98 1999 to Charge 12/31/99 2000 12/31/00
------ -------- -------- -------- ----------- -------- -------- --------
($000's)
People related costs.... $ 373 $315 $ 58 $ 4 $ (54) $-- $-- $--
Facility related costs.. 400 -- 400 159 202 443 139 304
Other related costs..... 135 8 127 3 (124) -- -- --
Impairment of intangible
assets and leasehold
improvements........... 292 1 291 267 (24) -- -- --
------ ---- ---- ---- ----- ---- ---- ----
Totals................ $1,200 $324 $876 $433 $ -- $443 $139 $304
====== ==== ==== ==== ===== ==== ==== ====
Of the remaining balance from the 1998 and 1999 restructurings,
approximately $216,000 is included in accrued expenses at December 31, 2000.
Interest expense, net. Interest expense, net increased $895,000 from $12.6
million in 1998 to $13.5 million in 1999. The increase was primarily due to
$539,000 of interest expense related to borrowings from the Company's
revolving credit facility executed in the fourth quarter of 1998, $130,000 in
increased loan fees related to the credit facility and decreased interest
income of $230,000 related to reduced cash balances.
Liquidity and Capital Resources
The Company has funded its operations primarily through a senior debt
offering in 1997, a credit facility initiated in 1998 and its initial public
stock offering in February 1999. Additionally, in connection with the merger
agreement with Genesys Conferencing, Vialog and Genesys received commitments
from a bank group for a $125 million senior credit facility that will permit
Vialog Corporation to refinance its outstanding debt following its acquisition
by Genesys. Availability of the credit facility is subject to due diligence,
documentation and other customary conditions for a facility of this kind and
is expected to be completed by the end of April 2001. Upon closing, the
availability on the facility is expected to provide adequate financing to fund
the Company's operations for the foreseeable future.
19
The Company generated positive cash flows from operating activities of $5.6
million in 2000 versus $149,000 in 1999 and a negative $5.4 million in 1998
primarily due to increased revenue, reduced telecommunications costs, and
reduced personnel and facility related costs resulting from the consolidation
of various operating centers. Cash used in investing activities of $10.7
million, $37.5 million and $7.8 million for the years ended December 31, 2000,
1999 and 1998, respectively, includes purchases of property, plant and
equipment of $10.7 million, $8.4 million and $7.4 million, respectively.
Additionally, cash used in investing activities during 1999 includes cash paid
in connection with the acquisitions of operating centers of $29.1 million and
cash used in investing activities during 1998 includes $493,000 related to
deferred acquisition costs. Cash provided by financing activities of $5.1
million, $37.6 million, and $3.9 million for the years ended December 31,
2000, 1999 and 1998, respectively, represent issuance of common stock and
long-term debt and net advances on the Company's line of credit, offset by
payments of previously issued debt and payments of indebtedness of the
original six acquired private conference service bureaus. Additionally, cash
provided by financing activities during 1998 includes proceeds from the
initial public offering occurring on February 10, 1999.
During the first quarter of 2000, Vialog commenced implementation of a new
billing system. As previously announced, this new system will enable Vialog to
provide on-line, web-based billing, flexible ratings and bill presentation
options, ease of implementing billing for new services and improved efficiency
in the bill production process. In conjunction with this new billing system,
Vialog has converted from per-call billing to monthly billing for many of its
customers. Primarily as a result of this change, as well as the need to adapt
the new system to meet the specific billing formats requested by customers,
the Company has experienced an increase in the aging of its accounts
receivable, as well as a short-term disruption in cash flow. Vialog
anticipates that as the benefits of the new billing system are realized and as
the Company has continued to increase its workforce in the billing and
receivables area, the Company's receivables aging and cash flow will improve.
On November 12, 1997, Vialog completed a private placement of $75.0 million
of senior notes. The senior notes bear interest at 12.75% per annum, payable
semi-annually on May 15 and November 15 of each year, commencing May 15, 1998.
The senior notes are guaranteed by the operating centers and mature on
November 15, 2001. The senior notes are redeemable in whole or in part at the
option of Vialog on or after November 15, 1999 at 110% of the principal amount
thereof, and on or after November 15, 2000 at 105% of the principal amount
thereof until maturity, in each case together with accrued interest to the
date of redemption. In the event of a change in control, as defined in the
Indenture, the Company may be required to repurchase all of the outstanding
senior notes at 105% of the principal amount plus accrued interest and
additional interest, if any (101% of the principal amount if the Company can
satisfy a debt incurrence test under the Indenture, which test the Company
will likely not satisfy in connection with the Genesys Conferencing
acquisition). In conjunction with the announced acquisition of the Company by
Genesys Conferencing, the Company's debt will be refinanced to enable the
Company to pay or defease the senior notes concurrently within sixty days of
the acquisition. The Indenture contains restrictive covenants with respect to
the Company that among other things, create limitations (subject to certain
exceptions) on (i) the incurrence of additional indebtedness, (ii) the ability
of the Company to purchase, redeem or otherwise acquire or retire any common
stock or warrants, rights or options to acquire common stock, to retire any
subordinated indebtedness prior to final maturity or to make investments in
any person, (iii) certain transactions with affiliates, (iv) the ability to
materially change the present method of conducting business, (v) the granting
of liens on property or assets, (vi) mergers, consolidations and the
disposition of assets, (vii) declaring and paying any dividends or making any
distribution on shares of common stock, and (viii) the issuance or sale of any
capital stock of the Company's subsidiaries. The Indenture does not require
Vialog to maintain compliance with any financial ratios or tests, except with
respect to certain restrictive covenants noted above. At December 31, 2000 the
Company was in compliance with all covenants contained in the Indenture.
On October 6, 1998, the Company closed a two year, $15.0 million senior
credit facility with Coast Business Credit, a division of Southern Pacific
Bank. On May 10, 2000 and on November 10, 2000, certain terms of the credit
facility were amended. The senior credit facility, as amended, provides for
(i) a term loan in the principal
20
amount of $1.5 million, (ii) a term loan of up to 80% of the purchase price of
new and used equipment, not to exceed $9.0 million, and (iii) a revolving loan
based on a percentage of eligible accounts receivable. Loans under the senior
credit facility bear interest at the higher of 7% or interest rates ranging
from the prime rate plus 1 1/2% to the prime rate plus 2%, and interest is
based on a minimum outstanding principal balance of the greater of $5.0
million or 33% of the available senior credit facility. The senior credit
facility includes certain early termination fees. The senior credit facility
is secured by the assets of each of the operating centers and the assets of
Vialog Corporation, excluding the ownership interest in each of the operating
centers. In October 2000, the credit facility was extended for an additional
one year period. The Company is required to maintain compliance with certain
financial ratios and tests consisting of a debt service coverage ratio of not
less than 1.15:1 determined on a monthly basis and a minimum tangible net
worth level of not less than $5.0 million determined on an on-going basis. As
of December 31, 2000, the Company was in compliance with the senior credit
facility. As of December 31, 2000, the Company had outstanding $375,000 on the
term loan, $6.7 million on the equipment term loan, and $7.3 million on the
revolving loan.
On February 10, 1999, the Company completed an initial public offering for
the sale of 4,600,000 shares of common stock. The net proceeds from this
offering, after deducting underwriting discounts and commissions and estimated
offering expenses, were approximately $32.7 million. Of the net proceeds,
approximately $29.1 million was used on February 10, 1999 to complete the
acquisitions, in separate transactions, of all of the outstanding capital
stock of A Business Conference-Call, Inc. ("ABCC"), Conference Pros
International, Inc. ("CPI"), and A Better Conference, Inc. ("ABCI"). In
addition, approximately $305,000 of indebtedness was paid to the former
stockholder of one of the acquisitions. The remaining net proceeds of $3.3
million were used for working capital and general corporate purposes.
The Company anticipates that the combination of cash flow from operations
and borrowings and the refinancing of its outstanding debt following its
acquisition by Genesys Conferencing will meet or exceed its short-term and
long-term working capital needs. However, no assurances can be given that such
funds will be available when required or on terms favorable to the Company.
The Company is highly leveraged. This indebtedness requires the Company to
dedicate a significant portion of its cash flow from operations to service its
indebtedness and makes the Company more vulnerable to unfavorable changes in
general economic conditions.
Combined Operating Centers and Vialog Corporation
The combined operating centers' and Vialog Corporation's Statements of
Operations data for the years ended December 31, 1998, 1999 and 2000 do not
purport to present the financial results or the financial condition of the
combined operating centers and Vialog Corporation in accordance with generally
accepted accounting principles. Such data represents merely a summation of the
net revenues and cost of revenues, excluding depreciation of the individual
operating centers and Vialog Corporation on an historical basis, and excludes
the effects of pro forma adjustments. This combined data prior to the
acquisitions will not be comparable to and may not be indicative of the
Company's post-combination results of operations because the operating centers
were not under common control or management.
Results of Operations--Combined Operating Centers and Vialog Corporation
The following unaudited combined data of the operating centers and Vialog
Corporation on an historical basis are derived from the respective audited and
unaudited financial statements. Such data excludes the effects of pro forma
adjustments and is set forth as a percentage of net revenues for the periods
presented:
Year Ended December 31,
--------------------------------------------
1998 1999 2000
-------------- -------------- --------------
(Dollars in thousands)
Net revenues..................... $59,819 100.0% $70,539 100.0% $77,587 100.0%
Cost of revenues, excluding
depreciation.................... 29,096 48.6% 33,032 46.8% 34,304 44.2%
21
Year Ended December 31, 2000 Compared to Year Ended December 31, 1999
Net revenues. Revenues from all operating centers reflect an increase from
$70.5 million in 1999 to $77.6 million in 2000, an increase of $7.0 million,
or 10%. Overall, the increase was primarily due to increased call volumes for
audio and video conferencing services. The major components of the increase
were (i) an increase in the Reston operating center's net revenues of $3.2
million, or 11%, from $30.6 million in 1999 to $33.8 million in 2000, (ii) an
increase in the Montgomery operating center's net revenues of $2.9 million, or
15%, from $19.0 million in 1999 to $21.9 million in 2000, (iii) an increase in
the Chanhassen operating center's net revenues of $1.6 million, or 12%, all of
which were partially offset by (iv) a net decrease in the Bedford operating
center's net revenues of $700,000, or 10%. The net decrease in the Bedford
operating center was primarily attributable to decreased volume and
transitioning of some traffic to other centers.
Cost of revenues, excluding depreciation. Cost of revenues, excluding
depreciation, for the year ended December 31, 2000 increased $1.3 million, or
4%, from $33.0 million in 1999 to $34.3 million in 2000, while decreasing as a
percent of revenuesfrom 46.8% in 1999 to 44.2% in 2000. The dollar increase
was primarily due to (i) an increase in the Reston operating center's cost of
revenues, excluding depreciation, of $1.1 million, or 9%, from $12.9 million
in 1999 to $14.0 million in 2000, related to increased telecommunications
costs and personnel and related costs associated with increased call volumes,
(ii) an increase in the Chanhassen operating center's cost of revenues,
excluding depreciation, of approximately $500,000, or 10%, related to
increased volume, and (iii) an increase of approximately $400,000 related to
information technology related costs and other technology infrastructure
improvements. These increases were partially offset by (i) a net decrease in
the Bedford operating center's cost of revenues, excluding depreciation, of
approximately $300,000, or 11%, which was primarily attributable to decreased
volume and transitioning of some traffic to other centers and (ii) a decrease
in the Montgomery operating center's cost of revenues, excluding depreciation,
of approximately $400,000, or 5%, which was attributable to long distance cost
savings experienced as a result of migrating traffic to lower cost long
distance service providers during 1999 and 2000. The decrease as a percentage
of revenues was primarily due to an overall reduction in telecommunications
cost per minute resulting from the negotiation of lower cost telecommunication
contracts.
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
Net revenues. Revenues from all operating centers reflect an increase from
$59.8 million in 1998 to $70.5 million in 1999, an increase of $10.7 million,
or 18%. Overall, the increase was primarily due to increased call volumes for
audio and video conferencing services. The major components of the increase
were (i) an increase in the Reston operating center's net revenues of $9.0
million, or 49.4%, from $18.4 million in 1998 to $27.4 million in 1999, (ii) a
decrease in the Montgomery operating center's net revenues of $1.9 million, or
11.4%, from $17.1 million in 1998 to $15.2 million in 1999, caused primarily
by the loss of two major customers who merged with competitors of the Company,
(iii) an increase in the Chanhassen operating center's net revenues of $2.8
million, or 37.7%, from $7.5 million in 1998 to $10.3 million in 1999, and
(iv) an increase in the Cambridge operating center's net revenues of $922,000,
or 15.5% from $5.9 million in 1998 to $6.9 million in 1999.
Cost of revenues, excluding depreciation. Cost of revenues, excluding
depreciation for the year ended December 31, 1999 increased $3.9 million, or
13.6%, from $29.1 million in 1998 to $33.0 million in 1999, while decreasing
as a percent of revenues from 48.6% in 1998 to 46.8% in 1999. The dollar
increase was primarily attributable to (i) an increase in the Reston operating
center's cost of revenues, excluding depreciation, of $3.9 million, or 46.5%
from $8.5 million in 1998 to $12.4 million in 1999 resulting from increased
telecommunications costs and personnel and related costs associated with
increased call volumes, (ii) an increase in the Chanhassen operating center's
cost of revenues, excluding depreciation, of $994,000 or 41.8%, resulting from
increased telecommunications costs associated with increased call volumes as
well as increased operating costs due to increased staffing to support current
and projected revenue growth, and (iii) a decrease in the Montgomery operating
center's cost of revenues, excluding depreciation, of $1.3 million or 13.0%,
caused primarily by the loss of two major customers who merged with
competitors of the Company. The decrease as a percentage of revenues was
primarily due to an overall reduction in telecommunications cost per minute
resulting
22
from the negotiation of lower cost telecommunication contracts and the
favorable impact resulting from the acquisition of the three operating centers
on February 10, 1999.
New Accounting Pronouncements
In June, 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 changes the previous accounting
definition of "derivative" which focused on freestanding contracts like
options and forwards, including futures and swaps, expanding it to include
embedded derivatives and many commodity contracts. Under SFAS 133, every
derivative is recorded in the balance sheet as either an asset or liability
measured at its fair value. SFAS 133 requires that changes in the derivative
fair value be recognized currently in earnings unless specified hedge
accounting criteria are met. This Statement, as amended by SFAS 137, is
effective for fiscal years beginning after June 15, 2000. Earlier application
is allowed as of the beginning of any quarter beginning after issuance. The
adoption of this standard did not have a material impact on the Company's
consolidated financial statements.
In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation": an Interpretation of APB Opinion No. 25. This Interpretation
clarifies the application of APB No. 25 for certain issues, including: the
definition of an employee, the criteria for determining whether a plan
qualifies as a noncompensatory plan, the accounting consequence of
modifications to the terms of a previously fixed stock option or award, and
the accounting for an exchange of stock compensation awards in a business
combination. This Interpretation is effective July 1, 2000, but certain
conclusions apply to events occurring after December 15, 1998 or January 12,
2000. To the extent that this Interpretation covers events occurring during
the period after December 15, 1998, or January 12, 2000, but before the
effective date, the effects of applying this Interpretation are recognized on
a prospective basis from July 1, 2000. The adoption of this Interpretation did
not have a material impact on the Company's financial position, results of
operations or cash flows.
Access and CSI
The selected historical financial information presented in the tables below
for the selected operating centers is derived from, and should be read in
conjunction with, the respective audited financial statements and related
notes thereto of the individual operating centers included elsewhere herein
and "Access and CSI Selected Financial Data." The individual selected
financial information for Access and CSI is presented because Access and CSI
are the operating centers that are considered to represent a significant
percentage of the operating results of the Company. Specifically, Access and
CSI represented 29% and 57%, respectively, of the operating income of the
operating centers on a combined basis for the period from January 1, 1997 to
November 12, 1997. The selected historical financial information for all
operating centers on a combined basis, and Vialog Corporation is included
elsewhere herein.
Access
Founded in 1987, Access specializes in providing conferencing services to
numerous organizations, including financial institutions, government agencies,
trade associations and professional service companies. Access is headquartered
and maintains its operations center in Reston, Virginia.
23
Results of Operations--Access
The following table sets forth certain historical financial data of Access
and such data as a percentage of net revenues for the periods presented:
January 1, November 13,
Year Ended December 31, 1997 to 1997 to
-------------------------- November 12, December 31,
1995 1996 1997 1997
------------ ------------ ------------- ---------------
(In thousands, except percentages)
Net revenues............ $6,508 100.0% $9,073 100.0% $10,945 100.0% $ 1,620 100.0 %
Cost of revenues,
excluding
depreciation........... 3,021 46.4% 3,564 39.3% 4,791 43.8% 709 43.8 %
Selling, general and
administrative
expenses............... 2,484 38.2% 3,332 36.7% 4,124 37.7% 2,603 160.6 %
Depreciation and
amortization expense... 496 7.6% 630 6.9% 823 7.5% 183 11.3 %
------ ----- ------ ----- ------- ----- ------- ------
Operating income
(loss)................. $ 507 7.8% $1,547 17.1% $ 1,207 11.0% $(1,875) (115.7)%
====== ===== ====== ===== ======= ===== ======= ======
Periods January 1 to November 12, 1997 and November 13 to December 31, 1997
compared to Year Ended December 31, 1996
Net revenues. Net revenues increased from $9.1 million for the year ended
December 31, 1996 to $10.9 million and $1.6 million for the periods January 1
to November 12, 1997 and November 13 to December 31, 1997, respectively. The
increase in net revenues consisted of additional sales of conferencing
services, due to increased call volumes, to existing and new customers. Sales
to new customers were approximately $1.1 million and $167,000 for the periods
January 1 to November 12, 1997 and November 13 to December 31, 1997,
respectively. These increases reflect a substantial increase in net revenues
from audio and enhanced conferencing services, as well as revenues of
$228,000, $53,000 and $13,000 for video conferencing services for the periods
January 1 to November 12, 1997 and November 13 to December 31, 1997 and the
year ended December 31, 1996, respectively.
