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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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, 1998
Commission file number: 0-27778
PREMIERE TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Georgia 59-3074176
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3399 Peachtree Road, N.E., The Lenox Building, Suite 600, Atlanta, Georgia
30326
(address of principal executive office)
(Registrant's telephone number, including area code): (404) 262-8400
Securities registered pursuant to Section 12(b) of the Act:
None None
(Title of each class) (Name of each exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value $0.01 Per Share
(Title of class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K ((S)229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. [_]
The aggregate market value of voting stock held by non-affiliates of the
registrant, based upon the closing sale price of common stock on March 29,
1999 as reported by The Nasdaq Stock Market's National Market, was
approximately $455,478,924.
As of March 30, 1999 there were 46,067,323 shares of the registrant's common
stock outstanding.
List hereunder the documents incorporated by reference and the part of the
Form 10-K (e.g., Part I. Part II, etc.) into which the document is
incorporated: Portions of the registrant's Proxy Statement for its 1998
meeting of shareholders are incorporated by reference in Part III.
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Index
Page
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Part I
Item 1. Business........................................................
Item 2. Properties......................................................
Item 3. Legal Proceedings...............................................
Item 4. Submission of Matters to a Vote of Security Holders.............
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters.................................................................
Item 6. Selected Financial Data.........................................
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations...................................................
Item 8. Financial Statements and Supplementary Data.....................
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure....................................................
Part III
Item 10. Directors and Executive Officers of the Registrant..............
Item 11. Executive Compensation..........................................
Item 12. Security Ownership of Certain Beneficial Owners and Management..
Item 13. Certain Relationships and Related Transactions..................
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-
K.......................................................................
Signatures...............................................................
Exhibits.................................................................
FORWARD LOOKING STATEMENTS
When used in this Form 10-K and elsewhere by management or Premiere
Technologies, Inc. ("Premiere" or the "Company") from time to time, the words
"believes," "anticipates," "expects," "will" and similar expressions are
intended to identify forward-looking statements concerning Premiere's
operations, economic performance and financial condition. These include, but
are not limited to, forward-looking statements about Premiere's business
strategy and means to implement the strategy, Premiere's objectives, the
amount of future capital expenditures, the likelihood of Premiere's success in
developing and introducing new products and services and expanding its
business, and the timing of the introduction of new and modified products and
services. For those statements, Premiere claims the protection of the safe
harbor for forward-looking statements contained in the Private Securities
Litigation Reform Act of 1995. These statements are based on a number of
assumptions and estimates which are inherently subject to significant risks
and uncertainties, many of which are beyond the control of Premiere, and
reflect future business decisions which are subject to change. A variety of
factors could cause actual results to differ materially from those anticipated
in Premiere's forward-looking statements, including the following factors:
. factors described under the caption "Factors Affecting Future
Performance" in this Form 10K;
. factors described from time to time in the Company's press releases,
reports and other filings made with the Securities and Exchange
Commission;
. Premiere's ability to manage its growth and to respond to rapid
technological change and risk of obsolescence of its products, services
and technology;
. market acceptance of new products and services, including
Orchestrate(R);
. development of effective marketing, pricing and distribution strategies
for new products and services, including Orchestrate(R);
. competitive pressures among communications services providers may
increase significantly;
. costs or difficulties related to the integration of businesses, if any,
acquired or that may be acquired by Premiere may be greater than
expected;
. expected cost savings from past or future mergers and acquisitions may
not be fully realized or realized within the expected time frame;
. revenues following past or future mergers and acquisitions may be lower
than expected;
. operating costs or customer loss and business disruption following past
or future mergers and acquisitions may be greater than expected;
. the success of Premiere's strategic relationships, including the amount
of business generated and the viability of the strategic partners, may
not meet expectations;
. possible adverse results of pending or future litigation;
. risks associated with interruption in Premiere's services due to the
failure of the platforms and network infrastructure utilized in
providing its services;
. risks associated with the Year 2000 issue, including Year 2000 problems
that may arise on the part of third parties which may effect Premiere's
operations;
. risks associated with expansion of Premiere's international operations;
. general economic or business conditions, internationally, nationally or
in the local jurisdiction in which Premiere is doing business, may be
less favorable than expected;
. legislative or regulatory changes may adversely affect the business in
which Premiere is engaged; and
. changes in the securities markets may negatively impact Premiere.
Premiere cautions that these factors are not exclusive. Consequently, all of
the forward-looking statements made in this Form 10-K and in documents
incorporated in this Form 10-K are qualified by these cautionary statements.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date of this Form 10-K. Premiere takes
on no obligation to publicly release the results of any revisions to these
forward-looking statements that may be made to reflect events or circumstances
after the date of this Form 10-K, or the date of the statement, if a different
date.
PART I
ITEM 1. BUSINESS
Overview
Premiere Technologies, Inc. ("Premiere" or the "Company") began in 1991 with
the vision to enhance telephone-based communications. The telephony solutions
offered by Premiere in effect became a virtual office for thousands of mobile
professionals worldwide. In 1996, the Company saw the opportunity to integrate
the Internet into everyday business and personal communications solutions.
Through its Orchestrate(R) suite of Internet-based communications products,
the Company is Web-enabling its traditional network-based solutions, including
Premiere Document Distribution, Premiere Interactive Voice Response, Premiere
Conferencing, Premiere Voice and Data Messaging and Premiere Enhanced Calling
Services. Combining the power of the Internet with the reach of the telephone,
the Company offers an impressive array of innovative solutions to simplify the
communications people rely on everyday, at work and at home.
Premiere, a Georgia corporation, was incorporated in 1991, and its principal
executive offices are located at 3399 Peachtree Road, N.E., Lenox Building,
Suite 600, Atlanta, Georgia 30326, telephone number (404) 262-8400.
Industry Background
Managing the evolving communications environment has become more complex as
a result of increased service and device options, rapidly changing technology
standards and shortened product life cycles. The proliferation of
communications devices and multiple messaging platforms has dramatically
increased the average person's accessibility and, accordingly, the number of
messages and means of communications he or she must manage. A study by the
Institute for the Future, the Gallup Organization, Pitney-Bowes and San Jose
State University, based on responses from more than 1,000 employees of Fortune
1000 companies, found that workers send and receive an average of 178 messages
each day. Both businesses and individuals face a demanding communications
environment today in which they must utilize a number of communications
systems, convert information from one medium to another and deal with multiple
vendors for each of these services.
Today, many stand-alone communications services are provided through
hardware-based legacy systems, including landline telephone systems, messaging
devices and local area networks, or "LANs", that reside in whole or in part at
a customer's location. The architecture of the customer premises equipment, or
"CPE," that comprises such systems is often closed in nature, which makes
integration with other systems and networks difficult and expensive.
Increasingly, users are demanding that their existing CPE be integrated with
more open and intelligent worldwide communications networks such as the
Internet. The Company believes that, due to the growth of Internet
communications and the complexity of the integration of current
telecommunications with Internet communications, users will increasingly
outsource their communications requirements to third parties such as Premiere.
Management believes that its single source, network-based solutions for
simplifying communications uniquely positions the Company to capitalize on
these trends.
The Premiere Solution
Premiere believes that customers will prefer the Company's network-based
solutions to help them manage their communications needs more effectively and
efficiently, because the Company's solutions reduce its customers' costs of
equipment ownership, exposure to technology obsolescence and dependence on
scarce internal technical resources. The core of the Premiere solution is its
"intelligent network" or "Network Premiere," which integrates stand-alone
communications services and provides customers with access to a suite of
advanced Internet and telephony-based communications services for the
management of their communications needs. The Company's modular and scaleable
network infrastructure incorporates an open-system design, which
allows the Company to easily expand capacity and provides the Company with the
flexibility to develop and customize its service offerings. Premiere's network
infrastructure consists of several platforms, including:
. platforms connected to the public switched telephone network via large
tandem switches;
. platforms which transmit voice and data utilizing Internet protocol
("IP"), frame relay switching protocol, and other packet and call based
technologies;
1--1
. platforms which are Internet accessible;
. a platform for document distribution services using servers from Sun
MicroSystems to perform all primary processing and switching functions;
and
. commercially available conferencing bridges.
The Company plans to continue to make investments in its network
infrastructure in 1999 and may, from time to time, outsource certain of its
network infrastructure requirements. Notwithstanding this continued investment
in its network infrastructure, the Company considers itself primarily an
integrator of innovative communications solutions and a sales and marketing
organization.
The Premiere Strategy
Premiere's goal is to become the world's leading provider and integrator of
innovative communications solutions. Premiere's principal strategies to
achieve this goal are as follows:
Leverage the Company's Existing Customer Base. The Company's corporate
customer base includes 40% of the Fortune 500 companies. While certain of
these enterprises are customers of more than one service offered by Premiere,
the Company believes that the cross-selling opportunities within its customer
base have only begun to be exploited. To enhance these cross-selling
opportunities, the Company recently reorganized by combining Premiere Document
Distribution, Premiere Corporate Messaging, Premiere Worldlink Corporate Card,
Premiere Interactive Voice Response and Premiere Conferencing (the Company's
most complementary offerings to large corporations) into a single strategic
business unit known as "Corporate Enterprise Solutions." As part of that
reorganization the Company also combined Premiere Internet-Based
Communications Services, Premiere Voice and Data Messaging and Premiere
Enhanced Calling Services into a single strategic business unit known as
Emerging Enterprise Solutions. Premiere's 1999 sales plan is designed to
reward the cross-selling efforts of the Corporate Enterprise group's direct
sales force, and to capitalize on the Emerging Enterprise group's
opportunities to migration-sell its existing customers to Internet-based
services.
Continue to Offer Innovative Applications and Solutions. The Company plans
to continue to enhance the Orchestrate line of services and introduce
additional Internet-based services in 1999 and beyond. Consistent with
Premiere's strategy of Web-enabling the everyday communications needs and
business strategies of its partners and customers, the Company has
commercially released Orchestrate(R) office, a robust unified messaging tool,
and Orchestrate(R) personal assistant, which provides customers with their own
single electronic address that serves as the customer's phone number, fax
number and e-mail address.
Build Brand Recognition and Leadership. The Company believes that a
consistent and focused branding message will differentiate the Company's
products and services in the minds of its customers and enhance the Company's
reputation for delivering innovative communications solutions to the
marketplace. The Company recently consolidated its entire suite of products
and services under the Premiere brand and intends to commit significant
resources to establishing and strengthening recognition of the Premiere brand.
Create Revenue-Generating Partnerships and Strategic Alliances. The Company
believes that its ability to create and maintain effective alliances that
generate revenues and produce new technologies is an important aspect of its
long-term strategy. The Company's strategic marketing partners include leading
companies such as American Express Travel Related Services, Inc. ("American
Express"), British Airways PLC and Mastercard International Incorporated
("Mastercard International"). The Company's strategic relationships with and
investments in several companies offering Internet-based information and
communications products and services were recently consolidated under the name
PTEKVentures.com. PTEKVentures.com is responsible for maximizing the Company's
technical, commercial and financial investments in these relationships by,
among other things, establishing new sales channels that will drive
utilization of Premiere's Internet-based service offerings. The Company has
made investments in, and created meaningful sales channel and technology
development arrangements with, a series of companies that provide
communications and information services through the Internet, including WebMD,
Inc. ("WebMD"), a leading full service healthcare portal, and USA.NET, Inc.
("USA.NET"), a leading electronic messaging company.
2
Continue International Expansion. The Company presently maintains
international points-of-presence ("POPs") in over 60 cities in 25 countries,
including POPs owned by the Company and those maintained by contractual
partners who license document distribution systems from the Company. The
Company expects to expand its geographic presence in 1999, either by
acquisition or through internal growth. For example, the Company believes that
it can increase international revenues by porting Premiere Conferencing and
Premiere Voice and Data Messaging solutions to Europe and Asia, and then
selling those services to existing multinational customers who are presently
served by Premiere only in the United States.
Premiere Services
The Company provides its innovative solutions for simplifying communications
through two strategic business units: Corporate Enterprise Solutions,
targeting Fortune 500 and other large companies, and Emerging Enterprise
Solutions, targeting smaller fast-track companies and individuals.
Corporate Enterprise Solutions includes Premiere Document Distribution
(formerly Xpedite); Premiere Corporate Messaging (formerly VoiceCom); Premiere
Worldlink Corporate Card (formerly VoiceCom AccessOne); Premiere Interactive
Voice Response; and Premiere Conferencing (formerly American Teleconferencing
Services). Emerging Enterprise Solutions includes Internet-Based
Communications Services; Premiere Voice and Data Messaging (formerly Voice-
Tel); and Premiere Enhanced Calling Services (formerly Premiere
Communications).
Premiere Corporate Enterprise Solutions
Premiere Document Distribution. Premiere's Document Distribution services
provide customers with a lower cost, more reliable, more timely and effective
information delivery method than most other document distribution
alternatives. These services are described below.
Feature Description
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Fax Broadcast............... Customers rapidly distribute a document to
multiple recipients by a single transmission
through Premiere's document distribution system
to a list of multiple fax addresses.
Robust Access Options....... Premiere's proprietary "PC Xpedite" software
enables a customer to transmit a document to
Premiere from a PC or local area network for
distribution across the Premiere network and
enables a customer to maintain lists of
addresses by computer access to the Premiere
system. Customers may also access Premiere's
document distribution system from fax machines,
e-mail or main frame computer.
3
Feature Description
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Gateway Messaging........... Customers can send information from the
customer's computer through Premiere's document
distribution system to a recipient's fax or
telex machine, or to a recipient via the
Internet or X.400 electronic mail networks. This
service allows a customer to send a large volume
of individual communications (i.e., a single
document to a single recipient or from a single
sender), each of which may require similar
processing but contains different information
such as confirmations of reservations and
delivery of invoices.
Fax on Demand............... Callers can select information using a touch
tone phone and have such information sent
directly to a fax machine.
Enhanced Fax Merging........ Senders may personalize information which can be
inserted into original text at any point in a
standard multi-address document.
Toll-Free Fax Response...... Senders may receive responses by fax to a toll-
free 800 number.
X-Web....................... Provides Internet access to Premiere's Document
Distribution services, including access to job
status information.
In addition, Premiere offers discounted international services. These
services allow a customer to use an automatic dialing device attached to the
customer's fax machine to direct international faxes to the Premiere network
for delivery to the recipient at a discount from standard international
prices. Premiere's discounted international service includes "store-and-
forward" service, in which a fax is transmitted and stored for subsequent
delivery and "real-time" service in which the sender's fax machine is
connected directly to the recipient's fax machine thereby best emulating
"normal" fax transmission.
Premiere Corporate Messaging. Premiere offers centralized 800-based voice
messaging services to large corporate clients through four operations centers.
Premiere also offers local access voice messaging services to large corporate
clients through its worldwide private data network. Both services offer
customers functionality similar to e-mail and the ability to easily
communicate with the touch of a button. Premiere Corporate Messaging services
allow customers to record and send messages to hundreds of recipients by
entering their mailbox numbers or sending to a pre-established distribution
list; answer messages simply by pressing a number on the telephone keypad; and
copy and route received messages to anyone else on the system or network.
Premiere Corporate Messaging also includes facilities management services
where the voice messaging equipment is located on the customer's premises and
Premiere provides all voice messaging services to that customer, including
equipment maintenance and end-user service and support. All of the Premiere
Corporate Messaging services include important end-user support services, such
as the development and distribution of voice mail directories, the generation
and maintenance of large voice mail distribution lists, all administration
services (adds, deletes and changes) and customer or end-user training.
Premiere WorldLink Corporate Card. Premiere offers an 800-based enhanced
calling card that allows customers to make domestic and international long
distance calls, access voice mail and fax mail, set up conference calls,
speed-dial frequently called corporate and personal numbers, and easily
connect to travel services (travel agents, airlines, hotels and rental cars),
information services (news, weather, sports and financial information), and
help desk services. In addition, the Premiere Worldlink Corporate Card
provides project code accounting functionality, which allows the customer to
set up project or account codes for easy billing of calls to a particular
client matter or account.
Premiere Interactive Voice Response. Premiere provides various interactive
voice response ("IVR") applications using custom voice prompts and commands
from a caller's telephone keypad to retrieve, process or route certain
information or telephone calls. This IVR service is used by, among others,
financial institutions (such as Bank of America), where Premiere's platform is
used to enhance call processing for checking, savings and other account
information.
4
Premiere Conferencing. Premiere offers a full range of conferencing services
for successful business communications worldwide. Premiere Conferencing
specialists assist customers in customizing services to best meet their needs.
The three basic levels of conferencing services are as follows:
Service Level Description
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Dialog Services............. This automated conferencing service allows users
to begin and conduct their conference without
the assistance of a Premiere Conferencing
support specialist. Security features include
passcodes and tones to introduce the arrival and
departure of participants. Ideal for routine
meetings with 48 or fewer participants.
Legend Services............. These group communications services includes
assistance from Premiere Conferencing support
specialists and other Premiere Conferencing team
members. The Legend Plus service includes a
dedicated conference support specialist to fully
monitor the conference call. Ideal for sales
meetings, company announcements, strategic
planning sessions, staff meetings and Board
meetings.
Paragon Services............ This collection of event management services are
customized for each client through consultation
with Premiere Conferencing team members. These
services are for high profile events such as
press conferences, training programs, client
seminars and quarterly earnings releases.
In addition, Premiere Conferencing offers Web enhancements that allow real-
time sharing of presentations over the Internet during the course of a
conference call (Web-based data collaboration). Premiere Conferencing also
offers enhancements such as taping and replay services, translation services,
transcription services, consulting services, fulfillment services to assemble
and mail conference materials, invitation design, RSVP and reminder services
and electronic question and answer and polling services. Future plans include
international expansion and Web-enabled conferencing services, including Click
'N Conference(TM), reservations and scheduling.
Premiere Emerging Enterprise Solutions
Premiere Internet-Based Communications Services. Premiere's primary
Internet-based service is Orchestrate(R) by Premiere, a Web-based
communications platform. Orchestrate(R) integrates the Company's service
offerings by allowing customers to access the Company's services through a
computer or telephone. The Orchestrate(R) product line includes:
Service Level Description
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Orchestrate(R) office A Web-based communications tool kit that
combines voice mail, e-mail, fax mail and
conference calling into one easy to use service.
Orchestrate(R) office includes an embedded
contact manager to manage a customer's
communications needs: a universal inbox for all
of the customer's messages; a personal Web page
that functions as a virtual receptionist; Click
'N Conference(TM), which allows the customer to
initiate conference calls from a computer; and a
personal 800 number. A customer's personal Web
page is automatically generated by the Premiere
platform from input provided by the customer.
Orchestrate(R) office operates using an Internet
browser in connection with any device connected
to the Internet and does not require customers
to purchase additional specialized hardware or
software.
5
Orchestrate(R) personal Provides customers with a single electronic
assistant address that serves as their telephone number,
fax number and e-mail address. Customers dial
the same number to access all their messages
voice, fax and e-mail messages and to place
long-distance or conference calls and use
enhanced services such as travel and news
services.
Orchestrate(R) unified Allows customer to listen and respond to their
messaging e-mail and voice mail messages from virtually
any touch-tone phone using advanced text-to-
speech technology. The service also allows
customersto access their voice mail and e-mail
messages from their computer.
5--1
In addition, the Orchestrate(R) platform is used by other companies to power
Internet communications in their product offerings. For example, WebMD, the
Atlanta-based Internet healthcare Web site that offers a comprehensive suite
of Internet-based products and services for healthcare professionals, utilizes
a co-branded version of Orchestrate(R) that allows healthcare professionals to
manage their critical flow of communications. Premiere recently announced
WebMD's agreement to purchase a minimum of 50,000 Orchestrate(R) accounts. The
agreement provides for Web-based communications elements of WebMD's commercial
offering to be branded as "Virtual Receptionist Powered by Orchestrate(R)".
The strategic alliance provides that Premiere will serve as WebMD's exclusive
provider of enhanced and unified telecommunications services offered to
WebMD's community of healthcare professionals. In addition, under a licensing
and co-marketing arrangement, WebMD will be Premiere's exclusive reseller of
Orchestrate(R) services through medical portals for the next four years.
The Company recently introduced the tagline "Powered by Orchestrate(R)" as
its branding approach in circumstances in which its service is an important
ingredient of another party's offering. The Company intends to continue to
deploy this branding strategy in 1999.
Premiere Voice and Data Messaging. Premiere's private data network allows
customers of Voice and Data Messaging services access to one of the largest
"voice intranets" in the world. The Company's intelligent data network offers
voice mail customers functionality similar to e-mail and the ability to easily
communicate inside the voice intranet with a touch of a button. Customers to
the Company's voice intranet can record and send messages to hundreds of
recipients by entering their mailbox numbers or sending to a pre-established
distribution list; answer messages simply by pressing a number on the
telephone keypad; and copy and route received messages to anyone else on the
network.
Premiere Enhanced Calling Services. Premiere Enhanced Calling Services
include long distance and enhanced 800-based communications services, which
are offered on a direct and a wholesale basis. The following table describes
available products and features.
Feature Description
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Long Distance Calling Card.. Customers can place worldwide long distance
calls at attractive rates.
Message Notification........ Customers can instruct platform to notify them
upon receipt of messages by page or call to a
predesignated number. Special pager codes
identify type of message (voice, fax or e-mail)
received.
Personal 800 Numbers........ Customers receive personal 800 number serving as
single point of access for callers to select
various messaging options or attempt to locate
customer through call connect feature.
E-mail ..................... Customers are provided with an e-mail address.
Messages can be read over a telephone using
proprietary text-to-speech functionality or sent
to a fax machine.
Fax Mail.................... Customers can receive and store fax
transmissions and later instruct the platform to
forward faxes to a specified location. Callers
may also attach a voice introduction.
Conference Calling.......... Customers can initiate conference calls by
commands delivered through a telephone key pad.
Information Services........ Customers can access news, weather, sports and
financial and other information updates.
Other Services.............. Customers can program speed dial and access
travel and concierge services including lodging,
airline, rental car, dining and other events.
6
Premiere Platforms and Network Infrastructure
The Company operates, and is continuing to develop, a global network
("Network Premiere") that provides customers with a way to simplify their
everyday communications. Network Premiere has been designed to facilitate the
"one to many" communications requirements of large corporations. Through
Network Premiere, customers have access to a suite of advanced Internet and
telephony-based communications services for the management of all of their
daily communications. This includes messages, documents, contact information,
and incoming and outgoing calls. The network is designed to take full
advantage of the latest telephony and Internet technologies.
Network Premiere is being developed using an open standards approach, which
makes it simple for Premiere to use the hardware and software of external
vendors and for other service providers to interconnect their networks with
Network Premiere. Customers can access Premiere's various services through the
Internet and through local and/or 800 telephone numbers.
Premiere Document Distribution services are provided primarily through a
document distribution platform that uses servers to perform all primary
processing and switching functions. This platform supports multiple input
methods including, but not limited to, fax-to-fax, priority PC based software,
e-mail gateways and high speed IP based interconnects. Outgoing faxes are
delivered through line group controllers ("LGCs"), which are deployed in a
decentralized fashion to exploit local delivery costs. The remote LCGs are
connected to the servers over a wide area network via either private lines or
Premiere's global TCP/IP based network. Messages are transported in bulk from
one location domain to another using MCP to MCP protocol. The current domains
include Sydney, Australia; Hong Kong; Tokyo, Japan; Seoul, Korea; Singapore;
Basel, Switzerland; York, UK; Leeds, UK; Eatontown, New Jersey; Munich,
Germany; and Paris, France. Remote nodes on the network are located in
Belgium, Canada, Denmark, Italy, Malaysia, Netherlands, New Zealand and
Taiwan. Premiere Document Distribution operates real time fax and real time
telex nodes in many additional countries.
Premiere Corporate Messaging offers centralized voice messaging services to
large corporate clients via 800 access through multiple voice messaging
platforms located in Atlanta, Georgia; Reno, Nevada; Arlington, Virginia; and
Oakbrook, Illinois. Premiere also offers local access voice messaging services
to large corporate clients through the Voice and Data Messaging platforms and
network described below.
Premiere WorldLink Corporate Card services are provided through a platform
located in Atlanta, Georgia that consists of Unix-based industrial grade PC
front-ends connected by a local area network to a tandem computer database
server.
Premiere Conferencing services are provided from centers in Colorado
Springs, Colorado and Overland Park, Kansas on commercially available
conferencing bridges. Complex, operator-assisted calls are supported on these
bridges. Internally developed Dialog conference bridges utilizing Dialogic
hardware and Premiere software are used to support unattended (no operator
assistance) conference calls. Customers access the conferencing platform
through DID, 800, Internet and virtual network access.
The e-mail to voice mail exchange functionality which is the basis of
Orchestrate(R) unified messaging and Orchestrate(R) personal assistant
services is provided through unified servers that are connected to Premiere's
frame relay network infrastructure. Acting as mail gateways, the unified
messaging servers facilitate the transfer of messages between voice and e-mail
message stores but do not store messages. The unified messaging platform can
be configured either to send e-mail to a customer's local voice mail account,
to send voice mail messages to the customer's e-mail account, or both,
depending on the customer's needs. Customers access their messages using the
familiar interface of the existing Premiere voice mail servers or their
favorite e-mail client.
Premiere Voice and Data Messaging services are currently provided through
platforms installed in more than 200 sites in the US, Canada, Australia, New
Zealand, UK, Hong Kong, Korea and Japan. Each system is connected to
Premiere's global frame relay network infrastructure, which is used for
transport of messages from one system to another.
7
Most of Premiere's Enhanced Calling services and Interactive Voice Response
services are provisioned on platforms located in Atlanta, Georgia and Dallas,
Texas that include Dialogic-based telephony nodes, fax nodes and conference
nodes. These platforms are connected to the public switched telephone network
via large tandem switches that are used primarily for least-cost routing
functions. Premiere has also installed more advanced telephony platforms in
Atlanta and London, England. These platforms will be used to support new
calling card and voice mail/messaging applications as well as the telephony
features for many of Premiere's Orchestrate(R) services.
7--1
Sales, Marketing And Distribution
Premiere markets its services through multiple distribution channels that
encompass: (i) direct sales through the Company's own dedicated sales force;
(ii) direct marketing efforts where Premiere is responsible for lead
generation and sales; (iii) co-brand relationships in which Premiere offers
its services to the customers of other companies, such as financial
institutions, that are seeking to increase their revenue from, and goodwill
with, their customer base by offering value-added services; (iv) private-label
relationships where Premiere may develop custom applications for its platforms
and market its services jointly with its strategic partners; and (v) licensing
and wholesale relationships where other companies market and sell Premiere's
services under their names without significant assistance from Premiere. In
all distribution channels, except licensing arrangements, Premiere pays
commissions to, in the case of employees and agents, or shares revenues with
the parties who assist Premiere in marketing its services. The Premiere
marketing staff is primarily responsible for providing marketing support to
the five channels described above at varying levels of involvement, depending
on the channel. The marketing staff is also responsible for promoting the
Premiere brand and corporate image in the marketplace.
Direct Sales. The direct sales force is organized by the Company into the
two key strategic business units mentioned earlier, Corporate Enterprise
Solutions and Emerging Enterprise Solutions. The direct sales force for the
Corporate Enterprise Solutions group has a regional reporting structure and a
centrally managed national and international accounts program. Regional sales
managers and their direct sales people have the ability to generate sales
leads for all of Premiere's products and services. The Corporate Enterprise
Solutions group sales staff targets primarily larger businesses with respect
to Document Distribution, Conferencing and Interactive Voice Response
services. The centrally managed national accounts program focuses on multi-
location businesses that are better served by dedicated representatives with
ultimate responsibility across different geographic regions. If appropriate,
these national accounts sales people form account teams that include regional
sales people when greater geographic coverage is needed or that include
wholesale channel representatives when necessary. The Corporate Enterprise
Solutions group markets its services through a full-time direct sales force
operating from 50 sales offices in 16 countries and a significant network of
third-party distributors.
The direct sales force for the Emerging Enterprise Solutions group targets
primarily single location, small to medium sized businesses, emphasizing
Orchestrate(R) Web-based communications, Voice and Data Messaging and Enhanced
Calling Services. This group also sells directly to hundreds of thousands of
multilevel marketing representatives in organizations such as Amway, Mary Kay
and Excel Communications.