Cost of revenues, excluding depreciation. Cost of revenues, excluding
depreciation increased from $3.6 million for the year ended December 31, 1996
to $4.8 million and $709,000 for the periods January 1 to November 12, 1997
and November 13 to December 31, 1997, respectively. As a percentage of net
revenues, cost of revenues increased 4.5 percentage points, from 39.3% for the
year ended December 31, 1996 to 43.8% for each of the periods January 1 to
November 12, 1997 and November 13 to December 31, 1997. The percentage
increase is primarily the result of the substantial investment in personnel
and related costs made in video conferencing during the periods January 1 to
November 12, 1997 and November 13 to December 31, 1997.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased from $3.3 million for the year ended
December 31, 1996 to $4.1 million and $2.6 million for the periods January 1
to November 12, 1997 and November 13 to December 31, 1997, respectively. The
dollar increase was primarily the result of (I) a $2.2 million write-off of
in-process research and development costs during the period November 13 to
December 31, 1997, relating to the acquisition of Access by Vialog
Corporation, (ii) a $481,000 charge related to acquisition consulting services
provided to the former stockholders of Access in connection with the sale of
Access to Vialog Corporation and the write-off of a consulting agreement and
an agreement not to compete which were determined by Access to have no future
value as of November 12, 1997, and (iii) additional operating expenses
consistent with the increase in net revenues experienced by Access.
Depreciation and amortization expense. Depreciation and amortization expense
increased from $630,000 for the year ended December 31, 1996 to $823,000 and
$183,000 for the periods January 1 to November 12, 1997 and November 13 to
December 31, 1997, respectively. The dollar increase is the result of
additional property and equipment of $1.7 million and $380,000 acquired during
the periods January 1 to November 12, 1997 and November 13 to December 31,
1997, respectively, to support the growth in net revenues and the amortization
of goodwill and intangible assets since November 12, 1997, related to the
acquisition of Access by Vialog Corporation.
24
Year Ended December 31, 1996 compared to Year Ended December 31, 1995
Net revenues. Net revenues increased $2.6 million, or 39.4%, from $6.5
million for the year ended December 31, 1995 to $9.1 million for the year
ended December 31, 1996. The increase in net revenues consisted of additional
sales of audioconferencing services, due to increased call volumes, of $1.4
million and $1.2 million to existing and new customers, respectively.
Cost of revenues, excluding depreciation. Cost of revenues, excluding
depreciation increased $543,000, or 18.0%, from $3.0 million for the year
ended December 31, 1995 to $3.6 million for the year ended December 31, 1996.
The dollar increase was primarily attributable to increased telecommunications
costs related to increased call volume and occupancy costs and the salaries
and benefits for 16 additional operators. As a percentage of net revenues,
cost of revenues, excluding depreciation decreased 7.1 percentage points, from
46.4% for the year ended December 31, 1995 to 39.3% for the year ended
December 31, 1996.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $848,000, or 34.1%, from $2.5 million for
the year ended December 31, 1995 to $3.3 million for the year ended December
31, 1996. The dollar increase was primarily the result of increased occupancy
costs, non-recurring executive compensation and bad debt expense. As a
percentage of net revenues, selling, general and administrative expenses
decreased 1.5 percentage points from 38.2% for the year ended December 31,
1995 to 36.7% for the year ended December 31, 1996.
Depreciation and amortization expense. Depreciation and amortization expense
increased $134,000, or 27.0% from $496,000 for the year ended December 31,
1995 to $630,000 for the year ended December 31, 1996. The dollar increase is
the result of additional property and equipment of $783,000 acquired during
1996 to support the growth experienced in net revenues. As a percentage of net
revenues, depreciation expense decreased 0.7 percentage points from 7.6% for
the year ended December 31, 1995 to 6.9% for the year ended December 31, 1996.
Liquidity and Capital Resources--Access
The following table sets forth selected financial information from Access'
statements of cash flows:
Year Ended January 1, 1997 to
December 31, November 12, 1997
--------------- ------------------
1995 1996
------- ------
(In thousands)
Net cash provided by (used in):
Operating activities.................... $ 821 $2,048 $ 2,932
Investing activities.................... (1,432) (795) (1,704)
Financing activities.................... 771 (839) (1,549)
------- ------ -------
Net increase (decrease) in cash and cash
equivalents.............................. $ 160 $ 414 $ (321)
======= ====== =======
Access had positive cash flow from operations in each year ended December
31, 1995 and 1996 and the period January 1, 1997 to November 12, 1997. Cash
used in investing activities related primarily to the acquisition of property
and equipment. Net cash provided by financing activities was primarily the
result of borrowings on notes payable to finance the acquisition of property
and equipment. Net cash used in financing activities consisted of the
repayment of notes payable, principal payments under capital lease
obligations, payments to a former stockholder and distributions to
stockholders. Distributions to stockholders totaled $0, $475,000 and
$1,284,000 for the years ended December 31, 1995 and 1996 and the period
January 1, 1997 to November 12, 1997, respectively.
CSI
Founded in 1992, CSI specialized in providing audioconferencing services and
enhanced services to certain facilities-based and non-facilities-based
telecommunications providers. CSI maintained its operations center in
25
Atlanta, Georgia until January 1999, after which time the Atlanta facility was
vacated and its traffic managed by conference coordinators in the Montgomery
operating center as well as other operating centers.
Results of Operations--CSI
The following table sets forth certain historical financial data of CSI and
such data as a percentage of net revenues for the periods presented:
January 1, November 13,
Year Ended December 31, 1997 to 1997 to
-------------------------- November 12, December 31,
1995 1996 1997 1997
------------ ------------ ------------ ---------------
(In thousands, except percentages)
Net revenue............. $3,808 100.0% $5,868 100.0% $5,579 100.0% $ 854 100.0 %
Cost of revenues,
excluding
depreciation........... 1,617 42.5% 2,438 41.6% 2,052 36.8% 322 37.7 %
Selling, general and
administrative
expenses............... 905 23.8% 998 17.0% 831 14.9% 3,493 409.0 %
Depreciation and
amortization expense... 292 7.6% 393 6.7% 356 6.4% 168 19.7 %
------ ----- ------ ----- ------ ----- ------- ------
Operating income
(loss)................. $ 994 26.1% $2,039 34.7% $2,340 41.9% $(3,129) (366.4)%
====== ===== ====== ===== ====== ===== ======= ======
Periods January 1 to November 12, 1997 and November 13 to December 31, 1997
Compared to Year Ended December 31, 1996
Net revenues. Net revenues increased from $5.9 million in 1996 to $5.6
million and $854,000 for the periods January 1 to November 12, 1997 and
November 13 to December 31, 1997, respectively. The increase is primarily due
to increased revenues from CSI's two significant customers. Net revenues from
such customers represented 70.0% of CSI's net revenues for the year ended
December 31, 1996 and approximately 71.6% and 71.4% of CSI's net revenues for
the periods January 1 to November 12, 1997 and November 13 to December 31,
1997, respectively.
Cost of revenues, excluding depreciation. Cost of revenues, excluding
depreciation decreased slightly from $2.4 million in 1996 to $2.1 million and
$322,000 for the periods January 1 to November 12, 1997 and November 13 to
December 31, 1997, respectively. The decrease in cost of revenues, excluding
depreciation on increased call volumes was primarily the result of lower
telecommunications rates included in a contract which became effective in
November, 1996.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased from $998,000 in 1996 to $831,000 and $3.5
million for the periods January 1 to November 12, 1997 and November 13 to
December 31, 1997, respectively. The increase was primarily the result of a
$3.4 million write-off of in-process research and development costs relating
to the acquisition of CSI by Vialog Corporation.
Depreciation and amortization expense. Depreciation and amortization
expense increased from $393,000 for the year ended December 31, 1996 to
$356,000 and $168,000 for the periods January 1 to November 12, 1997 and
November 13 to December 31, 1997, respectively. The increase was the result of
additional property and equipment acquired to support the growth in net
revenues and the amortization of goodwill and intangible assets since November
12, 1997, related to the acquisition of CSI by Vialog Corporation.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Net revenues. Net revenues increased $2.1 million, or 54.1%, from $3.8
million in 1995 to $5.9 million in 1996. Virtually all of this increase was
the result of a $2.2 million increase in net revenues from two significant
customers of CSI. Net revenues from such customers represented 54.0% and 70.0%
of CSI's net revenues for the years ended December 31, 1995 and 1996,
respectively.
Cost of revenues, excluding depreciation. Cost of revenues, excluding
depreciation increased $821,000, or 50.8%, from $1.6 million in 1995 to $2.4
million in 1996. As a percentage of net revenues, cost of revenues,
26
excluding depreciation decreased 0.9 percentage points from 42.5% in 1995 to
41.6% in 1996. The dollar increase was primarily attributable to increased
telecommunications expenses associated with increased call volumes and costs
associated with the addition of nine operators.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $93,000, or 10.3%, from $905,000 in 1995 to
$998,000 in 1996. As a percentage of net revenues, selling, general and
administrative expenses decreased 6.8 percentage points from 23.8% in 1995 to
17.0% in 1996. This percentage decrease was primarily attributable to
spreading fixed costs over a larger revenue base.
Depreciation and amortization expense. Depreciation and amortization
expense increased $101,000, or 34.6%, from $292,000 for the year ended
December 31, 1995 to $393,000 for the year ended December 31, 1996. The
increase was the result of additional property and equipment acquired to
support the growth in net revenues.
Liquidity and Capital Resources--CSI
The following table sets forth selected financial information from CSI's
statements of cash flows:
Year Ended
December 31, January 1, 1997
-------------- to
1995 1996 November 12, 1997
----- ------- -----------------
(In thousands)
Net cash provided by (used in):
Operating activities...................... $ 721 $ 2,128 $ 2,897
Investing activities...................... (225) (41) (311)
Financing activities...................... (144) (2,144) (2,801)
----- ------- -------
Net increase (decrease) in cash and cash
equivalents................................ $ 352 $ (57) $ (215)
===== ======= =======
CSI had a positive cash flow from operations in each year ended December 31,
1995, 1996 and the period January 1, 1997 to November 12, 1997. Cash used in
investing activities in 1995, 1996 and the period January 1, 1997 to November
12, 1997 related solely to the acquisition of property and equipment. Cash
provided by financing activities consisted of the proceeds of borrowings on
long-term debt and from the refinancing of capital lease obligations. Cash
used in financing activities consisted of repayments of long-term debt and
capital lease obligations and distributions to stockholders. Stockholder
distributions totaled $1.6 million and $2.6 million for the year ended
December 31, 1996 and the period January 1, 1997 through November 12, 1997,
respectively. There were no stockholder distributions in 1995. As of November
12, 1997, CSI had a working capital deficit of $23,000.
Safe Harbor for Forward Looking Statements
The Company is including the following cautionary statements to make
applicable and take advantage of the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995 for any forward-looking statements
made by, or on behalf of, the Company in this Annual Report on Form 10-K.
Forward-looking statements include statements concerning plans, objectives,
goals, strategies, future events or performance and underlying assumptions and
other statements which are other than statements of historical facts. Such
forward-looking statements may be identified, without limitation, by the use
of the words "anticipates," "estimates," "expects," "intends," "plans,"
"predicts," "projects," and similar expressions. From time to time, the
Company may publish or otherwise make available forward-looking statements of
this nature. All such forward-looking statements, whether written or oral, and
whether made by or on behalf of the Company, are expressly qualified by these
cautionary statements and any other cautionary statements which may accompany
the forward-looking statements. In addition, the Company disclaims any
obligation to update any forward-looking statements to reflect events or
circumstances after the date hereof.
Forward-looking statements involve risks and uncertainties which could cause
actual results or outcomes to differ materially from those expressed in the
forward-looking statements. The Company's expectations, beliefs
27
and projections are expressed in good faith and are believed by the Company to
have a reasonable basis, including without limitation, management's
examination of historical operating trends, data contained in the Company's
records and other data available from third parties, but there can be no
assurance that management's expectations, beliefs or projections will result
or be achieved or accomplished. In addition to other factors and matters
discussed elsewhere herein, some of the important factors that, in the view of
the Company, could cause actual results to differ materially from those
discussed in the forward-looking statements include the following:
Substantial leverage and ability to service debt. The Company is highly
leveraged, with substantial debt service in addition to operating expenses and
planned capital expenditures. At December 31, 2000, the total indebtedness of
the Company was approximately $81.2 million, net of unamortized original issue
discount of $940,000. In October 1998, the Company closed a senior credit
facility for a principal amount of up to $15.0 million. As of December 31,
2000, the Company had approximately $14.4 million of borrowings outstanding
under its senior credit facility. In connection with the merger agreement with
Genesys Conferencing, Vialog and Genesys received commitments from a bank
group for a $125 million senior credit facility that will permit Vialog
Corporation to refinance its outstanding debt following its acquisition by
Genesys. Upon closing, the availability on the facility is expected to provide
adequate financing to fund the Company's operations for the foreseeable
future. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
If the anticipated acquisition of the Company by Genesys S.A., and the
related refinancing of the Company's indebtedness, do not occur, the Company's
level of indebtedness will have several important effects on its future
operations, including, without limitation, (i) a substantial portion of the
Company's cash flow from operations must be dedicated to the payment of
interest and principal on its indebtedness, (ii) covenants contained in the
Indenture and the senior credit facility require the Company to meet certain
financial tests, and other restrictions contained in the Indenture and the
senior credit facility limit its ability to borrow additional funds or to
dispose of assets, and may affect the Company's flexibility in planning for,
and reacting to, changes in its business, including possible acquisition
activities, (iii) the Company's leveraged position has substantially increased
its vulnerability to adverse changes in general economic, industry and
competitive conditions, and (iv) the Company's ability to obtain additional
financing for working capital, capital expenditures, acquisitions, general
corporate and other purposes may be limited. The Company's ability to meet its
debt service obligations and to reduce its total indebtedness will be
dependent upon the Company's future performance, which will be subject to
general economic, industry and competitive conditions as well as the closing
of the merger with Genesys Conferencing and the related debt refinancing
discussed above. There can be no assurance that the Company's business will
continue to generate cash flow at or above current levels. If the Company is
unable to generate sufficient cash flow from operations in the future to
service its debt, it may be required, among other things, to seek additional
financing in the debt or equity markets, to refinance or restructure all or a
portion of its indebtedness, to sell selected assets, or to reduce or delay
planned capital expenditures. There can be no assurance that any such measures
would be sufficient to enable the Company to service its debt, or that any of
these measures could be effected on satisfactory terms, if at all.
Restrictions imposed by lenders. The Indenture and the senior credit
facility contain a number of covenants that restrict the ability of the
Company to dispose of assets, merge or consolidate with another entity, incur
additional indebtedness, create liens, make capital expenditures or other
investments or acquisitions and otherwise restrict corporate activities. The
ability of the Company to comply with such provisions may be affected by
events that are beyond the Company's control. The breach of any of these
covenants could result in a default under the Indenture or the senior credit
facility, which would permit the holders of the senior notes and/or the lender
under the senior credit facility to declare all amounts borrowed thereunder to
be due and payable, together with accrued and unpaid interest. If the Company
were unable to repay its indebtedness to the lender under the senior credit
facility, such lender could proceed against any and all collateral securing
such indebtedness. In addition, as a result of these covenants, the ability of
the Company to respond to changing business and economic conditions and to
secure additional financing, if needed, may be significantly restricted, and
the Company may be prevented from engaging in transactions that might
otherwise be considered beneficial to the Company. Any of such events could
adversely impact the market for the Company's senior notes and common stock.
See "Substantial Leverage and Ability to Service Debt."
28
Competition. Several of the Company's current and potential competitors have
substantially greater financial, sales, marketing, managerial, operational and
other resources, as well as greater name recognition, than the Company. As a
result, competitors may be able to respond more effectively than the Company
to new or emerging technologies and changes in customer requirements, to
initiate or withstand significant price decreases or to devote substantially
greater resources than the Company in order to develop and promote new
services. Because Multipoint Control Units ("MCUs"), the equipment commonly
used to provide teleconferencing services, are not prohibitively expensive to
purchase or maintain, companies previously not involved in teleconferencing
could choose to enter the marketplace and compete with the Company. There can
be no assurance that new competitors will not enter the Company's markets or
that consolidations or alliances among current competitors will not create
significant new competition. In order to remain competitive, the Company will
be required to provide superior customer service and to respond effectively to
the introduction of new and improved services including Internet-based
services offered by its competitors. Any failure of the Company to accomplish
these tasks or otherwise to respond to competitive threats could have a
material adverse effect on the Company's business, financial condition,
results of operations and prospects and could adversely impact the market for
the Company's common stock.
The Company derived approximately 9% of its 2000 net revenues from IXCs and
LECs which outsource teleconferencing services provided to their respective
customers. These telecommunications companies have the financial capability
and expertise to deliver such services internally. There can be no assurance
that the Company's current IXC and LEC customers will not begin to provide the
teleconferencing services currently provided by the Company and pursue such
market actively and in direct competition with the Company. Moreover, the
Company expects to derive a portion of its future revenues from RBOCs that
enter the long distance market and outsource their teleconferencing services.
There can be no assurance that the RBOCs will be able to enter the long
distance market on a timely basis, if at all; that any RBOC entering the long
distance market will offer teleconferencing services; or that any IXC, LEC or
RBOC offering such services will outsource services or choose the Company as
the provider of such outsourced teleconferencing services. The failure of any
such event to occur could have a material adverse effect on the Company's
business, financial condition, results of operations and prospects and could
adversely impact the market for the Company's common stock.
Teleconferencing insourcing. Many of the Company's current and prospective
customers have sufficient resources to purchase the equipment and hire the
personnel necessary to establish and maintain teleconferencing capabilities
sufficient to meet their own respective teleconferencing needs. Moreover,
technological improvements will further enhance the ability of these customers
to establish internal teleconferencing facilities. There can be no assurance
that any of the Company's customers will not establish internal
teleconferencing facilities or expand existing facilities, then cease to use
the Company's services. The loss of any one or more of such customers could
cause a significant and immediate decline in net revenues, which could have a
material adverse effect on the Company's business, financial condition,
results of operations and prospects and could adversely impact the market for
the Company's common stock. See "Business--Customers" and "Business--
Competition."
Recent entry into web conferencing markets. Only one of the operating
centers offered web conferencing services in 2000, and to date no material
revenues have been generated from web conferencing services. Sales people,
reservationists, operators and technical support people are involved in
ongoing training programs. There can be no assurance that the Company will be
able to obtain significant business from web conferencing services or, if
obtained, that the Company has the ability to service such business. See
"Business--The Company's Conferencing Services."
Technological considerations. The Company currently derives a substantial
portion of its net revenues from the sale of audio teleconferencing services.
If the manufacturers of private branch exchanges ("PBXs"), the equipment used
by most businesses and institutions to handle their internal telephone
requirements, develop improved, cost-effective PBX capabilities for handling
teleconferencing calls with the quality and functionality of existing MCUs
used in the teleconferencing business, the Company's customers could choose to
purchase such equipment and hire the personnel necessary to service their
teleconferencing needs through internal
29
telephone systems. The loss of such customers could have a material adverse
effect on the Company's business, financial condition, results of operations
and prospects. Additionally, if internet technology can be modified to
accommodate multipoint voice transmission with audio quality comparable to
that of MCUs used in the teleconferencing business, the availability of such
technology could have a material adverse effect on the Company's business,
financial condition, results of operations and prospects and could adversely
impact the market for the Company's common stock. See "Business--Competition."
Long Distance Services Contracts. A significant portion of the Company's
direct costs are attributable to the purchase of local and long distance
telephone services. It has been management's experience that the costs of long
distance services have been decreasing over the past several years. If,
however, the costs of long distance services increase over time, the Company's
current purchasing strategy, which calls for shorter-term contracts, may place
it at a competitive disadvantage with respect to competitors that have entered
into longer-term contracts for long distance services. There can be no
assurance that competition in the long distance services market will continue
to increase, that any increased competition will reduce the cost of long
distance services or that the Company's purchasing strategy will result in
cost savings. In addition, if the Company experiences a shortfall in projected
volume, it may be required to pay a penalty under one or more of its
contracts. There can be no assurance that the Company's analysis of the future
costs of long distance services will be accurate, and the failure to predict
future cost trends accurately could have a material adverse effect on the
Company's business, financial condition, results of operations and prospects
and could adversely impact the market for the Company's common stock. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business--Suppliers."
Regulation. In general, the telecommunications industry is subject to
extensive regulation by federal, state and local governments. Although there
is little or no direct regulation in the United States of the core
conferencing services offered by the Company, various government agencies,
such as the Federal Communications Commission (the "FCC"), have jurisdiction
over some of the Company's current and potential suppliers of
telecommunications services, and government regulation of those services may
have a direct impact on the cost of the Company's conferencing services. There
can be no assurance that the FCC or other government agencies will not seek in
the future to regulate the Company as a common carrier and regulate the
prices, conditions or other aspects of the conferencing services offered by
the Company, that the FCC will not impose registration, certification or other
requirements on the provision of those services, or that the Company would be
able to comply with any such requirements. Additionally, changes in the
current federal, state or local legislation or regulation could have a
material adverse effect on the Company's business, financial condition,
results of operations and prospects and could adversely impact the market for
the Company's common stock. Moreover, government regulations in countries
other than the United States vary widely and may restrict the Company's
ability to offer its services in those countries. See "Business--Regulation."
Change of control. In the event of certain events causing a change of
control of the Company (as defined in the Indenture) the Company may be
required to repurchase all of the outstanding senior notes at 101% of the
principal amount, as the case may be, of the senior notes plus any accrued and
unpaid interest thereon, and additional interest (as defined in the
Indenture), if any, to the date of repurchase. The exercise by the holders of
the senior notes of their rights to require the Company to offer to purchase
senior notes upon a change of control could also cause a default under other
indebtedness of the Company, even if the change of control itself does not,
because of the financial effect of such repurchase on the Company. There can
be no assurance that in the event of a change of control, the Company will
have, or will have access to, sufficient funds, or will be contractually
permitted under the terms of outstanding indebtedness, to pay the required
purchase price for any senior notes. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
Potential fluctuation in quarterly results. Quarterly net revenues are
difficult to forecast because the market for the Company's services is
competitive and subject to variation. In addition, the consolidation of the
operating centers may result in unanticipated operational difficulties. The
Company's expenses are based, in part, on its expectations as to future net
revenues. If net revenues are below expectations, the Company may be unable
30
or unwilling to reduce expenses, and the failure to do so may have a material
adverse effect on the Company's business, financial condition, results of
operations and prospects. As a result, the Company believes that period-to-
period comparisons of its results of operations are not necessarily meaningful
and should not be relied upon as indications of future performance and could
adversely impact the market for the Company's common stock. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
The Company is exposed to market risk primarily from interest rates on its
$15.0 million senior credit facility with Coast Business Credit, a division of
Southern Pacific Bank. The credit facility provides for (i) a term loan in the
principal amount of $1.5 million, (ii) a term loan of up to 80% of the
purchase price of new and used equipment, not to exceed $9.0 million, and
(iii) a revolving loan based on a percentage of eligible accounts receivable.
Loans under the senior credit facility bear interest at the higher of 7% or
interest rates ranging from the prime rate plus 1 1/2% to the prime rate plus
2%, and interest is based on a minimum outstanding principal balance of the
greater of $5.0 million or 33% of the available credit facility.
The sensitivity analysis below, which hypothetically illustrates our
potential market risk exposure, estimates the effects of hypothetical sudden
and sustained changes in the applicable market conditions on 2000 earnings.
The sensitivity analysis presented does not consider any additional actions
the Company may take to mitigate its exposure to such changes. The market
changes, assumed to occur as of December 31, 2000, include a 50 basis point
and a 100 basis point change in market interest rates. The hypothetical
changes and assumptions may be different from what actually occurs in the
future.
As of December 31, 2000, the Company had no derivative financial instruments
to manage interest rate risk. As such, the Company is exposed to earnings and
fair value risk due to changes in interest rates with respect to its revolving
line of credit and its long-term obligations. As of December 31, 2000,
approximately 16.3% of the Company's credit facility and long-term obligations
were floating rate obligations. The detrimental effect on the Company's
earnings of the hypothetical 50 basis point and 100 basis point increase in
interest rates described above would be approximately $58,000 and $117,000,
respectively, before income taxes.
The Company does not have any other material market risk exposure.
31
Item 8. Financial Statements and Supplementary Data.
Set forth below is a listing of the Consolidated Financial Statements of the
Company with reference to the page numbers in this Form 10-K at which such
Statements are disclosed.
Page
Numbers
-------
HISTORICAL FINANCIAL STATEMENTS
Vialog Corporation
Independent Auditors' Report............................................ 34
Consolidated Balance Sheets............................................. 35
Consolidated Statements of Operations................................... 36
Consolidated Statements of Stockholders' Equity (Deficit)............... 37
Consolidated Statements of Cash Flows................................... 38
Notes to Consolidated Financial Statements.............................. 39
32
REPORT OF MANAGEMENT
The accompanying consolidated financial statements and related information
of Vialog Corporation and subsidiaries (the "Company") have been prepared by
management, which is responsible for their integrity and objectivity. The
statements have been prepared in conformity with accounting principles
generally accepted in the United States of America and necessarily include
some amounts based on management's best estimates and judgments.
Management is also responsible for maintaining a system of internal controls
as a fundamental requirement for the operational and financial integrity of
results. The Company has established and maintains a system of internal
controls designed to provide reasonable assurance that the books and records
reflect the transactions of the Company and that its established policies and
procedures are carefully followed. The Company's internal control system is
based upon standard procedures, policies and guidelines and organizational
structures that provide an appropriate division of responsibility and the
careful selection and training of qualified personnel.
The Company's accompanying consolidated financial statements have been
audited by KPMG LLP, independent certified public accountants, whose audit was
made in accordance with auditing standards generally accepted in the United
States of America. Management has made available to KPMG LLP all of the
Company's financial records and related data, as well as the minutes of
stockholders' and directors' meetings. Furthermore, management believes that
all representations made to KPMG LLP during its audit were valid and
appropriate. The Report of Independent Auditors appears below.
Kim A. Mayyasi Michael E. Savage
Chief Executive Officer Senior Vice President and CFO
and President
33
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Vialog Corporation:
We have audited the accompanying consolidated balance sheets of Vialog
Corporation and subsidiaries (the Company) as of December 31, 1999 and 2000,
and the related consolidated statements of operations, stockholders' equity
(deficit) and cash flows for each of the years in the three-year period ended
December 31, 2000. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Vialog
Corporation and subsidiaries as of December 31, 1999 and 2000, and the results
of their operations and their cash flows for each of the years in the three-
year period ended December 31, 2000, in conformity with accounting principles
generally accepted in the United States of America.
Our audits were made for the purpose of forming an opinion on the consolidated
financial statements taken as a whole. The supplementary consolidating
information in Schedule 1 is presented for purposes of additional analysis of
the consolidated financial statements rather than to present the financial
position, results of operations and cash flows of the individual companies.
This supplementary consolidating financial information is not a required part
of the basic financial statements. The supplementary consolidating information
referred to in this report has been subjected to the auditing procedures
applied in the audits of the consolidated financial statements and, in our
opinion, is fairly stated in all material respects in relation to the
consolidated financial statements taken as whole.
The accompanying financial statements and supplementary consolidating
information have been prepared assuming that the Company will continue as a
going concern. As discussed in Note 8 to the financial statements, the
Company's senior notes mature in November 2001. The Company has insufficient
earnings and cash flow to redeem the senior notes and has not secured
financing to redeem the senior notes, thus raising substantial doubt about its
ability to continue as a going concern. Management's plans, which are
dependent on its pending acquisition by Genesys S.A., are discussed in Note
16.
KPMG LLP
Boston, Massachusetts
February 12, 2001 (except with respect to the matters discussed in paragraphs
2, 3 and 4 of Note 16 which are dated April 13, March 23 and March 22, 2001,
respectively).
34
VIALOG CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
December 31, December 31,
1999 2000
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 547 $ 459
Accounts receivable, net of allowance for doubtful
accounts of $579 and $1,300 in 1999 and 2000, re-
spectively........................................ 11,637 18,513
Prepaid expenses................................... 435 489
Other current assets............................... 310 168
-------- --------
Total current assets............................. 12,929 19,629
Property and equipment, net.......................... 17,814 22,807
Deferred debt issuance costs......................... 3,801 3,735
Goodwill and intangible assets, net.................. 64,094 59,970
Other assets......................................... 583 870
-------- --------
Total assets..................................... $ 99,221 $107,011
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Revolving line of credit........................... $ 4,770 $ 7,341
Current portion of long-term debt.................. 2,332 76,954
Accounts payable................................... 5,216 15,569
Accrued interest expense........................... 1,215 1,215
Accrued expenses and other liabilities............. 3,319 2,950
-------- --------
Total current liabilities........................ 16,852 104,029
Long-term debt, less current portion................. 75,827 4,255
Other long-term liabilities.......................... 1,499 719
Commitments and contingencies
Stockholders' equity (deficit):
Preferred stock, $0.01 par value; 10,000,000 shares
authorized; none issued and outstanding........... -- --
Common stock, $0.01 par value; 30,000,000 shares
authorized; issued: 9,144,200 and 9,859,481 shares
in 1999 and 2000, respectively; outstanding:
9,133,569 and 9,848,850 shares in 1999 and 2000,
respectively...................................... 91 98
Additional paid-in capital......................... 45,602 47,716
Accumulated deficit................................ (40,603) (49,759)
Treasury stock, at cost; 10,631 common shares...... (47) (47)
-------- --------
Total stockholders' equity (deficit)............. 5,043 (1,992)
-------- --------
Total liabilities and stockholders' equity (defi-
cit)............................................ $ 99,221 $107,011
======== ========
See accompanying notes to consolidated financial statements.
35
VIALOG CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
Year Ended December 31,
-------------------------------
1998 1999 2000
--------- --------- ---------
Net revenues.................................. $ 46,820 $ 68,629 $ 77,587
Cost of revenues, excluding depreciation...... 24,321 32,387 34,304
Selling, general and administrative expense... 15,196 23,442 28,275
Depreciation expense.......................... 2,835 4,190 5,430
Amortization of goodwill and intangibles...... 2,490 4,060 4,205
Non-recurring charge.......................... 1,200 2,982 --
--------- --------- ---------
Operating income............................ 778 1,568 5,373
Interest expense, net......................... (12,629) (13,524) (14,204)
--------- --------- ---------
Loss before income tax expense.............. (11,851) (11,956) (8,831)
Income tax expense............................ (26) (164) (325)
--------- --------- ---------
Net loss.................................... $(11,877) $(12,120) $ (9,156)
========= ========= =========
Net loss per share--basic and diluted......... $ (3.27) $ (1.53) $ (0.97)
========= ========= =========
Weighted average shares outstanding........... 3,632,311 7,947,333 9,435,278
========= ========= =========
See accompanying notes to consolidated financial statements.
36
VIALOG CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(In thousands, except share data)
Common Stock Total
--------------- Additional Stockholders'
Par Paid-in Accumulated Treasury Equity
Shares Value Capital Deficit Stock (Deficit)
--------- ----- ---------- ----------- -------- -------------
Balance at December 31,
1997................... 3,486,380 $ 35 $11,689 $(16,606) $-- $ (4,882)
Options exercised....... 204,792 2 104 -- -- 106
Options granted to
employees.............. -- -- 47 -- -- 47
Issuance of common
stock.................. 2,500 -- 14 -- -- 14
Net loss................ -- -- -- (11,877) -- (11,877)
--------- ---- ------- -------- ---- --------
Balance at December 31,
1998................... 3,693,672 37 11,854 (28,483) -- (16,592)
Options exercised....... 405,297 3 329 -- (47) 285
Options granted to
employees.............. -- -- 511 -- -- 511
Exercise of warrants
related to 8% Notes
Payable dated February
24, 1997............... 99,696 1 324 -- -- 325
Exercise of warrants
related to 12 3/4%
Senior Notes due 2001.. 345,535 4 -- -- -- 4
Issuance of common stock
in connection with
initial public
offering............... 4,600,000 46 32,584 -- -- 32,630
Net loss................ -- -- -- (12,120) -- (12,120)
--------- ---- ------- -------- ---- --------
Balance at December 31,
1999................... 9,144,200 91 45,602 (40,603) (47) 5,043
Options exercised....... 371,588 4 2,072 -- -- 2,076
Options granted to
consultants............ -- -- 42 -- -- 42
Exercise of warrants
related to 12 3/4%
Senior Notes due 2001.. 343,693 3 -- -- -- 3
Net loss................ -- -- -- (9,156) -- (9,156)
--------- ---- ------- -------- ---- --------
Balance at December 31,
2000................... 9,859,481 $ 98 $47,716 $(49,759) $(47) $ (1,992)
========= ==== ======= ======== ==== ========
See accompanying notes to consolidated financial statements.
37
VIALOG CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended December 31,
----------------------------
1998 1999 2000
-------- -------- --------
Cash flows from operating activities:
Net loss........................................ $(11,877) $(12,120) $ (9,156)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation.................................... 2,835 4,190 5,430
Amortization of goodwill and intangibles........ 2,490 4,060 4,205
Amortization of debt issuance costs and debt
discount....................................... 2,994 3,170 3,263
Provision for doubtful accounts................. 216 413 1,129
Write-off of deferred offering costs............ -- -- 1,710
Loss on retirement of fixed assets.............. -- -- 28
Compensation expense for issuance of common
stock and options.............................. 47 52 42
Non-cash portion of non-recurring charges....... 292 797 --
Changes in operating assets and liabilities, net
of effects from acquisitions of businesses:
Accounts receivable............................. (1,921) (3,014) (8,005)
Prepaid expenses and other current assets....... (333) (80) 88
Other assets.................................... (293) 1,599 (1,703)
Accounts payable................................ 949 1,613 10,353
Accrued expenses................................ (1,124) (373) (1,023)
Other long-term liabilities..................... 307 (158) (803)
-------- -------- --------
Cash flows provided by (used in) operating ac-
tivities....................................... (5,418) 149 5,558
-------- -------- --------
Cash flows from investing activities:
Acquisitions of businesses, net of cash ac-
quired......................................... -- (29,095) --
Additions to property and equipment............. (7,355) (8,360) (10,703)
Deferred acquisition costs...................... (493) -- --
-------- -------- --------
Cash flows used in investing activities......... (7,848) (37,455) (10,703)
-------- -------- --------
Cash flows from financing activities:
Advances on line of credit, net................. 2,057 2,713 2,571
Proceeds from issuance of long-term debt and
warrants....................................... 3,306 2,806 4,999
Payments of long-term debt...................... (676) (2,021) (3,037)
Proceeds from issuance of common stock.......... 106 34,299 2,079
Deferred offering costs......................... (596) -- --
Deferred debt issuance costs.................... (266) (176) (1,555)
-------- -------- --------
Cash flows provided by financing activities..... 3,931 37,621 5,057
-------- -------- --------
Net increase (decrease) in cash and cash equiva-
lents........................................... (9,335) 315 (88)
Cash and cash equivalents at beginning of peri-
od.............................................. 9,567 232 547
-------- -------- --------
Cash and cash equivalents at end of period....... $ 232 $ 547 $ 459
======== ======== ========
Supplemental disclosures of cash flow informa-
tion:
Cash paid during the period for:
Interest........................................ $ 9,917 $ 10,369 $ 10,951
======== ======== ========
Taxes........................................... $ 8 $ 4 $ 122
======== ======== ========
Acquisitions of businesses:
Assets acquired................................. $ -- $ 31,041 $ --
Liabilities assumed and issued.................. -- (1,855) --
Common stock issued............................. -- -- --
-------- -------- --------
Cash paid....................................... -- 29,186 --
Less cash acquired.............................. -- (91) --
-------- -------- --------
Net cash paid for acquisitions of businesses.... $ -- $ 29,095 $ --
======== ======== ========
See accompanying notes to consolidated financial statements.