Direct Marketing. Premiere markets its Enhanced Calling Services directly
under the Premiere WorldLink and AFCOM names. Direct marketing and sales
efforts have traditionally focused on print advertising and direct mailings
targeted at mobile professionals or, with respect to AFCOM, direct marketing
done in conjunction with financial institutions located on military bases.
Co-Brand Relationships. Premiere has relationships with a number of other
companies, including the Royal Bank of Scotland PLC, Shared Technologies, and
Cellular, Inc. under which Premiere provides its services to customers of
those companies. These companies generally offer their customers access to
Premiere's services, and Premiere pays a commission to the other company with
respect to each customer who uses a co-branded service. Premiere believes that
companies which enter into co-brand relationships with Premiere are motivated
by the ability to offer additional value through unique product offerings to
their customers, reinforce brand equity through custom voice prompts that
their customers hear each time they access the service, communicate with their
customers by broadcasting voice, fax or e-mail messages, and derive additional
revenue. Marketing and fulfillment materials are generally issued under the
Premiere name, with the co-brand customers also placing their logo on the
materials.
Private-Label Relationships. The Company also markets its services by
establishing strategic relationships with companies such as American Express,
British Airways PLC and Mastercard International. Through these relationships,
Premiere provides enhanced services to the customers of the other company to
help their customers better manage their communications. Private-label
relationships are intended to provide these
8
other companies with: (i) a unique product or service which will be viewed as
providing a value-add to their customers, thereby building brand loyalty and
greater affinity; (ii) the ability to provide customized services to their
customers over Premiere's platforms; and (iii) an incremental source of
revenue. In connection with these private-label relationships, services are
generally issued in the name of the other company and bear a logo and design
of the other company's choosing. The fulfillment materials generally state
that communications services are provided by Premiere.
Licensing and Wholesale Relationships. A number of telecommunications
companies have chosen to outsource part or all of their enhanced
communications services to Premiere. Premiere licenses use of its platforms
and voice messaging network to these companies. Such relationships enable
these companies to: (i) provide enhanced services to their customers; (ii)
generate additional revenue without developing or investing in their own
infrastructure; and (iii) reduce costs and improve operational efficiencies
through the use of more advanced technologies than are internally available.
The open architecture of Premiere's platforms allows customization of services
for the licensee or wholesale customer. Premiere generally provides its
licensee or wholesale customers with access to customer and billing records
for marketing and billing purposes. Licensee and wholesale customers generally
are responsible for billing the end user and generally provide their own
transmission facilities for use with Premiere's services. Services are private
labeled by the licensee or wholesale customer with Premiere's contribution
transparent to the end user.
8--1
Strategic Alliances
PTEKVentures.com is the Company's Internet strategic alliance initiative
designed to extend Premiere's Orchestrate(R) Web-based communications
technology to emerging Internet companies. PTEKVentures.com's strategy is to
identify Internet partners that create solutions that will drive utilization
of the Company's Web-based services and provide long-term sales and marketing
opportunities. In connection with these strategic alliances, PTEKVentures.com
typically makes early round investments in these companies to promote partner
loyalty, fund technological co-development opportunities, create distribution
channels and provide a potential return on investment.
PTEKVentures.com's Internet-related alliances are summarized below.
WebMD. Based in Atlanta, Georgia, WebMD is a leading full service Internet
healthcare Web site that offers a comprehensive suite of Internet-based
content and services for healthcare professionals, as well as trusted
healthcare information and online support communities for consumers. Through
its relationship with WebMD, WebMD's healthcare professional customers receive
the Virtual Receptionist, powered by Orchestrate(R)--a marriage of WebMD's
Virtual Receptionist product and Premiere's Orchestrate platform, which
integrates the full range of Internet-based communications services necessary
for healthcare professionals. These services include voice mail, e-mail, fax
mail, paging, worldwide long distance and active message notification.
WebMD utilizes a co-branded version of Orchestrate(R) that allows healthcare
professionals to manage their critical flow of communications. Premiere
recently announced WebMD's agreement to purchase a minimum of 50,000
Orchestrate(R) accounts. The agreement provides for Web-based communications
elements of WebMD's commercial offering to be branded as "Virtual Receptionist
Powered by Orchestrate(R)". The strategic alliance provides that Premiere will
serve as WebMD's exclusive provider of enhanced and unified telecommunications
services offered to WebMD's community of healthcare professionals. In
addition, under a licensing and co-marketing arrangement, WebMD will be
Premiere's exclusive reseller of Orchestrate(R) services through medical
portals for the next four years.
USA.NET. Based in Colorado Springs, Colorado, USA.NET is a leading
electronic messaging company dedicated to setting the global standard in
advanced messaging services. USA.NET's mail architecture leverages the
advantages of the Web to offer premium e-mail services to businesses and
customers.
Webforia. Based in Seattle, Washington, Webforia provides Web services,
tools and communities that guide people through the process of researching,
organizing and presenting high quality information from the Internet. Through
its partnership with Webforia, Premiere plans to provide Orchestrate(R) users
with access to Webforia's Organizer product for storing and organizing
Internet content. In addition, Webforia plans to provide its users access to
Orchestrate(R) for their personal communications needs.
VerticalOne. Based in Atlanta, Georgia, VerticalOne provides network-based
services that are designed to increase the frequency, duration and quality of
visits to its customers' Web sites. VerticalOne represents the next generation
of Internet portal--an "infomediary" that aggregates "personal content"
available on the Web (for example, a user's bank balance, securities accounts,
and voice mails, fax mails and e-mails) into a single, easy-to-use interface.
Through its partnership with VerticalOne, Premiere intends to offer
Orchestrate(R) users with the choice of having personal information and
content "pushed" to them in addition to receiving all their messages, giving
them access to all their personal communications in one central place.
Intellivoice Communications. Based in Atlanta, Georgia, Intellivoice
Communications develops and sells voice activation and other speech
technologies for both land-based and wireless telephone users. Through its
partnership with Intellivoice, Premiere intends to provide Orchestrate(R)
users with speech recognition technology tools. Intellivoice also provides
out-sourced engineering services to Premiere to develop next-generation
Orchestrate services.
9
Acquisitions
Premiere has historically engaged in acquisitions in order to obtain new
technology, build its infrastructure, expand its suite of products and
services and increase its sales force and customer base. As part of this
strategy, Premiere acquired Xpedite Systems, Inc. ("Xpedite") and American
Teleconferencing Services, Ltd. ("American Teleconferencing Services") during
1998.
Xpedite Systems. In February 1998, Premiere acquired Xpedite, a worldwide
leader and innovator in the enhanced document distribution business, including
fax, e-mail, telex, Internet and mailgram services. The merger with Xpedite
resulted in the issuance of approximately 11.0 million shares of Premiere
common stock to the stockholders of Xpedite. In addition, Premiere converted
existing Xpedite options and warrants into options and warrants to acquire
approximately 543,000 shares of Premiere common stock. In February 1999,
Premiere
9--1
announced that as a result of discussions with the Office of the Chief
Accountant of the Securities and Exchange Commission, Premiere is required to
discontinue accounting for its acquisition of Xpedite as a pooling-of-
interests and to account for such acquisition under the purchase method of
accounting. The Office of the Chief Accountant determined that Premiere's
post-merger share repurchase program, completed in September 1998, was not
implemented in accordance with pooling requirements, although no questions
were raised regarding the propriety of the original accounting of the merger
with Xpedite.
American Teleconferencing Services. In April 1998, Premiere acquired all of
the issued and outstanding shares of the common stock of American
Teleconferencing Services, a provider of conference call and group
communications services. In this acquisition, the shareholders of American
Teleconferencing Services received an aggregate of approximately 678,500
shares of Premiere common stock and cash consideration of approximately $21.0
million, subject to adjustment. Approximately 33,500 additional shares of
Premiere common stock and cash consideration of approximately $1.04 million
were placed in escrow to secure any indemnification claims that Premiere may
have. Indebtedness, transaction expenses and other obligations equal to
approximately $13.02 million were assumed pursuant to the acquisition. The
acquisition of American Teleconferencing Services has been accounted for using
the purchase method of accounting.
Research And Development
Premiere's research and development and engineering personnel are
responsible for developing, testing and supporting proprietary software
applications, as well as creating and improving enhanced system features and
services. Premiere's research and development strategy is to focus its efforts
on enhancing its proprietary software and integrating its software with
readily available software and hardware when feasible. Premiere maintains both
internal and outsourced software development programs pursuant to which the
Company introduces new products and enhances existing ones. Premiere's
research and development and engineering personnel also engage in joint
development efforts with Premiere's strategic partners and vendors.
Customer Care And Technical Support
Premiere believes that effective customer care is essential to attracting
and retaining its customers. Premiere's customer care groups are responsible
for educating and assisting customers in using Premiere's services, for
resolving billing and related issues and, in consultation with Premiere's
technical support associates, for resolving technical problems customers may
have in using Premiere's services. Premiere provides customer care through
call centers in Atlanta, Georgia, Colorado Springs, Colorado, Overland Park,
Kansas and Eatontown, New Jersey, as well as regionally deployed
representatives. In the United States, most services are provided 24 hours per
day, seven days per week. In addition, customers are supported in eight
centers in Europe, Asia, Canada and Australia during their business hours.
Premiere employs separate associates who are responsible for technical
support functions. These employees are responsible for performing more
technically demanding support activities, such as list and feature management,
consulting with Premiere's strategic partners and licensees regarding
technical issues and resolving technical issues brought to their attention by
the customer service department.
Competition
Premiere's strategy is to seek to gain a competitive advantage by being
among the first companies to offer network-based integrated communications
solutions, being an innovator in this market and offering unique services to
its customers. The Company intends to continue to exploit cross-selling and
migration-selling opportunities within its customer base. The Company also
intends to seek to capitalize on strategic relationships with key technology
development and distribution partners such as American Express, WebMD, USA.NET
and Webforia, in order to build its customer base and to maintain and increase
customer loyalty. The Company believes that the principal competitive factors
affecting the market for communications services are features and functions,
reliability, ease of use, brand name recognition and price. The Company
believes that it competes effectively in these areas.
10
The markets for the Company's services are intensely competitive, quickly
evolving and subject to rapid technological change. The Company expects
competition to increase in the future. Many of the Company's current and
potential competitors have longer operating histories, greater name
recognition, larger customer bases and substantially greater financial,
personnel, marketing, engineering, technical and other resources than the
Company. Although the Company is aware of other companies that are marketing
one or more of its services, the Company is not aware of any major competitor
that is marketing an integrated personal communications service identical to
the service marketed by the Company. Many of the Company's competitors have
substantial resources and technical expertise and could likely develop such a
service if those competitors chose to expend sufficient resources. The Company
believes that existing competitors are likely to expand their product and
service offerings and that new competitors are likely to enter the Company's
markets. Such competitors may attempt to integrate their products and
services, resulting in greater competition for the Company. Such competition
could materially adversely affect the Company's business, financial condition
and results of operations.
The Company attempts to differentiate itself from its competitors in part by
offering an integrated suite of innovative personal communications solutions
that are network-based. Many competitors currently offer each of the
individual services and certain combinations of the services offered by the
Company.
Premiere's Document Distribution services compete with services provided by
AT&T, MCI Worldcom and Sprint, and many of the international postal, telephone
and telegraph ("PTT") companies located around the world, as well as numerous
smaller regional companies.
Premiere's Corporate Messaging and Voice and Data Messaging services compete
with voice mail services provided by AT&T, certain regional Bell operating
companies ("RBOCs") and other service bureaus as well as by equipment
manufacturers, such as Octel Communications (which is owned by Lucent
Technologies), Northern Telecom, Siemens Business Communications Systems,
Centigram Communications, Boston Technology and Digital Sound. The Company's
enhanced travel, concierge, news and e-mail services compete with services
provided by America Online, Prodigy and numerous Internet service providers.
Premiere Interactive Voice Response services compete with IVR services
provided by AT&T, MCI WorldCom, Lucent, West Teleservices, Call Interactive
and Syntellect.
Premiere Conferencing competes with conference calling services provided by
AT&T, MCI Worldcom, Sprint, as well as numerous smaller regional competitors.
The Company's Orchestrate(R) service competes with products offered by
companies such as Octel/Lucent, Microsoft, Novell, Sun Microsystems, Motorola,
and numerous smaller entities, such as Jfax, General Magic and Webley Systems.
These competing products incorporate some, but not all, of the bundled
services offered through Orchestrate(R). The Company expects that other
parties will develop and implement information and telecommunications services
similar to Orchestrate(R), thereby increasing competition for the Company's
services.
Premiere's Worldlink Corporate Card and Enhanced Calling Services compete
directly with services provided by companies such as AT&T, MCI Worldcom and
Sprint, as well as smaller interexchange long distance providers.
Global Operations
For financial information about the Company's geographic areas for the years
ended December 31, 1998, 1997 and 1996, see Note 18 to the Consolidated
Financial Statements.
Legislative Matters
The Telecommunications Act of 1996 (the "1996 Act") was intended to increase
competition in the long distance and local telecommunications markets. The
1996 Act opens competition in the local services market and, at the same time,
contains provisions intended to protect consumers and businesses from unfair
competition by incumbent local exchange carriers ("LECs"), including the
RBOCs. The 1996 Act allows RBOCs to provide long distance service outside of
their local service territories but bars them from immediately offering in
region, inter-LATA, long distance services until certain conditions are
satisfied. An RBOC must apply to the Federal
11
provide in-region inter-LATA long distance services and must satisfy a set of
pro-competitive criteria intended to ensure that RBOCs open their own local
markets to competition before the FCC will approve such application. Further,
while the FCC has final authority to grant or deny such RBOC application, the
FCC must consult with the Department of Justice to determine if, among other
things, the entry of the RBOC would be in the public
11--1
Communications Commission ("FCC"). FCC to interest, and with the relevant
state to determine if the pro-competitive criteria have been satisfied. While
the FCC has yet to grant any RBOC inter-LATA application, the Company is
unable to determine how the FCC will rule on any such applications in the
future.
In response to a constitutional challenge filed by SBC Communications Inc.,
the United States District Court for the Northern District of Texas found the
1996 Act's restrictions on RBOC interLATA services to be an unconstitutional
bill of attainder, but stayed the effect of its decision pending further
appeal. If the interLATA restrictions are ultimately struck down, the Company
may experience increased competition from RBOCs in the long distance industry.
The 1996 Act provides a framework for the Company's operating subsidiary,
Premiere Communications, Inc. ("PCI"), and other long distance carriers to
compete with LECs by reselling local telephone service, by interconnecting to
LEC network facilities at various points in the network, or by building new
local service facilities. In the future, PCI may decide to lease unbundled
network elements, which could also be used as a platform to provide access to
the Company's services, or to build local service facilities. PCI's decision
to enter the local services market in one or more states depends on the
economic viability of the options and on the regulatory environment, which
will likely vary by state.
Government Regulation
Certain of the Company's subsidiaries provide both telecommunications and
information services. Consequently, PCI is, and certain other Premiere
subsidiaries may be, subject to extensive federal and state regulation in the
United States. Various international authorities may also seek to regulate the
services provided by PCI and possibly other Premiere subsidiaries. The Company
is currently reviewing whether and to what extent additional regulatory
compliance may be required in connection with the Company's subsidiaries.
Tariffs and Detariffing. PCI is classified by the FCC as a non-dominant
carrier for its domestic interstate and international common carrier
telecommunications services. Common carriers that provide domestic interstate
and international telecommunications services must maintain tariffs on file
with the FCC describing rates, terms and conditions of service. While the
tariffs of non-dominant carriers, such as PCI, are subject to FCC review, they
are presumed to be lawful upon filing with the FCC. Currently, PCI has been
granted authority by, or has filed tariffs with, the FCC to provide domestic
interstate and international telecommunications services.
In October 1996, the FCC issued an order detariffing long distance services
which prohibited non-dominant long distance carriers from filing tariffs for
domestic, interstate, long distance services. The FCC's scheduled detariffing
rules were to become effective September 22, 1997. The detariffing rules were
appealed by several parties, and in February 1997, the U.S. Court of Appeals
for the District of Columbia Circuit issued a temporary stay preventing the
rules from taking effect pending judicial review. The Company and PCI are
currently unable to predict what impact the outcome of the FCC's detariffing
proceeding will have on the Company or PCI.
Local Interconnection and Resale. In August 1996, the FCC adopted an order
(the "Interconnection Order") which established a minimum set of rules
relating to the manner in which all telecommunications carriers would be able
to interconnect with the LECs' networks. The Interconnection Order addressed
several important interconnection issues, including the purchase of unbundled
network elements, resale of local services at wholesale discounts,
interconnection negotiation and arbitration procedures, and mutual
compensation arrangements for transporting and terminating local calls between
competing carriers.
The RBOCs, several states, various carriers, associations and other entities
appealed the Interconnection Order. On July 18, 1997, the U.S. Court of
Appeals for the Eighth Circuit overturned many of the rules established by the
FCC's Interconnection Order governing, among other things, the pricing of
interconnection, resale and unbundled network elements. On October 14, 1997,
the court further overturned FCC rules requiring that LECs provide unbundled
network elements on a combined basis. In January 1999, the Supreme Court
reversed the Eighth Circuit's decisions, finding that the FCC had jurisdiction
to implement the pricing provisions of the 1996 Act. The Eighth Circuit,
however, is expected on remand to rule on the merits of the FCC's pricing
methodology. The Supreme Court also upheld the
12
FCC's rule requiring LECs to provide unbundled network elements on a combined
basis. Competitors using such combined network elements may conceivably be
able to provide retail local services entirely through the use of the LEC's
facilities at lower discounts than those available through local resale.
However, the Supreme Court reversed in part the FCC's decision which
specifically identified the particular unbundled network elements that LECs
must provide. The FCC is expected to release a new list of unbundled network
elements sometime in the summer or fall of 1999. The Company has at times
considered entering the local exchange market as a so-called competitive local
exchange carrier ("CLEC"). If the Company becomes a CLEC, it will face rules
that are likely to vary substantially from state to state. A patchwork of
state regulations could make competitive entry by the Company in some markets
more difficult and expensive than in others and could increase the costs of
regulatory compliance associated with local entry. Moreover, the Company
cannot predict at this time the ultimate outcome of the FCC's remand
proceeding on pricing or the effect the FCC's new list of unbundled network
elements may have on any future CLEC operations.
Universal Service Reform. On May 8, 1997, the FCC released an order
establishing a significantly expanded federal telecommunications subsidy
regime. For example, the FCC established new subsidies for schools and
libraries with an annual cap of $2.25 billion and for rural health care
providers with an annual cap of $400 million. Providers of interstate
telecommunications service, such as PCI, as well as certain other entities,
must pay for the federal programs. PCI's contributions to the federal subsidy
funds will be based on its share of total interstate (including certain
international) telecommunications services and on certain defined
telecommunications end user revenues. No assurance can be given that the FCC's
universal service order will not have a material adverse effect on the
Company's business, financial condition and results of operations.
Access Charge Reform. On May 16, 1997, the FCC released an Access Charge
Reform Order, which revised rules governing the interstate switched access
charge rate structure. Switched access charges are assessed by the LECs on
long distance carriers and others for use of the local loop and local access
facilities to originate and terminate long distance calls. The new rules are
intended to eliminate implicit subsidies and to establish rate structures that
better reflect the manner in which costs are incurred. The new rules
substantially increase the costs that price cap LECs recover through monthly,
non-traffic sensitive access charges and substantially decrease the costs that
price cap LECs recover through traffic sensitive access charges. The manner in
which the FCC implements its approach to lowering access charge levels will
have an effect on the prices that PCI pays for originating and terminating
interstate traffic. Portions of the Access Charge Reform Order have been
appealed. In light of the uncertainty regarding ultimate disposition of the
Access Charge Reform proceeding by the FCC and the courts, the Company is
unable to predict what impact the FCC's revised access charge scheme will have
on PCI's access charge cost structure.
Payphone Compensation. In September 1996, the FCC issued an order adopting
rules to implement the 1996 Act's requirements establishing "a per call
compensation plan to ensure all payphone service providers are fairly
compensated for each and every completed call using their payphone." This
order included a specific fee to be paid to each payphone service provider by
long distance carriers and intra-LATA toll providers (including LECs) on all
"dial around" calls, including debit card and calling card calls. In decisions
released on July 1, 1997, and September 16, 1997, the U.S. Court of Appeals
for the D.C. Circuit vacated and remanded some of the FCC rules for the
implementation plan.
In response to these decisions, on October 7, 1997, the FCC issued a second
order, revising the per-call, compensation amount to be paid to payphone
service providers. Specifically, the FCC decreased the compensation amount to
$0.284 per call. PCI began paying this per-call amount in 1997. This
compensation amount was to remain in effect until October 6, 1999, when a
market-based rate would have become effective. On May 15, 1998, the U.S. Court
of Appeals for the D.C. Circuit again remanded certain issues to the FCC for
further consideration.
In response, on January 28, 1999, the FCC issued a third order in its
payphone compensation proceeding, revising the per-call compensation amount to
be paid to payphone service providers. Specifically, the FCC decreased the
compensation amount to $0.24 per call. In addition, the FCC extended the time
period that this compensation amount will be in effect until January 31, 2001.
Portions of the FCC's third order have been appealed to the U.S. Court of
Appeals for the D.C. Circuit.
13
Although PCI expects to incur additional costs to receive "dial around"
calls that originate from payphones, the FCC has permitted long distance
carriers, such as PCI, to pass such costs through to its customers. However,
the Company is unable to predict what impact the payphone rules will have on
PCI's costs for such calls until the ultimate outcome of the FCC's and the
court's rulings with respect to these payphone compensation obligations.
Additional Requirements. The FCC imposes additional obligations on all
telecommunications carriers, such as PCI, including obligations to: (i)
interconnect with other carriers and not to install equipment that cannot be
connected with the facilities of other carriers; (ii) ensure that their
services are accessible and usable by persons with disabilities; (iii) provide
telecommunications relay service, either directly or through arrangements with
other carriers; (iv) comply with verification procedures in connection with
changing a customer's carrier so as to prevent "slamming", a practice by which
a customer's chosen telecommunications service provider is switched without
the customer's consent; (v) protect the confidentiality of proprietary
information obtained from other carriers, manufacturers and customers; (vi)
pay annual regulatory fees; and (vii) contribute to the Telecommunications
Relay Services Fund.
State Regulation. Most state public service and public utility commissions
("PUCs") require carriers that provide intrastate, common carrier services to
be authorized to provide such services. PCI either has applied for and
received, or is in the process of applying for and receiving, all necessary
authorizations to provide intrastate, long distance services.
PCI is generally not subject to price regulation or to rate of return
regulation for its intrastate services. In most states, however, PCI is
required to file tariffs setting forth the terms, conditions and prices of its
intrastate services. In some state jurisdictions, the tariff can list a range
of rates for intrastate services. PCI may be subject to additional regulatory
burdens in some states, such as compliance with quality of service
requirements or remittance of contributions to support state sponsored
universal service. PCI's ability to incur long-term indebtedness is subject to
prior PUC approval in some state jurisdictions. In addition, some state PUCs
regulate the issuance of securities and the transfer of control of entities
subject to their jurisdiction. Currently, the Company is reviewing whether and
to what extent additional regulatory compliance is required in this regard.
Other. In conducting its business, the Company is subject to various laws
and regulations relating to commercial transactions generally, such as the
Uniform Commercial Code and is also subject to the electronic funds transfer
rules embodied in Regulation E promulgated by the Federal Reserve. Congress
has held hearings regarding, and various agencies are considering, whether to
regulate providers of services and transactions in the electronic commerce
market. For example, the Federal Reserve completed a study, directed by
Congress, regarding the propriety of applying Regulation E to stored value
cards. The Department of Treasury promulgated proposed rules applying record
keeping, reporting and other requirements to a wide variety of entities
involved in electronic commerce. It is possible that Congress, the states or
various government agencies could impose new or additional requirements on the
electronic commerce market or entities operating therein. If enacted, such
laws, rules and regulations could be imposed on the Company's business and
industry and could have a material adverse effect on the Company's business,
financial condition or results of operations. The Company's proposed
international activities also will be subject to regulation by various
international authorities and the inherent risk of unexpected changes in such
regulation.
Proprietary Rights and Technology
The Company's ability to compete is dependent in part upon its proprietary
technology. The Company relies primarily on a combination of intellectual
property laws and contractual provisions to protect its proprietary rights and
technology. These laws and contractual provisions provide only limited
protection of the Company's proprietary rights and technology. The Company's
proprietary rights and technology include confidential information and trade
secrets which the Company attempts to protect through confidentiality and
nondisclosure provisions in its licensing, services, reseller and other
agreements. The Company typically attempts to protect its confidential
information and trade secrets through these contractual provisions for the
terms of the
14
applicable agreement and, to the extent permitted by applicable law, for some
negotiated period of time following termination of the agreement. Premiere
currently has two patents, four patent applications pending, numerous
worldwide registrations of trademarks and service marks, and numerous
worldwide trademark and service mark registrations pending. Despite the
Company's efforts to protect its proprietary rights and technology, there can
be no assurance that others will not be able to copy or otherwise obtain and
use the Company's proprietary technology without authorization, or
independently develop technologies that are similar or superior to the
Company's technology. However, the Company believes that, due to the rapid
pace of technological change in the information and telecommunications service
industry, factors such as the technological and creative skills of its
personnel, new product developments, frequent product enhancements and the
timeliness and quality of support services are of equal or greater importance
to establishing and maintaining a competitive advantage in the industry.
Many patents, copyrights and trademarks have been issued in the general
areas of information and telecommunications services and computer telephony.
The Company believes that in the ordinary course of its business third parties
will claim that the Company's current or future products or services infringe
the patent, copyright or trademark rights of such third parties. The Company
is aware of other companies that use the terms "WorldLink" or "Premiere" in
describing their products and services, including telecommunications products
and services. Certain of those companies hold registered trademarks which
incorporate the names "WorldLink" or "Premiere." The Company has received
correspondence from a provider of prepaid calling cards which claims that the
Company's use of the term "WorldLink" infringes upon its trademark rights. In
addition, the Company has received correspondence from a major bank, which is
among the holders of registered trademarks incorporating the term "WorldLink,"
inquiring as to the nature of the Company's use of the term "WorldLink" as
part of its mark "Premiere WorldLink." Based on, among other things, the types
of businesses in which the other companies are engaged and the low likelihood
of confusion, the Company believes these claims to be without merit.
In October 1996, one of Premiere's subsidiaries received a letter from a
third party claiming that certain aspects of that subsidiary's voice messaging
products and services may be infringing upon one or more of the third party's
patents. The Company has reviewed the patent claims of such third party and
does not believe that any of the subsidiary's products or services infringe on
the claims of the third party. No patent infringement claims against the
Company or any of its subsidiaries have been filed by the third party at this
time. Should the third party file patent infringement claims against the
Company or any of its subsidiaries, the Company believes that it would have
meritorious defenses to any such claims. However, due to the inherent
uncertainties of litigation, the Company is unable to predict the outcome of
any potential litigation with the third party, and any adverse outcome could
have a material adverse effect on the Company's business, results of
operations and financial condition. Even if the Company were to ultimately
prevail, the Company's business could be adversely affected by the diversion
of management attention and litigation costs. Because of this risk, the
Company withheld in escrow approximately 123,000 shares of Common Stock from
the purchase price paid to acquire one of the Company's voice messaging
subsidiaries. This escrow arrangement terminates in April 2000. There can be
no assurance that such escrow will be sufficient to fully cover the Company's
exposure in the event of litigation or an adverse outcome to the potential
infringement claims.
In February 1997, the Company entered into a long-term nonexclusive license
agreement (the "License Agreement") with AudioFAX IP LLC ("AudioFax") settling
a patent infringement suit filed by AudioFAX in June 1996. Effective April 1,
1998, the License Agreement was amended to include Xpedite within the coverage
of the license. In September 1997, a subsidiary of the Company also entered
into a long-term non-exclusive license agreement with AudioFAX.
Prior to acquisition by the Company, Xpedite received a letter from Cable &
Wireless, Inc. informing Xpedite that Cable & Wireless had received a demand
letter from AudioFAX claiming that certain Cable & Wireless products and
services infringed AudioFAX's patent rights and seeking indemnification from
Xpedite under a supply agreement that Xpedite and Cable & Wireless had
previously entered into. Subsequent to the acquisition of Xpedite by the
Company, Cable & Wireless notified the Company directly of the AudioFAX claim
15
and sought indemnification from the Company. The Company does not have
sufficient information to evaluate the merits of this claim and is unable at
this time to predict the outcome of this matter. An adverse outcome could have
a material adverse effect on the Company's business, financial condition and
results of operations.
In May 1997, Premiere received a letter from a manufacturer and marketer of
certain telecommunications equipment asserting that Premiere is offering
certain "calling card and related enhanced services," "single number service"
and "call connecting services" covered by four patents held by that company
and inviting Premiere to obtain a license. Premiere has reviewed the subject
patents and, based on that review, believes that its products and services
currently being marketed do not infringe these patents. In March 1999, Aspect
Telecommunications, Inc. ("Aspect"), the purported current owner of the
patents, filed suit against Premiere and
PCI alleging that they have violated claims in the patents and requesting
damages and injunctive relief. On March 29, 1999 the Company filed an answer
denying the allegations and a counterclaim seeking to invalidate the patents.
The Company believes that it has meritorious defenses to the plaintiff's
allegations. In addition, the Company believes that certain licenses it has
from third-party vendors may insulate the Company from some or all of any
damages in the event of an adverse outcome in this litigation. However, due to
the uncertainty of litigation, there can be no assurance that the Company will
prevail, and an adverse outcome could have a material adverse effect on
Premiere's business, financial condition and results of operations.
In May 1997, the Company received a letter from counsel for a provider of
goods and services in the telecommunications field objecting to the Company's
use of the phrase "personal assistant" based on that company's federally
registered "personal assistant" service mark. In June 1997, counsel for the
Company responded to the objections, noting that the Company did not intend to
use, nor would it use in the future, the words "personal assistant" as a
trademark or service mark, but instead would merely use these words to
describe the nature of its product. The Company has not heard anything further
from the potential claimant and believes that the matter has been resolved.
In July 1997, the Company received a letter from counsel for a French
publishing company objecting to the Company's use of the "Premiere" trademark.
The Company is in discussions with the French company that may result in a
mutually acceptable resolution. Due to the inherent uncertainties of
litigation, however, the Company is unable to predict the outcome of any
potential litigation with the French company, and any adverse outcome could
have a material effect on the Company's business, financial condition and
results of operations.
In January 1999 the Company received a letter from Ronald A. Katz Technology
Licensing, L.P. informing it of the existence of the Katz patent portfolio and
its potential applicability to the services of the Company. This matter is
presently being reviewed by the Company, but the Company currently lacks
sufficient information to assess the outcome of this matter. An adverse
outcome could have a material adverse effect on the Company's business,
financial condition and results of operations.
No assurance can be given that actions or claims alleging patent, copyright
or trademark infringement will not be brought against the Company with respect
to current or future products or services, or that, if such actions or claims
are brought, the Company will ultimately prevail. Any such claiming parties
may have significantly greater resources than the Company to pursue litigation
of such claims. Any such claim alleging patent, copyright or trademark
infringement, whether with or without merit, could be time consuming, result
in costly litigation, cause delays in introducing new or improved products and
services, require the Company to enter into royalty or licensing agreements,
or cause the Company to discontinue use of the challenged technology, trade
name or service mark at potentially significant expense to the Company
associated with the marketing of a new name or the development or purchase of
replacement technology, all of which could have a material adverse effect on
the Company's business, financial condition and results of operation.
Employees
As of December 31, 1998, the Company employed approximately 2,301 persons,
substantially all of whom were employed on a full-time basis. Of these
employees, 836 were engaged in sales and marketing; 444 in engineering and
research and development; 679 in customer service and technical support; and
342 were in general and administrative activities. None of the Company's
employees are members of a labor union or are covered by a collective
bargaining agreement.
ITEM 2. PROPERTIES
Premiere's corporate headquarters occupy approximately 103,400 square feet
of office space in Atlanta, Georgia under a lease expiring August 31, 2007,
and approximately 10,800 square feet of office space in the same building
under a lease expiring August 31, 2006. The headquarters of the Company's
Voice and Data Messaging business unit occupies approximately 28,300 square
feet of office space in Cleveland, Ohio under a lease expiring October 31,
1999. The headquarters of the Company's Document Distribution business unit
16
occupies approximately 54,900 square feet of office space in Eatontown, New
Jersey under three separate leases expiring on September 30, 1999, December
31, 2000 and September 30, 2001, respectively. The Company's Conferencing
business unit occupies approximately 54,500 square feet of office space in
Colorado Springs, Colorado under a lease expiring August 31, 2006, and
approximately 24,400 square feet of office space in Overland Park, Kansas
under a lease expiring February 29, 2000.
The Company also has data and switching centers and sales offices within and
outside the United States. The Company believes that its current facilities
and office space is sufficient to meet its present needs and does not
anticipate any difficulty securing additional space, as needed, on terms
acceptable to the Company.
ITEM 3. LEGAL PROCEEDINGS
The Company has several litigation matters pending, as described below,
which it is defending vigorously. Due to the inherent uncertainties of the
litigation process and the judicial system, the Company is unable to predict
the outcome of such litigation matters. If the outcome of one or more of such
matters is adverse to the Company, it could have a material adverse effect on
the Company's business, financial condition and results of operations.
The Company and certain of its officers and directors have been named as
defendants in multiple shareholder class action lawsuits filed in the United
States District Court for the Northern District of Georgia. Plaintiffs seek to
represent a class of individuals who purchased or otherwise acquired the
Company's common stock from as early as February 11, 1997 through June 10,
1998. Class members allegedly include those who purchased the Company's common
stock as well as those who acquired stock through the Company's acquisitions
of Voice-Tel Enterprises, Inc. ("Voice-Tel"), Voice-Tel's franchisees and
Xpedite. Plaintiffs allege the defendants made positive public statements
concerning the Company's growth and acquisitions. In particular, plaintiffs
allege the defendants spoke positively about the Company's acquisitions of
Voice-Tel, Xpedite, American Teleconferencing Services, TeleT
Telecommunications, LLC ("TeleT") and VoiceCom Holdings, Inc. ("VoiceCom"), as
well as its venture with UniDial Communications, its investment in USA.NET and
the commercial release of Orchestrate(R). Plaintiffs allege these public
statements were fraudulent because the defendants knowingly failed to disclose
that the Company allegedly was not successfully consolidating and integrating
these acquisitions. Alleged evidence of scienter include sales by certain
individual defendants during the class period and the desire to keep the
common stock price high so that future acquisitions could be made using the
Company's common stock. Plaintiffs allege the truth was purportedly revealed
on June 10, 1998, when the Company announced it would not meet analysts'
estimates of second quarter 1998 earnings because, in part, of the financial
difficulties experienced by a licensing customer and by a strategic partner
with respect to the Company's Enhanced Calling Services, revenue shortfalls
from its Voice and Data Messaging services, as well as other unanticipated
costs and one-time charges totaling approximately $17.1 million on a pre-tax
basis. Plaintiffs allege the Company admitted it had experienced difficulty in
achieving its anticipated revenue and earnings from voice messaging services
due to difficulties in consolidating and integrating its sales function.
Plaintiffs allege violation of Sections 10(b), 14(a) and 20(a) of the
Securities Exchange Act of 1934 and Sections 11, 12 and 15 of the Securities
Act of 1933.
A lawsuit was filed on November 4, 1998 against the Company, as well as
individual defendants Boland T. Jones, Patrick G. Jones, George W. Baker, Sr.,
Eduard J. Mayer and Raymond H. Pirtle, Jr. in the Southern District of New
York. Plaintiffs were shareholders of Xpedite who acquired common stock of the
Company as a result of the merger between the Company and Xpedite in February
1998. Plaintiffs' allegations are based on the representations and warranties
made by the Company in the prospectus and the registration statement related
to the merger, the merger agreement and other documents incorporated by
reference, regarding the Company's acquisitions of Voice-Tel and VoiceCom, the
Company's roll-out of Orchestrate(R), the Company's relationship with
customers Amway Corporation and DigiTEC, 2000, Inc., and the Company's 800-
based calling card service. Based on these factual allegations, plaintiffs
allege causes of action against the Company for breach of contract against all
defendants for negligent misrepresentation, violations of Sections 11 and
12(a)(2) of the Securities Act of 1933 ("Securities Act"), and against the
individual Defendants for violation of
17
Section 15 of the Securities Act. Plaintiffs seek undisclosed damages together
with pre- and post-judgment interest, recission or recissory damages as to
violation of Section 12(a)(2) of the Securities Act, punitive damages, costs
and attorneys' fees. A motion to dismiss and a motion to transfer venue to
Georgia are presently pending.
On August 6, 1996, Communications Network Corporation ("CNC"), a licensing
customer of the Company, was placed into bankruptcy (the "Bankruptcy Case")
under Chapter 11 of the United States Bankruptcy Code. On August 23, 1996, CNC
filed a motion to intervene in a separate lawsuit brought by a CNC creditor in
the United States District Court for the Southern District of New York against
certain guarantors of CNC's obligations and to file a third-party action
against numerous entities, including such CNC creditor and Premiere
Communications, Inc. ("PCI") for alleged negligent misrepresentations of fact
in connection with an alleged fraudulent scheme designed to damage CNC (the
"Intervention Suit"). The District Court denied CNC's requests to intervene
and to file a third party action and transferred the remainder of the
Intervention Suit to the bankruptcy case. On June 23, 1998, the Bankruptcy
Court approved a settlement whereby PCI obtained a release from the trustee
and the trustee dismissed the Intervention Suit in consideration of PCI making
a cash payment of $1.2 million to the trustee. The Plan was subsequently
approved by the Bankruptcy Court on December 8, 1998 and PCI made an
additional cash payment of $300,000 to the trustee in January 1999 in
consideration of PCI obtaining certain allowed subordinated claims and the
Court granting an injunction in PCI's favor against possible nuisance suits
relating to the CNC business.
On November 26, 1997, Wael Al-Khatib ("Al-Khatib"), the sole shareholder and
former president of CNC, and his company, Platinum NetworkCorp. ("Platinum"),
filed a complaint against PCI, WorldCom Network Services, Inc. f/k/a WilTel,
Inc, ("WorldCom"), Bernard J. Ebbers, David F. Meyers, Robert Vetera, Joseph
Cusick, William Trower, Don Wilmouth, Digital Communications of America, Inc.,
Boland Jones, Patrick Jones, and John Does I-XX in the United States District
Court for the Eastern District of New York. Plaintiffs contend that PCI,
certain officers of PCI and the other defendants engaged in a fraudulent
scheme to restrain trade in the debit card market nationally and in the New
York debit card sub-market and made misrepresentations of fact in connection
with the scheme. The plaintiffs are seeking at least $250 million in
compensatory damages and $500 million in punitive damages from PCI and the
other defendants. This matter has been settled, pending payment of $250,000 by
Khatib to WorldCom. The settlement does not require PCI or Premiere to make
any payments.
On February 23, 1998, Rudolf R. Nobis and Constance Nobis filed a complaint
in the Superior Court of Union County, New Jersey against 15 named defendants
including Xpedite and certain of its alleged current and former officers,
directors, agents and representatives. The plaintiffs allege that the 15 named
defendants and certain unidentified "John Doe defendants" engaged in wrongful
activities in connection with the management of the plaintiffs' investments
with Equitable Life Assurance Society of the United States and/or Equico
18
Securities, Inc. (collectively "Equitable"). More specifically, the complaint
asserts wrongdoing in connection with the plaintiffs' investment in securities
of Xpedite and in unrelated investments involving insurance-related products.
The defendants include Equitable and certain of its current or former
representatives. The allegations in the complaint against Xpedite are limited
to plaintiffs' investment in Xpedite. The plaintiffs have alleged that two of
the named defendants, allegedly acting as officers, directors, agents or
representatives of Xpedite, induced the plaintiffs to make certain investments
in Xpedite but that the plaintiffs failed to receive the benefits that they
were promised. Plaintiffs allege that Xpedite knew or should have known of
alleged wrongdoing on the part of other defendants. Plaintiffs seek an
accounting of the corporate stock in Xpedite, compensatory damages of
approximately $4.85 million, plus $200,000 in "lost investments," interest
and/or dividends that have accrued and have not been paid, punitive damages in
an unspecified amount, and for certain equitable relief, including a request
for Xpedite to issue 139,430 shares of common stock in the plaintiffs' names,
attorneys' fees and costs and such other and further relief as the Court deems
just and equitable. On November 16, 1998 the court entered an order
transferring all disputes between plaintiffs and certain defendants to
arbitration and dismissing without prejudice plaintiff's complaint against
those defendants. On or about December 23, 1998, Xpedite filed a motion to
stay the action pending the resolution of the arbitration or in the
alternative to compel plaintiffs to provide discovery. On January 22, 1999,
the court granted Xpedite's motion to stay further proceedings pending the
arbitration. On March 11, 1999, plaintiffs filed a motion for reconsideration
of the court's decision. The parties are awaiting a decision on this motion.
On or about May 27, 1998, Telephone Company of Central Florida ("TCCF"), a
user of the Company's network management system, filed for protection under
Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for
the Middle District of Florida. WorldCom and PCI are two of the largest
creditors in this bankruptcy case. In August 1998, WorldCom filed a separate
lawsuit in the Federal District Court for the Middle District of Florida
against certain insiders of TCCF alleging payment of improper distributions to
the insiders in excess of $1.0 million and asserting a constructive trust
claim against the amounts received by the insiders. On August 10, 1998, TCCF
filed a motion with the Bankruptcy Court requesting authority to hire counsel
for the purpose of pursuing certain alleged claims against WorldCom and PCI,
alleging service problems with WorldCom and PCI. PCI and TCCF reached an
agreement, approved by the Bankruptcy Court in November 1998, which provides
for mutual releases to be executed between the parties and certain affiliates
and insiders. The mutual releases are being circulated for execution, in
accordance with the terms of the settlement. The settlement does not require
PCI or Premiere to make any payments.
19
On December 22, 1998 Shelly D. Swift filed a complain against First USA
Bank, First Credit Card Services USA, and PCI in the United States District
Court for the Northern District of Illinois. Swift alleges that the defendants
sent her an unsolicited "credit card" in violation of the Truth in Lending Act
and state law. Swift seeks an injunction and monetary damages on behalf of a
putative class of persons who received the alleged credit card. On February
19, 1999, the defendants moved to dismiss the complaint for failure to state a
claim upon which relief can be granted.
In March 1999, Aspect Telecommunications, Inc. ("Aspect"), the purported
current owner of certain patents, filed suit against Premiere and PCI alleging
that they had violated claims in these patents and requesting damages and
injunctive relief. The suit asserts that Premiere is offering certain "calling
card and related enhanced services," "single number service" and "call
connecting services" covered by four patents owned by Aspect. Premiere has
reviewed the subject patents and, based on that review, believes that its
products and services currently being marketed do not infringe them. On March
29, 1999 the Company filed an answer denying the allegations and a
counterclaim seeking to invalidate the patents. Additionally, the Company
believes that certain licenses it has from third-party vendors may insulate
the Company from some or all of any damages in the event of an adverse outcome
in this litigation.
The Company is also involved in various other legal proceedings which the
Company does not believe will have a material adverse effect upon the
Company's business, financial condition or results of operations, although no
assurance can be given as to the ultimate outcome of any such proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of the Company's security holders during
the fourth quarter of the fiscal year covered by this report.
20
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock, $.01 par value per share (the "Common Stock"),
has traded on the Nasdaq National Market under the symbol "PTEK" since its
initial public offering on March 5, 1996. The following table sets forth the
high and low sales prices of the Common Stock as reported on the Nasdaq
National Market for the periods indicated. Such prices are based on inter-
dealer bid and asked prices without markup, markdown, commissions or
adjustments and may not represent actual transactions.
1998 High Low
---- ------- -------
First Quarter............................................... $34.625 $20.875
Second Quarter.............................................. 35.000 7.688
Third Quarter............................................... 11.313 3.625
Fourth Quarter.............................................. 8.250 2.500
1997 High Low
---- ------- -------
First Quarter............................................... $27.750 $16.500
Second Quarter.............................................. 30.500 19.250
Third Quarter............................................... 34.500 22.875
Fourth Quarter.............................................. 38.500 22.875
The closing price of the Common Stock as reported on the Nasdaq National
Market on March 29, 1999 was $10.9375. As of March 29, 1999 there were
approximately 715 record holders of the Company's Common Stock.
The Company has never paid cash dividends on its Common Stock, and the
current policy of the Company's Board of Directors is to retain any available
earnings for use in the operation and expansion of the Company's business. In
addition, the Company's credit agreement contains a negative covenant which
restricts the payment of dividends. Therefore, the payment of cash dividends
on the common stock is unlikely in the foreseeable future. Any future
determination to pay cash dividends will be at the discretion of the Board of
Directors and will depend upon the Company's earnings, capital requirements,
financial condition and any other factors deemed relevant by the Board of
Directors.
During the year ended December 31, 1998, certain current and former
employees, directors and investors exercised options to purchase an aggregate
of 242,452 shares of Common Stock at prices ranging from $0.417 to $1.61 per
share in transactions exempt from registration pursuant to Section 4(2) and
Rule 701 of the Securities Act.
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated statement of operations data for the
years ended December 31, 1998, 1997 and 1996, and the consolidated balance
sheet data as of December 31, 1998 and 1997, have been derived
21
from the audited consolidated financial statements of the Company included in
this Annual Report on Form 10-K, which give retroactive effect to the mergers
with Voice-Tel and VoiceCom, both of which were accounted for as poolings-of-
interests, and are qualified by reference to such consolidated financial
statements including the related notes thereto. The unaudited consolidated
statement of operation data for the year ended December 31, 1994 and the
unaudited consolidated balance sheet data at December 31, 1994 are derived
from unaudited consolidated financial statements of the Company which give
retroactive effect to the mergers with Voice-Tel and VoiceCom, both of which
were accounted for as poolings-of-interests, and include all adjustments,
consisting only of normal recurring adjustments, which the Company considers
necessary for a fair presentation thereof. The selected consolidated financial
data should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the Company's
consolidated financial statements and the notes thereto.
YEAR ENDED DECEMBER 31, 1998
--------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- -----------
(unaudited)
Statement of Operations
Data:
Revenues................... $444,818 $229,352 $197,474 $147,543 $119,136
Gross margin............... 309,782 165,378 141,873 103,675 85,229
Operating income
(loss)(1)................. (74,582) (28,101) 6,806 7,003 (13,232)
Net income (loss)(1)....... (74,206) (25,375) 3,458 4,171 (15,519)
Net income (loss)
attributable to common and
common equivalent shares
for shareholders for:
--basic net income (loss)
per share................ $(74,206) $(25,375) $ 3,429 $ 3,863 $(15,839)
--diluted net income
(loss) per share......... (74,206) (25,375) 3,429 3,863 (15,839)
Net income (loss) per
common and common
equivalent shares for:
--basic(1)(2)............. $ (1.67) $ (0.78) $ 0.12 $ 0.19 $ (1.18)
--diluted(1)(2)........... $ (1.67) $ (0.78) $ 0.11 $ 0.17 $ (1.18)
Shares used in computing
net income (loss) per
common and common
equivalent shares for
--basic................... 44,325 32,443 27,670 19,868 13,468
--diluted................. 44,325 32,443 31,288 24,312 13,468
Balance Sheet Data (at
period end):
Cash, cash equivalents and
investments............... $ 39,995 $176,339 $ 83,836 $ 11,759 $ 7,849
Working capital............ (91,180) 136,182 45,377 (16,093) (12,521)
Total assets............... 802,751 381,108 201,541 78,131 60,051
Total debt................. 299,673 181,698 47,975 52,650 49,203
Total shareholders' equity
(deficit)................. 400,894 100,814 104,533 (11,639) (14,921)
- - --------
(1) Excluding charges for restructuring, merger costs and other special
charges of approximately $15.6 million in 1998 and $73.6 million in 1997,
charges for acquired research and development of approximately $15.5
million in 1998 and $11.0 million in 1996, and accrued settlement costs of
approximately $1.5 million in 1998 and 1997 and $1.3 million in 1996,
operating income (loss) would have been approximately $(42.0) million in
1998, $47.0 million in 1997 and $19.1 million in 1996, EBITDA would have
been $68.1 million in 1998, $64.1 million in 1997, and $33.3 million in
1996.
(2) Basic net income (loss) per share is computed using the weighted average
number of shares of common stock outstanding during the period. Diluted
net income (loss) per share is computed using the weighted average number
of shares of common stock and dilutive common stock equivalents
outstanding during the period from convertible preferred stock,
convertible subordinated notes (using the if-converted method) and from
stock options (using the treasury stock method).
22
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
Premiere is a leading provider of enhanced communications services designed
to simplify everyday communications of both businesses and individuals.
Premiere provides its innovative solutions for simplifying communications
through two strategic business units: Corporate Enterprise Solutions, which
targets Fortune 1,000 and other large companies; and Emerging Enterprise
Solutions, which targets smaller fast-track companies and individuals.
Corporate Enterprise Solutions' services include Premiere Document
Distribution, which provides enhanced electronic document distribution
services; Premiere Corporate Messaging, which provides 800-based and local
access voice messaging services; Premiere WorldLink Corporate Card, which
provides 800-based enhanced calling card services; Premiere Interactive Voice
Response, which provides various IVR applications; and Premiere Conferencing,
which provides a full range of conferencing services. Emerging Enterprise
Solutions' Services include Premiere Internet-Based Communications Services,
featuring Orchestrate(R) by Premiere, which integrates the Company's service
offerings by allowing customers to access such services through a computer or
telephone; Premiere Voice and Data Messaging, which provides customers access
to one of the largest "voice internets" in the world; and Premiere Enhanced
Calling Services, which provides long distance and enhanced 800-based
services.
Premiere's revenues are generally based on usage. In addition, local access
Voice and Data Messaging services, certain of Premiere's Enhanced Calling
Services and the Orchestrate(R) suite of products contain fixed monthly fees
in addition to usage fees.
Cost of services consists primarily of the cost of long distance
transmission and other telecommunications related charges incurred in
providing Premiere's services.
Selling, general and administrative expenses include salaries and wages
associated with customer service, operations, research and development, direct
sales, marketing and administrative functions, sales commissions, direct
marketing and advertising costs, travel and entertainment expenses, bad debt
expense, rent and facility expense, professional and consulting fees, property
taxes and other operating and administrative expenses.
Depreciation and amortization includes depreciation of computer and
telecommunications equipment and amortization of intangible assets. The
Company provides for depreciation using the straight-line method of
depreciation over the estimated useful lives of the assets, with the exception
of leasehold improvements which are depreciated on a straight-line basis over
the shorter of the term of the lease or the estimated useful life of the
assets. Intangible assets being amortized include capitalized software
development costs, goodwill, customer lists, assembled work force, and the MCI
WorldCom strategic alliance agreement.
"EBITDA" as set forth below is defined as the sum of net income or loss and,
to the extent deducted in determining net income or loss for such period, net
interest expense, income taxes, depreciation and amortization.
The preparation of financial statements in conformity with generally
accepted accounting principles ("GAAP") requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from the estimates. The following
discussion and analysis provides information which management believes is
relevant to an assessment and understanding of the Company's consolidated
results of operations and financial condition. This discussion should be read
in conjunction with the consolidated financial statements and notes thereto.
23
Results Of Operations
The following table presents the percentage relationship of certain
statements of operations items to total revenues for Premiere's consolidated
operating results for the periods indicated:
Year Ended
December 31, 1998
---------------------
1998 1997 1996
----- ----- -----
REVENUES................................................. 100.0% 100.0% 100.0%
COST OF SERVICES......................................... 30.4 27.9 28.2
----- ----- -----
GROSS MARGIN............................................. 69.6 72.1 71.8
OPERATING EXPENSES
Selling, general and administrative..................... 54.3 44.2 55.0
Depreciation and amortization........................... 24.7 7.4 7.2
Restructuring, merger costs and other special charges... 3.5 32.1 --
Acquired research and development....................... 3.5 -- 5.6
Accrued settlement costs................................ .3 0.7 0.6
----- ----- -----
Total operating expenses............................... 86.3 84.4 68.4
OPERATING INCOME (LOSS).................................. (16.7) (12.3) 3.4
OTHER INCOME (EXPENSE)
Interest, net........................................... (3.3) (0.4) (0.9)
Other, net.............................................. 0.1 0.1 (0.1)
----- ----- -----
Total other income (expense)........................... (3.2) (0.3) (1.0)
INCOME (LOSS) BEFORE INCOME TAXES........................ (19.9) (12.6) 2.4
INCOME TAX PROVISION (BENEFIT)........................... (3.3) (1.5) 0.7
----- ----- -----
NET INCOME (LOSS)........................................ (16.6)% (11.1)% 1.7%
===== ===== =====
The following table presents certain financial information about the
Company's operating segments for the periods presented (amounts in millions):
Year Ended December
31, 1998
----------------------
1998 1997 1996
------ ------ ------
REVENUES:
Corporate Enterprise
Solutions.............. $275.7 $ 55.0 $ 60.0
Emerging Enterprise
Solutions.............. 169.4 174.4 137.5
Corporate and
eliminations........... (.3) -- --
------ ------ ------
Totals.................. $444.8 $229.4 $197.5
====== ====== ======
OPERATING PROFIT (LOSS):
Corporate Enterprise
Solutions.............. $ (6.0) $ 10.6 $ 2.0
Emerging Enterprise
Solutions.............. (9.5) 36.4 17.1
Corporate and
eliminations........... (26.5) -- --
Restructuring, merger
costs and other special
charges................ (15.6) (73.6) --
Acquired research and
development............ (15.5) -- (11.0)
Accrued settlement
costs.................. (1.5) (1.5) (1.3)
------ ------ ------
Totals.................. $(74.6) $(28.1) $ 6.8
====== ====== ======
EBITDA:
Corporate Enterprise
Solutions ............. $ 75.8 $ 13.5 $ 5.0
Emerging Enterprise
Solutions.............. 18.7 50.6 28.3
Corporate and
eliminations........... (26.4) -- --
Restructuring, merger
costs and other special
charges................ (15.6) (73.6) --
Acquired research and
development............ (15.5) -- (11.0)
Accrued settlement
costs.................. (1.5) (1.5) (1.3)
------ ------ ------
Totals.................. $ 35.5 $(11.0) $ 21.0
====== ====== ======
24
Overview
The Company has achieved substantial growth since its initial public
offering during the first quarter of 1996. Revenues grew from $147.5 million
for the year ended December 31, 1995 to $444.8 million in 1998, a compounded
annual growth rate of 44.5% for such period. Similarly, EBITDA, before
restructuring, merger costs and other special charges, acquired research and
development and accrued settlement costs, grew from $20.0 million to $68.1
million over the same period, a 50.4% compounded annual growth.
Premiere has achieved growth in revenues and EBITDA, before restructuring,
merger costs and other special charges, acquired research and development and
accrued settlement costs, by pursuing its mission to become the world's
leading provider of innovative solutions to simplify everyday communications
of both businesses and individuals. During 1996, 1997 and 1998 the Company
pursued an aggressive acquisition strategy to expand its service offerings and
means of distribution. Significant acquisitions in 1998 included Xpedite, a
leading provider of electronic document distribution services, and ATS, a
full-service provider of conferencing services. In 1997, the Company acquired
Voice-Tel and VoiceCom. The acquisition of Voice-Tel provided Premiere with
the ability to offer voice messaging services on a local access basis over an
international private network utilizing frame relay and Internet protocols. In
connection with the acquisition of VoiceCom, Premiere assumed a significant
base of large corporate customers. During 1996, the Company acquired TeleT, an
enterprise engaged in computer telephony software development. TeleT provided
Premiere with the foundation of its Orchestrate suite of product offerings.
Analysis
Premiere's financial statements reflect the results of operations of Xpedite
and ATS from the date of their respective acquisition. These acquisitions have
been accounted under the purchase method of accounting. Premiere's financial
statements have been restated for all periods presented to reflect the Voice-
Tel and VoiceCom acquisitions which have been accounted for as poolings-of-
interests. The following discussion and analysis is prepared on that basis.