38
VIALOG CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Description of Business
Vialog Corporation ("the Company") was incorporated in Massachusetts on
January 1, 1996 as Interplay Corporation. In January 1997, the Company changed
its name to Vialog Corporation. For purposes of these Notes to Consolidated
Financial Statements, "the Company" means Vialog Corporation on a stand alone
basis prior to November 12, 1997 and Vialog Corporation and its consolidated
subsidiaries on and after November 12, 1997. The Company was formed to create
a national provider of conferencing services, consisting primarily of
operator-attended and operator-on-demand audioconferencing, as well as video
and Internet conferencing services. On November 12, 1997, the Company closed a
private placement of $75.0 million in senior notes due 2001 (the "Private
Placement"). Contemporaneously with the closing of the Private Placement, the
Company acquired six private conference service bureaus located in the United
States (See Note 2 "Acquisitions"). On February 10, 1999, the Company
completed an initial public offering of its common stock and consummated
agreements to acquire three private conference service bureaus located in the
United States (See Note 2 "Acquisitions").
Prior to November 12, 1997, the Company did not conduct any operations, and
all activities conducted by it related to the acquisitions and the completion
of financing transactions to fund the acquisitions.
On October 1, 2000, the Company reached a definitive agreement to be
acquired by France-based Genesys S.A. (Genesys Conferencing). The closing of
the acquisition of the Company by Genesys is expected to occur by the end of
April 2001 (See Note 16 "Acquisition and Refinancing"). The consolidated
financial statements do not include adjustments, if any, related to the
acquisition of the company by Genesys.
(b) Principles of Consolidation
The consolidated financial statements include the accounts of Vialog and its
subsidiaries. All significant intercompany accounts and transactions have been
eliminated in consolidation.
(c) Management Estimates
Management has made a number of estimates and assumptions relating to the
reporting of assets and liabilities and the disclosure of contingent assets
and liabilities to prepare these financial statements in conformity with
generally accepted accounting principles. Actual results could differ from
those estimates.
(d) Revenue Recognition
Revenue from conference calls is recognized upon completion of the call.
Revenue from all other services is recognized upon performance of the service.
(e) Cash and Cash Equivalents
Cash and cash equivalents includes cash on hand and short-term investments
with original maturities of three months or less.
(f) Property and Equipment
Property and equipment are recorded at cost. Depreciation of property and
equipment is provided on a straight-line basis over the estimated useful lives
of the respective assets. The estimated useful lives are as
39
VIALOG CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000--(Continued)
follows: three to ten years for office furniture, fixtures and equipment, five
to ten years for conferencing equipment, and three to five years for computer
equipment. Capitalized lease equipment and leasehold improvements are
amortized over the lives of the leases, ranging from three to ten years.
The Company capitalizes costs related to software obtained for internal use.
These costs are included in computer equipment and amortized accordingly.
During 1998, 1999 and 2000, these costs were approximately $90,000, $346,000
and $4.2 million, respectively.
(g) Goodwill and Intangible Assets
Goodwill and identifiable intangible assets, which consisted of assembled
workforce, developed technology, non-compete agreements and computer software
result from the excess of the purchase price over the net assets of businesses
acquired. Goodwill and intangibles are being amortized on a straight-line
basis over the following periods: 6 years for developed technology, 8 years
for assembled workforce, 3 years for computer software and 20 years for
goodwill, which represent their estimated useful lives. The non-compete
agreements are being amortized over their specified terms of 3 years. The
Company measures impairment of goodwill and intangible assets by considering a
number of factors as of each balance sheet date including (i) current
operating results of the applicable acquired companies, (ii) projected future
operating results of the applicable acquired companies, and (iii) any other
material event or circumstance that indicates the carrying amount of the
assets may not be recoverable. Recoverability of goodwill and intangible
assets is measured by a comparison of the carrying amount of the asset to
future undiscounted net cash flows expected to be generated by the acquired
company. If such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of the
assets exceeds the fair value of the assets.
(h) Impairment of Long-Lived Assets
The Company reviews its long-lived assets and certain identifiable
intangibles for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a comparison of
the carrying amount of an asset to future undiscounted net cash flows expected
to be generated by the asset. If such assets are considered to be impaired,
the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceeds the fair value of the assets. Assets to
be disposed of are reported at the lower of the carrying amount or fair value
less costs to sell.
(i) Research and Development
The Company maintains technical support and engineering departments that, in
part, develop features and products for group communications. In accordance
with SFAS No. 2, "Accounting for Research and Development Costs", the Company
charges to expense when incurred (included in cost of revenues) that portion
of the department costs which relate to research and development activities.
The remaining costs of these departments are charged to expense as incurred
and are included in cost of revenues and selling, general and administrative
expense. Research and development costs for the years ended December 31, 1998,
1999 and 2000 were approximately $961,000, $1.5 million and $954,000,
respectively.
(j) Stock-Based Compensation
In accordance with Statement of Financial Accounting Standards No. 123
("SFAS 123"), "Accounting for Stock-Based Compensation", the Company has
elected to account for stock options at intrinsic value under
40
VIALOG CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000--(Continued)
Accounting Principles Board Opinion No. 25 with disclosure of the effects of
fair value accounting on net income on a pro forma basis (See Note 14
"Employee Benefit Plans").
(k) Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
(l) Loss Per Share
The Company follows the provisions of Statement of Financial Accounting
Standards No. 128 ("SFAS 128"), "Earnings per Share." SFAS 128 requires the
presentation of basic earnings per share and diluted earnings per share for
all periods presented. As the Company has been in a net loss position for the
years ended December 31, 1998, 1999 and 2000, common stock equivalents of
1,994,209, 1,332,327 and 1,272,838 for the years ended December 31, 1998, 1999
and 2000, respectively, were excluded from the diluted loss per share
calculation as they would be antidilutive. As a result, diluted loss per share
is the same as basic loss per share, and has not been presented separately.
(m) New Accounting Pronouncements
In June, 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 changes the previous accounting
definition of "derivative" which focused on freestanding contracts like
options and forwards, including futures and swaps, expanding it to include
embedded derivatives and many commodity contracts. Under SFAS 133, every
derivative is recorded in the balance sheet as either an asset or liability
measured at its fair value. SFAS 133 requires that changes in the derivative
fair value be recognized currently in earnings unless specified hedge
accounting criteria are met. This Statement, as amended by SFAS 137, is
effective for fiscal years beginning after June 15, 2000. Earlier application
is allowed as of the beginning of any quarter beginning after issuance. The
adoption of this standard did not have a material impact on the Company's
consolidated financial statements.
In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation": an Interpretation of APB Opinion No. 25. This Interpretation
clarifies the application of APB No. 25 for certain issues, including: the
definition of an employee, the criteria for determining whether a plan
qualifies as a noncompensatory plan, the accounting consequence of
modifications to the terms of a previously fixed stock option or award, and
the accounting for an exchange of stock compensation awards in a business
combination. This Interpretation is effective July 1, 2000, but certain
conclusions apply to events occurring after December 15, 1998 or January 12,
2000. To the extent that this Interpretation covers events occurring during
the period after December 15, 1998, or January 12, 2000, but before the
effective date, the effects of applying this Interpretation are recognized on
a prospective basis from July 1, 2000. The adoption of this Interpretation did
not have a material impact on the Company's financial position, results of
operations or cash flows.
(2) ACQUISITIONS
On November 12, 1997, the Company acquired all of the issued and outstanding
stock of Telephone Business Meetings, Inc. ("Access"), Conference Source
International, Inc. ("CSI"), Kendall Square Teleconferencing, Inc. ("TCC"),
American Conferencing Company, Inc. ("Americo") and Communication
41
VIALOG CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000--(Continued)
Development Corporation ("CDC"), and substantially all of the net assets of
Call Points, Inc. ("Call Points") (together, the "Acquired Companies"). These
acquisitions occurred contemporaneously with the closing of the Private
Placement of a total of $75.0 million in senior notes due 2001 (See Note 8
"Long-Term Debt"). The acquisitions were accounted for using the purchase
method.
The following table sets forth, for each Acquired Company, the consideration
paid to its common stockholders in cash and in shares of common stock of the
Company.
Cash(1) Shares of
($000's) Common Stock
-------- ------------
Access................................................. $19,000 --
CSI.................................................... 18,675 --
Call Points............................................ 8,000 21,000
TCC.................................................... 3,645 166,156
Americo................................................ 1,260 267,826
CDC.................................................... 2,400 104,348
------- -------
Total Consideration.................................... $52,980 559,330
======= =======
- --------
(1) Excludes tax reimbursements of approximately $925,000 to certain
stockholders of certain of the Acquired Companies.
The total purchase price of the Acquired Companies was $57.6 million and
consisted of approximately $53.0 million in cash paid to the stockholders of
the Acquired Companies (the "Sellers"), $500,000 of acquisition costs, the
issuance of 559,330 shares of common stock to the Sellers and approximately
$925,000 related to tax reimbursements. The shares of common stock were valued
at $5.75 per share which represents the estimated fair market value based on
arms-length negotiations with the former stockholders of the Acquired
Companies. The total purchase price was allocated as follows (in thousands):
($000's)
--------
Working capital deficit............................................... $ (618)
Property and equipment, net........................................... 7,356
Goodwill and intangible assets........................................ 44,697
Purchased in-process research and development......................... 8,000
Other assets.......................................................... 200
Long-term liabilities................................................. (2,014)
-------
$57,621
=======
The purchase price exceeded the fair value of the net assets acquired by
$52.7 million of which $44.7 million was allocated to goodwill and other
intangibles which are being amortized over periods from 6 to 20 years. In
addition, at the time of the acquisitions, the Company repaid $2.2 million of
long-term debt of the Acquired Companies.
In connection with the acquisitions, the Company recorded a non-recurring
charge of $8.0 million related to the fair value of purchased in-process
research and development. The $8.0 million write-off of purchased research and
development noted above represents the amount of the purchase price of the
acquisitions allocated to incomplete research and development projects. This
allocation represents the estimated fair value based on risk-adjusted cash
flows related to the incomplete products. The acquired in-process research and
development represents engineering and test activities associated with the
introduction of new enhanced services and
42
VIALOG CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000--(Continued)
information systems. At the time of acquisition, the Acquired Companies were
working on projects that were essential to offering high quality, secure and
reliable products including unattended audioconferencing, video and Internet
conferencing, integrated voice response and broadcast fax services. Since
these had not yet reached technological feasibility and had no alternative
future uses, there could be no guarantee as to the achievability of the
projects or the ascribed values. Accordingly, these costs were expensed as of
the date of the acquisition.
On February 10, 1999, the Company acquired all of the issued and outstanding
stock of A Business Conference-Call, Inc. ("ABCC"), Conference Pros
International, Inc. ("CPI"), and A Better Conference, Inc. ("ABCI"). These
acquisitions occurred contemporaneously with the closing of the initial public
offering of the Company's common stock. Each of the acquisitions (together
with the Original Acquisitions, each an "Operating Center"; collectively, the
"Operating Centers") is a wholly-owned subsidiary of the Company. The
acquisitions were accounted for using the purchase method of accounting.
The total purchase price of the acquired companies was $29.1 million and
consisted of $28.4 million in cash paid to the stockholders of the acquired
companies, approximately $400,000 of acquisition costs and approximately
$300,000 related to tax reimbursements. The total purchase price was allocated
as follows (in thousands):
($000's)
--------
Working capital....................................................... $ 967
Property and equipment, net........................................... 1,657
Goodwill and intangible assets........................................ 27,422
Other assets.......................................................... 78
Long-term liabilities................................................. (1,010)
-------
$29,114
=======
The purchase price exceeded the fair value of the net assets by an estimated
$27.4 million. The excess was allocated to goodwill and other intangibles and
is being amortized over periods from 3 to 20 years. In addition, the Company
repaid $305,000 of long-term debt of the acquired companies.
The results of all the acquired companies have been included in the
Consolidated Statements of Operations from their date of acquisition. The
unaudited pro forma consolidated historical results for the years ended
December 31, 1998 and 1999 below assume that the acquisitions of ABCC, CPI and
ABCI occurred at the beginning of fiscal 1998.
1998 1999
------- --------
(Dollars in
thousands except
per share data)
Net revenues................................................. $59,819 $ 70,539
Net loss..................................................... $(9,300) $(11,511)
Net loss per share........................................... $ (1.13) $ (1.33)
The pro forma results include amortization of the goodwill and intangible
assets described above and reductions to selling, general and administrative
expenses related to compensation and benefits that were reduced for certain
officers and employees of ABCC, CPI and ABCI as a condition to closing the
acquisitions. The pro forma results are not necessarily indicative of the
results that would have been obtained had these events actually occurred at
the beginning of the period presented, nor are they necessarily indicative of
future consolidated results.
43
VIALOG CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000--(Continued)
(3) CASH, CASH EQUIVALENTS AND FINANCIAL INSTRUMENTS
The Company classifies all investments with an original maturity of less
than ninety days as cash equivalents and values them at cost which
approximates market. The Company's policy is to invest cash primarily in
income producing short-term instruments and to keep uninvested cash balances
at minimum levels.
The Company's financial instruments consist of cash, cash equivalents,
accounts receivable, accounts payable, other accrued liabilities and long-term
debt. Except for long-term debt, the carrying amounts of such financial
instruments approximate fair value due to their short maturities. The fair
value of the Company's long-term debt at December 31, 2000 is based on quoted
market values. The fair value of the senior notes included in long term debt
at March 31, 2001 is estimated at 100% of face value. The estimated fair value
has been determined by the Company using available market information. This
estimate is not necessarily indicative of the amounts that the Company would
realize in the event of debt retirement.
(4) ACCOUNTS RECEIVABLE--ALLOWANCE FOR DOUBTFUL ACCOUNTS
Prior to the acquisitions discussed in Note 2 "Acquisitions", the Company
had no accounts receivable. At acquisition, the accounts receivable of the
Acquired Companies were recorded at fair market value. The activity in the
allowance for doubtful accounts for the years ended December 31, 1998, 1999
and 2000 is presented below. Included in the category "net increase/deductions
from allowance" for the years ended December 31, 1998, 1999 and 2000 were
write-offs totaling approximately $86,000, $189,000 and $408,000,
respectively, net of recoveries on previously written-off accounts and
reserves included as part of the acqusitions occuring on February 10, 1999.
Balance Net Increase/
at Provision Deductions Balance
Beginning Charged to from at End
of Period Operations Allowance of Period
--------- ---------- ------------- ---------
($000's)
Year Ended December 31,
2000................... $579 $1,129 $(408) $1,300
Year Ended December 31,
1999................... $164 $ 413 $ 2 $ 579
Year Ended December 31,
1998................... $ 32 $ 216 $ (84) $ 164
(5) PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
December 31,
-----------------
1999 2000
------- --------
($000's)
Office furniture and equipment............................ $ 2,416 $ 2,498
Conferencing equipment.................................... 13,913 18,986
Computer equipment........................................ 3,916 4,358
Capitalized lease equipment............................... 825 825
Leasehold improvements.................................... 1,613 2,060
Computer software......................................... 611 4,856
------- --------
23,294 33,583
Less: accumulated depreciation............................ (5,480) (10,776)
------- --------
$17,814 $ 22,807
======= ========
44
VIALOG CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000--(Continued)
(6) GOODWILL AND INTANGIBLE ASSETS
Goodwill and intangible assets consist of the following:
December 31,
-----------------
1999 2000
------- --------
($000's)
Goodwill.................................................. $66,833 $ 66,833
Developed technology...................................... 1,930 1,930
Assembled workforce....................................... 870 870
Non-compete agreements.................................... 1,173 1,173
Computer software......................................... 144 144
------- --------
70,950 70,950
Less: accumulated amortization............................ (6,856) (10,980)
------- --------
$64,094 $ 59,970
======= ========
(7) REVOLVING LINE OF CREDIT
On October 6, 1998, the Company closed a two year, $15.0 million senior
credit facility with Coast Business Credit, a division of Southern Pacific
Bank. On May 10, 2000 and on November 10, 2000, certain terms of the credit
facility were amended. The senior credit facility, as amended, provides for
(i) a term loan in the principal amount of $1.5 million, (ii) a term loan of
up to 80% of the purchase price of new and used equipment, not to exceed $9.0
million, and (iii) a revolving loan based on a percentage of eligible accounts
receivable. Loans under the senior credit facility bear interest at the higher
of 7% or interest rates ranging from the prime rate plus 1 1/2% to the prime
rate plus 2%, and interest is based on a minimum outstanding principal balance
of the greater of $5.0 million or 33% of the available credit facility. The
senior credit facility includes certain early termination fees. The senior
credit facility is secured by the assets of each of the Acquired Companies and
the assets of Vialog Corporation, excluding the ownership interest in each of
the Acquired Companies. In October 2000, the credit facility was extended for
an additional one year period. The Company is required to maintain compliance
with certain financial ratios and tests consisting of a debt service coverage
ratio and a minimum tangible net worth level. The Company is in compliance
with all covenants contained in the credit facility at December 31, 2000.
The average amount of short-term borrowings outstanding during 2000 was
approximately $5.9 million with a maximum outstanding of approximately $8.4
million. The weighted average interest rate for the year ended December 31,
2000 was 10.77%. (See Note 16 "Acquisition and Refinancing").
(8) LONG-TERM DEBT
Long-term debt consists of the following:
December 31, December 31,
1999 2000
------------ ------------
($000's)
12 3/4% senior notes payable, due November 15,
2001, net of unamortized discount of $2,027 and
$940, respectively............................... $72,973 $74,061
Term loans........................................ 4,655 7,076
Capitalized lease obligations..................... 525 72
Other long-term debt.............................. 6 --
------- -------
Total long-term debt.............................. 78,159 81,209
Less current portion.............................. 2,332 76,954
------- -------
Total long-term debt, less current portion........ $75,827 $ 4,255
======= =======
45
VIALOG CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000--(Continued)
Notes Payable
On February 24, 1997, Vialog issued $500,000 of 8% promissory notes due on
the earlier of (a) ten days following the closing of an initial public
offering or (b) one year from their issue date. Warrants to purchase 111,118
common shares at an exercise price of $4.50 were issued in conjunction with
the promissory notes. The value of the warrants was determined using the
minimum value method. The value of the warrants at the date of issuance
totaled $129,000 and was amortized as interest expense. The warrants may be
exercised between November 1997 and February 1999. In November 1997, the
promissory notes were repaid, including accrued interest, from the proceeds of
the Private Placement, which was completed on November 12, 1997. In
conjunction with the Private Placement, the warrants issued to the note
holders were increased to a total of 153,378 in accordance with anti-dilution
provisions contained in the promissory notes. An aggregate of 99,696 shares of
common stock were issued in February and March 1999 at a price of $3.26 per
share upon the exercise of warrants by note holders.
Convertible Bridge Facility
In October, 1997, the Company completed a private placement to certain of
its existing investors of $255,500 of 10% subordinated convertible promissory
notes due on the earlier of (a) five days after the closing of a sale of the
Company's equity securities or debt securities for an aggregate price of $50.0
million or more, or (b) January 1, 1998. The notes were convertible at the
option of the holders at any time prior to and including the due date into
such number of shares of the Company's common stock as determined by dividing
the aggregate unpaid principal amount of the notes by the conversion price of
$2.00 per share, subject to adjustment pursuant to the terms of the notes. The
conversion price of $2.00 per share was equal to the estimated fair market
value of the Company's common stock on the date of issuance. In November 1997,
the notes were converted into 127,750 shares of the Company's common stock.
Senior Notes Payable
On November 12, 1997, Vialog completed a Private Placement of $75.0 million
of senior notes, Series A. The senior notes bear interest at 12 3/4% per
annum, payable semi-annually on May 15 and November 15 of each year,
commencing May 15, 1998. The senior notes are guaranteed by the Acquired
Companies (see Schedule 1) and mature on November 15, 2001 (see Note 16) and
are redeemable in whole or in part at the option of Vialog on or after
November 15, 1999 at 110% of the principal amount thereof, and on or after
November 15, 2000 at 105% of the principal amount thereof until maturity, in
each case together with accrued interest to the date of redemption. In the
event of a change in control, as defined in the indenture pursuant to which
the senior notes were issued (the "Indenture"), the Company may be required to
repurchase all of the outstanding senior notes at 105% of the principal amount
plus accrued interest and additional interest, if any (101% of the principal
amount if the Company can satisfy a debt incurrence test under the Indenture,
which test the Company will likely not satisfy in connection with the Genesys
Conferencing acquisition). In conjunction with the announced acquisition of
the Company by Genesys Conferencing, the Company's debt will be refinanced to
enable the Company to pay or defease the senior notes concurrently within
sixty days of the acquisition. The Indenture contains restrictive covenants
with respect to the Company that among other things, create limitations
(subject to certain exceptions) on (i) the incurrence of additional
indebtedness, (ii) the ability of the Company to purchase, redeem or otherwise
acquire or retire any common stock or warrants, rights or options to acquire
common stock, to retire any subordinated indebtedness prior to final maturity
or to make investments in any person, (iii) certain transactions with
affiliates, (iv) the ability to materially change the present method of
conducting business, (v) the granting of liens on property or assets, (vi)
mergers, consolidations and the disposition of assets, (vii) declaring and
paying any dividends or making any distribution on shares of common stock, and
(viii) the issuance or sale of any capital stock of the Company's
subsidiaries. The Indenture does not require Vialog to maintain compliance
with any financial ratios or tests, except with respect to certain restrictive
covenants noted above. The Company is in compliance with all covenants
contained in the Indenture at December 31, 2000.
46
VIALOG CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000--(Continued)
Warrants to purchase 1,059,303 common shares at an exercise price of $.01 per
share were issued in conjunction with the senior notes. Of the total issued,
756,645 warrants were attached to the senior notes and 302,658 were issued to
Jefferies and Company, Inc., the initial purchaser of the senior notes, as
part of its compensation for services rendered in connection with such
offering. The value of the warrants attached to the senior notes was $4.4
million and was recorded as debt discount and additional paid-in capital. The
value of the warrants issued, which represented additional consideration to
the initial purchaser of the senior notes, was $1.7 million and was recorded
as deferred debt issuance costs. In addition, the Company incurred commissions
of $3.8 million and legal and other costs of $2.1 million. The deferred debt
issuance costs are being amortized over the life of the senior notes. The
warrants may be exercised between November 1997 and November 2001. In 2000,
343,693 of the warrants discussed above were exercised. The proceeds from the
senior notes were used to complete the acquisitions (see Note 2
"Acquisitions"), repay outstanding indebtedness and fund working capital
requirements. On February 12, 1998, Vialog offered to exchange (the "Exchange
Offer") senior notes, Series B for senior notes, Series A. The form and terms
of the senior notes, Series B are identical in all material respects to the
form and terms of the senior notes, Series A except for certain transfer
restrictions and registration rights relating to the senior notes, Series A.
The Exchange Offer terminated on March 26, 1998 with all of the senior notes,
Series A being exchanged by investors for senior notes, Series B. (See Note 16
"Acquisition and Refinancing").
Interest Income (Expense), Net
Interest income (expense), net consists of the following:
Year Ended December 31,
----------------------------
1998 1999 2000
-------- -------- --------
($000's)
Interest income............................... $ 233 $ 69 $ 42
Interest expense.............................. (12,862) (13,593) (14,246)
-------- -------- --------
Interest income (expense), net................ $(12,629) $(13,524) $(14,204)
======== ======== ========
(9) ACCRUED EXPENSES
Accrued expenses consist primarily of the following:
December 31, December 31,
1999 2000
------------ ------------
(In thousands)
Accrued payroll and related costs................ $ 913 $ 444
Accrued restructuring and severance related
costs........................................... 964 216
Accrued software license fees.................... -- 856
Accrued other.................................... 1,442 1,434
------ ------
$3,319 $2,950
====== ======
(10) COMMITMENTS AND CONTINGENCIES
The Company conducts its operations primarily in leased facilities under
operating lease arrangements expiring on various dates through July 2008.
Certain long-term capital leases have been included in property and equipment
and long-term debt in the accompanying consolidated balance sheets.
During 2000, the Company combined its corporate offices and its Cambridge,
Massachusetts operating center into a new leased facility located in Bedford,
Massachusetts. The lease for the Bedford facility provides for a total of
approximately 27,868 square feet at a base rate of $24.00 per square foot
(escalating to $25.00 per square foot in years four through five of the lease)
with an expiration date of May 15, 2005. The effect of this lease is included
in the minimum lease payment schedule below.
47
VIALOG CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000--(Continued)
Future minimum lease payments under capital and operating leases with
initial terms of one year or more are as follows:
Capital Operating
Year Ending December 31, Leases Leases
------------------------ ------- ---------
($000's)
2001.................................................. $73 $ 3,148
2002.................................................. 1 2,991
2003.................................................. -- 2,851
2004.................................................. -- 2,767
2005.................................................. -- 1,339
Thereafter............................................ -- 566
--- -------
Total minimum lease payments.......................... 74 $13,662
=======
Less: Amount representing interest on capital leases.. (2)
---
Present value of minimum lease payments at December
31, 2000............................................. $72
===
Total operating lease rental expense for Vialog for the years ended December
31, 1998, 1999 and 2000 was $1.5 million, $2.2 million, and $2.6 million,
respectively.
(11) NON-RECURRING CHARGES
The results for the year ended December 31, 1998 include a non-recurring
charge of $1.2 million related to the consolidation of the Atlanta and
Montgomery Operating Centers. In accordance with the consolidation plan, the
Atlanta Operating Center remained staffed through January 1999, after which
time the Atlanta facility was vacated and its traffic managed by conference
coordinators in the Montgomery Center as well as other Operating Centers. The
non-recurring charge includes (i) $373,000 associated with personnel
reductions of approximately 45 operator, customer service, technical support
and general and administrative positions in the Atlanta Center, (ii) $400,000
associated with lease costs for the Atlanta facility from the exit date
through the lease termination date (net of estimated sublease income), (iii)
$135,000 associated with legal fees and other exit costs, (iv) $77,000
associated with the disposal of furniture and equipment in both the Atlanta
and Montgomery Centers, and (v) $215,000 associated with the impairment of
intangible assets (assembled workforce) in the Atlanta Center. During the
years ended December 31, 1998, 1999 and 2000, the Company paid out
approximately $324,000, $166,000 and 139,000, respectively. At December 31,
2000, approximately $304,000 of the original accrual for the non-recurring
charge was remaining for estimated costs still to be incurred related to the
consolidation.
Components of the non-recurring charge recorded in 1998, amounts incurred
through December 31, 2000, and adjustments to the charge are as follows:
Amount Amount Amount
1998 Incurred Balance Incurred Adjustments Balance Incurred Balance
Charge 1998 12/31/98 1999 to Charge 12/31/99 2000 12/31/00
------ -------- -------- -------- ----------- -------- -------- --------
($000's)
People related costs.... $ 373 $315 $ 58 $ 4 $ (54) $-- $-- $--
Facility related costs.. 400 -- 400 159 202 443 139 304
Other related costs..... 135 8 127 3 (124) -- -- --
Impairment of intangible
assets and leasehold
improvements........... 292 1 291 267 (24) -- -- --
------ ---- ---- ---- ----- ---- ---- ----
Totals................ $1,200 $324 $876 $433 $ -- $443 $139 $304
====== ==== ==== ==== ===== ==== ==== ====
48
VIALOG CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000--(Continued)
The results for the year ended December 31, 1999 include a $3.0 million non-
recurring charge related to the consolidation of four of the Company's
Operating Centers. The Operating Centers affected include Oradell, New Jersey
and Danbury, Connecticut, which the Company closed in the third quarter of
1999; and Houston, Texas, and Palm Springs, California, which the Company
closed in the fourth quarter of 1999. In conjunction with these closings, the
Company expanded its other facilities to accommodate the transitioned
business. In addition, the Company relocated its corporate offices during the
second quarter of 2000 and combined its Cambridge Operating Center with its
corporate offices during the third quarter of 2000. The non-recurring charge
includes (i) approximately $1.2 million associated with facility lease costs
from the exit dates through the lease termination dates (net of estimated
sublease income), (ii) $860,000 associated with personnel reductions of
approximately 130 conference coordinators, customer service, technical
support, and general and administrative positions, (iii) $683,000 associated
with the impairment of certain intangible assets consisting of assembled
workforce and developed technology, (iv) $150,000 associated with legal fees
and other exit costs, and (v) $114,000 associated with the write-off of
leasehold improvements. During the years ended December 31, 1999 and 2000, the
Company paid out approximately $690,000 and $1.0 million, respectively,
related primarily to personnel reductions and facility closings, and wrote off
approximately $695,000 and $196,000, respectively, of intangible assets and
leasehold improvements related to the closed Operating Centers. At December
31, 2000, approximately $394,000 of the original accrual for the non-recurring
charge was remaining for estimated facility related costs still to be incurred
related to the consolidation.
Components of the non-recurring charge recorded in 1999 and amounts incurred
through December 31, 2000 are as follows:
Amount Amount
1999 Incurred Balance Incurred Adjustments Balance
Charge 1999 12/31/99 2000 to Charge 12/31/00
------ -------- -------- -------- ----------- --------
($000's)
People related costs.... $ 860 $ 401 $ 459 $ 512 $ 53 $--
Facility related costs.. 1,175 139 1,036 495 (147) 394
Other related costs..... 150 150 -- -- -- --
Impairment of intangible
assets and leasehold
improvements........... 797 695 102 196 94 --
------ ------ ------ ------ ----- ----
Totals................ $2,982 $1,385 $1,597 $1,203 $ -- $394
====== ====== ====== ====== ===== ====
Of the remaining balance from the 1998 and 1999 restructurings,
approximately $216,000 related to leases of vacated properties is included in
accrued expenses at December 31, 2000.
49
VIALOG CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000--(Continued)
(12) PROVISION FOR INCOME TAXES
Income tax (expense) benefit for the years ended December 31, 1998, 1999 and
2000 consists of the following:
Current Deferred Total
------- -------- -----
($000's)
December 31, 1998
Federal............................................ $ -- $ -- $ --
State.............................................. (125) 99 (26)
----- ----- -----
$(125) $ 99 $ (26)
===== ===== =====
December 31, 1999
Federal............................................ $ -- $ -- $ --
State.............................................. (53) (111) (164)
----- ----- -----
$ (53) $(111) $(164)
===== ===== =====
December 31, 2000
Federal............................................ $ -- $ -- $ --
State.............................................. (325) -- (325)
----- ----- -----
$(325) $ -- $(325)
===== ===== =====
Income tax (expense) benefit differed from the amounts computed by applying
the U.S. statutory federal income tax rate of 34% as a result of the
following:
1998 1999 2000
------- ------- -------
($000's)
Computed "expected" tax benefit................. $ 4,029 $ 4,065 $ 3,003
State and local income taxes, net of federal tax
benefit........................................ 754 (102) (215)
Nondeductible amounts and other differences..... (186) (338) (326)
Change in valuation allowance for deferred taxes
allocated to Federal income tax expense........ (4,772) (3,789) (2,787)
Other........................................... 149 -- --
------- ------- -------
Tax (expense) benefit......................... $ (26) $ (164) $ (325)
======= ======= =======
50
VIALOG CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000--(Continued)
The tax effects of temporary differences that give rise to significant
portion of deferred tax assets and liabilities are presented below:
1998 1999 2000
-------- -------- --------
($000's)
Deferred tax assets (liabilities):
Organizational expenditures and start-up
costs...................................... $ 1,795 $ 1,280 $ 818
Accrual to cash accounting adjustment....... (126) (115) (35)
Purchased in-process R&D and other intangi-
bles amortized for tax purposes over 15
years...................................... 3,031 2,236 1,701
Federal and state net operating loss
carryforwards.............................. 6,198 11,215 14,584
Capital loss and charitable contribution
carryforwards.............................. 3 5 5
Property and equipment...................... (441) (1,231) (1,647)
Bad debts................................... 66 375 576
Original issue discount amortization........ 96 126 91
Non-recurring charge........................ 246 92 --
Deferred compensation....................... 409 274 22
Other....................................... 63 1,398 727
Valuation allowance......................... (11,241) (15,606) (16,842)
-------- -------- --------
Net deferred tax asset.................... $ 99 $ 49 $ --
======== ======== ========
Vialog had net operating loss carryforwards of $42.0 million at December 31,
2000, of which $3.0 million expires in 2012 and $39.0 million expires between
2018 and 2020. Utilization of the net operating losses may be subject to an
annual limitation provided by change in ownership provisions of Section 382 of
the Internal Revenue Code of 1986 and similar state provisions.
In assessing the realizability of deferred tax assets, the Company considers
whether it is more likely than not that some portion or all of the deferred
tax assets will not be realized. Based on management's projections for future
taxable income, a valuation allowance has been established for the deferred
tax assets.
In accordance with FAS 109, the accounting for the tax benefits of acquired
deductible temporary differences, which are not recognized at the acquisition
date because a valuation allowance is established, and are recognized
subsequent to the acquisitions will be applied first to reduce to zero any
goodwill and other noncurrent intangible assets related to the acquisitions.
Any remaining benefits would be recognized as a reduction of income tax
expense. As of December 31, 2000, $1.4 million of the Company's net operating
loss carryforward deferred tax asset of $14.6 million pertains to the Acquired
Companies and $2,000 of the Company's $5,000 capital loss and charitable
contribution carryforward deferred tax asset pertains to the Acquired
Companies, the future benefit of which will be applied first to reduce to zero
any goodwill and other noncurrent intangible assets related to the
acquisitions prior to reducing the Company's income tax expense.
(13) STOCKHOLDERS' EQUITY
(a) Common Stock Split
On October 16, 1997, the Board of Directors approved a 2-for-1 stock split
of the Company's common stock. All prior periods have been restated to reflect
this stock split effected as a recapitalization.