Consolidated revenues increased 94.0% to $444.8 million in 1998 and 16.1% to
$229.4 million in 1997. Revenues in the Company's Corporate Enterprises
Solutions ("CES") group increased from $60.0 million in 1996 to $275.7 million
in 1998, a compounded annual growth rate of 114.4%. Revenue growth in this
segment resulted principally from the acquisition of Xpedite in February 1998
and ATS in April 1998 and increases in the call center IVR services provided
to Bank of America (formerly NationsBank). Revenue grew from $137.5 million to
$169.4 million in the Emerging Enterprise Solutions ("EES") group over the
same period, a compounded annual growth rate of 11.0%. Revenue growth in this
segment resulted mainly from strategic partner programs, including Premiere's
strategic alliance with MCI WorldCom and private label calling card programs
with American Express, DeltaTel and MBNA, which experienced significant
increases in new subscribers. The Company also experienced revenue increases
from expanded Enhanced Calling Services, including prepaid calling cards.
Revenue growth in these EES group's programs were offset in part by revenues
losses resulting from the bankruptcy of two wholesale Enhanced Calling
Services customers in the second quarter of 1998, management's decision to
discontinue certain unprofitable prepaid calling card programs and the
expiration of revenue commitments provided under the Company's strategic
alliance agreement with MCI WorldCom. Revenues from the lost customers and
discontinued programs set forth above contributed revenues of $33.1 million,
$39.6 million and $5.5 million in 1998, 1997 and 1996, respectively.
Consolidated gross profit margins were 69.6%, 72.1% and 71.8% in 1998, 1997
and 1996, respectively. Gross profit margin declined in 1998 due to revenue
mix resulting from the acquisition of Xpedite in February 1998. Gross profit
margins for Premiere's Document Distribution services are generally lower than
that of Premiere's other services. Gross profit margin improvement in 1997 was
caused by revenue mix, as revenues from higher margin wholesale arrangements
for certain Enhanced Calling Services and local access Voice and Data
Messaging services constituted a greater proportion of revenues in 1997 as
compared with 1996. Generally, Premiere has experienced favorable trends in
per unit telecommunications costs in the three year period ended December 31,
1998 by aggressively leveraging increasing minute volumes to negotiate
quantity discounts with
25
telecommunications carriers. Such costs have also been favorably affected by
general industry trends in which long distance transport and the cost of local
access services have decreased as a result of increased capacity and
competition among long distance and local exchange carriers.
Selling, general and administrative costs as a percent of revenues were
54.3%, 44.2% and 55.0% in 1998, 1997 and 1996, respectively. Contributing to
the increase in selling, general and administrative costs as a percent of
revenues in 1998 as compared with 1997, was approximately $16.1 million of
costs recorded in the second quarter of 1998. Such costs consist of
approximately $8.4 million of bad debt expense recorded in response to the
bankruptcies of two customers, $1.8 million of asset write-offs and other
costs. The acquisition of ATS in 1998 also contributed to an increase in
selling, general and administrative costs in proportion to revenues because
the service delivery processes of ATS include relatively higher labor costs as
compared with Premiere's other services. In addition, Premiere aggressively
expanded its management infrastructure in 1998 to more effectively support
continued growth in its business. These actions included hiring additional
senior level managers and expanding its corporate headquarters facilities.
Selling, general and administrative costs decreased in 1997 as compared with
1996 as Premiere aggressively restructured the operations of its acquired
businesses Voice-Tel and VoiceCom subsequent to their acquisitions in 1997.
These activities included substantially reducing the workforce, exiting
duplicative facilities, eliminating redundant business activities and general
spending reductions.
Depreciation and amortization was $110.0 million or 24.7% of revenues in
1998, $17.1 million or 7.4% of revenues in 1997 and $14.2 million or 7.2% of
revenues in 1996. Increases in depreciation and amortization in 1998 result
mainly from depreciation and amortization of assets acquired in the purchases
of Xpedite and ATS in 1998 and the acceleration of depreciation and
amortization of certain other operating and intangible assets. Identifiable
intangible assets and goodwill acquired in the Xpedite and ATS acquisitions of
approximately $517.3 million is being amortized over 3 to 7 years. In
addition, amortization and depreciation of certain operating and intangible
assets with a carrying value of approximately $80.1 million at December 31,
1998 was accelerated effective in the fourth quarter of 1998 following a
reduction in the estimated useful lives of such assets. This action was based
on a reassessment of the utility of such assets by Premiere's management. The
affected assets consist of goodwill and other intangible assets and computer
and telecommunications equipment associated with certain legacy technology
systems the use of which will be discontinued in the forseeable future. Such
assets will be amortized over lives ranging from 1 to 7 years effective in the
fourth quarter of 1998 as compared with lives ranging from 5 to 40 years prior
to the change. In 1998, management also evaluated the useful economic life of
a strategic alliance intangible asset based on current facts and circumstances
including the current level of revenues being generated by the strategic
alliance. In connection with this evaluation, the carrying value of this asset
was reduced by a charge of approximately $13.9 million in the fourth quarter
of 1998. The amortization period of the remaining carrying value of this asset
was reduced to 3 years effective in the fourth quarter of 1998 which compares
with an estimated remaining useful life of 23 years prior to the change.
Incremental depreciation and amortization expense recorded in 1998 as compared
with 1997 resulting from assets acquired in the Xpedite and ATS acquisitions
and acceleration of depreciation and amortization of the operating and
intangible assets set forth above approximates $92.0 million. Increased
depreciation and amortization expense in 1997 as compared with 1996 results
mainly from depreciation associated with increased purchases of computer
telephony equipment to support new business growth, amortization of goodwill
and other intangibles acquired in connection with the Voice-Tel acquisitions
in 1997 and amortization of the strategic alliance asset recorded in 1996. See
Not 6 -- Strategic Alliances and Investments.
Net interest expense increased to $14.7 million in 1998, from $.9 million in
1997 and $1.7 million in 1996. Net interest expense increased in 1998 mainly
due to interest associated with $132.3 million of debt assumed in the
acquisition of Xpedite in February 1998 and $5.9 million of debt assumed in
the acquisition of ATS in April 1998. Substantially all of the debt assumed in
the acquisition of Xpedite was associated with a short-term revolving loan
facility maintained by Xpedite. In December 1998, Premiere amended and
restated this facility for a one year period. The amount outstanding under
this loan facility at December 31, 1998 was $118.1 million. Borrowings assumed
in the acquisition of ATS consisted principally of term notes secured by
operating
26
equipment purchased with the proceeds of the loans. These terms loans were
repaid in full by Premiere in 1998. Also contributing to the increase in net
interest expense in 1998 was the reduction in cash and marketable securities
balances to fund operations and other strategic initiatives thereby lowering
interest income. Net interest expense in 1996 resulted mainly from
indebtedness assumed in the Voice-Tel acquisitions in 1997 and the VoiceCom
acquisition in September 1997. The majority of these obligations were repaid
subsequent to the acquisitions.
26--!
Restructuring, merger costs and other special charges incurred in 1998 were
$15.6 million compared to $73.6 million in 1997. See Note 3--Restructuring,
Merger Costs and other Special Charges and Note 4 Acquisitions in the Notes to
Consolidated Financial Statements and "Restructuring, Merger Costs and Other
Special Charges" which follows for a description of these costs.
Accrued settlement costs were $15.5 million in 1998 and 1997 and $1.3
million in 1996. See Note 15--Commitments and Contingencies of the Notes to
the Consolidated Financial Statements and "Legal Proceedings" under Item 1 of
Part II of this document for further information about the matters giving rise
to these accruals.
Acquired research and development costs of $15.5 million expensed in 1998
are associated with the acquisition of Xpedite. Approximately $11.0 million of
acquired research and development costs were expensed in connection with the
TeleT acquisition in 1996. These costs represent the value assigned to
research and development projects in the developmental stage which had not
reached technological feasibility at the date of the acquisition or had no
alternative future use. The valuation of these costs was based on independent
appraisals. See Note 4--Acquisitions in the Notes to Consolidated Financial
Statements for additional information.
In 1998, Premiere's effective income tax rate varied from the statutory rate
primarily as a result of nondeductible goodwill amortization associated with
Premiere's acquisitions which have been accounted for under the purchase
method of accounting. In 1997 and 1996, Premiere's effective tax rate varied
from the statutory rate due to certain non-taxable investment income and
income of Voice-Tel entities which had elected to be treated as S-Corporations
under U.S. tax law prior to their acquisition by the Company. See Note 16--
Income Taxes in the Notes to Consolidated Financial Statements for additional
information.
Liquidity And Capital Resources
The Company has funded its growth through cash generated by operations, by
issuing subordinated convertible indebtedness in July 1997 and from the
proceeds of its initial public offering in March 1996. Cash provided by
operations was $22.2 million in 1998, $27.2 million in 1997 and $36.9 million
in 1996. Excluding payments made for restructuring, merger costs, accrued
settlement costs and other special charges, cash provided by operations was
$44.7 million in 1998, $57.7 million in 1997 and $36.9 million in 1996.
Operating cash flow declined on higher revenues in 1998 primarily as a result
of revenue losses in Premiere's EES group and continued investment by the
Company to expand its management infrastructure to support continued growth.
Improvement in operating cash flows in 1997 as compared with 1996 results
principally from Premiere's integration and cost reduction initiatives
associated with the Voice-Tel and VoiceCom acquisitions in 1997 which reduced
the operating costs of these businesses. Premiere's working capital ratio was
.6 to 1 at December 31, 1998 as compared with 2.5 to 1 at December 31, 1997.
Decline in working capital resulted principally from borrowings of
approximately $118.1 million outstanding at December 31, 1998 under the
revolving loan facility assumed by Premiere in the Xpedite acquisition. In
addition, Premiere liquidated approximately $133.8 million of short-term
investment balances in 1998 to fund operating and strategic initiatives.
Xpedite's revolving loan facility was extended under a one-year arrangement
effective December 16, 1998. Accordingly, such borrowings are classified as a
current liability. If borrowings under this facility were excluded from
current liabilities, Premiere's current ratio would have been 1.3 to 1 at
December 31, 1998.
Investing activities provided cash of approximately $21.3 million in 1998
and used cash of approximately $160.1 million and $96.1 in 1997 and 1996,
respectively. The principal source of cash from investing activities in 1998
was the liquidation of approximately $133.8 million of short-term investments
to fund various operating and strategic initiatives. Premiere made capital
expenditures of $61.3 million in 1998. Significant capital programs in 1998
included construction costs and equipment purchases associated with the
Company's network expansion program, development costs incurred in connection
with the Company's introduction of Internet-enabled communications services
and operating infrastructure expansion in support of new business growth.
Premiere paid approximately $43.6 million to fund acquisition activity in
1998. Premiere paid cash of approximately $22.1 million to acquire ATS in
April 1998.
27
Shareholders of ATS also received approximately 712,000 shares of Premiere
common stock in connection with the acquisition. Remaining cash paid for
acquisitions in 1998 is associated with payment of transaction related costs
incurred in acquiring Xpedite and three individually insignificant
acquisitions including two Document Distribution businesses located in Germany
and Singapore and a company engaged in marketing long distance calling cards
to college students in the United States. The Company made investments of
approximately $8.3 million in 1998 to acquire initial or increase existing
equity interests in various companies engaged in emerging technologies, such
as the Internet. Premiere's investments include minority equity investments in
WebMD, a leading full service Internet healthcare Web site, USA.NET, a leading
electronic messaging company, Intellivoice, an entity engaged in developing
voice activation and other technologies, VerticalOne, a network-based services
provider that increases frequency, duration, and quality of visits to
customers' Web sites, and Webforia, a provider of Web services, tools and
communities that assist individuals in the process of researching, organizing
and presenting high quality information from the Internet. Management intends
to continue to make such investments in the future in complementary businesses
and other initiatives that further its strategic business plan. Significant
investing activities in 1997 and 1996 included investment of proceeds
associated with Premiere's $172.5 million convertible subordinated debt
issuance in 1997 and its initial public offering which raised net proceeds of
approximately $74.6 million in 1996. Premiere made capital expenditures to
purchase property and equipment, mainly computer and telecommunications
equipment, of approximately $33.4 million in 1997 and $21.9 million in 1996.
These expenditures were made primarily to expand operational infrastructure to
support new business growth. Management anticipates that these expenditures
will continue to increase in the future as the Company upgrades and expands
the operational infrastructure of both its existing computer telephony network
and integrates the networks of its acquired companies. In addition, the
Company paid approximately $16.2 million of cash in connection with the Voice-
Tel acquisitions in 1997 and $2.9 million in the acquisition of TeleT in 1996.
See also Note 4 -- Acquisitions in Notes to Consolidated Financial Statements.
Effective December 16, 1998, Premiere amended and restated the revolving
loan facility it assumed in connection with the Xpedite acquisition for a
period of one year. This arrangement provides for borrowings of up to $150
million and contains certain covenants which require the Company to maintain
minimum earnings and interest coverage ratios and achieve certain revenue
levels, in addition to other covenants. The Company was in compliance with all
such covenants at December 31, 1998. Continued compliance under these loan
covenants will require that Premiere attain certain revenue and earnings
growth rates or reduce indebtedness in order to satisfy the minimum ratio
requirements required under this arrangement. At December 31, 1998, the
Company had unused borrowing capacity of approximately $31.9 million under
this arrangement. Premiere used cash of approximately $46.1 million in 1998 in
financing activities. Significant cash outflows for financing activities
included repayment of approximately $29.8 million of indebtedness mainly in
connection with the Company's revolving loan facility extension. In addition,
Premiere executed a stock repurchase program in 1998 under which the Company
repurchased approximately 1.1 million shares of its common stock for
approximately $9.1 million. The Company's principal financing activities in
1997 and 1996 consisted of the issuance of convertible subordinated notes of
$172.5 million in 1997 and its initial public offering which yielded net
proceeds of $74.6 million in 1996. Premiere also repaid approximately $29.5
million of indebtedness in 1997 assumed in connection with the Voice-Tel and
VoiceCom acquisitions. Cash distributions to shareholders of VoiceCom and
certain Voice-Tel companies, primarily S Corporations, used $9.4 million and
$3.6 million in 1997 and 1996, respectively. Such distributions were made in
periods prior to the Voice-Tel and VoiceCom acquisitions and were made
primarily to reimburse S Corporation shareholders for taxes paid on the
proportionate share of taxable income of such companies they were required to
report in their individual income tax returns.
At December 31, 1998, the Company's principal commitments involve
indebtedness under its revolving loan facility which matures December 15,
1999, lease obligations and minimum purchase requirements under supply
agreements with telecommunications providers. The Company is in compliance
under all such agreements at this date. See also Note 8--Indebtedness and Note
15--Contingencies and Commitments in Notes to Consolidated Financial
Statements.
28
Management believes that cash and marketable securities on hand, cash flows
from operations and borrowing capacity under the Company's revolving loan
facility should be sufficient to fund growth in the Company's businesses in
1999. Premiere's revolving loan arrangement matures on December 15, 1999 and
the Company will be required to repay or refinance this indebtedness at that
time. Management regularly reviews the Company's capital structure and
evaluates potential alternatives in light of current conditions in the capital
markets. Depending upon conditions in these markets and other factors, the
Company may, from time to time, engage in capital transactions, including debt
or equity issuances, in order to increase the Company's financial flexibility
and meet other capital needs.
Restructuring, Merger Costs And Other Special Charges
Premiere recorded restructuring, merger costs and other special charges of
approximately $15.6 million in 1998. Such amount is comprised of approximately
$7.5 million of costs recorded in the first quarter of 1998 representing the
estimated costs to restructure certain operating activities of Premiere and
Xpedite subsequent to their merger. Such costs consist of severance associated
with workforce reduction, lease termination costs, costs to terminate certain
contractual obligations and asset impairments. In the fourth quarter of 1998,
Premiere recorded a $13.9 million charge to write-down the value of its MCI
WorldCom strategic alliance intangible asset. This charge was required based
upon management's assessment of current facts and circumstances within
guidelines mandated by SFAS No. 121 "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed of." In addition,
Premiere recorded a charge of approximately $3.9 million to reduce the
carrying value of its investment in certain equity securities of Digitec 2000
to fair market value. This charge was necessitated based upon management's
assessment that the decline in value of these securities was not temporary.
These charges were offset in part by a reduction in restructuring reserves of
approximately $9.7 million. The reduction in reserves was necessary to
eliminate remaining accruals associated with programs that have been completed
and to reflect subsequent changes to management's restructuring plans
rendering the accrual of certain costs unnecessary.
In connection with the VoiceCom Acquisition, the Company recorded
restructuring, merger costs and other special charges of approximately $28.2
million in the third quarter of 1997. Such amounts consisted of transaction
costs, asset impairments, costs to terminate or restructure certain
contractual obligations and other costs.
Transaction costs associated with the VoiceCom acquisition were expensed as
required by the pooling-of-interests method of accounting. Other restructuring
and special charges recorded in the third quarter result principally from
management's plan to restructure VoiceCom's operations by reducing its
workforce, exiting certain facilities, discontinuing duplicative product
offerings and terminating or restructuring certain contractual obligations.
The Company recorded approximately $45.4 million of restructuring, merger
costs and other special charges in the second quarter of 1997 in connection
with the Voice-Tel Acquisitions. Those charges result from management's plan
to restructure the operations of the Voice-Tel businesses under a consolidated
business group model and discontinue its franchise operations. This initiative
involves substantial reduction in the administrative workforce, abandoning
duplicative facilities and assets and other costs necessary to discontinue
redundant business activities. See Note 3--Restructuring, Merger Costs and
Other Special Charges of Notes to Consolidated Financial Statements.
Other Matters
It is possible that a significant portion of the Company's currently
installed computer systems, software products, billing systems, telephony
platforms, networks, database or other business systems (hereinafter referred
to collectively as "Systems"), or those of the Company's customers, vendors or
resellers, working either alone or in conjunction with other software or
systems, will not accept input of, store, manipulate and output dates for the
years 1999, 2000 or thereafter without error or interruption (commonly known
as the "Year 2000" problem). The Company is currently in the process of
evaluating its Systems to determine whether or not modifications
29
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board (the "FASB") issued
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS No. 133"). SFAS No. 133 establishes accounting and
reporting standards for derivatives and hedging. It requires that all
derivatives be recognized as either assets or liabilities at fair value and
establishes specific criteria for the use of hedge accounting. The Company's
required adoption date is January 1, 2000. SFAs No. 133 is not to be applied
retroactively to financial statements of prior periods. The Company expects no
material adverse effect to its financial position upon adoption of SFAS No.
133.
"Statement of Position "SOP" 98-1, Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use," provides guidance on
accounting for the costs of computer software developed or obtained for
internal use and is required to be adopted no later than Premiere's 1999
fiscal year. Also, in June 1998, the American Institute of Certified Public
Accountants issued SOP 98-5, "Reporting on the Costs of Start-up Activities."
SOP 98-5 requires costs of start-up activities and organizational costs, as
defined to be expensed as incurred. The Company expects no material adverse
effect to its financial position upon adoption of SOP 98-1 or SOP 98-5.
FACTORS AFFECTING FUTURE PERFORMANCE
The Successful Integration and Consolidation of Acquired Businesses, Products
and Services Into Our Operations are Essential to Our Future Performance.
We are in the process of continuing to integrate several businesses acquired
in 1997 and 1998 by attempting to eliminate duplicative and unnecessary costs
and to operate them under common management. There can be no assurance that
the acquired businesses will be successfully integrated with our operations on
schedule or at all, that the acquisitions of these businesses will result in
sufficient net sales or earnings to justify our investment in these
acquisitions or the expenses related thereto, or that operational synergies
will develop. The successful integration of the acquired businesses into our
operations is critical to our future performance. Failure to successfully
integrate the acquired businesses or to achieve operating synergies would have
a material adverse effect on our business, financial condition and results of
operations. Potential challenges to the successful integration of acquired
businesses include, but are not limited to:
. centralization and consolidation of financial, operational and
administrative functions;
. consolidation of service centers, networks and work forces;
. elimination of unnecessary costs; and
. realization of economies of scale.
We are continuing to integrate and consolidate previously acquired service
offerings, operations and systems with ours, and therefore, our integration
plans may materially change in the future. Challenges to the successful
integration of acquired service offerings, operations and systems include, but
are not limited to:
. localization of our products and services;
. integration of platforms and networks;
. cross-selling of products and services to our customer base and customer
bases of acquired businesses;
. integration and retention of new personnel; and
. compliance with regulatory requirements.
30
We May Not Be Able to Continue to Compete Successfully Due to Increased
Competition and the Development of Alternatives to Our Services.
The markets for our products and services are intensely competitive, quickly
evolving and subject to rapid technological change. Competitive pressures
could have a material adverse effect on our business, financial condition and
results of operations. We expect competition to increase in the future. Many
of our current and potential competitors have longer operating histories,
greater name recognition, larger customer bases and substantially greater
financial, personnel, marketing, engineering, technical and other resources
than we do. We believe that our current competitors are likely to expand their
product and service offerings and that new competitors are likely to enter the
Company's markets, and such competitors may to attempt to integrate their
products and services, resulting in greater competition.
Our Corporate Messaging and Voice and Data Messaging services compete with
voice mail services provided by AT&T, certain regional Bell operating
companies ("RBOCs") and other service bureaus as well as by equipment
manufacturers, such as Octel Communications Corporation (which is owned by
Lucent Technologies), Northern Telecom, Siemens Business Communications
Systems, Centigram Communications, Boston Technology, and Digital Sound.
Our Interactive Voice Response Services compete with IVR Services provided
by AT&T, MCI, WorldCom, Lucent, West Teleservices, Call Interactive and
Syntellect.
Our Conferencing services compete with conference calling services provided by
AT&T, MCI WorldCom, Sprint, as well as numerous smaller regional competitors.
Our enhanced travel, concierge, news and e-mail services compete with services
provided by America Online, Prodigy and numerous Internet service providers.
Our Orchestrate(R) service competes with unified communications products
offered by companies such as Octel/Lucent, Microsoft, Novell, Sun
Microsystems, Motorola, and numerous smaller entities, such as Jfax General
Magic and Webley Systems. For example, Octel and Microsoft have announced a
service, called "Unified Messenger," which places all voice mail, e-mail and
fax messages in a single mailbox accessible by computer or telephone. Sun
MicroSystems and Lucent have announced an alliance to build products that tie
together voice mail, e-mail, telephone and fax communications. Motorola and
General Magic have announced similar products.
Our Enhanced Calling services and Premiere WorldLink Corporate Card compete
with services provided by companies such as AT&T, MCI WorldCom and Sprint, as
well as smaller interexchange long distance providers.
Our Document Distribution services compete with services provided by AT&T,
MCI WorldCom and Sprint, and many of the international postal, telephone and
telegraph ("PTT") companies located around the world, as well as numerous
smaller regional competitors. We cannot predict whether AT&T, MCI WorldCom,
Sprint, any Internet service provider or PTT or any other competitor will
expand its electronic document distribution business, and there can be no
assurance that these or other competitors will not commence or expand their
businesses. Moreover, our receiving, queuing, routing and other systems logic
and architecture are not proprietary, and as a result, there can be no
assurance that such information will not be acquired or duplicated by existing
and potential competitors. We do not typically have long-term contractual
agreements with our customers, and there can be no assurance that our
customers will continue to transact business with us in the future. In
addition, even if there is continued growth in the use of electronic document
distribution services, there can be no assurance that potential customers will
not elect to use their own equipment to fulfill their needs for electronic
document distribution services. There also can be no assurance that customers
will not elect to use alternatives to our Document Distribution services,
including the Internet, to carry their communications or that companies
offering such alternatives will not develop product features or pricing which
are more attractive to customers than those currently offered by us.
31
The Degree to Which We Are Leveraged Could Adversely Effect Our Business.
In connection with the issuance of our convertible notes to the public on
June 30 and July 30, 1997, we incurred $172.5 million in indebtedness.
Effective December 16, 1998, we amended and restated the revolving loan
facility we assumed in connection with the Xpedite acquisition for a period of
one year. This arrangement provides for borrowings of up to $150 million and
contains certain covenants which require us to maintain minimum earnings and
interest coverage ratios and achieve certain revenue levels, in addition to
other covenants. We were in compliance with all such covenants at December 31,
1998. We will have to attain certain revenue and earnings growth rates or
reduce indebtedness in order to satisfy the minimum ratio requirements
required under this arrangement in the future. At December 31, 1998 the
Company had unused borrowing capacity of approximately $31.9 million under
this arrangement. Our loan facility limits our ability to incur additional
indebtedness, grant liens, pay dividends or distributions, make certain
acquisitions for cash, sell assets and repurchase our securities. As a result
of this increased leverage, our principal and interest obligations increased
substantially. The degree to which we are leveraged and the restrictions
contained in the loan facility could adversely affect our ability to obtain
additional financing for working capital, acquisitions or other purposes and
could make us more vulnerable to economic downturns and competitive pressures.
Our increased leverage could also adversely affect our liquidity, as a
substantial portion of available cash from operations may have to be applied
to meet debt service requirements, and in the event of a cash shortfall, we
could be forced to reduce other expenditures and forego potential acquisitions
to be able to meet such requirements. The indenture related to our convertible
notes does not contain any financial covenants or any other agreements
restricting the payments of dividends, the repurchase of our securities, the
issuance of additional equity or the incurrence of additional indebtedness.
The Telecommunications Act of 1996 May Increase Competition.
Furthermore, on February 8, 1996, President Clinton signed into law the
Telecommunications Act of 1996 (the "1996 Act"), which allows local exchange
carriers ("LECs"), including the RBOCs, to immediately provide long distance
telephone service between Local Access and Transport Areas ("LATAs") outside
of their local service territories. The legislation also grants the Federal
Communications Commission (the "FCC") the authority to deregulate other
aspects of the telecommunications industry, which in the future may, if
authorized by the FCC, facilitate the offering of an integrated suite of
information and telecommunications services by the RBOCs in competition with
us. This increased competition could have a material adverse effect on our
business, financial condition and results of operations.
Our Future Success Will Depend On Our Ability to Anticipate Advances In
Technologies.
The market for our products and services is characterized by rapid
technological change, frequent new product introductions and evolving industry
standards. Our future success will depend in significant part on our ability
to anticipate industry standards, continue to apply advances in technologies,
enhance our current services, develop and introduce new products and services
in a timely fashion, enhance our software and our platforms and compete
successfully with products and services based on evolving or new technologies.
We expect new products and services, and enhancements to existing products and
services, to be developed and introduced which will compete with our products
and services. Our Orchestrate(R) product line is expected to compete within
markets where larger companies are working to provide a unified communications
solution.
Technological advances may result in the availability of new services,
products or methods of electronic document distribution that could compete
with the electronic document distribution services currently provided by us or
decrease the cost of existing products or services which could enable our
established or potential customers to meet their own needs for electronic
document distribution services more cost efficiently than through the use of
our services.
32
The acquisitions of the Voice-Tel entities in 1997 constituted a significant
investment by us in a private frame relay network architecture. Alternative
architectures currently exist, and technological advances may result in the
development of additional network architectures. There can be no assurance
that the telecommunications industry will not standardize on a protocol other
than frame relay or that our frame relay architecture will not become
obsolete. Such events would require us to invest significant capital in
upgrading or replacing our private frame relay network and could have a
material adverse effect on our business, financial condition and results of
operations.
In addition, we may experience difficulty integrating incompatible systems
of acquired businesses into our networks. There can be no assurance that we
will not be materially adversely affected in the event of such technological
change or difficulty, or that changes in technology will not enable additional
companies to offer services which could replace, or be more cost-effective
than, some or all of the services we now offer.
Our Future Success Will Depend on Market Acceptance of New Products and
Services That We Develop.
We must continually introduce new products and services in response to
technological changes, evolving industry standards and customer demands for
enhancements to our existing products and services. One such product is
Orchestrate(R).
32--1
Delays in the introduction of new products and services, our inability to
develop such new products and services or the failure of such products and
services to achieve market acceptance could have a material adverse effect on
our business, financial condition and results of operations. There can be no
assurance that:
. we will successfully develop and market new products and services or
product and service enhancements that respond to these or other
technological changes, evolving industry standards or customer demands;
. we will develop effective marketing, pricing and distribution strategies
for new products and services, including Orchestrate;
. we will not experience difficulties that could delay or prevent the
successful development, introduction and marketing of new products and
services; or
. our new products and services, including Orchestrate(R), and
enhancements to our existing products and services, will adequately meet
the requirements of the marketplace and achieve market acceptance.