51
VIALOG CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000--(Continued)
(b) Preferred Stock
On February 14, 1997, the stockholders voted to authorize 10,000,000 shares
of preferred stock. Through December 31, 2000, the Company has not issued any
shares of preferred stock, nor have any shares been outstanding.
(c) Warrants
During 1997, the Company issued warrants to purchase common stock in
connection with certain financing transactions (see Note 8 "Long-Term Debt").
During 1999 and 2000, 345,540 and 343,693 shares, respectively, of common
stock were issued upon the exercise of warrants, leaving 370,070 shares of the
original 1,059,303 shares subject to issuance under the warrants unexercised.
(14) EMPLOYEE BENEFIT PLANS
(a) The 1999 Stock Plan
On April 29, 1999 and July 29, 1999, the Board of Directors and the
Company's stockholders, respectively, approved the Company's 1999 Stock Plan
(the "1999 Plan"). The purpose of the 1999 Plan is to provide directors,
officers, key employees, consultants and other service providers with
additional incentives by increasing their ownership interests in the Company.
Individual awards under the plan may take the form of one or more of: (i)
incentive stock options ("ISOs"); (ii) non-qualified stock options ("NQSOs");
(iii) stock appreciation rights ("SARs"); and (iv) stock purchases or awards.
The Compensation Committee administers the 1999 Plan and generally selects
the individuals who will receive awards and the terms and conditions of those
awards. The maximum number of shares of common stock that may be subject to
outstanding awards, determined immediately after the grant of any award, may
not exceed 1,500,000 shares as of December 31, 1999 and 2000. Shares of common
stock attributable to awards which have expired, terminated or been canceled
or forfeited are available for issuance or use in connection with future
awards.
The 1999 Plan will remain in effect until April 29, 2009 unless terminated
earlier by the Board of Directors. The Plan may be amended by the Board of
Directors without the consent of the Company's stockholders, except that any
amendment, although effective when made, will be subject to stockholder
approval if required by any Federal or state law or regulation by the rules of
any stock exchange or automated quotation system on which the common stock may
then be listed or quoted.
(b) The 1996 Stock Plan
On February 14, 1996, the Board of Directors and the Company's stockholders
approved the Company's 1996 Stock Plan (the "1996 Plan"). The purpose of the
1996 Plan is to provide directors, officers, key employees, consultants and
other service providers with additional incentives by increasing their
ownership interests in the Company. Individual awards under the plan may take
the form of one or more of: (i) incentive stock options ("ISOs"); (ii) non-
qualified stock options ("NQSOs"); (iii) stock appreciation rights ("SARs");
and (iv) restricted stock.
The Compensation Committee administers the Plan and generally selects the
individuals who will receive awards and the terms and conditions of those
awards. The maximum number of shares of common stock that may be subject to
outstanding awards, determined immediately after the grant of any award, may
not exceed
52
VIALOG CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000--(Continued)
3,250,000 shares as of December 31, 1999 and 2000. Shares of common stock
attributable to awards which have expired, terminated or been canceled or
forfeited are available for issuance or use in connection with future awards.
The 1996 Plan will remain in effect until February 14, 2006 unless
terminated earlier by the Board of Directors. The Plan may be amended by the
Board of Directors without the consent of the Company's stockholders, except
that any amendment, although effective when made, will be subject to
stockholder approval if required by any Federal or state law or regulation by
the rules of any stock exchange or automated quotation system on which the
common stock may then be listed or quoted.
The following is a summary of stock option activity:
Weighted Average
Shares Exercise Price
--------- ----------------
Options outstanding at December 31, 1997......... 1,342,401 $2.40
Granted........................................ 823,175 6.60
Exercised...................................... (215,334) 0.98
Cancelled...................................... (354,680) 4.96
--------- -----
Options outstanding at December 31, 1998......... 1,595,562 4.19
Granted........................................ 1,440,878 5.49
Exercised...................................... (410,240) 1.00
Cancelled...................................... (678,658) 6.03
--------- -----
Options outstanding at December 31, 1999......... 1,947,542 5.18
Granted........................................ 1,211,270 7.03
Exercised...................................... (371,588) 5.56
Cancelled...................................... (320,335) 6.76
--------- -----
Options outstanding at December 31, 2000......... 2,466,889 $5.82
========= =====
The options generally vest in equal quarterly installments over 3 years and
have a 10 year term. At December 31, 1998, 1999 and 2000, 551,704, 747,100 and
1,191,930 options, respectively, were exercisable at weighted average exercise
prices of $1.79, $5.17, and $4.84 per share, respectively. At December 31,
2000, there were 859,863 additional shares available for grant under the
Plans.
The following is a summary of options outstanding and exercisable at
December 31, 2000:
Options Outstanding Options Exercisable
--------------------------------------------- ----------------------------
Range of Number Weighted Average Number
Exercise Outstanding Weighted Average Remaining Exercisable Weighted Average
Prices At 12/31/00 Exercise Price Contractual Life At 12/31/00 Exercise Price
-------- ----------- ---------------- ---------------- ----------- ----------------
$0.01-
$0.01 9,000 $ 0.01 2.30 years 6,000 $ 0.01
$0.28-
$0.28 12,000 $ 0.28 0.75 12,000 $ 0.28
$2.00-
$2.00 205,000 $ 2.00 6.51 205,000 $ 2.00
$3.11-
$3.63 471,744 3.42 8.44 219,747 3.41
$4.00-
$4.63 337,372 4.09 8.56 123,088 4.10
$5.00-
$5.69 453,756 5.38 8.34 200,472 5.45
$5.75 192,986 5.75 4.33 192,961 5.75
$6.25-
$8.00 309,661 7.84 4.78 202,819 7.90
$10.00-
$10.66 475,370 10.47 9.48 29,843 10.02
--------- ---------
2,466,889 5.82 7.64 1,191,930 4.84
========= =========
53
VIALOG CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000--(Continued)
The Company applies APB Opinion No. 25 accounting for stock issued to
employees in accounting for its Plan and, accordingly, compensation cost is
only recognized in the financial statements for stock options granted to
employees when the fair value on the grant date exceeds the exercise price.
Had the Company determined compensation cost based on the fair value at grant
date for its stock options under SFAS No. 123, its net loss would have been
increased to the pro forma amounts indicated below:
Year Ended December 31,
----------------------------
1998 1999 2000
-------- -------- --------
($000's except per share
data)
Net loss
As reported.................................. $(11,877) $(12,120) $ (9,156)
Pro forma.................................... $(12,588) $(13,078) $(10,668)
Loss per share
As reported.................................. $ (3.27) $ (1.53) $ (0.97)
Pro forma.................................... $ (3.47) $ (1.65) $ (1.13)
The per share weighted-average fair value of stock options granted during
1998, 1999 and 2000, respectively, were $4.40, $3.69, and $5.33 for ISOs and
$6.42, $4.78, and $3.95 for NQSOs on the date of grant. The pro forma amounts
were determined using the Black-Scholes Valuation Model with the following key
assumptions; (i) a 75% volatility factor for 1998 based on comparable
companies and 93% and 90% volatility factors for 1999 and 2000, respectively,
based on the Company's average trading price since the IPO; (ii) no dividend
yield; (iii) a discount rate equal to the rates available on U.S. Treasury
Strip (zero coupon) bonds on the grant dates of 4.45%, 5.08%, and 5.17% in
1998, 1999 and 2000, respectively, and (iv) an average option life of five
years for all periods.
(c) Vialog Retirement Plan
The Company maintains a defined contribution retirement plan (the "Vialog
Plan") under Section 401(k) of the Internal Revenue Code which is available to
all eligible employees. The Vialog Plan provides various alternative
investment funds in which the employee may elect to contribute pre-tax savings
on a tax deferred basis. Employee contributions to the Vialog Plan vest with
the employee immediately.
(d) Employment Agreements
Certain of the Company's executive officers have entered into employment
agreements with the Company which provide for severance payments in the event
their employment is terminated prior to the expiration of their employment
terms. The severance terms range from six months to three years, depending on
the timing and circumstances of the termination.
(15) RELATED PARTY TRANSACTIONS
The following summarizes the significant related party transactions:
(a) During 1998, 1999 and 2000, the Company paid approximately $845,000,
$692,000, and $322,000, respectively, for legal fees to a firm having a
member who is also a director of the Company.
(b) For certain months during the years ended December 31, 1998 and 1999
one of the Company's stockholders provided consulting services to the
Company for a monthly fee of $10,000.
(c) During 1999 and 2000, respectively, TCC generated revenues of
$178,184 and $160,549 for teleconferencing services provided to customers
of a company owned by the spouse of a Company stockholder.
54
VIALOG CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000--(Continued)
(d) The Company has implemented a policy whereby neither the Company nor
any subsidiary (which includes the Acquired Companies) will enter into
contracts or business arrangements with persons or entities owned in whole
or in part by officers or directors of the Company or any subsidiary except
on an arms-length basis and with the approval of the Company's Board of
Directors. The Company's bylaws require that any approval must be by a
majority of the independent directors then in office who have no interest
in such contract or transaction.
(16) ACQUISITION AND REFINANCING
On October 1, 2000, Vialog Corporation reached a definitive agreement to be
acquired by France-based Genesys S.A. (Genesys Conferencing).
The merger agreement provides that Vialog shareholders will receive Genesys
American Depositary Shares (ADSs) in exchange for their Vialog shares upon
closing. The exchange ratio will be determined on the basis of the volume-
weighted average share price of Genesys shares on Euronext-Paris for the 10
consecutive trading days ending on the second trading day prior to the day of
the closing. If the transaction had closed on April 13, 2001, the exchange
ratio would have been 0.6703 ADSs for each Vialog share, resulting in Vialog
shareholders receiving approximately 24.8% of Genesys outstanding shares,
after giving effect to Genesys' recent acquisition of Astound Incorporated.
The ADSs will begin trading on the Nasdaq Stock Market, under the symbol
"GNSY" after the merger. The registration statement relating to the
acquisition, filed by Genesys S.A. on Form F-4, was declared effective by the
U.S. Securities and Exchange Commission on February 12, 2001.
On March 23, 2001, Vialog's shareholders approved the acquisition of Vialog
by Genesys, and Genesys' shareholders approved the capital increase required
for the acquisition of Vialog.
Additionally, on March 22, 2001, Vialog and Genesys received commitments
from a bank group for a $125 million senior credit facility that will permit
Vialog Corporation to refinance its outstanding debt following its acquisition
by Genesys. Availability of the credit facility is subject to due diligence,
documentation and other customary conditions for a facility of this kind.
The closing of the acquisition of Vialog by Genesys is expected to occur in
conjunction with the closing of the senior credit facility, which is expected
to occur by the end of April 2001.
(17) QUARTERLY FINANCIAL DATA (UNAUDITED)
The following quarterly financial data has been prepared from the financial
records of the Company without audit, and reflect all adjustments which, in
the opinion of management, were of a normal recurring nature and necessary for
a fair presentation of the results of operations for the interim periods
presented. The operating results for any quarter are not necessarily
indicative of results for any future period.
Year Ended December 31, 2000
----------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
---------- ---------- ---------- ----------
(In thousands, except share data)
Net revenues.................. $ 19,224 $ 19,398 $ 19,165 $ 19,800
Income from operations........ 2,431 2,647 38 257
Net loss...................... (1,191) (1,087) (3,731) (3,147)
Net loss per share, basic and
diluted...................... $ (0.13) $ (0.12) $ (0.39) $ (0.32)
Weighted average shares out-
standing, basic and diluted.. 9,135,712 9,373,226 9,496,301 9,702,126
55
VIALOG CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000--(Continued)
Year Ended December 31, 1999
----------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
---------- ---------- ---------- ----------
(In thousands, except share data)
Net revenues.................. $ 15,882 $ 18,031 $ 17,002 $ 17,714
Income (loss) from opera-
tions........................ 1,704 (1,869) 963 770
Net loss...................... (1,717) (5,208) (2,478) (2,717)
Net loss per share, basic and
diluted...................... $ (0.28) $ (0.61) $ (0.28) $ (0.30)
Weighted average shares out-
standing, basic and diluted.. 6,032,774 8,562,249 8,739,225 8,983,647
56
SCHEDULE 1
SUPPLEMENTAL CONSOLIDATING CONDENSED FINANCIAL INFORMATION
The 12 3/4% senior notes due November 15, 2001, in the aggregate principal
amount of $75.0 million, are fully and unconditionally guaranteed, on a joint
and several basis, by all of the Company's subsidiaries. Each of the
guarantors is a wholly-owned subsidiary of the Company. Summarized financial
information of the Company and its subsidiaries is presented below as of and
for the years ended December 31, 1998, 1999 and 2000. Separate financial
statements and other disclosures concerning the guarantor subsidiaries are not
presented because management has determined that they are not material to
investors.
57
VIALOG CORPORATION
SCHEDULE 1 SUPPLEMENTAL CONSOLIDATING CONDENSED FINANCIAL INFORMATION
FOR THE YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
Vialog Call
Corp. Access CSI Points TCC Americo CDC Eliminations Consolidated
-------- ------- ------- ------- ------ ------- ------ ------------ ------------
($000's)
Balance Sheet
Information as of
December 31, 1998
Total current assets.... $ (3,873) $ 4,845 $ 2,492 $ 3,843 $1,620 $ (746) $ 628 $ -- $ 8,809
Property and equipment,
net..................... 561 5,914 1,642 2,054 994 605 217 -- 11,987
Investment in
subsidiaries............ 57,121 -- -- -- -- -- -- (57,121) --
Goodwill and intangible
assets, net............. -- 15,021 14,120 3,617 3,738 2,812 2,371 -- 41,679
Other assets............ 6,351 260 79 -- 27 66 8 -- 6,791
-------- ------- ------- ------- ------ ------ ------ -------- --------
Total assets........... $ 60,160 $26,040 $18,333 $ 9,514 $6,379 $2,737 $3,224 $(57,121) $ 69,266
======== ======= ======= ======= ====== ====== ====== ======== ========
Current liabilities..... $ 5,695 $ 2,052 $ 1,055 $ 1,416 $ 550 $ 337 $ 82 $ -- $ 11,187
Long-term debt,
excluding current
portion................. 73,814 8 209 -- 88 70 -- -- 74,189
Other liabilities....... -- 187 264 -- -- -- 31 -- 482
Stockholders' equity
(deficit)............... (19,349) 23,793 16,805 8,098 5,741 2,330 3,111 (57,121) (16,592)
-------- ------- ------- ------- ------ ------ ------ -------- --------
Total liabilities and
stockholders' equity
(deficit).............. $ 60,160 $26,040 $18,333 $ 9,514 $6,379 $2,737 $3,224 $(57,121) $ 69,266
======== ======= ======= ======= ====== ====== ====== ======== ========
Statement of Operations
Information for the Year
Ended December 31, 1998
Net revenues............ $ -- $18,361 $ 7,594 $10,144 $5,936 $2,824 $2,682 $ (721) $ 46,820
Cost of revenues,
excluding depreciation.. 3 8,506 3,225 6,749 3,189 1,712 1,658 (721) 24,321
Selling, general and
administrative
expenses................ 9,972 1,318 679 626 967 1,001 633 7 15,196
Depreciation expense.... 81 1,458 413 450 252 115 66 -- 2,835
Amortization of goodwill
and intangibles......... -- 881 865 253 204 156 131 -- 2,490
Non-recurring charge.... -- -- 1,200 -- -- -- -- -- 1,200
-------- ------- ------- ------- ------ ------ ------ -------- --------
Operating income
(loss)................. (10,056) 6,198 1,212 2,066 1,324 (160) 194 -- 778
Interest income
(expense), net.......... (12,521) 8 (63) -- (35) (25) 7 -- (12,629)
-------- ------- ------- ------- ------ ------ ------ -------- --------
Loss before income tax
expense................ (22,577) 6,206 1,149 2,066 1,289 (185) 201 -- (11,851)
Income tax expense...... -- (26) -- -- -- -- -- -- (26)
-------- ------- ------- ------- ------ ------ ------ -------- --------
Net income (loss)...... $(22,577) $ 6,180 $ 1,149 $ 2,066 $1,289 $ (185) $ 201 $ -- $(11,877)
======== ======= ======= ======= ====== ====== ====== ======== ========
Cash Flow Information
for the Year Ended
December 31, 1998
Cash flows provided by
(used in) operating
activities.............. $(11,980) $ 3,992 $ 1,525 $ 459 $ 459 $ 98 $ 29 $ -- $ (5,418)
Cash flows used in
investing activities.... (1,065) (4,066) (1,171) (887) (363) (109) (187) -- (7,848)
Cash flows provided by
(used in) financing
activities.............. 4,739 (366) (244) -- (142) (56) -- -- 3,931
-------- ------- ------- ------- ------ ------ ------ -------- --------
Net increase (decrease)
in cash and cash
equivalents............. (8,306) (440) 110 (428) (46) (67) (158) -- (9,335)
Cash and cash
equivalents at the
beginning of period..... 8,396 440 (49) 489 46 67 178 -- 9,567
-------- ------- ------- ------- ------ ------ ------ -------- --------
Cash and cash
equivalents at the end
of period............... $ 90 $ -- $ 61 $ 61 $ -- $ -- $ 20 $ -- $ 232
======== ======= ======= ======= ====== ====== ====== ======== ========
- -----
See accompanying independent auditor's report.