Managing Our Growth Through Acquisitions May Strain Our Administrative,
Technical and Financial Resources.
We regularly evaluate acquisition opportunities and, as a result, frequently
engage in acquisition discussions, conduct due diligence activities in
connection with possible acquisitions, and, where appropriate, engage in
acquisition negotiations. There can be no assurance that we will be able to
successfully identify suitable acquisition candidates, complete acquisitions,
integrate acquired operations into our existing operations or expand into new
markets. In addition, we compete for acquisitions and expansion opportunities
with companies that have substantially greater resources.
We have experienced substantial growth in revenue and personnel in recent
years, particularly in 1997 and early 1998. A substantial portion of such
growth has been accomplished through acquisitions, including the acquisitions
of Voice-Tel and its affiliate Voice-Tel Network Limited Partnership ("VTN")
and substantially all of Voice-Tel's franchisees (the "Franchisees") (Voice-
Tel, VTN and the Franchisees are collectively referred to as the "Voice-Tel
Entities" and such acquisitions are referred to collectively as the "Voice-Tel
Acquisitions"), the acquisition of VoiceCom, the merger with Xpedite and the
acquisition of American Teleconferencing Services. Our growth has placed
significant demands on all aspects of our business, including our
administrative, technical and financial personnel and systems. Additional
expansion may further strain our management, financial and other resources.
There can be no assurance that our systems, procedures, controls and existing
space are or will be adequate to support expansion of our operations.
Our future operating results will substantially depend on the ability of our
officers and key employees to manage changing business conditions and to
implement and improve our administrative, technical and financial control and
reporting systems. If we are unable to respond to and manage changing business
conditions, then the quality of our services, our ability to attract and
retain key personnel and our results of operations could be materially
adversely affected.
At certain stages of growth in network usage, we will be required to add
capacity to our platforms and our digital central office switches and we will
need to continually add capacity to our private frame relay network, thus
requiring that we continuously attempt to predict growth in its network usage
and add capacity accordingly. Difficulties in managing continued growth,
including difficulties in predicting the growth in our network usage, could
have a material adverse effect on our business, financial condition and
results of operations.
Acquisitions also involve numerous additional risks, including difficulties
in the assimilation of the operations, services, products and personnel of the
acquired company, the diversion of our management's attention from other
business concerns, entry into markets in which we have little or no direct
prior experience and the potential loss of key employees of the acquired
company. Assimilation and retention of the key employees of an acquired
company are generally important to the success of an acquisition and the
failure to assimilate and retain any such key employees could have a material
adverse effect on our business, financial condition and results of operations.
33
Acquisitions May Decrease Our Shareholders' Percentage Ownership and Require
Us to Incur Additional Debt.
Future acquisitions may result in potentially dilutive issuances of equity
securities, the incurrence of additional debt, the assumption of known and
unknown liabilities, the write-off of software development costs and the
amortization of expenses related to goodwill and other intangible assets, all
of which could have a material adverse effect on our business, financial
condition and results of operations. As of December 31, 1998, we had
approximately $492.2 million of goodwill and other intangible assets reflected
on our financial statements as a result of acquisitions. We are amortizing the
goodwill and other intangibles over a range of periods we believe appropriate
for the assets. If the amortization period is accelerated due to a
reevaluation of the useful life of these assets or otherwise, amortization
expense may initially increase on a quarterly basis or require a write-down of
the goodwill or other intangible assets. An increase in the rate of
amortization of goodwill or future write-downs and restructuring charges could
have a material adverse effect on our business, financial condition and
results of operations.
Acquisitions May Involve Restructuring and Other Special Charges.
We have taken, and in the future may take, charges in connection with
acquisitions. There can be no assurance that the costs and expenses incurred
will not exceed the estimates upon which such charges are based. During the
second quarter of 1997, we took a pre-tax charge of approximately $45.4
million in connection with the acquisitions of the Voice-Tel entities. During
the third quarter of 1997, we took a pre-tax charge of approximately $28.2
million in connection with the acquisition of VoiceCom. We also recorded
restructuring and other special charges before income taxes of approximately
$7.5 million in connection with the merger with Xpedite.
Long Distance Pricing Pressures Could Adversely Effect Our Business.
Telecommunications companies compete for consumers based on price, with
major long distance carriers conducting extensive advertising campaigns to
capture market share. There can be no assurance that a decrease in the rates
charged for communications services by the major long distance carriers or
other competitors, whether caused by general competitive pressures or the
entry of the RBOCs and other LECs into the long distance market, would not
have a material adverse effect on our business, financial condition and
results of operations.
We Need to Retain the Services of Our Key Management and Personnel.
Our success is largely dependent upon its executive officers and other key
personnel, the loss of one or more of whom could have a material adverse
effect on our performance. We believe that our continued success will depend
to a significant extent upon the efforts and abilities of Boland T. Jones,
Chairman and Chief Executive Officer, and certain other key executives. Mr.
Jones has entered into an employment agreement which expires in December 1999,
and we maintain key man life insurance on Mr. Jones in the amount of $3.0
million.
We Need to Attract and Retain Highly Qualified Technical Personnel.
We also believe that to be successful we must hire and retain highly
qualified engineering and product development personnel. Competition in the
recruitment of highly qualified personnel in the information and
34
telecommunications services industry is intense. If we are not able to locate,
hire and retain such personnel it may have a material adverse effect on our
business, financial condition and results of operations. No assurance can be
given that we will be able to retain our key employees or that we will be able
to attract qualified personnel in the future.
We Do Not Typically Have LongTerm Contractual Agreements With Our Customers.
We expect that the information and telecommunications services markets will
continue to attract new competitors and new technologies, possibly including
alternative technologies that are more sophisticated and cost effective than
our technologies. We do not typically have long-term contractual agreements
with our customers, and there can be no assurance that our customers will
continue to transact business with us in the future.
We Rely on Amway and Certain Other Clients for Significant Revenues.
We have historically relied on sales through Amway Corporation for a
substantial portion of our revenue. Such sales accounted for approximately
23.7%, 21.8% and 9.4% of our revenue for 1996, 1997 and 1998, respectively.
Total revenues from Amway have decreased significantly over the last two
fiscal years but Amway remains a significant customer. There can be no
assurance that our relationship with Amway and the Amway distributors will
continue at historical levels or at all, nor can there be any assurance of
long-term price protection for services provided to Amway. Continued loss in
total revenues from Amway or diminution in the Amway relationship, or a
decrease in average sales price without an offsetting increase in volume,
could have a material adverse effect on our business, financial condition and
results of operations. We have entered into a service and reseller agreement
with Amway (the "Amway Agreement") providing, among other things, for the sale
of voice messaging and network transmission services on an exclusive basis to
Amway in the United States, Canada, New Zealand and Australia for resale by
Amway to its independent distributors. The Amway Agreement does not bind the
Amway distributors, who are free to acquire messaging services from
alternative vendors. The Amway Agreement may be canceled by either party upon
180 days prior written notice or upon shorter notice in the event of a breach.
The Amway Agreement does not prohibit us from continuing to provide voice
messaging and network transmission services to Amway's distributors following
termination of the Amway Agreement. However, in the event that Amway
recommended a voice messaging and network transmission services provider other
than ours, there can be no assurance that Amway's distributors would not
follow such recommendation. Amway has sold substantially all of the Common
Stock of Premiere that it acquired in the Voice-Tel acquisitions. The sale of
such stock may increase the possibility that Amway will recommend a voice
messaging and network transmission services provider other than us.
Financial Difficulties of Licensees or Strategic Partners Could Adversely
Impact Our Earnings.
The telecommunications industry is intensely competitive and rapidly
consolidating. The majority of companies that have chosen to outsource
communications card services to us are small or medium-sized
telecommunications companies that may be unable to withstand the intense
competition in the telecommunications industry. During the second quarter of
1998, a licensing customer and a strategic partner in our Enhanced Calling
Services group initiated proceedings under Chapter 11 of the United States
Bankruptcy Code. We recorded approximately $8.4 million of charges in the
second quarter of 1998 associated with uncollectible accounts receivable,
primarily related to these financially distressed customers. The financial
difficulties of these two customers, as well as revenue shortfalls in the
Voice and Data Messaging group and other unanticipated costs and one-time
charges, contributed to an after tax loss for the second quarter of 1998.
There can be no assurance that one or more additional failures will not occur,
and any such additional failures could have a material adverse effect on our
business, financial condition and results of operations.
Our Future Success Depends On the Success of Our Strategic Relationships.
A principal element of our strategy is the creation and maintenance of
strategic relationships that will enable us to offer our services to a larger
customer base than we could otherwise reach through our direct marketing
35
efforts. Failure of one or more of our strategic partners to successfully
develop and sustain a market for our services, or the termination of one or
more of our relationships with a strategic partner, could have a material
adverse effect on our overall performance. We experienced growth in our
existing strategic relationships during 1996, 1997 and 1998 and entered into
or initiated new strategic relationships with several companies, including MCI
WorldCom, WebMD, USA.NET, Intellivoice, and Webforia. Although we intend to
continue to expand our direct marketing channels, we believe that strategic
partner relationships may offer a potentially more effective and efficient
marketing channel. Consequently, our success depends in part on the ultimate
success of these relationships and on the ability of these strategic partners
to market our services effectively.
In connection with our strategic plan, we make investments and form
alliances with companies involved in emerging technologies, such as the
Internet, as well as marketing alliances and outsourcing programs designed to
reduce costs and develop new markets and distribution channels for our
products. In 1998, the Company made investments of approximately $8.3 million
to acquire initial or increase existing equity interests in companies engaged
in emerging technologies. Since many of the companies in which we make
investments are small, early-stage companies, our investments are subject to
the significant risks faced by these companies which could result in the loss
of our investment. In 1998, the Company took a net charge of $3.9 million
reflecting the write-down of an equity investment in a telecommunications
distribution partner, DigiTEC.
In November 1996, we entered into a strategic alliance agreement with
WorldCom, now known as MCI WorldCom, whereby MCI WorldCom is required, among
other things, to provide us with the right of first opportunity to provide
certain enhanced computer telephony services for a period of at least 25
years. In connection with this agreement, we issued to MCI WorldCom 2,050,000
shares of common stock valued at approximately $25.2 million (based on an
independent appraisal) and paid MCI WorldCom $4.7 million in cash. We recorded
the value of this agreement as an intangible asset. Subsequent to entering
into this strategic alliance agreement WorldCom completed a merger with MCI to
form MCI WorldCom. MCI was a competitor of ours with respect to certain
services and the total impact of the merger between MCI and WorldCom on our
strategic alliance with MCI WorldCom cannot be determined at this time.
Current activity levels under the strategic alliance agreement are
significantly below the specified minimum payment levels in the agreement and
the minimum payments ceased at the end of September 1998. We periodically
review this intangible asset for impairment and in 1998 we wrote down the
carrying value of the MCI WorldCom strategic alliance intangible asset by
approximately $13.9 million. In addition, we accelerated amortization of the
remaining carrying value of the asset starting in the fourth quarter of 1998
by shortening its estimated remaining useful life to three years from 23
years.
Although we view our strategic relationships as a key factor in our overall
business strategy and in the development and commercialization of our
services, there can be no assurance that our strategic partners view their
relationships with us as significant for their own businesses or that they
will not reassess their commitment to us in the future. Our arrangements with
our strategic partners do not always establish minimum performance
requirements for our strategic partners, but instead rely on the voluntary
efforts of these partners in pursuing joint goals. Certain of these
arrangements prevent us from entering into strategic relationships with other
companies in the same industry as our strategic partners, either for specified
periods of time or while the arrangements remain in force. In addition, even
when we are without contractual restriction, we may be restrained by business
considerations from pursuing alternative arrangements. The ability of our
strategic partners to incorporate our services into successful commercial
ventures will require us, among other things, to continue to successfully
enhance our existing products and services and develop new products and
services. Our inability to meet the requirements of our strategic partners or
to comply with the terms of our strategic partner arrangements could result in
our strategic partners failing to market our services, seeking alternative
providers of communications and information services or canceling their
contracts with us, any of which could have a material adverse impact on our
business, financial condition and results of operations.
Our Success Depends on Our Ability to Establish and Maintain Licensing and
Wholesale Relationships.
We have licensing and wholesale relationships with companies that have
chosen to outsource part or all of their communications card services. License
fees accounted for approximately 11.7% and 5.8% of our revenues
36
in 1997 and 1998, respectively. MCI WorldCom accounted for approximately 66.9%
of our 1997 license fees and 7.0% of our total 1997 revenues, and
approximately 53.3% of our license fees and 3.1% of our total revenues in
1998. Although we intend to increase our number of licensees and our licensee
transaction volume in the future, our success depends in part upon the
ultimate success or failure of our licensees and our ability to establish and
maintain licensing and strategic relationships. The telecommunications
industry is intensely competitive and rapidly consolidating. The majority of
companies that have chosen to outsource communications card services to us are
small or medium-sized telecommunications companies that may be unable to
withstand the intense competition in the telecommunications industry.
During the second quarter of 1998, a licensing customer and a strategic
partner in our Enhanced Calling Services group initiated proceedings under
Chapter 11 of the United States Bankruptcy Code. We recorded approximately
$8.4 million of charges in the second quarter of 1998 associated with
uncollectible accounts receivable, primarily related to these financially
distressed customers. There can be no assurance that one or more additional
failures will not occur or that the failure of one or more of our licensees to
develop and sustain a market for our services, or termination of one or more
of our licensing or strategic relationships, will not have a material adverse
effect on our business, financial condition and results of operations.
Consolidation in the Telecommunications Industry Could Adversely Effect Our
Business.
The telecommunications industry is experiencing rapid consolidation. For
example, in 1998 WorldCom, a strategic partner of the Company, completed a
merger with MCI Communications Corp., a competitor of ours with respect to
certain services, to form MCI WorldCom. Consolidation in the communications
industry, including consolidations involving the Company's customers,
competitors and strategic partners, could have a material adverse effect on
the Company's business, financial condition and results of operations.
Our Future Success Depends on Market Acceptance of Computer Telephony.
Our future success depends upon the market acceptance of our existing and
future computer telephony product lines and services. Computer telephony
integrates the functionality of telephones and computers and thus represents a
departure from standards for information and telecommunications services.
Market acceptance of computer telephony products and services generally
requires that individuals and enterprises accept a new way of exchanging
information. A decline in the demand for, or the failure to achieve broad
market acceptance of, our computer telephony product lines and services would
have a material adverse effect on our business, financial condition and
results of operations. We believe that broad market acceptance of our computer
telephony product lines and services will depend on several factors, including
ease of use, price, reliability, access and quality of service, system
security, product functionality and the effectiveness of strategic marketing
and distribution relationships. There can be no assurance that our computer
telephony products and services will achieve broad market acceptance or that
such market acceptance will occur at the rate which we currently anticipate.
Downtime in Our Platforms Networks Could Result in the Loss of Significant
Customers.
We currently maintain switching facilities and computer telephony platforms
in approximately 300 locations. Our network service operations are dependent
upon our ability to protect the equipment and data at our switching facilities
against damage that may be caused by fire, power loss, technical failures,
unauthorized intrusion, natural disasters, sabotage and other similar events.
We have taken precautions to protect ourselves and our customers from events
that could interrupt delivery of our services. These precautions include
physical security systems, uninterruptible power supplies, on-site power
generators, upgraded backup hardware, fire protection systems and other
contingency plans. In addition, certain of our networks are designed such that
the data on each network server is duplicated on a separate network server.
Notwithstanding such precautions, we have experienced downtime in our networks
from time to time and there can be no assurance that downtime will not occur
in the future. In addition, there can be no assurance that a fire, act of
sabotage, technical failure, natural disaster or a similar event would not
cause the failure of a network server and its backup server, other portions of
our networks or one of the switching facilities as a whole, thereby resulting
in an interruption of the our services. Such interruptions could result in the
loss of significant customers and could have a material adverse effect on our
business, financial condition and results of operations. Although we maintain
business interruption
37
insurance providing for aggregate coverage of approximately $86.1 million per
policy year, there can be no assurance that we will be able to maintain our
business interruption insurance, that such insurance will continue to be
available at reasonable prices or that such insurance will be sufficient to
compensate us for losses we experience due to our inability to provide
services to our customers.
We May Be Unable to Protect and Maintain the Competitive Advantage of Our
Proprietary Technology and Intellectual Property Rights.
We rely primarily on a combination of intellectual property laws and
contractual provisions to protect our proprietary rights and technology. These
laws and contractual provisions provide only limited protection of our
proprietary rights and technology. Our proprietary rights and technology
include confidential information and trade secrets which we attempt to protect
through confidentiality and nondisclosure provisions in our licensing,
services, reseller and other agreements. We typically attempt to protect our
confidential information and trade secrets through these contractual
provisions for the term of the applicable agreement and, to the extent
permitted by applicable law, for some negotiated period of time following
termination of the agreement, typically one to two years at a minimum. There
can be no assurance that our means of protecting our proprietary rights and
technology will be adequate or that our competitors will not independently
develop similar technology. In addition, the laws of some foreign countries do
not protect our proprietary rights to as great an extent as the laws of the
United States.
No Assurance Can Be Given That Claims Alleging Patent, Copyright or Trademark
Infringement Will Not Be Brought.
Many patents, copyrights and trademarks have been issued in the general
areas of information and telecommunications services and computer telephony.
We believe that in the ordinary course of our business third parties will
claim that our current or future products or services infringe the patent,
copyright or trademark rights of such third parties. No assurance can be given
that actions or claims alleging patent, copyright or trademark infringement
will not be brought against us with respect to current or future products or
services, or that, if such actions or claims are brought, we will ultimately
prevail. Any such claiming parties may have significantly greater resources
than we have to pursue litigation of such claims. Any such claims, whether
with or without merit, could be time consuming, result in costly litigation,
cause delays in introducing new or improved products and services, require us
to enter into royalty or licensing agreements, or cause us to discontinue use
of the challenged technology, tradename or service mark at potentially
significant expense associated with the marketing of a new name or the
development or purchase of replacement technology, all of which could have a
material adverse effect on our business, financial condition and results of
operations. For a description of the Company's material infringement claims,
see Part I--"Business--Proprietary Rights and Technology" of this Form 10-K.
We May Lose Revenue or Incur Additional Costs Because of Failure to Adequately
Address the Year 2000 Issue.
It is possible that a significant portion of our currently installed
computer systems, software products, billing systems, telephony platforms,
networks, database or other business systems (hereinafter referred to
collectively as "Systems"), or those of our customers, vendors or resellers,
working either alone or in conjunction with other software or systems, will
not accept input of, store, manipulate and output dates for the years 1999,
2000 or thereafter without error or interruption (commonly known as the "Year
2000" problem). We are currently in the process of evaluating our Systems to
determine whether or not modifications will be required to prevent problems
related to the Year 2000. Although we have not completed our evaluation, we
have identified certain of our Systems that will require modification or
upgrades to remedy Year 2000 problems. There can be no assurance that we will
identify all such Year 2000 problems in our Systems or those of our customers
or vendors, including network transmission providers, in advance of their
occurrence or that we will be able to successfully remedy any problems that
have been or may subsequently be discovered. In addition, we are dependent
upon third parties for transmission of its calls and other communications.
There can be no assurance that these third party providers will identify and
remedy any Year 2000 problems in their transmission facilities. The expenses
of our efforts to
38
identify and address such problems, the expenses or liabilities to which we
may be subject as a result of such problems, or the failure of third party
providers of transmission facilities, could have a material adverse effect on
our business, financial condition and results of operations. The financial
stability of existing customers may be adversely impacted by Year 2000
problems which could have a material adverse impact on our revenues. In
addition, any failure by us to identify and remedy Year 2000 problems could
put us at a competitive disadvantage relative to companies that have corrected
Year 2000 problems. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--The Year 2000 Issue."
39
One or More Adverse Outcomes in Our Pending Litigation Could Have a Material
Effect on Our Business.
In the ordinary course of our business, we are subject to claims and
litigation from third parties alleging that our products and services infringe
the patents, trademarks and copyrights of such third parties. See "--Risk of
Infringement Claims." We have several litigation matters pending not involving
infringement claims which we are defending vigorously. Due to the inherent
uncertainties of the litigation process and the judicial system, we are unable
to predict the outcome of such litigation matters. If the outcome of one or
more of such matters is adverse to us, it could have a material adverse effect
on our business, financial condition and results of operations. For a
description of the Company's pending material litigation, see "Item 3--Legal
Proceedings" of this Form 10-K.
The Company is also involved in various other legal proceedings which the
Company does not believe will have a material adverse effect upon the
Company's business, financial condition or results of operations, although no
assurance can be given as to the ultimate outcome of any such proceedings.
Our Quarterly Results May Not Always Meet the Expectations of Public Market
Analysts and Investors.
Quarterly revenues are difficult to forecast because the market for our
services is rapidly evolving. Our expense levels are based, in part, on our
expectations as to future revenues. If revenue levels are below expectations,
we may be unable or unwilling to reduce expenses proportionately and operating
results would likely be adversely affected. As a result, we believe 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.
Due to all of the foregoing factors, it is likely that in some future quarter
our operating results will be below the expectations of public market analysts
and investors. In such event, the market price of our common stock will likely
be materially adversely affected.
Our operating results have varied significantly in the past and may vary
significantly in the future. Specific factors that may cause our future
operating results to vary include:
. the unique nature of strategic relationships into which we may enter in
the future;
. changes in operating expenses resulting from such strategic
relationships and other factors;
. the continued acceptance of our licensing program;
. the financial performance of our licensees and strategic partners;
41
. the timing of new service announcements;
. market acceptance of new and enhanced versions of our products and
services, including Orchestrate(R);
. acquisitions;
. performance of strategic investments;
. changes in legislation and regulations that may affect the competitive
environment for our communications services; and
. general economic and seasonal factors.
In the future, revenues from our strategic relationships may become an
increasingly significant portion of our total revenues. Due to the unique
nature of each strategic relationship, these relationships may change the mix
of our expenses relative to our revenues.
Software Failures or Errors May Result in Failure of Our Networks and/or
Platforms or Loss of Significant Customers.
The software that we have developed and utilized in providing our services,
including the Orchestrate software, may contain undetected errors. Although we
generally engage in extensive testing of our software prior to introducing the
software onto any of our networks and/or platforms, there can be no assurance
that errors will not be found in the software after the software goes into
use. Any such error may result in partial or total failure of our networks,
additional and unexpected expenses to fund further product development or to
add programming personnel to complete a development project, and loss of
revenue because of the inability of customers to use our networks or the
cancellation by significant customers of their service with us, any of which
could have a material adverse effect on our business. We maintain technology
errors and omissions insurance coverage of $35.0 million per policy aggregate.
However, there can be no assurance that we will be able to maintain our
technology errors and omissions insurance, that such insurance will continue
to be available at reasonable prices or will be sufficient to compensate us
for losses we experience due to our inability to provide services to our
customers.
Interruption in Long Distance Service Could Result in a Loss of Significant
Customers and Revenue.
We do not own a transmission network and, accordingly, depend on MCI
WorldCom, AT&T and other facilities-based and non-facilities based carriers
for transmission of our customers' long distance calls. These long distance
telecommunications services generally are procured pursuant to supply
agreements for terms of three to five years, subject to earlier termination in
certain events. Certain of these agreements provide for minimum purchase
requirements. Further, we are dependent upon LECs or CLECs for call
origination and termination. If there is an outage affecting one of our
terminating carriers, our platform automatically switches calls to another
terminating carrier if capacity is available. We have not experienced
significant losses in the past due to interruptions of service at terminating
carriers, but no assurance can be made in this regard in the future. Our
ability to maintain and expand our business depends, in part, on our ability
to continue to obtain telecommunication services on favorable terms from long
distance carriers and the cooperation of both interexchange and LECs or CLECs
in originating and terminating service for our customers in a timely manner.
The partial or total loss of the ability to receive or terminate calls would
result in a loss of revenues and could lead to a loss of significant
customers, which could have a material adverse effect on our business,
financial condition or results of operations.
We lease capacity on the MCI WorldCom backbone to provide connectivity and
data transmission within our private data network. The telecommunication
agreement expires in September 2000. Our hub equipment is co-located at
various MCI WorldCom sites pursuant to co-location agreements that are
terminable by either party upon 30 days written notice. Our ability to
maintain network connectivity is dependent upon our access to transmission
facilities provided by MCI WorldCom or an alternative provider. We have no
assurance that we will be able to continue our relationship with MCI WorldCom
beyond the terms of our current agreements with MCI WorldCom or that we will
be able to find an alternative provider on terms as favorable as those offered
by MCI WorldCom or on any other terms. If we were required to relocate our hub
equipment or change our network
42
transmission provider, we could experience shutdowns in our service and
increase costs which could have a material adverse effect on our customer
relationships and customer retention and, therefore, our business, financial
condition and results of operations.
Any Significant Difficulty Obtaining Voice Messaging Equipment From Suppliers
Could Adversely Effect Our Business.
We do not manufacture voice messaging equipment used at our voice messaging
service centers, and such equipment is currently available from a limited
number of sources. Although we have not historically experienced any
significant difficulty in obtaining equipment required for our operations and
believe that viable alternative suppliers exist, no assurance can be given
that shortages will not arise in the future or that alternative suppliers will
be available. Our inability to obtain voice messaging equipment could result
in delays or reduced delivery of messages which would materially and adversely
affect our business, financial condition and results of operations. In
addition, technological advances may result in the development of new voice
messaging equipment and changing industry standards and there can be no
assurance that our voice messaging equipment will not become obsolete. Such
events would require us to invest significant capital in upgrading or
replacing our voice messaging equipment and could have a material adverse
effect on our business, financial condition and results of operations.
Various Regulatory Factors Affect Our Financial Performance and Our Ability to
Compete.
Our operating subsidiaries that provide regulated long distance
telecommunications services are subject to regulation by the FCC and by
various state public service and public utility commissions ("PUCs"), and are
otherwise affected by regulatory decisions, trends and policies made by these
agencies. FCC rules currently require interexchange carriers to permit resale
of their transmission services. FCC rules also require LECs to provide all
interexchange carriers with equal access to local exchange facilities for
purposes of origination and termination of long distance calls. If either or
both of these requirements were eliminated, we could be adversely affected.
Moreover, the underlying carriers that provide services to our operating
subsidiaries or that originate or terminate the operating subsidiaries'
traffic may increase rates or experience disruptions in service due to factors
outside our control, which could cause the operating subsidiaries to
experience increases in rates for telecommunications services or disruptions
in transmitting their subscribers' long distance calls.
PCI has made the requisite filings with the FCC to provide interstate and
international long distance services.
In order to provide intrastate long distance service, PCI generally is
required to obtain certification from state PUCs, to register with such state
PUCs or to be found exempt from registration by such state PUCs. PCI has
either filed the applications necessary to provide intrastate long distance
telecommunications services throughout the United States or is in the process
of filing such applications. To date, PCI is authorized to provide long
distance telecommunications services in 46 states and in the District of
Columbia and is seeking authorization to provide long distance
telecommunications services in four states. With the exception of three
states, Colorado, Michigan and Arizona, in which PCI's applications to provide
operator service (i.e., "0+") are pending, PCI is authorized to provide
operator service in each state where PCI provides long distance
telecommunications service. In addition, as a condition of providing
intrastate long distance services, PCI generally is required to comply with
PUC tariffing requirements, reporting obligations and regulatory assessments,
and to submit to PUC jurisdiction over complaints, transfers of control and
certain financing transactions. PCI uses reasonable efforts to ensure that its
operations comply with these regulatory requirements. However, there can be no
assurance that PCI is currently in compliance with all PUC regulatory
requirements. Further PCI's facilities do not prevent subscribers from using
the facilities to make long distance calls in any state, including states in
which PCI currently is not authorized to provide intrastate telecommunications
services and operator services. There can be no assurance that PCI's provision
of long distance telecommunications and operator services in states where it
is not in compliance with PUC requirements will not have a material adverse
effect on our business, financial condition and results of operations.
43
The 1996 Act is intended to increase competition in the long distance and
local telecommunications markets. The 1996 Act opens competition in the local
services market and, at the same time, contains provisions intended to protect
consumers and businesses from unfair competition by incumbent LECs, including
the RBOCs. The 1996 Act allows RBOCs to provide long distance service outside
of their local service territories but bars them from immediately offering in-
region interLATA long distance services until certain conditions are
satisfied. An RBOC must apply to the FCC to provide in-region interLATA long
distance services and must satisfy a set of pro-competitive criteria intended
to ensure that RBOCs open their own local markets to competition before the
FCC will approve such application. Further, while the FCC has final authority
to grant or deny such RBOC application, the FCC must consult with the
Department of Justice to determine if, among other things, the entry of the
RBOC would be in the public interest, and with the relevant state to determine
if the pro-competitive criteria have been satisfied. While the FCC has yet to
grant any RBOC interLATA application, we are unable to determine how the FCC
will rule on any such applications in the future.
In response to a constitutional challenge filed by SBC Communications Inc.,
the United States District Court for the Northern District of Texas found the
1996 Act's restrictions on RBOC interLATA services to be an unconstitutional
bill of attainder, but stayed the effect of its decision pending further
appeal. As a result of the 1996 Act and if the in-region interLATA
restrictions are ultimately struck down, we may experience increased
competition from others, including the RBOCs. In addition, our operating
subsidiaries may be subject to additional regulatory requirements and fees,
including universal service assessments and payphone compensation surcharges
resulting from the implementation of the 1996 Act.
In conducting its business, we are subject to various laws and regulations
relating to commercial transactions generally, such as the Uniform Commercial
Code and is also subject to the electronic funds transfer rules embodied in
Regulation E promulgated by the Board of Governors of the Federal Reserve
System (the "Federal Reserve"). Congress has held hearings regarding, and
various agencies are considering, whether to regulate providers of services
and transactions in the electronic commerce market. For example, the Federal
Reserve completed a study, directed by Congress, regarding the propriety of
applying Regulation E to stored value cards. The Department of Treasury has
promulgated proposed rules applying record keeping, reporting and other
requirements to a wide variety of entities involved in electronic commerce. It
is possible that Congress, the states or various government agencies could
impose new or additional requirements on the electronic commerce market or
entities operating therein. If enacted, such laws, rules and regulations could
be imposed on our business and industry and could have a material adverse
effect on our business, financial condition and results of operations. Our
proposed international activities also will be subject to regulation by
various international authorities and the inherent risk of unexpected changes
in such regulation.
Our Expansion Into International Markets May Not Be Successful
A key component of our strategy is our planned expansion into international
markets. If international revenues are not adequate to offset the expense of
establishing and maintaining these international operations, it could have a
material adverse effect on our business, financial condition and results of
operations.
We operate Voice and Data Messaging service centers in Canada, Australia,
New Zealand and Puerto Rico. New Voice and Data Messaging service centers have
recently been established in the United Kingdom, Germany, Italy, Japan, Hong
Kong and South Korea. In addition, Conferencing operations were recently
established in Canada. We also plan to establish Conferencing operations or
capability in the United Kingdom, Germany, France, Singapore, Australia and
Hong Kong.
While our Document Distribution subsidiary has significant international
experience, we only have limited experience in marketing and distributing our
Voice and Data Messaging and Conferencing services internationally. There can
be no assurance that we will be able to successfully:
. establish the proposed Conferencing operations or capabilities, or
. market, sell and deliver our Voice and Data Messaging and Conferencing
services in the new international markets.
44
There Are Certain Risks Inherent to International Operations.
In addition to the uncertainty as to our ability to expand our international
presence, there are certain difficulties and risks inherent in doing business
on an international level, such as burdensome regulatory requirements and
unexpected changes in these requirements, export restrictions, export controls
relating to technology, tariffs and other trade barriers, difficulties in
staffing and managing international operations, longer payment cycles,
problems in collecting accounts receivable, political instability,
fluctuations in currency exchange rates, seasonal reductions in business
activity during the summer months in Europe and certain other parts of the
world and potentially adverse tax consequences.
We typically denominate foreign transactions in foreign currency and have
not regularly engaged in hedging transactions, although we may engage in
hedging transactions from time to time in the future. In connection with one
acquisition we borrowed funds denominated in the local currency. We have not
experienced any material losses from fluctuations in currency exchange rates,
but there can be no assurance that we will not incur material losses due to
currency exchange rate fluctuations in the future.
We Rely on International Operations for Significant Revenues From Enhanced
Document Distribution Services
A significant portion of our Document Distribution business is conducted
outside the United States and a significant portion of our revenues and
expenses from that business are derived in foreign currencies. Accordingly,
the results of operations from our Document Distribution business may be
materially affected by fluctuations in foreign currencies. Many aspects of our
international operations and business expansion plans are subject to foreign
government regulations, currency fluctuations, political uncertainties and
differences in business practices. There can be no assurance that foreign
governments will not adopt regulations or take other actions that would have a
direct or indirect adverse impact on the business or market opportunities of
our Document Distribution business within such governments' countries,
including increased tariffs. Furthermore, there can be no assurance that the
political, cultural and economic climate outside the United States will be
favorable to our operations and growth strategy.
We May Not Be Able to Expand Our Document Distribution Services.
We intend to accelerate growth of our Document Distribution services
throughout the world by expansion of our proprietary private world-wide
document distribution network (the "Document Distribution Network"), the
integration of that network with our private frame relay network and computer
telephony platforms and the acquisition of entities engaged in the business of
electronic document distribution services. There can be no assurance that we
will be able to expand our ability to provide electronic document services at
a rate or in a manner satisfactory to meet the demands of existing or future
customers, including, but not limited to, increasing the capacity of the
Document Distribution Network to process increasing amounts of document
traffic, integrating and increasing the capability of
45
the Document Distribution network to perform tasks required by our customers
or identifying and establishing alliances with new partners in order to enable
us to expand our network in new geographic regions. Such inability may
adversely affect customer relationships and perceptions of our business in the
markets in which we provide services, which could have a material adverse
effect on our business, financial condition and results of operations. In
addition, such growth will involve substantial investments of capital,
management and other resources. There can be no assurance that we will
generate sufficient cash for future growth of our Document Distribution
business through earnings or external financings, or that such external
financings will be available on terms acceptable to us or that we will be able
to employ any such resources in a manner that will result in accelerated
growth.
Returned Transactions or Thefts of Services Could Adversely Effect Our
Business.
Although we believe that our risk management and bad debt reserve practices
are adequate, there can be no assurance that our risk management practices,
including our internal controls, or reserves will be sufficient to protect us
from unauthorized or returned transactions or thefts of services which could
have a material adverse effect on our business, financial condition and
results of operations. We use two principal financial payment clearance
systems in connection with our Enhanced Calling Services: the Federal
Reserve's Automated Clearing House for electronic fund transfers; and the
national credit card systems for electronic credit card settlement. In our use
of these established payment clearance systems, we generally bear credit risks
similar to those normally assumed by other users of these systems arising from
returned transactions caused by insufficient funds, stop payment orders,
closed accounts, frozen accounts, unauthorized use, disputes, theft or fraud.
From time to time, persons have gained unauthorized access to our network and
obtained services without rendering payment to us by unlawfully using the
access numbers and Personal Identification Numbers ("PINs") of authorized
users. In addition, in connection with our wholesale prepaid telephone card
relationships, we have experienced unauthorized activation of prepaid
telephone cards. No assurance can be given that losses due to unauthorized use
of access numbers and PINs, unauthorized activation of prepaid calling cards
or activation of prepaid calling cards in excess of the prepaid amount, or
theft of prepaid calling cards will not be material. We attempt to manage
these risks through our internal controls and proprietary billing systems. Our
computer telephony platform is designed to prohibit a single access number and
PIN from establishing multiple simultaneous connections to the platform, and
generally we establish preset spending limits for each subscriber. We also
maintain reserves for such risks. Past experience in estimating and
establishing reserves and our historical losses are not necessarily accurate
indicators of future losses or the adequacy of the reserves we may establish
in the future.
Our Articles of Incorporation and Bylaws and Georgia Law May Inhibit a
Takeover.
Our Board of Directors is empowered to issue preferred stock without
shareholder action. The existence of this "blank-check" preferred could render
more difficult or discourage an attempt to obtain control of the Company by
means of a tender offer, merger, proxy contest or otherwise. Our Articles of
Incorporation, as
46
amended, divide the Board of Directors into three classes, as nearly equal in
size as possible, with staggered three-year terms. One class will be elected
each year. The classification of the Board of Directors could have the effect
of making it more difficult for a third party to acquire control of us. We are
also subject to certain provisions of the Georgia Business Corporation Code
which relate to business combinations with interested shareholders. In
addition to considering the effects of any action on us and our shareholders,
our Articles of Incorporation permit our Board of Directors and the committees
and individual members thereof to consider the interests of various
constituencies, including employees, customers, suppliers, and creditors,
communities in which we maintain offices or operations, and other factors
which such directors deem pertinent, in carrying out and discharging the
duties and responsibilities of such positions and in determining what is
believed to be our best interests.
On June 23, 1998, our Board of Directors declared a dividend of one
preferred stock purchase right (a "Right") for each outstanding share of
common stock. The dividend was paid on July 6, 1998, to the shareholders of
record on that date. Each Right entitles the registered holder to purchase one
one-thousandth of a share of Series C Junior Participating Preferred Stock,
par value $0.01 per share (the "Preferred Shares"), at a price of sixty
dollars ($60.00) per one-thousandth of a Preferred Share, subject to
adjustment. The description and terms of the Rights are set forth in the
Shareholder Protection Rights Agreement, as the same may be amended from time
to time, dated as of June 23, 1998, between us and SunTrust Bank, Atlanta, as
rights agent. The Rights may have certain anti-takeover effects. The Rights
will cause substantial dilution to a person or group that attempts to acquire
us on terms not approved by our Board of Directors. However, the Rights should
not interfere with any merger, statutory share exchange or other business
combination approved by the Board of Directors since the Rights may be
terminated by the Board of Directors at any time on or prior to the close of
business ten business days after announcement by us that a person has become
an acquiring person, as such term is defined in the Shareholder Protection
Rights Agreement. Thus, the Rights are intended to encourage persons who may
seek to acquire control of us to initiate such an acquisition through
negotiations with the Board of Directors. However, the effect of the Rights
may be to discourage a third party from making a partial tender offer or
otherwise attempting to obtain a substantial equity position in the equity
securities of, or seeking to obtain control of, us.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk form changes in interest rates and
foreign currency exchange rates. The Company manages it exposure to these
market risks through its regular operating and financing activities.
Derivative instruments are not currently used and, if utilized, are employed
as risk management tools and not for trading purposes.
At December 31, 1998, no derivative financial instruments were outstanding
to hedge interest rate risk. The interest rates on the Company's borrowings
under its credit facility are based on either the lender's Prime Rate or
LIBOR. Any changes in these rates would affect the rate at which the Company
could borrow funds under the Bank Credit Facility. A hypothetical immediate
10% increase in interest rates would decrease the fair value of the Company's
fixed rate convertible subordinated notes outstanding at December 31, 1998,
fixed rate convertible subordinated notes outstanding at December 31, 1998, by
$7.2 million. A hypothetical 10% increase in interest rates on the Company's
variable rate long-term debt for a duration of one year would increase
interest expense by $1.1 million in 1999.
Approximately 22.2% of the Company's sales and 15.2% of its operating costs
and expenses were transacted in foreign currencies in 1998. As a result,
fluctuations in exchange rates impact the amount of the Company's reported
sales and operating income. Historically, the Company's principal exposure
have been related to local currency operating costs and expenses in the United
Kingdom and local currency sales in Europe (principally the United Kingdom and
Germany). The company has not used derivative to manage foreign currency
exchange risk and no foreign currency exchange derivatives were outstanding at
December 31, 1998. To minimize the impact of changes in exchange rates, the
Company borrows from time to time in British Pounds under its credit facility.
47
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Premiere Technologies, Inc. and Subsidiaries Index to Consolidated Financial
Statements
Report of Independent Public Accountants.................................. 48
Consolidated Balance Sheets, December 31, 1998 and 1997................... 49
Consolidated Statements of Operations, Three Years Ended December 31,
1998..................................................................... 50
Consolidated Statements of Shareholders' Equity (Deficit), Three Years
Ended December 31, 1998.................................................. 51
Consolidated Statements of Cash Flows, Three Years Ended December 31,
1998..................................................................... 52
Notes to Consolidated Financial Statements................................ 53
47--1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of Premiere Technologies, Inc.
We have audited the accompanying consolidated balance sheets of PREMIERE
TECHNOLOGIES, INC. (a Georgia corporation) AND SUBSIDIARIES as of December 31,
1998 and 1997 and the related consolidated statements of operations,
shareholders' equity (deficit) and cash flows for the years ended December 31,
1998, 1997 and 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Premiere Technologies,
Inc. and subsidiaries as of December 31, 1998 and 1997 and the results of
their operations and their cash flows for the years ended December 31, 1998,
1997 and 1996 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
March 15, 1999
48
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1998 AND 1997
(in thousands, except share data)
1998 1997
-------- --------
ASSETS
CURRENT ASSETS
Cash and equivalents..................................... $ 19,226 $ 21,770
Marketable securities.................................... 20,769 154,569
Accounts receivable (less allowances of $9,437 and
$3,303, respectively)................................... 55,660 20,719
Prepaid expenses and other............................... 10,551 6,941
Deferred income taxes, net............................... 20,977 25,715
-------- --------
Total current assets.................................... 127,183 229,714
PROPERTY AND EQUIPMENT, NET................................ 134,700 63,577
OTHER ASSETS
Deferred income taxes, net............................... -- 3,963
Strategic alliances and investments, net................. 28,510 51,895
Intangibles, net......................................... 492,185 20,756
Other assets............................................. 20,173 11,203
-------- --------
$802,751 $381,108
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable......................................... $ 24,270 $ 30,704
Deferred revenue......................................... 1,877 7,139
Accrued taxes............................................ 16,279 9,745
Accrued liabilities...................................... 46,940 20,192
Revolving loan........................................... 118,082 --
Current maturities of long-term debt..................... 1,412 2,849
Current portion of capital lease obligations............. 1,958 3,058
Accrued restructuring and other special charges.......... 7,545 19,845
-------- --------
Total current liabilities............................... 218,363 93,532
-------- --------
LONG-TERM LIABILITIES
Convertible subordinated notes........................... 172,500 172,500
Long-term debt........................................... 4,191 854
Obligations under capital lease.......................... 1,530 2,437
Other accrued liabilities................................ 1,111 10,971
Deferred income taxes, net............................... 4,162 --
-------- --------
Total long-term liabilities............................. 183,494 186,762
-------- --------
COMMITMENTS AND CONTINGENCIES (Note 15)
SHAREHOLDERS' EQUITY
Common stock, $.01 par value; 150,000,000 shares
authorized, 46,894,148 and 34,100,018 shares issued in
1998 and 1997, respectively, and 45,797,148 and
34,100,018 shares outstanding in 1998 and 1997,
respectively............................................ 469 341
Additional paid-in capital............................... 562,106 180,084
Treasury stock, at cost.................................. (9,133) --
Note receivable, shareholder............................. (973) (973)
Cumulative translation adjustment........................ 1,269 --
Accumulated deficit...................................... (152,844) (78,638)
-------- --------
Total shareholders' equity.............................. 400,894 100,814
-------- --------
$802,751 $381,108
======== ========
Accompanying notes are integral to these consolidated financial statements.
49
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31, 1998, 1997 and 1996
(in thousands, except per share data)
1998 1997 1996
-------- -------- --------
Revenues......................................... $444,818 $229,352 $197,474
Cost Of Services................................. 135,036 63,974 55,601
-------- -------- --------
Gross Profit..................................... 309,782 165,378 141,873
-------- -------- --------
Operating Expenses
Selling, general and administrative............. 241,699 101,308 108,603
Depreciation and amortization................... 110,049 17,074 14,184
Restructuring, merger costs and other special
charges........................................ 15,616 73,597 --
Acquired research and development............... 15,500 -- 11,030
Accrued settlement costs........................ 1,500 1,500 1,250
-------- -------- --------
Total operating expenses....................... 384,364 193,479 135,067
-------- -------- --------
Operating Income (Loss).......................... (74,582) (28,101) 6,806
Other Income (Expense)
Interest, net................................... (14,664) (912) (1,690)
Other, net...................................... 286 226 (286)
-------- -------- --------
Total other expense............................ (14,378) (686) (1,976)
-------- -------- --------
Income (Loss) Before Income Taxes................ (88,960) (28,787) 4,830
Income Tax Provision (Benefit)................... (14,754) (3,412) 1,372
-------- -------- --------
Net Income (Loss)................................ $(74,206) $(25,375) $ 3,458
======== ======== ========
Basic Net Income (Loss) Per Share................ $ (1.67) $ (0.78) $ 0.12
======== ======== ========
Diluted Net Income (Loss) Per Share.............. $ (1.67) $ (0.78) $ 0.11
======== ======== ========
Accompanying notes are integral to these consolidated financial statements.
50
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
Years Ended December 31, 1998, 1997 and 1996
(in thousands)
Series A
(Formerly
Series
1994) Common Additional Stock Note Stock Cumulative
Preferred Stock Paid-In Subscriptions Receivable Treasury Warrants Accumulated Translation
Stock Issued Capital Receivable Shareholder Stock Outstanding Deficit Adjustment
--------- ------ ---------- ------------- ----------- -------- ----------- ----------- -----------
BALANCE,
December 31,
1995............ $ 3,907 $198 $ 29,146 $(2,437) $ -- $ -- $ 244 $ (42,697) $ --
Comprehensive
Income:
Net income...... -- -- -- -- -- -- -- 3,458 --
-------- ---- -------- ------- ----- ------- ----- --------- ------
Comprehensive
income.......... -- -- -- -- -- -- -- -- --
-------- ---- -------- ------- ----- ------- ----- --------- ------
Conversion of
Series A
Preferred
Stock........... (3,907) 31 3,876 -- -- -- -- -- --
Conversion of
stock
warrants....... -- 6 238 -- -- -- (244) -- --
Payment of
subscriptions
receivable...... -- -- -- 2,437 -- -- -- -- --
Issuance of
common stock:
Initial public
offering........ -- 46 74,571 -- -- -- -- -- --
Acquisition
(TeleT)......... -- 5 7,495 -- -- -- -- -- --
Strategic
investment (MCI
WorldCom)....... -- 21 25,174 -- -- -- -- -- --
Exercise of
stock options... -- 9 308 -- -- -- -- -- --
Income tax
benefit from
exercise of
stock options... -- -- 6,886 -- -- -- -- -- --
Other equity
transactions,
primarily
S-corporation
distributions... -- -- (665) -- -- -- -- (3,573) --
-------- ---- -------- ------- ----- ------- ----- --------- ------
BALANCE,
December 31,
1996............ $ -- $316 $147,029 $ -- $ -- $ -- $ -- $ (42,812) $ --
Comprehensive
Loss:
Net loss........ -- -- -- -- -- -- -- (25,375) --
-------- ---- -------- ------- ----- ------- ----- --------- ------
Comprehensive
income.......... -- -- -- -- -- -- -- -- --
-------- ---- -------- ------- ----- ------- ----- --------- ------
Payment of debt
in common stock
(Voice-Tel
Acquisitions)... -- 5 11,577 -- -- -- -- -- --
Issuance of
common stock:
Voice-Tel
Acquisitions.... -- 2 789 -- -- -- -- -- --
Exercise of
stock options... -- 18 4,692 -- -- -- -- -- --
Income tax
benefit from
exercise of
stock options... -- -- 15,262 -- -- -- -- -- --
Issuance of
shareholder note
receivable...... -- -- -- -- (973) -- -- -- --
Recapitalization
of S-corporation
accumulated
earnings........ -- -- 735 -- -- -- -- (735) --
Other equity
transactions,
primarily
S-corporation
distributions... -- -- -- -- -- -- -- (9,716) --
-------- ---- -------- ------- ----- ------- ----- --------- ------
BALANCE,
December 31,
1997............ $ -- $341 $180,084 $ -- $(973) $ -- $ -- $ (78,638) $ --
Comprehensive
Loss:
Net loss........ -- -- -- -- -- -- -- (74,206) --
Translation
adjustments.... -- -- -- -- -- -- -- -- 1,269
Comprehensive
loss........... -- -- -- -- -- -- -- -- --
Treasury stock
purchase....... -- -- -- -- -- (9,133) -- -- --
Issuance of
common stock:
Xpedite
Acquisition.... -- 110 345,009 -- -- -- -- -- --
ATS
Acquisition.... -- 7 23,527 -- -- -- -- -- --
Exercise of
stock
options........ -- 11 7,318 -- -- -- -- -- --
Income tax
benefit from
exercise of
stock options... -- -- 6,168 -- -- -- -- -- --
-------- ---- -------- ------- ----- ------- ----- --------- ------
BALANCE,
December 31,
1998........... $ -- $469 $562,106 $ -- $(973) $(9,133) $ -- $(152,884) $1,269
======== ==== ======== ======= ===== ======= ===== ========= ======
Total
Shareholders'
Equity
(Deficit)
-------------
BALANCE,
December 31,
1995............ $(11,639)
Comprehensive
Income:
Net income...... 3,458
-------------
Comprehensive
income.......... 3,458
-------------
Conversion of
Series A
Preferred
Stock........... --
Conversion of
stock
warrants....... --
Payment of
subscriptions
receivable...... 2,437
Issuance of
common stock:
Initial public
offering........ 74,617
Acquisition
(TeleT)......... 7,500
Strategic
investment (MCI
WorldCom)....... 25,195
Exercise of
stock options... 317
Income tax
benefit from
exercise of
stock options... 6,886
Other equity
transactions,
primarily
S-corporation
distributions... (4,238)
-------------
BALANCE,
December 31,
1996............ $104,533
Comprehensive
Loss:
Net loss........ (25,375)
-------------
Comprehensive
income.......... (25,375)
-------------
Payment of debt
in common stock
(Voice-Tel
Acquisitions)... 11,582
Issuance of
common stock:
Voice-Tel
Acquisitions.... 791
Exercise of
stock options... 4,710
Income tax
benefit from
exercise of
stock options... 15,262
Issuance of
shareholder note
receivable...... (973)
Recapitalization
of S-corporation
accumulated
earnings........
Other equity
transactions,
primarily
S-corporation
distributions... (9,716)
-------------
BALANCE,
December 31,
1997............ $100,814
Comprehensive
Loss:
Net loss........ (74,206)
Translation
adjustments.... 1,269
Comprehensive
loss........... (72,937)
Treasury stock
purchase....... (9,133)
Issuance of
common stock:
Xpedite
Acquisition.... 345,119
ATS
Acquisition.... 23,534
Exercise of
stock
options........ 7,329
Income tax
benefit from
exercise of
stock options... 6,168
-------------
BALANCE,
December 31,
1998........... $400,894
=============
Accompanying notes are integral to these consolidated financial statements.
51
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1998, 1997 and 1996
(in thousands)
1998 1997 1996
-------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss).............................. $(74,206) $(25,375) $ 3,458
Adjustments to reconcile net income (loss) to
net cash provided by operating activities
(excluding effects of acquisitions):
Depreciation and amortization................. 110,049 17,074 14,184
Gain on disposal of property and equipment.... 13 -- --
Deferred income taxes......................... (20,044) (4,902) (2,515)
Restructuring, merger costs and other special
charges...................................... 15,616 73,597 --
Acquired research and development............. 15,500 -- 11,030
Accrued settlement costs...................... 1,500 1,500 1,250
Payments for restructuring, merger costs and
other special charges........................ (21,200) (30,586) --
Payments for accrued settlement costs......... (1,291) -- --
Changes in assets and liabilities:
Accounts receivable, net..................... 4,281 (6,467) (1,668)
Prepaid expenses and other................... 6,067 (433) (2,525)
Accounts payable and accrued expenses........ (14,037) 2,751 13,675
-------- -------- --------
Total adjustments........................... 96,454 52,534 33,431
-------- -------- --------
Net cash provided by operating activities... 22,248 27,159 36,889
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures........................... (61,335) (33,387) (21,905)
Proceeds from disposal of property and
equipment..................................... 569 -- --
Redemption (purchase) of marketable securities,
net........................................... 133,796 (86,669) (67,182)
Acquisitions................................... (43,644) (16,198) (2,870)
Strategic alliances and investments............ (8,259) (23,801) (4,777)
Other.......................................... 165 -- 622
-------- -------- --------
Net cash provided by (used in) investing
activities................................. 21,292 (160,055) (96,112)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments under borrowing
arrangements, net............................. (29,848) (29,469) (9,547)
Purchase of common stock....................... (9,133) -- --
Proceeds from convertible subordinated notes... -- 172,500 --
Debt issue costs............................... (1,285) (6,028) --
Shareholder distributions, primarily S-
corporation distributions..................... -- (9,360) (3,550)
Exercise of stock options, net of tax
withholding payments.......................... (5,530) 13,823 317
Issuance of shareholder note receivable........ -- (973) --
Net proceeds from initial public offering...... -- -- 74,617
Payment of stock subscriptions receivable...... -- -- 2,437
Issuance of debt............................... -- -- 3,985
Other.......................................... (319) (1,763) (1,343)
-------- -------- --------
Net cash (used in) provided by financing
activities..................................... (46,115) 138,730 66,916
-------- -------- --------
Effect of exchange rate changes on cash......... 31 -- --
-------- -------- --------
NET (DECREASE) INCREASE IN CASH AND
EQUIVALENTS.................................... (2,544) 5,834 7,693
CASH AND EQUIVALENTS, beginning of period....... 21,770 15,936 8,243
-------- -------- --------
CASH AND EQUIVALENTS, end of period............. $ 19,226 $ 21,770 $ 15,936
======== ======== ========
Accompanying notes are integral to these consolidated financial statements.
52
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY AND ITS BUSINESS
Premiere Technologies, Inc. and subsidiaries ("Premiere" or the "Company"),
a Georgia corporation, began operations in 1991 and went public in March 1996.
The Company provides an array of innovative solutions designed to simplify
everyday communications of business and individuals. Premiere's services
include voice and data messaging, electronic document distribution, full
service conference calling services, enhanced calling services and Internet-
based communications services. Through a series of acquisitions that began in
September 1996, Premiere has assembled a suite of communications solutions, an
international private data network, a global direct sales force and an
international facilities presence consisting of points of presence in North
America, Australia, Asia and Europe. These acquisitions are more fully
described under Note 4 "Acquisitions", which follows.
2. SIGNIFICANT ACCOUNTING POLICIES
Restatement
In February 1999, Premiere announced that as a result of discussions with
the Office of the Chief Accountant of the Securities and Exchange Commission,
Premiere is required to discontinue accounting for its acquisition of Xpedite
as a pooling-of-interests and to account for such acquisition under the
purchase method of accounting. The Office of the Chief Accountant determined
that Premiere's post merger share repurchase program, completed in September
1998, was not implemented in accordance with pooling requirements. No
questions were raised regarding the propriety of the original accounting of
the merger with Xpedite.
Accounting Estimates
Preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Principles of Consolidation
The financial statements include the accounts of the Company and its
subsidiaries. All significant intercompany balances and transactions have been
eliminated.
Cash and Equivalents
Cash and equivalents include cash on hand and highly liquid investments with
a maturity at date of purchase of three months or less.
Marketable Securities
The Company follows Financial Accounting Standards Board ("FASB") Statement
of Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." SFAS No. 115 mandates that a
determination be made of the appropriate classification for equity securities
with a readily determinable fair value and all debt securities at the time of
purchase and a reevaluation of such designation as of each balance sheet date.
At December 31, 1998 and 1997, investments consisted of commercial paper,
United States Treasury bills, municipal bonds, coupon municipals, auction rate
preferred investments with various maturities and equity instruments.
Management considers all debt instruments as "held to maturity" and all equity
instruments as "available for sale." Debt instruments are carried at cost, and
equity instruments are carried at the lower of cost or market. As cost
approximates market, there were no unrealized gains or losses at December 31,
1998 or 1997.