58
VIALOG CORPORATION
SCHEDULE 1 SUPPLEMENTAL CONSOLIDATING CONDENSED FINANCIAL INFORMATION
FOR THE YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000--(Continued)
Vialog Call Elimin- Consol-
Corp. Access CSI(1) Points TCC Americo CDC ABCC CPI ABCI ations idated
-------- ------- ------- ------- ------ ------- ------ ------- ------ ------ -------- --------
($000's)
Balance Sheet
Information as of
December 31, 1999
Total current
assets........... $(17,906) $13,891 $ -- $ 8,026 $3,739 $(1,072) $ 327 $ 4,222 $ 765 $1,078 $ (141) $ 12,929
Property and
equipment, net... 904 7,774 -- 4,541 981 526 119 2,235 371 363 -- 17,814
Investment in
subsidiaries..... 85,696 -- -- -- -- -- -- -- -- -- (85,696) --
Goodwill and
intangible
assets, net...... -- 13,881 -- 16,635 3,532 2,513 2,156 14,409 5,556 5,412 -- 64,094
Other assets..... 4,841 134 -- 64 10 65 6 -- -- 25 (761) 4,384
-------- ------- ------- ------- ------ ------- ------ ------- ------ ------ -------- --------
Total assets.... $ 73,535 $35,680 $ -- $29,266 $8,262 $ 2,032 $2,608 $20,866 $6,692 $6,878 $(86,598) $ 99,221
======== ======= ======= ======= ====== ======= ====== ======= ====== ====== ======== ========
Current
liabilities...... $ 10,571 $ 1,721 $ -- $ 854 $ 434 $ (1) $ 9 $ 574 $ 164 $ 150 $ 2,376 $ 16,852
Long-term debt,
excluding current
portion.......... 77,628 -- -- 57 29 45 -- -- -- 127 (2,059) 75,827
Other
liabilities...... 525 -- -- 419 -- 589 222 -- 735 49 (1,040) 1,499
Stockholders'
equity
(deficit)........ (15,189) 33,959 -- 27,936 7,799 1,399 2,377 20,292 5,793 6,552 (85,875) 5,043
-------- ------- ------- ------- ------ ------- ------ ------- ------ ------ -------- --------
Total
liabilities and
stockholders'
equity
(deficit)....... $ 73,535 $35,680 $ 7 $29,266 $8,262 $ 2,032 $2,608 $20,866 $6,692 $6,878 $(86,598) $ 99,221
======== ======= ======= ======= ====== ======= ====== ======= ====== ====== ======== ========
Statement of
Operations
Information for
the Year Ended
December 31, 1999
Net revenues..... $ -- $27,425 $ 374 $15,178 $6,858 $ 1,385 $2,124 $ 9,248 $3,207 $3,350 $ (520) $ 68,629
Cost of revenues,
excluding
depreciation..... -- 12,480 236 8,435 3,326 857 1,635 3,079 1,580 1,279 (520) 32,387
Selling, general
and
administrative
expenses......... 15,075 2,060 26 1,520 988 261 359 1,440 782 931 -- 23,442
Depreciation
expense.......... 202 1,761 40 1,125 263 120 168 229 136 146 -- 4,190
Amortization of
goodwill and
intangibles...... -- 875 72 1,033 204 150 129 852 374 371 -- 4,060
Non-recurring
charge........... 454 -- -- -- -- 911 567 -- 721 329 -- 2,982
-------- ------- ------- ------- ------ ------- ------ ------- ------ ------ -------- --------
Operating income
(loss).......... (15,731) 10,249 -- 3,065 2,077 (914) (734) 3,648 (386) 294 -- 1,568
Interest income
(expense), net... (13,426) 3 (4) (30) (20) (13) -- -- 8 (42) -- (13,524)
-------- ------- ------- ------- ------ ------- ------ ------- ------ ------ -------- --------
Loss before
income tax
expense......... (29,157) 10,252 (4) 3,035 2,057 (927) (734) 3,648 (378) 252 -- (11,956)
Income tax
expense.......... -- (164) -- -- -- -- -- -- -- -- -- (164)
-------- ------- ------- ------- ------ ------- ------ ------- ------ ------ -------- --------
Net income
(loss).......... $(29,157) $10,088 $ (4) $ 3,035 $2,057 $ (927) $ (734) $ 3,648 $ (378) $ 252 $ -- $(12,120)
======== ======= ======= ======= ====== ======= ====== ======= ====== ====== ======== ========
Cash Flow
Information for
the Year Ended
December 31, 1999
Cash flows
provided by (used
in) operating
activities....... $ (8,433) $ 3,580 $(1,454) $ 3,673 $ 291 $ (4) $ 132 $ 1,715 $ 103 $ 546 $ -- $ 149
Cash flows used
in investing
activities....... (29,641) (3,621) 1,602 (3,612) (250) (41) (70) (1,701) (70) (51) -- $(37,455)
Cash flows
provided by (used
in) financing
activities....... 38,370 (8) (209) (31) (41) 45 -- -- -- (505) -- 37,621
-------- ------- ------- ------- ------ ------- ------ ------- ------ ------ -------- --------
Net increase
(decrease) in
cash and cash
equivalents...... 296 (49) (61) 30 -- -- 62 14 33 (10) -- 315
Cash and cash
equivalents at
the beginning of
period........... 90 -- 61 61 -- -- 20 -- -- -- -- 232
-------- ------- ------- ------- ------ ------- ------ ------- ------ ------ -------- --------
Cash and cash
equivalents at
the end of
period........... $ 386 $ (49) $ -- $ 91 $ -- $ -- $ 82 $ 14 $ 33 $ (10) $ -- $ 547
======== ======= ======= ======= ====== ======= ====== ======= ====== ====== ======== ========
- ----
(1) On January 31, 1999 this operating center was closed and merged into Call
Points. The Statement of Operations and Cash Flow data for this operating
center represents activity from January 1, 1999 through January 31, 1999.
See accompanying independent auditor's report.
59
VIALOG CORPORATION
SCHEDULE 1 SUPPLEMENTAL CONSOLIDATING CONDENSED FINANCIAL INFORMATION
FOR THE YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000--(Continued)
Vialog Call
Corp. Access Points ABCC TCC ABCI CPI Americo CDC Eliminations Consolidated
-------- ------- ------- ------- ------- ------ ------ ------- ------ ------------ ------------
Balance Sheet
Information as
of December 31,
2000 ($000's)
Total current
assets.......... $(42,843) $26,923 $16,172 $13,759 $ 6,423 $ 616 $ (178) $(1,338) $ 95 $ -- $ 19,629
Property and
equipment, net.. 2,060 10,221 6,881 1,955 762 225 229 407 67 -- 22,807
Investment in
subsidiaries.... 86,307 -- -- -- -- -- -- -- -- (86,307) --
Goodwill and
intangible
assets, net..... -- 13,019 15,532 13,450 3,326 5,077 5,157 2,374 2,035 -- 59,970
Other assets.... 4,226 246 53 22 9 -- -- 49 -- -- 4,605
-------- ------- ------- ------- ------- ------ ------ ------- ------ -------- --------
Total assets... $ 49,750 $50,409 $38,638 $29,186 $10,520 $5,918 $5,208 $ 1,492 $2,197 $(86,307) $107,011
======== ======= ======= ======= ======= ====== ====== ======= ====== ======== ========
Current
liabilities..... $101,956 $ 489 $ 1,030 $ 271 $ 190 $ (66) $ 51 $ 111 $ (3) $ -- $104,029
Long-term debt,
excluding
current
portion......... 4,253 -- -- -- 2 -- -- -- -- -- 4,255
Other
liabilities..... 38 234 148 -- -- 21 12 266 -- -- 719
Stockholders'
equity
(deficit)....... (56,497) 49,686 37,460 28,915 10,328 5,963 5,145 1,115 2,200 (86,307) (1,992)
-------- ------- ------- ------- ------- ------ ------ ------- ------ -------- --------
Total
liabilities and
stockholders'
equity
(deficit)...... $ 49,750 $50,409 $38,638 $29,186 $10,520 $5,918 $5,208 $ 1,492 $2,197 $(86,307) $107,011
======== ======= ======= ======= ======= ====== ====== ======= ====== ======== ========
Statement of
Operations
Information for
the Year Ended
December 31, 2000
Net revenues.... $ -- $33,572 $21,892 $15,675 $ 6,180 $ -- $ -- $ -- $ 512 $ (244) $ 77,587
Cost of
revenues,
excluding
depreciation.... 3,411 13,593 9,219 5,164 2,658 4 83 19 397 (244) 34,304
Selling, general
and
administrative
expenses........ 25,450 1,129 596 501 500 24 23 -- 52 -- 28,275
Depreciation
expense......... 390 2,358 1,453 427 281 136 145 120 120 -- 5,430
Amortization of
goodwill and
intangibles..... -- 866 1,104 960 204 411 396 144 120 -- 4,205
-------- ------- ------- ------- ------- ------ ------ ------- ------ -------- --------
Operating
income (loss).. (29,251) 15,626 9,520 8,623 2,537 (575) (647) (283) (177) -- 5,373
Interest income
(expense), net.. (14,180) (5) 4 -- (8) (14) -- (1) -- -- (14,204)
-------- ------- ------- ------- ------- ------ ------ ------- ------ -------- --------
Income (loss)
before income
tax expense.... (43,431) 15,621 9,524 8,623 2,529 (589) (647) (284) (177) -- (8,831)
Income tax
expense......... -- (325) -- -- -- -- -- -- -- -- (325)
-------- ------- ------- ------- ------- ------ ------ ------- ------ -------- --------
Net income
(loss)......... $(43,431) $15,296 $ 9,524 $ 8,623 $ 2,529 $ (589) $ (647) $ (284) $ (177) $ -- $ (9,156)
======== ======= ======= ======= ======= ====== ====== ======= ====== ======== ========
Cash Flow
Information for
the Year Ended
December 31,
2000
Cash flows
provided by
(used in)
operating
activities...... $ (4,018) $ 4,950 $ 4,257 $ 134 $ 145 $ 84 $ (27) $ 45 $ (12) $ -- $ 5,558
Cash flows used
in investing
activities...... (1,826) (4,804) (3,767) (145) (91) -- -- -- (70) -- (10,703)
Cash flows
provided by
(used in)
financing
activities...... 5,516 (8) (219) -- (54) (127) (6) (45) -- -- 5,057
-------- ------- ------- ------- ------- ------ ------ ------- ------ -------- --------
Net increase
(decrease) in
cash and cash
equivalents..... (328) 138 271 (11) -- (43) (33) -- (82) -- (88)
Cash and cash
equivalents at
the beginning of
period.......... 386 (49) 91 14 -- (10) 33 -- 82 -- 547
-------- ------- ------- ------- ------- ------ ------ ------- ------ -------- --------
Cash and cash
equivalents at
the end of
period.......... $ 58 $ 89 $ 362 $ 3 $ -- $ (53) $ -- $ -- $ -- $ -- $ 459
======== ======= ======= ======= ======= ====== ====== ======= ====== ======== ========
- -----
See accompanying independent auditor's report.
60
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of the Company.
Directors and Executive Officers
The following table sets forth certain information with regard to the
directors and executive officers of the Company.
Name Age Position
---- --- --------
President, Chief Executive Officer, and
Kim A. Mayyasi(1)........... 44 Director
Senior Vice President and Chief Financial
Michael E. Savage........... 42 Officer
Robert F. Saur.............. 40 Chief Information Officer
Joanna M. Jacobson(2)....... 41 Director
David L. Lougee(1).......... 61 Director
Richard G. Hamermesh(1)(2).. 53 Director
Edward M. Philip(2)......... 35 Director
- --------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
KIM A. MAYYASI has been President, Chief Executive Officer and a director
since July 1999. From June 1994 to June 1999, Mr. Mayyasi served as Managing
Partner of Hill, Holliday, Connors, Cosmopulos, Inc., a nationally recognized
advertising agency owned by The Interpublic Group of Companies, Inc.
MICHAEL E. SAVAGE has been Senior Vice President and Chief Financial Officer
since September 1999. From May 1997 to August 1999, Mr. Savage served as Chief
Financial Officer of Digital City, a subsidiary of American Online, Inc. From
May 1994 to May 1997, Mr. Savage served as Chief Financial Officer and Vice
President of World Corp., the holding company of World Airways, Inc. and
InteliData Technologies Corp.
ROBERT F. SAUR has been Chief Information Officer since October 1999. From
May 1992 to October 1999, Mr. Saur was Chief Information Officer for Cambridge
Technology Partners, a management consulting and systems integration firm.
JOANNA M. JACOBSON served as a consultant to the Company prior to, and
became a director of, the Company in November 1997. Ms. Jacobson has been the
Chief Strategy Officer at ProfitLogic since October 2000. Prior to that, Ms.
Jacobson was a Senior Lecturer in the Entrepreneurial Management/Service
Management Unit at the Harvard Business School. From April 1996 to July 1999,
Ms. Jacobson served as President of Keds Corp., a distributor of athletic
footwear and a division of Stride-Rite Corporation. From February 1995 to
March 1996, she was a partner in Core Strategy Group, a strategic marketing
consulting firm.
DAVID L. LOUGEE became a director of the Company in November 1997. Mr.
Lougee has been a partner of the law firm of Mirick, O'Connell, DeMallie &
Lougee, LLP for more than the last five years and served as Managing Partner
until March 2001. Mr. Lougee is also a director of Meridian Medical
Technologies, Inc., a public company in the medical devices and drug delivery
business. Mirick, O'Connell, DeMallie & Lougee, LLP serves as the Company's
outside general counsel.
RICHARD G. HAMERMESH became a director of the Company in June 1998. Dr.
Hamermesh is a founder and Managing Partner of The Center for Executive
Development ("CED"), an executive education consulting firm in Cambridge,
Massachusetts. Dr. Hamermesh currently serves on the Board of Directors of two
public companies--BE Aerospace, Inc. and Applied Extrusion Technologies, Inc.
61
EDWARD M. PHILIP became a director of the Company in February 1999. He
served as Chief Financial Officer and Secretary of Lycos, Inc. from December
1995 to October 2000, and as Chief Operating Officer of Lycos, Inc. from
December 1996 until October 2000. Since Lycos, Inc.'s merger with Terra
Networks, S.A. in October 2000, Mr. Philip has served as Senior Vice President
of Strategic Planning and a director of the combined company, Terra Lycos. Mr.
Philip is also a director of Allscripts, Inc.
The Company's Board of Directors is divided into three classes, with one
class of directors elected each year at the annual meeting of stockholders for
a three-year term of office. All directors of one class hold their positions
until the annual meeting of stockholders at which the terms of the directors
in such class expire and until their respective successors are elected. Dr.
Hamermesh and Mr. Philip serve in the class whose terms expire in 2001, Ms.
Jacobson serves in the class whose terms expire in 2002, and Mr. Mayyasi and
Mr. Lougee serves in the class whose terms expire in 2003. The executive
officers are elected annually by the Board of Directors and serve at the
discretion of the Board of Directors or until their successors are elected.
The Board of Directors has established an Audit Committee and a Compensation
Committee. The Audit Committee reviews the scope and results of the annual
audit of the Company's consolidated financial statements conducted by its
independent accountants, proposed changes in the Company's financial and
accounting standards and principles, and the Company's policies and procedures
with respect to internal accounting, auditing and financial controls, and
makes recommendations to the Board of Directors on the engagement of the
independent accountants, as well as other matters which may come before it or
as directed by the Board of Directors. The Compensation Committee administers
the Company's compensation programs, including the 1996 and 1999 Stock Plans,
and performs such other duties as may from time to time be determined by the
Board of Directors.
Section 16(a) Beneficial Ownership Reporting Compliance
Due to a record keeping error, Michael E. Savage did not timely report a
1999 acquisition of 150 shares of Vialog common stock and an April 2000
acquisition of 200 shares of Vialog common stock. Mr. Savage disclosed these
acquisitions in an amended Form 3 and a Form 4 filed on November 9, 2000.
Item 11. Director and Executive Compensation.
Director Compensation
Directors who are also employees of the Company or one of its subsidiaries
do not receive additional cash compensation for serving as directors. Each
newly-elected director is granted an option to purchase 20,000 shares of
common stock upon the director's election. Following each annual meeting of
stockholders, each non-employee director then in office is granted an option
to purchase 5,000 shares of common stock. Each non-employee director receives
a $10,000 annual retainer payable quarterly in arrears. Additionally, each
non-employee director receives $1,000 for attendance at each Board of
Directors meeting and $500 for each committee meeting (unless held on the same
day as a Board of Directors meeting). Directors are also reimbursed for out-
of-pocket expenses incurred in attending meetings of the Board of Directors or
committees thereof or otherwise incurred in their capacity as Directors.
Compensation Committee Interlocks and Insider Participation
Since January 1, 2000, the Compensation Committee has consisted of Mr.
Mayyasi, Mr. Hamermesh and Mr. Lougee. Mr. Lougee also serves as one of the
Company's directors and is partner of Mirick, O'Connell, DeMallie & Lougee,
LLP, Vialog's legal counsel. None of Vialog's executive officers or directors
serves as a member of the board of directors or compensation committee of any
other entity that has an executive officer serving as a member of Vialog's
Board of Directors or Compensation Committee.
62
Executive Compensation
Summary compensation. The following table summarizes the compensation earned
by the Company's Chief Executive Officer in 2000 and the Company's executive
officers as of December 31, 2000 who earned more than $100,000 in salary and
bonus in 2000 (the "named executive officers"). The compensation summarized in
this table does not include medical, group life insurance, or other plan
benefits that are available generally to all of the Company's salaried
employees, or perquisites or other personal benefits that in the aggregate are
lesser than either $50,000 or 10% of the officer's salary and bonus.
Summary Compensation Table
Long-Term
Annual Compensation Compensation
----------------------- ------------
Securities
Name and Principal Underlying All Other
Position Year Salary($) Bonus($) Options (#) Compensation($)
------------------ ---- --------- -------- ------------ ---------------
Kim A. Mayyasi............ 1999 177,692 0 250,000 0
President and CEO 2000 366,961 100,000 296,850 0
Michael E. Savage......... 1999 66,000 35,000 100,000 0
Senior Vice President and
Chief Financial 2000 197,580 50,000 108,740 0
Officer
Robert F. Saur............ 1999 32,192 0 50,000 0
Chief Information Officer 2000 158,100 51,150 78,740 0
Option grants in 2000. The following table summarizes all options granted to
the named executive officers in 2000. Amounts reported in the last two columns
represent hypothetical values that the holder could realize by exercising the
options immediately before their expiration, assuming the value of the
Company's common stock appreciates at the specified compounded annual rates
over the terms of the options. These numbers are calculated based on the SEC's
rules and do not represent the Company's estimate of future stock price
growth. This table does not take into account any appreciation in the price of
the common stock from the date of grant to the current date. The values shown
are net of the option exercise price, but do not include deductions for taxes
or other expenses associated with the exercise.
Option Grants in 2000
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation
Individual Grants for Option Term
----------------------------------------------- ---------------------
Number of % of Total
Securities Options
Underlying Granted to Exercise
Options Employees Price Expiration
Name Granted (#) in Fiscal Year ($/Share) Date 5%($) 10%($)
- ---- ----------- -------------- --------- ---------- ---------- ----------
Kim A. Mayyasi.......... 100,000 9.12 5.00 2/10/10 314,447 796,871
196,850 17.96 10.50 10/2/10 1,299,878 3,294,146
Michael E. Savage....... 5,000 0.46 4.00 1/26/10 12,578 31,875
25,000 2.28 5.00 2/10/10 78,612 199,218
78,740 7.18 10.50 10/2/10 519,951 1,317,658
Robert F. Saur.......... 78,740 7.18 10.50 10/2/10 519,951 1,317,658
The exercise price of these options is the fair market value on the date of
grant as determined under the Company's stock plans.
63
If a named executive officer ceases to be employed by the Company, further
vesting of the named executive officer's options ceases and all vested options
expire 90 days after the date the named executive officer ceases to be
employed by the Company.
Fiscal year-end option values. The following table provides information
regarding the value of all unexercised options held by the named executive
officers at the end of 2000. The value of unexercised in-the-money options
represents the difference between the fair market value of the Company's
common stock on December 29, 2000 (the last trading day of the year) and the
option exercise price, multiplied by the number of shares underlying the
option. The closing sale price of the Company's common stock on December 29,
2000 was $10.125.
2000 Aggregated Option Exercises and
Fiscal Year-End Option Values
Value of Unexercised
Number of Securities In-the-Money
Underlying Unexercised Options at Fiscal
Options at Fiscal-Year End (#) Year End ($)
Shares Acquired ---------------------------------- -------------------------
Name on Exercise (#) Value Realized ($) Exercisable Unexercisable Exercisable Unexercisable
- ---- --------------- ------------------ --------------- ---------------- ----------- -------------
Kim A. Mayyasi.......... 0 0 150,005 396,845 976,279 1,232,471
Michael E. Savage....... 0 0 39,589 169,151 250,797 564,152
Robert F. Saur.......... 0 0 16,672 112,068 109,402 218,698
Employment Agreements and Change-of-Control Provisions
Mr. Mayyasi's employment offer letter provides for an annual base salary of
$350,000 and an annual bonus of up to $100,000. If Vialog terminates Mr.
Mayyasi's employment without cause, Vialog will pay Mr. Mayyasi or his estate
his base salary and health insurance benefits for six months.
Mr. Savage's employment agreement provides for an annual base salary of
$195,000, a signing bonus of $35,000, and an annual bonus of up to 50% of his
annual base salary. Vialog may terminate his employment immediately with or
without cause. Mr. Savage may terminate his employment agreement with 30 days
prior written notice. If Vialog terminates Mr. Savage's employment without
cause, or in the event of Mr. Savage's death or his termination of his
employment under certain circumstances set forth in the contract, Vialog will
pay Mr. Savage or his estate his base salary and health insurance benefits for
six months.
Mr. Saur's employment agreement provides for an annual base salary of
$155,000 and an annual bonus of up to 30% of his annual base salary. Vialog
may terminate his employment immediately with or without cause. Mr. Saur may
terminate his employment agreement with 30 days prior written notice. If
Vialog terminates Mr. Saur's employment without cause, or in the event of Mr.
Saur's death, Vialog will pay Mr. Saur or his estate his base salary for six
months.
All unvested options held by Mssrs. Mayyasi, Savage and Saur will vest and
become immediately exercisable upon the occurrence of any of the following
events:
. Vialog's merger into or consolidation with another company,
. the sale of substantially all of Vialog's assets to another company, or
. the sale of more than 50% of Vialog's outstanding capital stock to an
unrelated person or group.
64
Stock Plans
Vialog currently maintains the following stock plans:
Outstanding
Stock Awards Shares
or Options Available for
Shares Issued Under Issuance Under
Reserved Under Plan as of Plan as of
Plan Name Adoption Date Expiration Date Plan March 12, 2001 March 12, 2001
--------- ------------- --------------- -------------- -------------- --------------
1996 Stock Plan......... 2/14/96 2/14/06 3,250,000 1,667,656 541,463
1999 Stock Plan......... 4/29/99 4/29/09 1,500,000 1,155,572 324,830
The purpose of the stock plans is to provide directors, officers, key
employees and consultants with additional incentives by increasing their
ownership interests in the Company. Individual awards under the stock plans
may take the form of one or more of (i) incentive stock options, (ii) non-
qualified stock options, (iii) stock appreciation rights and (iv) restricted
stock.
The Compensation Committee and Board of Directors administer the Plan and
generally select the individuals who will receive awards and the terms and
conditions of those awards. Shares of common stock subject to awards which
have expired, terminated or been canceled or forfeited are available for
issuance or use in connection with future awards.
On April 15, 1999, Vialog registered with the Securities and Exchange
Commission 2,430,097 shares of common stock reserved for issuance under the
Company's 1996 Stock Plan. On September 1, 1999, Vialog registered with the
Securities and Exchange Commission 1,500,000 reserved for issuance under the
Company's 1999 Stock Plan.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The following table provides information regarding the beneficial ownership
of Vialog's outstanding common stock as of April 1, 2001 for:
. each person or group that Vialog know owns more than 5% of the common
stock,
. each of Vialog's directors,
. each of Vialog's executive officers, and
. all of Vialog's directors and executive officers as a group.
Beneficial ownership is determined under rules of the SEC and includes
shares over which the indicated beneficial owner exercises voting and/or
investment power. Shares of common stock that Vialog may issue upon the
exercise of options currently exercisable or exercisable within 60 days of
April 1, 2001 are deemed outstanding for computing the percentage ownership of
the person holding the options but are not deemed outstanding for computing
the percentage ownership of any other person. Vialog believes the beneficial
owners of the common stock listed below, based on information furnished by
them, have sole voting and investment power over the number of shares listed
opposite their names. The address for each beneficial owner, except Cross
Asset Management Limited, is c/o Vialog Corporation, 32 Crosby Drive, Bedford,
Massachusetts 01730. The address for Cross Asset Management is 3 New
Burlington Street, London W1S 2JF, United Kingdom.
65
Number of Shares
Beneficially Owned
Shares Issuable pursuant to (Including the Number of
Options Exercisable within Shares shown in the first Percentage of Shares
Name of Beneficial Owner 60 days of April 1, 2001 column) Outstanding
- ------------------------ --------------------------- ------------------------- --------------------
Cross Asset Management
Limited................ 0 789,810 7.73
John J. Hassett......... 0 555,362 5.43
Kim A. Mayyasi.......... 190,504 190,504 1.83
David L. Lougee......... 41,928 105,928 1.03
Joanna M. Jacobson...... 41,928 41,928 *
Richard G. Hamermesh.... 41,262 41,262 *
Edward M. Philip........ 37,938 37,938 *
Michael E. Savage....... 62,509 62,859 *
Robert F. Saur.......... 25,004 25,004 *
All directors and
executive officers as a
group (7) persons...... 441,073 505,423 4.90
- --------
* Less than 1%
Item 13. Certain Relationships and Related Transactions.
David L. Lougee, one of Vialog's directors, is a partner of Mirick,
O'Connell, DeMallie & Lougee, LLP, the law firm Vialog currently retains as
legal counsel. In 2000, Vialog paid Mirick, O'Connell, DeMallie & Lougee, LLP
an aggregate of approximately $309,294 in legal fees and expenses for legal
services.
Vialog provides teleconferencing services to customers of a company owned by
Susan C. Hassett, spouse of John J. Hassett, for which Vialog recorded
revenues of $160,549 in 2000.
On November 6, 1997, Vialog entered into a stockholder agreement with John
J. Hassett that provides, among other things, that while any senior notes or
other obligation of the Company or our operating centers (as subsidiary
guarantors) with respect to the senior notes remain outstanding:
. with respect to all matters submitted to a vote of our stockholders
regarding the appointment, election or removal of directors or officers
of the Company, Mr. Hassett will vote any shares of Vialog voting stock
over which he has direct or indirect voting power in the same proportion
as the votes cast in favor of and against the particular matter voted
upon, by all of our other stockholders; and
. Mr. Hassett will not serve as a director or officer of the Company or
any subsidiary.
Company Policy
The Company has implemented a policy whereby neither the Company nor any
subsidiary will enter into contracts or business arrangements with persons or
entities owned in whole or in part by the Company's officers or directors or
any subsidiary except on an arms-length basis and with the approval of the
Board of Directors. The Company's By-Laws require that any approval must be by
a majority of the independent directors then in office who have no interest in
such contract or transaction.
66
PART IV
Item 14. Financial Statements, Schedules, Reports on Form 8-K and Exhibits.
(a) Documents filed as part of this Form 10-K:
1. Financial Statements
See index to Financial Statements under ITEM 8--Financial Statements
and Supplementary Data.
2. Financial Statement Schedules
All financial statement schedules have been omitted because they are not
required, not applicable, or the information to be included in the financial
statement schedules is included in the Consolidated Financial Statements or
the notes thereto.
3. Exhibits
See Exhibit Index.
(b) Reports on Form 8-K
On October 2, 2000, the Company filed a Form 8-K reporting that it had
entered into a definitive Merger Agreement with Genesys S.A.
On November 13, 2000, the Company filed a Form 8-K reporting its financial
results for the third quarter of 2000.
67
EXHIBIT INDEX
Exhibit
Number Description
------- -----------
2.1* Agreement and Plan of Merger and Reorganization By and Among Vialog
Corporation, Genesys SA and ABCD Merger Corp. dated as of October 1,
2000.
3.1** Restated Articles of Organization of Vialog Corporation.
3.2** Amended and Restated By-Laws of Vialog Corporation.
4.2** Indenture Dated as of November 12, 1997 Among Vialog Corporation,
Telephone Business Meetings, Inc., Conference Source International,
Inc., Kendall Square Teleconferencing, Inc., American Conferencing
Company, Inc., Communication Development Corporation Inc., Call
Points, Inc. and State Street Bank and Trust Company (including Forms
of Series A Security and Series B Security attached to the Indenture
as Exhibits A-1 and A-2, respectively).
4.3** Unit Agreement Dated as of November 12, 1997 By and Among Vialog
Corporation, Telephone Business Meetings, Inc., Conference Source
International, Inc., Call Points, Inc., Kendall Square
Teleconferencing, Inc., American Conferencing Company, Inc.,
Communications Development Corporation, and State Street Bank and
Trust Company (including Form of Unit Certificate attached to the
Unit Agreement as Exhibit A).
4.4** Warrant Agreement Dated as of November 12, 1997 Between Vialog
Corporation and State Street Bank and Trust Company (including Form
of Warrant Certificate attached to the Warrant Agreement as Exhibit
A).
4.5** Security Holders' and Registration Rights Agreement Dated as of
November 12, 1997 Among Vialog Corporation and Jefferies & Company,
Inc.
4.6** Registration Rights Agreement Dated as of November 12, 1997 By and
Among Vialog Corporation, Kendall Square Teleconferencing, Inc., AMCS
Acquisition Corporation, Communication Development Corporation,
Telephone Business Meetings, Inc., Conference Source International,
Inc., Call Points Acquisition Corporation and Jefferies & Company,
Inc.
10.1** 1996 Stock Plan.
10.2*** 1999 Stock Plan.
10.3**** Lease Dated April 7, 1998 between Connecticut General Life Insurance
Company, on behalf of its Separate Account R, and Vialog Corporation.
10.4* Indenture of Lease Dated March 3, 2000 By and Between Vialog
Corporation and EOP--Crosby Corporate Center, L.L.C.
10.5+ Lease Dated as of August 3, 1998 Agreement By and Between Executive
Park, T.I.C. and Vialog Corporation.
10.7* Lease Agreement Dated August 3, 1999 By and Between Century 2000
Partners, LLP and A Business Conference Call, Inc.
10.8++ Assignment of Lease Dated as of March 13, 1998 Between Telephone
Business Meetings, Inc. and CMC Datacomm, Inc.
10.9** Lease dated December 6, 1994 between Aetna Life Insurance Company and
Access, as amended.
10.10** Deed of Lease dated September 30, 1999 by and between Royce, Inc. and
Telephone Business Meetings, Inc.
68
Exhibit
Number Description
------- -----------
10.11+++ Loan & Security Agreement Dated as of September 30, 1998 by and
between Kendall Square Teleconferencing, Inc.; Conference Source
International, Inc.; Telephone Business Meetings, Inc.; Call
Points, Inc.; American Conferencing Company, Inc.; Communication
Development Corporation and Coast Business Credit.
10.12+++ Secured Term Note Dated September 30, 1998 in the principal amount
of $4,000,000 delivered by Kendall Square Teleconferencing, Inc.;
Conference Source International, Inc.; Telephone Business Meetings,
Inc.; Call Points, Inc.; American Conferencing Company, Inc.; and
Communication Development Corporation to Coast Business Credit.
10.13+++ Secured Term Note Dated September 30, 1998 in the principal amount
of $1,500,000 delivered by Kendall Square Teleconferencing, Inc.;
Conference Source International, Inc.; Telephone Business Meetings,
Inc.; Call Points, Inc.; American Conferencing Company, Inc.; and
Communication Development Corporation to Coast Business Credit.
10.14+++ Security Agreement Dated September 30, 1998 by and Between Vialog
Corporation and Coast Business Credit, a division of Southern
Pacific Bank.
10.15+++ Continuing Guaranty Dated September 30, 1998 executed by Vialog
Corporation in favor of Coast Business Credit.
10.16++++ Employment Offer Letter Dated June 3, 1999 By and Between Vialog
Corporation and Kim A. Mayyasi.
10.17++++ Employment Agreement Dated August 30, 1999 By and Between Vialog
Corporation and Michael E. Savage.
10.18+++++ Employment Agreement Dated September 1, 2000 By and Between Vialog
Corporation and Robert Saur.
11.1+++++ Statement Regarding Computation of Earnings Per Share.
21.1++++ Subsidiaries of the Company.
23.1+++++ Consent of Independent Auditors.
All non-marked Exhibits are filed with this Form 10-K.
* Incorporated by reference to the Exhibits to the Current Report Pursuant
to Section 13 or 15(d) of the Securities Act of 1934 on Form 8-K filed
with the Securities and Exchange Commission on October 2, 2000 (File No.
001-15527).
** Incorporated by reference to the Exhibits to the Registration Statement
on Form S-4 filed with the Securities and Exchange Commission on January
9, 1998 (File No. 333-44041).
*** Incorporated by reference to the Exhibits to the Registration Statement
on Form S-8 filed with the Securities and Exchange Commission on
September 1, 1999 (File No. 333-86319).
**** Incorporated by reference to the Exhibits to the Registration Statement
on Form S-1 filed with the Securities and Exchange Commission on May 22,
1998 (File No. 333-53395).
+ Incorporated by reference to Amendment No. 3 to the Registration
Statement on Form S-1 filed with the Securities and Exchange Commission
on December 31, 1998 (File No. 333-53395).
++ Incorporated by reference to the Exhibits to Form 10-K for the fiscal
year ended December 31, 1997 filed with the Securities and Exchange
Commission on March 31, 1998 (File No. 333-22585).
+++ Incorporated by reference to the Exhibits to the Current Report Pursuant
to Section 13 or 15(d) of the Securities Act of 1934 on Form 8-K filed
with the Securities and Exchange Commission on October 26, 1998 (File
No. 000-24689).
++++ Incorporated by reference to the Exhibits to Form 10-K for the fiscal
year ended December 31, 1999 filed with the Securities and Exchange
Commission on March 30, 2000 (File No. 001-15527).
+++++ Previously filed in the Form 10-K for the fiscal year ended December
31, 2000
69
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
VIALOG Corporation
/s/ Kim A. Mayyasi
By: _________________________________
Kim A. Mayyasi,
President and Chief Executive
Officer
Date: Date: April 15, 2001
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 Company
and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Kim A. Mayyasi President, Chief Executive April 15, 2001
By: __________________________________ Officer and Director
Kim A. Mayyasi
/s/ Michael E. Savage Senior Vice President, April 15, 2001
By: __________________________________ Chief Financial Officer
Michael E. Savage and Principal Accounting
Officer
/s/ Joanna M. Jacobson Director April 15, 2001
By: __________________________________
Joanna M. Jacobson
/s/ David L. Lougee Director April 15, 2001
By: __________________________________
David L. Lougee
/s/ Richard G. Hamermesh Director April 15, 2001
By: __________________________________
Richard G. Hamermesh
/s/ Edward M. Philip Director April 15, 2001
By: __________________________________
Edward M. Philip
70