53
Property and Equipment
Property and equipment are recorded at cost. Depreciation is provided under
the straight-line method over the estimated useful lives of the assets,
commencing when the assets are placed in service. The estimated useful lives
are ten years for furniture and fixtures, seven years for office equipment and
one to ten years for computer and telecommunications equipment. The cost of
installed equipment includes expenditures for installation. Assets recorded
under capital leases and leasehold improvements are depreciated over the
shorter of their useful lives or the term of the related lease. The Company
has capitalized costs related to the development of proprietary software
utilized to provide enhanced communications services. All costs in the
software development process that are classified as research and development
are expensed as incurred until technological feasibility has been established.
Once technological feasibility has been established, such costs are considered
for capitalization. The
53--1
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Company's policy is to amortize these costs by the greater of (a) the ratio
that current gross revenues for a service offering bear to the total of
current and anticipated future gross revenues for that service offering or (b)
the straight-line method over the remaining estimated life of the service
offering.
Goodwill
Goodwill represents excess of the cost of businesses acquired over fair
value of net identifiable assets at the date of acquisition and has
historically been amortized using the straight line method over various lives
up to 40 years. In the fourth quarter of 1998 the Company shortened the life
of all remaining goodwill to seven years to better reflect rapidly changing
technology and increased competition in the enhanced telecommunications
marketplace.
Valuation of Long-Lived Assets
Management periodically evaluates carrying values of long-lived assets,
including property and equipment, strategic investments, goodwill and other
intangible assets, to determine whether events and circumstances indicate that
these assets have been impaired. An asset is considered impaired when
undiscounted cash flows to be realized from such asset are less than its
carrying value. In that event, a loss is determined based on the amount the
carrying value exceeds the fair market value of such asset.
Strategic Alliances and Investments
The Company has entered into alliances with and made investments in various
companies that are engaged in telecommunications and emerging technologies
that are complementary with the Company's core businesses and which further
the Company's strategic plan. These alliances and investments involve
outsourcing initiatives, equity investments and innovative marketing programs.
Each of the equity investments represent less than a twenty percent ownership
interest and are carried at cost. Intangible assets representing strategic
alliances are amortized over the term of the arrangement and such investments
are carried net of accumulated amortization. See Note 6--"Strategic Alliances
and Investments."
Stock-Based Compensation Plans
The Company recognizes stock based compensation using the intrinsic value
method as permitted by SFAS No. 123. Accordingly, no compensation expense is
recorded for stock based awards issued at market value at the date such awards
are granted. The Company makes pro forma disclosures of net income and net
income per share as if the market value method was followed. See Note 12--
"Stock Based Compensation Plans."
Revenue Recognition
The Company recognizes revenues when services are provided. Revenues consist
of fixed monthly fees, usage fees generally based on per minute rates and
service initiation fees as well as license fees earned from companies which
have license arrangements for the use of the Company's computer telephony
platform. Deferred revenue consists of billings made to customers in advance
of the time services are rendered.
Income Taxes
Deferred income taxes are recorded using enacted tax laws and rates for the
years in which income taxes are expected to be paid. Deferred income taxes are
provided when there is a temporary difference between the recognition of items
in income for financial reporting and income tax purposes.
Net Income (Loss) Per Share
The Company follows SFAS No. 128, "Earnings per Share." That statement
requires the disclosure of basic net income (loss) per share and diluted net
income (loss) per share. Basic net income (loss) per share is computed by
dividing net income (loss) available to common shareholders by the weighted-
average number of common
54
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
shares outstanding during the period and does not include any other
potentially dilutive securities. Diluted net income (loss) per share gives
effect to all potentially dilutive securities. The Company's convertible
subordinated notes and stock options are potentially dilutive securities. In
1998 and 1997, both potentially dilutive securities were antidilutive and
therefore are not included in diluted net income (loss) per share. A
reconciliation of basic net income (loss) per share to diluted net income
(loss) per share follows:
For the Years Ended December 31
-----------------------------------------------------------------------------------
1998 1997 1996
---------------------------- ---------------------------- -------------------------
Weighted Weighted Net Weighted Net
Average Net Loss Average Income Net Average Income
Net Loss Shares Per Share Net Loss Shares Per Share Income Shares Per Share
-------- -------- --------- -------- -------- --------- ------ -------- ---------
(in thousands, except per share data)
Net income (loss)....... $(74,206) -- $ -- $(25,375) -- $ -- $3,458 -- $ --
Less: Preferred stock
dividends.............. -- -- -- -- -- -- 29 -- --
-------- ------ ------ -------- ------ ------ ------ ------ -----
Basic net income
(loss)................. $(74,206) 44,325 $(1.67) $(25,375) 32,443 $(0.78) $3,429 27,670 $0.12
Dilutive Securities
Stock options.......... -- -- -- -- -- -- -- 3,618 0.01
Series A convertible
redeemable 8%
cumulative preferred
stock.................. -- -- -- -- -- -- -- -- --
-------- ------ ------ -------- ------ ------ ------ ------ -----
Diluted net income
(loss)................. $(74,206) 44,325 $(1.67) $(25,375) 32,443 $(0.78) $3,429 31,288 $0.11
======== ====== ====== ======== ====== ====== ====== ====== =====
Concentration of Credit Risk
Revenues from one customer in the Emerging Enterprise Solutions segment of
the Company represented approximately $41.9 million, $49.9 million and $46.8
million of the Company's consolidated revenues for 1998, 1997 and 1996,
respectively.
Foreign Currency Translation
The assets and liabilities of subsidiaries domiciled outside the United
States are translated at rates of exchange existing at the balance sheet date.
Revenues and expenses are translated at average rates of exchange prevailing
during the year. The resulting translation adjustments are recorded as a
separate component of stockholders equity.
Treasury Stock
Treasury stock transactions are recorded at cost. When treasury shares are
reissued, the company uses a first-in, first-out method and the excess of
purchase cost over reissuance price, if any, is recorded in retained earnings.
Comprehensive Income
In 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive Income."
Comprehensive income represents the change in equity of a business during a
period, except for investments by owners and distributions to owners. Foreign
currency translation adjustments represent the Company's only component of
other comprehensive income. For the year ended December 31, 1998, total
comprehensive loss was approximately $(72.9) million. For the years ended
December 31, 1997 and 1996, total comprehensive income (loss) approximates net
income (loss).
55
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board (the "FASB") issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities".
SFAS No. 133 establishes accounting and reporting standards for derivatives
and hedging. It requires that all derivatives be recognized as either assets
or liabilities at fair value and establishes specific criteria for the use of
hedge accounting. The Company's required adoption date is January 1, 2000.
SFAS No. 133 is not to be applied retroactively to financial statements of
prior periods. The Company expects no material impact to its financial
position upon adoption of SFAS No. 133.
"Statement of Position "SOP" 98-1, Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use," provides guidance on
accounting for the costs of computer software developed or obtained for
internal use and is required to be adopted no later than Premiere's 1999
fiscal year. Also, in June 1998, the American Institute of Certified Public
Accountants issued SOP 98-5, "Reporting on the Costs of Start-up Activities."
SOP 98-5 requires costs of start-up activities and organizational costs, as
defined to be expensed as incurred. The Company expects no material impact to
its financial position upon adoption of SOP 98-1 or SOP 98-5.
Reclassifications
Certain prior year amounts in the Company's financial statements have been
reclassified to conform to the 1998 presentation.
55--1
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
3. RESTRUCTURING, MERGER COSTS AND OTHER SPECIAL CHARGES
In 1998, Premiere recorded restructuring, merger costs and other special
charges of approximately $15.6 million. Such costs consist of write-downs of
two strategic investments associated with its Emerging Enterprise Solution
group in 1998 totaling approximately $17.8 million offset in part by a net
reduction in accrued restructuring, merger costs and other special charges of
approximately $2.2 million discussed below. Approximately $13.9 million of the
$17.8 million writedown relates to a write-down in the carrying value of the
MCI WorldCom strategic alliance intangible asset. This charge was required
based upon management's assessment regarding recoverability of this asset
given current events and circumstances and guidelines mandated by SFAS No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of." The fair market value of this asset was computed using the
estimated future cash flows expected to be derived under this arrangement
discounted at an appropriate rate. The Company reevalulated the carrying value
and remaining life of the MCI WorldCom strategic alliance in light of the
level of revenues expected to be achieved from the alliance following the
merger of WorldCom and MCI in the third quarter of 1998. The remaining write-
down reflects a charge of approximately $3.9 million to reduce the carrying
value of Premiere's investment in certain equity securities of DigiTEC 2000 to
their fair market value. This charge resulted from management's assessment
that the decline in value of these securities was not temporary. The fair
market value of this investment used to determine the impairment charge was
based on quoted market prices.
The $2.2 million net reduction of accrued restructuring, merger costs and
other special charges includes a charge of approximately $7.5 million in the
first quarter of 1998 to restructure the operations of Premiere and Xpedite
subsequent to their merger. Such costs consist of severance associated with
workforce reduction, lease termination costs, costs to terminate certain
contractual obligations and asset impairments. Severance benefits have been
provided for termination of approximately 122 employees. These actions result
from management's plans to reduce sales, operations and administrative
headcount by exiting duplicative and underperforming operations. Premiere has
also provided for lease termination and clean-up costs associated with these
facilities and operations. In addition, the Company provided for costs
associated with commitments under certain advertising contracts from which the
Company is currently generating no incremental revenue and for costs to
terminate certain unfavorable reseller agreements. Although certain
restructuring actions were being contemplated at the acquisition date,
definitive plans for such actions were not formalized until after such date.
Accordingly, there were no exit costs included in the purchase allocation of
Xpedite. These costs were offset by adjustments in the reserve balance in the
fourth quarter of 1998 which reduced such reserves by approximately $9.7
million. The net reduction in reserves was necessary to eliminate remaining
accruals for programs that have been completed at lower cost than anticipated
and to reflect subsequent changes to management's restructuring plans.
In 1997, Premiere recorded restructuring, merger costs and other special
charges of approximately $73.6 million in connection with its mergers of
VoiceCom and Voice-Tel. In connection with the VoiceCom acquisition, the
Company recorded restructuring, merger costs and other special charges of
approximately $28.2 million in the third quarter of 1997. Such amounts consist
of transaction costs, asset impairments, costs to terminate or restructure
certain contractual obligations and other costs. Transaction costs associated
with the VoiceCom acquisition were expensed as required by the pooling-of-
interests method of accounting. Other restructuring and special charges
recorded in the third quarter result principally from management's plan to
restructure VoiceCom's operations by reducing its workforce, exiting certain
facilities, discontinuing duplicative product offerings and terminating or
restructuring certain contractual obligations. The Company recorded
56
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
approximately $45.4 million of restructuring, merger costs and other special
charges in the second quarter of 1997 in connection with the Voice-Tel
Acquisitions. Those charges result from management's plan to restructure the
operations of the Voice-Tel Entities under a consolidated business group model
and discontinue its franchise operations. This initiative involves substantial
reduction in the administrative workforce, abandoning duplicate facilities and
assets and other costs necessary to discontinue redundant business activities.
Reserves for restructuring, merger costs and other special costs and charges
against operations for the year ended December 31, 1998 are as follows (in
thousands):
Charges (Credits) to
Operations
-----------------------------
Accrued Costs First Net Accrued Costs
December 31, Quarter reduction Costs December 31,
1997 Charge in reserves Incurred 1998
------------- ------- ----------- --------- -------------
Severance............... $ 6,201 $1,778 $ 1,567 $ (4,709) $ 4,837
Asset impairments....... 10,831 707 (3,668) (3,148) 4,722
Restructure or terminate
contractual
obligations............ 13,354 390 (8,718) (4,609) 417
Transaction costs....... 4,940 833 (864) (4,909) --
Other costs, primarily
to exit facilities and
certain activities..... 3,788 3,837 1,976 (7,310) 2,291
------- ------ ------- --------- -------
$39,114 $7,545 $(9,707) $(24,685) $12,267
======= ====== ======= ========= =======
4. ACQUISITIONS
American Teleconferencing Services, Ltd. Acquisition
In April 1998, the Company purchased all of the issued and outstanding
common stock of American Teleconferencing Services ("ATS"), a provider of full
service conference calling and group communication services. The shareholders
of ATS received an aggregate of approximately 678,500 shares of Premiere
common stock and cash consideration of approximately $21 million. Excess
purchase price over fair value of net assets acquired of approximately $47
million has been recorded as goodwill and is being amortized on a straight-
line basis over seven years. This transaction has been accounted for as a
purchase. Approximately 33,500 shares of Premiere common stock and cash
consideration of $1.04 million were placed in escrow to secure indemnification
claims.
Xpedite Systems, Inc. Acquisition
On February 27, 1998, Premiere acquired Xpedite Systems, Inc. ("Xpedite") ,
a worldwide leader in the enhanced document distribution business including
fax, e-mail, telex and mailgram services. Premiere issued
57
approximately 11.0 million shares of its common stock in connection with this
acquisition. This transaction has been accounted for as a purchase. The
purchase price of Xpedite has been allocated based on an independent appraisal
as follows:
Operating and other tangible assets................................ $ 90,035
Customer lists..................................................... 35,700
Developed technology............................................... 34,300
Acquired research and development.................................. 15,500
Assembled workforce................................................ 7,500
Goodwill........................................................... 384,701
Assets acquired.................................................... 567,736
--------
Less liabilities assumed........................................... 203,487
--------
$364,249
========
The valuation of intangible assets and acquired research ad development were
based upon an independent appraisal. Acquired research and development costs
represents the value assigned to research and development projects in the
development stage which had not reached technological feasibility at the date
of acquisition or had no alternative future use. These costs were expensed at
the date of acquisition.
The acquired research and development related to a project to develop a new
job monitor. This project was 50% complete as of the acquisition date and had
not yet completed a successful beta test. The primary high risk at valuation
date involved identifying and correcting the design flaws that would typically
arise during beta testing. Fair value was determined using an income approach.
Revenues from this new job monitor are anticipated beginning in 1999 and
discount rate of 25% was used.
International Acquisitions
During the second quarter of 1998, the Company acquired two electronic
document distribution companies located in Germany and Singapore. The
aggregate purchase price of these acquisitions approximates $18 million in
cash and liabilities assumed. Both of the acquisitions were accounted for as
purchases. Excess purchase price over fair value of net assets acquired of
approximately $13 million has been recorded as goodwill and is being amortized
on a straight-line basis over seven years.
57--1
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
VoiceCom Acquisition
During the third quarter of 1997, the Company acquired VoiceCom, a provider
of 800-based enhanced calling and voice messaging services, through the
issuance of approximately 446,000 shares of its common stock. This transaction
was accounted for as a pooling-of-interests, and the Company's financial
statements present for all periods the operations of VoiceCom.
Voice-Tel Acquisitions
In June 1997, the Company completed the Voice-Tel Acquisitions. The Company
issued approximately 7.4 million shares of its common stock, paid
approximately $16.2 million in cash and assumed approximately $21.3 million in
indebtedness, net of cash acquired to complete the Voice-Tel acquisitions.
Most of the transactions were structured as tax-free mergers or share
exchanges and were accounted for under the pooling-of-interests method of
accounting. Accordingly, the financial statements of the Company present for
all periods the operations of the Voice-Tel Acquisitions that were accounted
for as pooling-of-interests.
The Company purchased 15 of the Franchisees and the limited partner interest
in VTNLP for an aggregate of approximately $15.5 million in cash and
approximately 94,000 shares of its common stock. The excess of the purchase
price over the fair value of the net assets acquired is recorded as an
intangible asset.
A reconciliation of previously reported operating results to those restated
for pooling-of-interests transactions is as follows:
1996
--------------
(in thousands,
except per
share data)
Revenue:
Premiere, as previously reported............................. $ 52,079
Voice-Tel Acquisitions....................................... 90,075
VoiceCom..................................................... 55,320
--------
Premiere, as restated......................................... $197,474
--------
Net income (loss):
Premiere, as previously reported............................. $ (956)
Voice-Tel Acquisitions....................................... 3,972
VoiceCom..................................................... 442
--------
Premiere, as restated......................................... $ 3,458
--------
Net income (loss) per share:
Premiere, as previously reported
Basic........................................................ $ (0.05)
========
Diluted...................................................... $ (0.05)
========
Premiere, as restated
Basic........................................................ $ 0.12
========
Diluted...................................................... $ 0.11
========
58
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
TeleT Acquisition
On September 18, 1996, the Company purchased substantially all of the assets
and business operations of TeleT Communications LLC ("TeleT") for 498,187
shares of the Company's common stock and approximately $2,9 million in cash.
TeleT was an Internet-based technology development company focused on the
integration of computers and telephones.
In connection with this acquisition, the Company allocated approximately
$11.0 million of the purchase price to research and development projects which
had not yet reached technological feasibility and had no alternate future use.
This allocation was based on values determined by an independent appraisal.
The following unaudited pro forma consolidated results of operations for the
years ended December 31, 1998 and 1997 assume acquisitions completed during
1998 and 1997 which were accounted for as purchases occurred as of January 1,
1997, (in thousands, except per share data).
1998 1997
-------- ---------
Revenues............................................... $494,982 $ 441,797
Net loss............................................... $(96,023) $(112,822)
Basic net loss per share............................... $ (2.03) $ (2.59)
Diluted net loss per shares............................ $ (2.03) $ (2.59)
5. PROPERTY AND EQUIPMENT
Property and equipment at December 31 is as follows (in thousands):
1998 1997
-------- -------
Computer and telecommunications equipment.................. $187,602 $92,137
Furniture and fixtures..................................... 11,700 2,123
Office equipment........................................... 10,931 5,476
Leasehold improvements..................................... 23,064 7,199
Construction in progress................................... 11,712 13,926
-------- -------
245,009 120,861
Less accumulated depreciation.............................. 110,309 57,284
-------- -------
Property and equipment, net................................ $134,700 $63,577
======== =======
Assets under capital leases included in property and equipment at December
31 are as follows (in thousands):
1998 1997
------ -------
Telecommunications equipment................................. $7,000 $18,345
Less accumulated depreciation................................ 4,973 10,867
------ -------
Property and equipment, net.................................. $2,027 $ 7,478
====== =======
Management continually reevaluates the Company's assets with respect to
estimated remaining useful lives and whether current events and circumstances
indicate an impairment condition exists. Effective in the fourth quarter of
1998, management accelerated depreciation of certain assets by shortening
their estimated useful lives. These assets consist of computers and
telecommunications equipment associated with certain legacy technology systems
which management intends to remove from service in the foreseeable future. The
carrying value of such assets approximated $41.0 million at December 31, 1998.
Effective in the fourth quarter of 1998, these assets will be amortized over
periods ranging from nine months to one year, the anticipated remaining
service period. The remaining estimated useful lives of these assets prior to
this change ranged from two to five years.
59
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
6. STRATEGIC ALLIANCES AND INVESTMENTS
Strategic alliances and investments at December 31 is as follows (in
thousands):
1998 1997
------- -------
MCI WorldCom, net........................................... $16,072 $29,972
Intangible assets........................................... -- 18,500
Less accumulated amortization............................... 3,445 1,878
------- -------
12,627 46,594
Equity investments.......................................... 15,883 5,301
------- -------
$28,510 $51,895
======= =======
In November 1996, the Company entered into a strategic alliance agreement
with WorldCom, Inc. (predecessor to MCI WorldCom), the second largest long-
distance carrier in the United States. Under the agreement, MCI WorldCom is
required, among other things, to provide the Company with the right of first
opportunity to provide enhanced computer telephony products for a period of at
least 25 years. In connection with this agreement, the Company issued to MCI
WorldCom 2,050,000 shares of common stock valued at approximately $25.2
million (based on an independent appraisal), and paid MCI WorldCom
approximately $4.7 million in cash. The Company periodically reviews this
asset for impairment and in 1998 determined that a write-down was required
based upon management's assessment of revenue levels expected to be derived
from this alliance and uncertainties surrounding the merger of WorldCom and
MCI in 1998. Accordingly, Premiere recorded a write-down in the carrying value
of this investment of approximately $13.9 million in 1998. In addition, the
Company accelerated amortization of this asset effective in the fourth quarter
of 1998 by shortening its estimated useful life to 3 years as compared with a
remaining life of 23 years prior to the change. Premiere also recorded a
write-down of approximately $3.9 million in 1998 in its investment in certain
equity securities of DigiTEC 2000 Inc. This charge was necessary to reduce the
carrying value of this investment to its fair market value. The charge
resulted from management's assessment that the decline in value of these
securities below their carrying value was not temporary. See also Note 3
"Restructuring, Merger Costs and Other Special Charges."
Intangible assets and equity investments classified as strategic alliances
and investments consist of initiatives funded by the Company to further its
strategic plan. These investments and alliances involve emerging technologies,
such as the internet, as well as marketing alliances and outsourcing programs
designed to reduce costs and develop new markets and distribution channels for
the Company's products. The Company made investments of approximately $8.3
million in 1998 to acquire initial or increase existing equity interests in
various companies engaged in emerging technologies, such as the internet.
Premiere's equity investments include now holds minority equity investments in
WebMD, a provider of internet-based services to the healthcare industry,
USA.NET, a leading provider of outsourced e-mail services, Intellivoice, an
entity engaged in developing internet-enabled communications products,
VerticalOne, a network-based services provider that increases frequency,
duration, and quality of its visits to customers' Web sites and Webforia, a
provider of Web services, tools and communities that assist individuals in
presenting high quality information from the Internet. Management will
continue to make such investments in the future in complementary businesses
and other initiatives that further its strategic business plan. All equity
investments held by the Company in other organizations represent a less than
20 percent ownership and are being accounted for under the cost method.
60
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
7. INTANGIBLES ASSETS
Intangibles assets consist of the following amounts for December 31, 1998
and 1997 (in thousands):
1998 1997
-------- -------
Goodwill................................................... $468,720 $18,959
Customer lists............................................. 50,058 2,946
Developed technology....................................... 34,300 --
Assembled work force....................................... 7,500 --
-------- -------
560,578 21,905
Less accumulated amortization.............................. 68,393 1,149
-------- -------
$492,185 $20,756
======== =======
A summary of intangible assets acquired in the Xpedite acquisitions and the
estimated useful lives over which such assets are being amortized is as
follows:
Appraised Estimated Useful
Value Life (years)
--------- ----------------
Goodwill.......................................... $384,701 7
Customer lists.................................... 35,700 5
Developed technology.............................. 34,300 4
Assembled workforce............................... 7,500 3
--------
$462,201
========
Effective in the fourth quarter of 1998 management accelerated the
amortization of all goodwill and intangible assets from its purchase
acquisitions. This action resulted from management's determination that the
period over which it anticipates deriving future cash flows from such assets
warrants a shorter estimated useful life for amortization purposes. Goodwill
is now being amortized over 7 years as compared with 10 to 40 years prior to
the change. Remaining intangible assets are being amortized over lives ranging
from 3 to 5 years as compared with 5 years prior to the change. These changes
in estimated useful lives of goodwill and other intangible assets increased
amortization expense by approximately $18.3 million in the fourth quarter of
1998.
8. INDEBTEDNESS
Long-term debt at December 31 is as follows (in thousands):
1998 1997
-------- ------
Revolving loan to banks..................................... $118,082 $ --
Notes payable............................................... 5,122 573
Notes payable to shareholders and individuals............... 481 3,130
-------- ------
123,685 3,703
Less current portion........................................ 119,494 2,849
-------- ------
$ 4,191 $ 854
======== ======
On December 16, 1998, the Company amended and restated the revolving loan
facility it assumed in the acquisition of Xpedite for a one year period. This
facility provides for borrowings of up to $150 million with two banks. At
December 31, 1998, the Company had approximately $118.1 million outstanding
under this facility. This arrangement expires in December 1999 and the Company
is currently in discussions to replace the
61
facility. Interest rates for borrowings on the facility are determined at the
time of borrowings based on a choice of formulas as specified in the
agreement. In addition, certain restrictive covenants require the Company to
maintain certain leverage and interest coverage ratios.
Notes payable to shareholders and individuals consist principally of
indebtedness assumed by the Company in connection with the Voice-Tel and
VoiceCom acquisitions. Interest on borrowings under such notes range from 5%
to 16%. A majority of these obligations were repaid in 1997 in connection with
the acquisitions. The Company issued approximately 484,000 shares to redeem
approximately $11.6 million of such indebtedness in connection with the
acquisitions.
Maturities of long-term debt are as follows (in thousands):
1999................................................................ $119,494
2000................................................................ 1,860
2001................................................................ 1,873
2002................................................................ 433
2003................................................................ 25
--------
$123,685
========
61--1
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
9. CONVERTIBLE SUBORDINATED NOTES
In July 1997, the Company issued convertible subordinated notes
("Convertible Notes") of $172,500,000 which mature in 2004 and bear interest
at 5 3/4%. The Convertible Notes are convertible at the option of the holder
into common stock at a conversion price of $33 per share, through the date of
maturity, subject to adjustment in certain events. The Convertible Notes are
redeemable by the Company beginning in July 2000 at a price of 103% of the
conversion price declining to 100% at maturity with accrued interest. Debt
issuance costs consisting of investment banking, legal and other fees of
approximately $6,028,000 incurred in connection with the Convertible Notes are
being amortized on a straight-line basis over the life of the notes and are
included in other assets in the accompanying balance sheets. Included in
interest is approximately $785,000 and $897,000 of debt issuance cost
amortization for December 31, 1998 and 1997, respectively.
10. FINANCIAL INSTRUMENTS
The estimated fair value of certain financial instruments at December 31,
1998 and 1997 are as follows:
1998 1997
-------------------- ------------------
Carrying Fair Carrying Fair
(Dollar amounts in thousands) Amount Value Amount Value
- - ----------------------------- --------- --------- -------- --------
Cash and short-term investments..... $ 19,226 $ 19,226 $ 21,770 $ 21,770
Marketable securities............... 20,769 20,769 154,569 154,569
Revolving loan...................... (118,082) (118,082) -- --
Convertible subordinated notes (see
Note 9)............................ (172,500) (96,169) (172,500) (181,349)
Notes payable, long-term debt and
capital leases (see Notes 8 and
15)................................ (9,091) (9,091) (9,198) (9,198)
The carrying amount of cash and short-term investments, marketable
securities, accounts receivable and payable, revolving loan and accrued
liabilities approximates fair value. The fair value of convertible
subordinated notes is estimated based on market quotes. The carrying value of
notes payable, long-term debt and capital lease obligations does not vary
materially from fair value at December 31, 1998 and 1997.
11. SHAREHOLDERS' EQUITY
During 1998, Premiere executed a stock repurchase program under which it
repurchased approximately 1.1 million shares of its common stock for
approximately $9.1 million. These shares were held in treasury at December 31,
1998.
On January 18, 1996, the holder of the Series A Preferred Stock elected to
convert all of the shares of the Series A Preferred Stock into 3,095,592
shares of the Company's common stock at $93 per share (presplit). The Series A
Preferred Stock was fully cumulative, and the holders of the shares were
entitled to receive dividends at a rate of 8%. The Company accrued $308,419
and $29,337 of dividends payable, plus accrued interest, if applicable, during
the years ended December 31, 1995 and 1996, respectively. Dividends of
$676,981 were paid during the year ended December 31, 1996 to holders of
Series A Preferred Stock.
During 1998, 1997 and 1996, stock options were exercised under the Company's
stock option plans. None of the options exercised qualified as incentive stock
options, as defined in Section 422 of the Internal Revenue Code (the "Code").
Approximately $6,168,000, $15,262,000 and $6,886,000 were recorded as
increases in additional paid-in capital reflecting tax benefits to be realized
by the Company as a result of the exercise of such options during the years
ended December 31, 1998, 1997 and 1996, respectively.
62
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company made distributions to shareholders of approximately $9.7 million
and $3.6 million in 1997 and 1996. These distributions were made to
shareholders of Voice-Tel and VoiceCom in periods prior to their acquisition
by the Company. Such distributions consisted principally of amounts paid to
shareholders of S-Corporations in connection with their responsibility to pay
income tax on the proportionate share of taxable income they were required to
include in their individual income tax return. Upon acquisition by the
Company, these S-Corporations became subject to income tax. Accumulated
earnings of S-Corporations at the date of acquisition have been reclassified
as additional paid-in capital representing the recapitalization of these
entities.
12. STOCK-BASED COMPENSATION PLANS
The Company has three stock based compensation plans, 1994 Stock Option
Plan, 1995 Stock Plan and 1998 Stock Plan, which provide for the issuance of
restricted stock, stock options, warrants or stock appreciation rights to
employees, directors, and non-employee consultants as advisors of the Company.
These plans are administered by a committee consisting of members of the board
of directors of the Company.
Options for all 960,000 shares of common stock available under the 1994
Stock Option Plan have been granted. Generally, all such options are non-
qualified, provide for an exercise price equal to fair market value at date of
grant, vest ratably over three years and expire eight years from date of
grant.
The 1995 Stock Plan provides for the issuance of stock options, stock
appreciation rights ("SARs") and restricted stock to employees. A total of
8,000,000 shares of common stock have been reserved in connection with this
Plan. Options issued under this Plan may be either incentive stock options,
which permit income tax deferral upon exercise of options, or nonqualified
options not entitled to such deferral.
Sharp declines in the market price of the Company's common stock resulted in
many outstanding employee stock options being exercisable at prices that
exceeded the current market price of the Company's common stock, thereby
substantially impairing the effectiveness of such options as performance
incentives. Consistent with the Company's philosophy of using equity
incentives to motivate and retain management and employees, the Board of
Directors determined it to be in the best interests of the Company and its
shareholders to restore the performance incentives intended to be provided by
employee stock options by repricing such options. Consequently, on July 22,
1998 the Board of Directors of the Company determined to reprice or regrant
all employee stock options which had exercise prices in excess of the closing
price on such date (other than those of Chief Executive Officer Boland T.
Jones) to $10.25, which was the closing price of Premiere's common stock on
such date. While the vesting schedules remained unchanged, the repriced and
regranted options are generally subject to a twelve-month black-out period,
during which the options may not be exercised. If an optionee's employment is
terminated during the black-out period, he or she will forfeit any repriced or
regranted options that first vested during the twelve-month period preceding
his or her termination of employment. On December 14, 1998, the Board of
Directors determined to reprice or regrant at an exercise price of $5.50, all
employee stock options which had an exercise price in excess of $5.50, which
was above the closing price of Premiere's common stock on such date. Again,
the vesting schedules remained the same, as the repriced or regranted options
are generally subject to a twelve-month black-out period during which the
option may not be exercised. If the optionee's employment is terminated during
the black-out period, he or she will forfeit any repriced or regranted options
that first vested during the twelve-month period preceding his or her
termination of employment. By imposing the black-out and forfeiture provisions
on the repriced and regranted options, the Board of Directors intends to
provide added incentive for the optionees to continue service.
On July 22, 1998, the Board of Directors approved the 1998 Stock Plan (the
"1998 Plan") that essentially mirrors the terms of the Company's existing
Second Amended and Restated 1995 Stock Plan (the "1995 Plan"), except that it
is not intended to be used for executive officers or directors. In addition,
the 1998 Plan,
63
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
because it was not approved by the shareholders, does not provided for the
grant of incentive stock options. Under the 1998 Plan, 4,000,000 shares of
Common Stock are reserved for the grant of nonqualified stock options and
other incentive awards to employees and consultants of the Company.
On June 23, 1998, the Company's Board of Directors declared a dividend of
one preferred stock purchase right (a "Right") for each outstanding share of
the Company's Common Stock. The dividend was paid on July 6, 1998, to the
shareholders of record on that date. Each Right entitles the registered holder
to purchase from the Company one one-thousandth of a share of Series C Junior
Participating Preferred Stock, par value $0.01 per share (the "Preferred
Shares"), at a price of sixty dollars ($60.00) per one-thousandth of a
Preferred Share, subject to adjustment. The description and terms of the
Rights are set forth in the Shareholder Protection Rights Agreement, as the
same may be amended from time to time, dated as of June 23, 1998, between the
Company and SunTrust Bank, Atlanta, as rights agent. The Rights should not
interfere with any merger, statutory share exchange or other business
combination approved by the Board of Directors since the Rights may be
terminated by the Board of Directors at any time on or prior to the close of
business ten business days after announcement by the Company that a person has
become an Acquiring Person. Thus, the Rights are intended to encourage persons
who may seek to acquire control of the Company to initiate such an acquisition
through negotiations with the Board of Directors. However, the effect of the
Rights may be to discourage a third party from making a partial tender offer
or otherwise attempting to obtain control of the Company.
As permitted by SFAS No. 123, the Company recognizes stock based
compensation using the intrinsic value method. Accordingly, no compensation
expense has been recognized for awards issued under the Company's stock based
compensation plans since the exercise price of such awards is generally the
market price of the underlying common stock at date of grant. Had compensation
cost been determined under the market value method using Black-Scholes
valuation principles, net income (loss) and net income (loss) per share would
have been reduced to the following pro forma amounts:
1998 1997
--------- -------
(in thousands,
except per share
data)
Net loss
As reported............................................. $ (74,206) (25,375)
Pro forma............................................... (100,428) (32,399)
Net loss per share
As reported
Basic.................................................. $ (1.67) $ (0.78)
Diluted................................................ (1.67) (0.78)
Pro forma
Basic.................................................. (2.27) (1.02)
Diluted................................................ (2.27) (1.02)
Significant assumptions used in the Black-Scholes option pricing model
computations are as follows:
1998 1997
---------- ----------
Risk-free interest rate.............................. 4.33%-5.68% 6.30%
Dividend yield....................................... 0% 0%
Volatility factor.................................... 1.05 .46
Weighed average expected life........................ 4.65 years 2.10 years
64
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The pro forma amounts reflect options granted since January 1, 1996. Pro
forma compensation cost may not be representative of that expected in future
years. A summary of the status of the Company's stock plans is as follows:
Weighted Average
Fixed Options Shares Exercise Price
------------- ---------- ----------------
Options outstanding at December 31, 1995........ 7,535,391 $ 1.07
Granted........................................ 1,332,088 18.89
Exercised...................................... (1,372,369) 0.51
Forfeited...................................... (88,778) 18.03
---------- ------
Options outstanding at December 31, 1996........ 7,406,332 $ 4.27
Granted........................................ 3,484,092 23.38
Exercised...................................... (2,221,244) 2.06
Forfeited...................................... (1,256,432) 8.81
---------- ------
Options outstanding at December 31, 1997........ 7,412,748 $13.29
Granted........................................ 9,062,589 16.44
Exercised...................................... (1,112,361) 7.06
Forfeited...................................... (1,413,120) 16.06
---------- ------
Options outstanding at December 31, 1998........ 13,949,856 $ 5.79
========== ======
The following table summarizes information about stock options outstanding
at December 31, 1998:
Weighted Weighted Average Weighted Average
Range of Average Exercise Exercise
Exercise Options Remaining Price of Options Options Price of Options
Prices Outstanding Life Outstanding Exercisable Exercisable
- - -------- ----------- --------- ---------------- ----------- ----------------
$0--$5 2,531,976 4.58 $1.33 2,531,569 $1.33
$6--$10 10,366,085 7.18 5.76 2,407,747 6.28
$11--$15 497,520 6.09 10.41 216,833 10.62
$16--$30 554,275 4.59 22.67 514,022 22.71
---------- ---- ----- --------- -----
13,949,856 6.56 $5.79 5,670,171 $5.72
========== ==== ===== ========= =====
13. EMPLOYEE BENEFIT PLANS
The Company sponsors three defined contribution retirement plans covering
substantially all full-time employees. These plans allow employees to defer a
portion of their compensation and associated income taxes pursuant to Section
401(k) of the Internal Revenue Code. The Company may make discretionary
contributions for the benefit of employees under each of these plans. The
Company made contributions of $424,000 and $0 in 1998. There were no
contributions made by Premiere to defined contribution plans in 1997.
14. RELATED-PARTY TRANSACTIONS
The Company has in the past entered into agreements and arrangements with
certain officers, directors and principal shareholders of the Company
involving loans of funds, grants of options and warrants and the acquisition
of a business. Certain of these transactions may be on terms more favorable to
officers, directors and principal shareholders than they could acquire in a
transaction with an unaffiliated party. The Company follows a policy that
requires all material transactions between the Company and its officers,
directors or other affiliates (i) be approved by a majority of the
disinterested members of the board of directors of the Company and (ii) be on
terms no less favorable to the Company than could be obtained from
unaffiliated third parties.
65
In November 1995, the Company loaned $90,000 with recourse to an officer of
the Company in connection with the officer's transition from his previous
employer to the Company. This unsecured loan is evidenced by a promissory note
bearing interest at 6.11%, the interest on which is payable beginning in
November 1997 and continuing each year until November 1999. Principal is to be
repaid in five equal annual installments, with accrued interest, commencing in
November 2000. The principal and accrued interest on this note were cancelled
in January 1998.
During 1997, an officer of the Company exercised an option to purchase
100,000 shares of the Company's common stock at an exercise price of $.27 a
share. The Company loaned the officer $973,000 to pay taxes associated with
the exercise of the options. The loan is evidenced by a recourse promissory
note which bears interest at 6% and is secured by the common stock purchase by
the officer.
In may 1998, the Company loaned $100,000 with recourse to an officer of the
Company in connection with the officer's transition from his previous employer
to the Company. This unsecured loan is evidenced by a promissory note bearing
interest at 5.5%, and the principal plus accrued interest are due and payable
on the second anniversary of the note; provided, however, one-half of the
principal plus accrued interest will be cancelled on the first anniversary of
the note if the officer is employed by the Company on that date, and the
balance of the principal plus accrued interest will be cancelled on the second
anniversary of the note if the officer is employed by the Company on that
date. In addition, the unpaid principal of the note plus all accrued interest
will be cancelled if the officer's employment is terminated without cause or
if there is a change in control of the Company.
During 1998, the Company leased the use of an airplane on an hourly basis
from a limited liability company that is owned 99% by the Company's chief
executive officer and 1% by the Company. In connection with this lease
arrangement, the Company advanced approximately $270,000 to the limited
liability company to pay the expenses of maintaining and operating the
airplane. The amount due from the limited liability company is recorded in
accounts receivable at December 31, 1998.
65--1
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
15. COMMITMENTS AND CONTINGENCIES
Lease Commitments
The Company leases computer and telecommunications equipment, office space
and other equipment under noncancelable lease agreements. The leases generally
provide that the Company pay the taxes, insurance and maintenance expenses
related to the leased assets. Future minimum operating and capital lease
payments as of December 31, 1998 are as follows (in thousands):
Capital Operating
Leases Leases
------- ---------
1999...................................................... $2,082 $ 9,728
2000...................................................... 986 7,357
2001...................................................... 412 5,807
2002...................................................... 224 4,757
2003...................................................... -- 4,434
Thereafter................................................ -- 14,893
------ -------
Net minimum lease payments................................ 3,704 $46,976
=======
Less amount representing interest......................... 216
------
Present value of net minimum lease payments............... 3,488
Less current portion...................................... 1,958
------
Obligations under capital lease, net of current portion... $1,530
======
Rent expense under operating leases was approximately $11,199,000,
$7,516,000 and $8,275,000 for the years ended December 31, 1998, 1997 and
1996, respectively. Future minimum payments for facilities rent are reduced by
scheduled sublease income of approximately $501,000 and $700,000 for the years
ended December 31, 1998 and 1997. During 1997 and 1996, additions of computer
and telecommunications equipment resulted in an increase in capital lease
obligations of approximately $829,000 and $85,000, respectively.
Supply Agreements
The Company obtains long-distance telecommunications services pursuant to
supply agreements with suppliers of long-distance telecommunications
transmission services. These contracts generally provide fixed transmission
prices for terms of three to five years, but are subject to early termination
in certain events. No assurance can be given that the Company will be able to
obtain long-distance services in the future at favorable prices or at all, and
the unavailability of long-distance service, or a material increase in the
price at which the Company is able to obtain long-distance service, would have
a material adverse effect on the Company's business, financial condition and
results of operations. Certain of these agreements provide for minimum
purchase requirements. The Company is currently a party to five [update] long-
distance telecommunications services contracts that require the Company to
purchase a minimum amount of services each month.
Litigation and Claims
The Company has several litigation matters pending, as described below,
which it is defending vigorously. Due to the inherent uncertainties of the
litigation process and the judicial system, the Company is unable to predict
the outcome of such litigation matters. If the outcome of one or more of such
matters is adverse to the Company, it could have a material adverse effect on
the Company's business, financial condition and results of operations.
66
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company and certain of its officers and directors have been named as
defendants in multiple shareholder class action lawsuits filed in the United
States District Court for the Northern district of Georgia. Plaintiffs seek to
represent a class of individuals who purchased or otherwise acquired the
Company's common stock from as early as February 11, 1997 through June 10,
1998. Class members allegedly include those who purchased the Company's common
stock as well as those who acquired stock through the Company's acquisitions
of Voice-Tel, Voice-Tel franchises and Xpedite. Plaintiffs allege the
defendants made positive public statements concerning the Company's growth and
acquisitions. In particular, plaintiffs allege the defendants spoke positively
about the Company's acquisitions of Voice-Tel, Xpedite, ATS, TeleT and
VoiceCom, as well as its venture with UniDial Communications, its investment
in USA.NET, and the commercial release of Orchestrate. Plaintiffs allege these
public statements were fraudulent because the defendants knowingly failed to
disclose that the Company allegedly was not successfully consolidating and
integrating these acquisitions. Alleged evidence of scienter include sales by
certain individual defendants during the class period and the desire to keep
the common stock price high so that future acquisitions could be made using
the Company's common stock. Plaintiffs allege the truth was purportedly
revealed on June 10, 1998, when the Company announced it would not meet
analysts' estimates of second quarter 1998 earnings because, in part, of the
financial difficulties experienced by a licensing customer and by a strategic
partner with respect to the Company's Enhanced Calling Services, revenue
shortfalls from its Voice and Data Messaging services, as well as other
unanticipated costs and one-time charges totaling approximately $17.1 million
on a pre-tax basis. Plaintiffs allege the Company admitted it had experienced
difficulty in achieving anticipated revenue and earnings from its voice
messaging product group, due to difficulties in consolidating and integrating
its sales function. Plaintiffs allege violation of Sections 10(b), 14(a) and
20(a) of the Securities Exchange Act of 1934 and Sections 11, 12 and 15 of the
Securities Act of 1933.
A lawsuit was filed on November 4, 1998 against the Company, as well as
individual defendants Boland T. Jones, Patrick G. Jones, George W. Baker, Sr.,
Eduard J. Mayer and Raymond H. Pirtle, Jr. in the Southern District of New
York. Plaintiffs were shareholders of Xpedite who acquired common stock of the
Company as a result of the merger between the Company and Xpedite in February
1998. Plaintiffs' allegations are based on the representations and warranties
made by the Company in the prospectus and the registration statement related
to the merger, the merger agreement and other documents incorporated by
reference, regarding the Company's acquisitions of Voice-Tel and VoiceCom, the
Company's roll-out of Orchestrate(R), the Company's relationship with
customers Amway Corporation and DigiTEC, 2000, Inc., and the Company's 800-
based calling card service. Based on these factual allegations, plaintiffs
allege causes of action causes against the Company for breach of contract
against all defendants for negligent misrepresentation, violations of Sections
11 and 12(a)(2) of the Securities Act of 1933 ("Securities Act"), and against
the individual Defendants for violation of Section 15 of the Securities Act.
Plaintiffs seek undisclosed damages together with pre- and post-judgment
interest, recission or recissory damages as to violation of Section 12(a)(2)
of the Securities Act, punitive damages, costs and attorneys' fees. A motion
to dismiss and a motion to transfer venue to Georgia are presently pending.
On August 6, 1996, Communications Network Corporation ("CNC"), a licensing
customer of the Company, was placed into bankruptcy (the "Bankruptcy Case")
under Chapter 11 of the United States Bankruptcy Code. On August 23, 1996, CNC
filed a motion to intervene in a separate lawsuit brought by a CNC creditor in
the United States District Court for the Southern District of New York against
certain guarantors of CNC's obligations and to file a third-party action
against numerous entities, including such CNC creditor and Premiere
Communications, Inc. ("PCI") for alleged negligent misrepresentations of fact
in connection with an alleged fraudulent scheme designed to damage CNC (the
"Intervention Suit"). The District Court denied CNC's request to intervene and
has transferred the remainder of the Intervention Suit to the bankruptcy case.
On June 23, 1998, the Bankruptcy Court approved a settlement whereby PCI
obtained a release from the trustee and
67
the trustee dismissed the Intervention Suit in consideration of PCI making a
cash payment of $1.2 million to the trustee. The Plan was subsequently
approved by the Bankruptcy Court on December 8, 1998 and PCI made an
additional cash payment of $300,000 to the trustee in January 1999 in
consideration of PCI obtaining certain allowed subordinated claims and the
Court granting an injunction in PCI's favor against possible nuisance suits
relating to the CNC business.
On November 26, 1997, Wael Al-Khatib ("Al-Khatib"), the sole shareholder and
former president of CNC, and his company, Platinum Network, Corp. ("Platinum")
(Al-Khatib and Platinum are collectively referred to herein as "Plaintiffs"),
filed a complaint against PCI , WorldCom Network Services, Inc. f/k/a WilTel,
Inc., ("World-Com"), Bernard J. Ebbers, David F. Meyers, Robert Vetera, Joseph
Cusick, William Trower, Don Wilmouth, Digital Communications of America, Inc.,
Boland Jones, Patrick Jones, and John Does I-XX (the "Defendants") in the
United States District Court for Eastern District of New York., Plaintiffs
contend
67--1
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
that PCI, certain officers of PCI and the other defendants engaged in a
fraudulent scheme to restrain trade in the debit card market nationally and in
the New York debit card sub-market and made misrepresentations of fact in
connection with the scheme. The plaintiffs are seeking at least $250 million
in compensatory damages and $500 million in punitive damages from PCI and the
other defendants. This matter has been settled, pending payment of $250,000 by
Khatib to WorldCom. The settlement does not require PCI or Premiere to make
any payments.
On February 23, 1998, Rudolf R. Nobis and Constance Nobis filed a complaint
in the Superior Court of Union County, New Jersey against 15 named defendants
including Xpedite and certain of its alleged current and former officers,
directors, agents and representatives. The plaintiffs allege that the 15 named
defendants and certain unidentified "John Doe defendants" engaged in wrongful
activities in connection with the management of the plaintiffs' investments
with Equitable Life Assurance Society of the United States and/or Equico
Securities, Inc. (collectively "Equitable"). More specifically, the complaint
asserts wrongdoing in connections with the plaintiffs' investment in
securities of Xpedite and in unrelated investments involving insurance-related
products. The defendants include Equitable and certain of is current or former
representatives. The allegations in the complaint against Xpedite are limited
to plaintiffs' investment in Xpedite. The plaintiffs have alleged that two of
the named defendants, allegedly acting as officers, directors, agents or
representatives of Xpedite, induced the plaintiffs to make certain investments
in Xpedite but that the plaintiffs failed to receive the benefits that they
were promised. Plaintiffs allege that Xpedite knew or should have known of
alleged wrongdoing on the part of the other defendants. Plaintiffs' claims
against Xpedite include breach of contract, breach of fiduciary duty, unjust
enrichment, conversion, fraud, conspiracy, interference with economic
advantage and liability for ultra vires acts. The plaintiffs seek an
accounting of the corporate stock in Xpedite, compensatory damages of
approximately $4.85 million, plus $200,000 in "lost investments," interest
and/or dividends that have accrued and have not been paid, punitive damages in
an unspecified amount, and for certain equitable relief, including a request
for Xpedite to issue 139,430 shares of common stock in the plaintiffs' names,
attorneys' fees and costs and such other and further relief as the Court deems
just and equitable. On November 16, 1998 the court entered an order
transferring all disputes between plaintiffs and certain defendants to
arbitration and dismissing without prejudice plaintiff's complaint against
those defendants. On or about December 23, 1998, Xpedite failed a motion to
stay the action pending the resolution of the arbitration or in the
alternative to compel plaintiffs to provide discovery. On January 22, 1999,
the court granted Xpedite's motion to stay further proceedings pending the
arbitration. On March 11, plaintiffs filed a motion for reconsideration of the
court's decision. The parties are awaiting a decision on this motion.
On or about May 27, 1998, Telephone Company of Central Florida ("TCCF"), a
user of the Company's network management system, filed for protection under
Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for
the Middle District of Florida. WorldCom and PCI are two of the largest
creditors in this bankruptcy case. In August 1998, WorldCom filed a separate
lawsuit in the Federal District Court for the Middle of Florida against
certain insiders of TCCF alleging payment of improper distributions to the
insiders in excess of $1.0 million and asserting a constructive trust claim
against the
68
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
amounts received by the insiders. On August 10, 1998, TCCF filed a motion with
the Bankruptcy Court requesting authority to hire counsel for the purpose of
pursuing certain alleged claims against WorldCom and PCI, alleging service
problems with WorldCom and PCI. PCI and TCCF reached an agreement, approved by
the Bankruptcy Court in November 1998, which provides for mutual releases to
be executed between the parties and certain affiliates and insiders. The
mutual releases are being circulated for execution, in accordance with the
terms of the settlement. The settlement does not require PCI or Premiere to
make any payments.
On December 22, 1998, Shelly D. Swift filed a complaint against First USA
Bank, First Credit Card Services USA, and PCI in the United States District
Court for the Northern District of Illinois. Swift alleges that the defendants
sent here an unsolicited "credit card" in violation of the Truth in Lending
Act and state law. Swift seeks an injunction and monetary damages on behalf of
a putative class of persons who received the alleged credit card. On February
19, 1999, the Defendants moved to dismiss the complaint for failure to state a
claim upon which relief can be granted.
In March 1999, Aspect Telecommunications, Inc. ("Aspect"), the purported
current owner of certain patents, filed suit against Premiere and PCI alleging
that they had violated claims in these patents and requesting damages and
injunctive relief. The suit asserts that Premiere is offering certain "calling
card and related enhanced services," "single number service" and "call
connecting services" covered by four patents owned by Aspect. Premiere has
reviewed the subject patents and, based on that review, believes that its
products and services currently being marketed do not infringe them. On March
29, 1999 the Company filed an answer denying the allegations and a
counterclaim seeking to invalidate the patents. Additionally, the Company
believes that certain licenses it has from third-party vendors may insulate
the Company from some or all of any damages in the event of an adverse outcome
in this litigation.
69
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Premiere is also involved in various other legal proceedings which the
Company does not believe will have a material adverse effect upon the Company's
business, financial condition or results of operations, although no assurance
can be given as the ultimate outcome of any such proceedings.
16. INCOME TAXES
Income tax provision (benefit) for 1998, 1997 and 1996 is as follows (in
thousands):
1998 1997 1996
-------- ------- ------
Current:
Federal............................................ $ -- $ -- $3,247
State.............................................. 1,200 1,000 598
International ..................................... 4,090 490 42
-------- ------- ------
5,290 1,490 3,887
-------- ------- ------
Deferred:
Federal............................................ (15,267) (4,405) (3,303)
State.............................................. (3,751) (582) (553)
International...................................... (1,026) 85 1,341
-------- ------- ------
(20,044) (4,902) (2,515)
-------- ------- ------
$(14,754) $(3,412) $1,372
======== ======= ======
The difference between the statutory federal income tax rate and the
Company's effective income tax rate applied to income before income taxes for
1998, 1997 and 1996 is as follows (in thousands):
1998 1997 1996
-------- ------- ------
Income taxes at federal statutory rate............. $(31,136) $(9,787) $1,951
State taxes, net of federal benefit................ (1,658) 276 229
Non-deductible merger costs........................ -- 8,390 --
Change in valuation allowance...................... 1,733 -- 940
S-corporation earnings not subject to corporate
level taxes....................................... -- (3,117) (1,462)
Non-taxable investment income...................... -- (1,265) (723)
Establish deferred taxes for non-taxable
predecessor entities.............................. -- 1,207 --
Non-deductible expenses, primarily goodwill
amortization...................................... 16,307 884 437
-------- ------- ------
Income taxes at the Company's effective rate ...... $(14,754) $(3,412) $1,372
======== ======= ======
70
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Differences between financial accounting and tax bases of assets and
liabilities giving rise to deferred tax assets and liabilities are as follows
at December 31 (in thousands):
1998 1997
------- -------
Deferred tax assets:
Net operating loss carryforwards............................ $53,030 $17,715
In-process research and development......................... 3,680 4,302
Restructuring and other special charges..................... 5,425 11,489
Accrued liabilities......................................... 5,923 3,082
Other assets ............................................... -- 2,281
------- -------
68,058 38,869
Deferred tax liabilities:
Intangible assets........................................... (34,291) 3,826
Depreciation and amortization............................... (3,356) (4,242)
Other liabilities........................................... (7,060) (20)
------- -------
(44,707) (436)
Valuation allowance ........................................ (6,536) (8,755)
------- -------
Net deferred tax assets..................................... $16,815 $29,678
======= =======
U.S. tax rules impose limitations on the use of net operating loss
carryforwards following certain changes in ownership. Premiere's utilization
of tax benefits associated with loss carryforwards could be limited if such a
change were to occur. Management of the Company has recorded valuation
allowances for deferred tax assets based on their estimate regarding
realization of such assets.
Most Voice-Tel Franchises acquired in transactions accounted for as pooling-
of-interests had elected to be treated as S-Corporations or partnerships for
income tax and other purposes. Income taxes were not provided on income of
these entities for any year presented because S-Corporations and partnerships
are generally not subject to income tax. Rather, shareholders or partners of
such entities are taxed on their proportionate shares of these entities'
taxable income in their individual income tax returns.
At December 31, 1997, the Company had net operating loss carryforwards for
state, federal and international income tax purposes of approximately $109
million expiring in 2008 through 2018. Deferred tax benefits of approximately
$6.2 million in 1998 are associated with nonqualified stock option exercises,
the benefit of which was credited directly to additional paid-in capital.
71
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
17. STATEMENT OF CASH FLOW INFORMATION
Supplemental Disclosure of Cash Flow Information (in thousands):
1998 1997 1996
-------- ------- -------
Cash paid during the year for:
Interest............................................ $ 15,415 $ 7,100 $ 4,516
Income taxes........................................ $ 3,554 $ 840 $ 309
Cash paid for acquisitions accounted for as purchases are as follows:
1998 1997 1996
-------- ------- -------
Fair value of assets acquired....................... $633,671 $19,833 $11,030
Less liabilities assumed............................ 233,734 2,124 100
Less common stock issued to sellers................. 372,283 2,255 8,060
Cash paid for transaction costs..................... 15,990 -- --
-------- ------- -------
Net cash paid....................................... $ 43,644 $15,454 $ 2,870
======== ======= =======
18. SEGMENT REPORTING
The Company's reportable segments are strategic business units that align
the Company in two distinct market segments: large business and small
office/home businesses and individuals. These businesses emphasize the
company's focus on target markets. Corporate Enterprise Solutions caters to
large businesses, such as Fortune 1,000 companies. Its services include those
most complementary with large organizations including electronic document
distribution, full services, such as interactive voice response and calling
card programs. Emerging Enterprise Solutions focuses in the small office/home
office and individual subscriber segment. Its services include Orchestrate, a
suite of internet based communication services, local access voice and data
messaging and enhanced calling services. Emerging Enterprise Solutions
revenues are generated by direct advertising programs through Co-brand and
strategic partner relationships and Internet enabled communication services,
including the Company's suite of products marketed under the Orchestrate(R)
brand.
72
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Information concerning the operations in these reportable segments is as
follows:
1998 1997 1996
------ ------ ------
Revenues
Corporate Enterprise Solutions......................... $275.7 $ 55.0 $ 60.0
Emerging Enterprise Solutions.......................... 169.4 174.4 137.5
Corporate and eliminations............................. (0.3) -- --
------ ------ ------
Total................................................. $444.8 $229.4 $197.5
====== ====== ======
Operating profit
Corporate Enterprise Solutions......................... $ (6.0) $ 10.6 $ 2.0
Emerging Enterprise Solutions.......................... (9.5) 36.4 17.1
Corporate and eliminations............................. (26.5) -- --
Restructuring, merger and other special charges........ (15.6) (73.6) --
Acquired research and development...................... (15.5) -- (11.0)
Accrued settlement costs............................... (1.5) (1.5) (1.3)
------ ------ ------
Total................................................. $(74.6) $(28.1) $ 6.8
====== ====== ======
EBITDA
Corporate Enterprise Solutions......................... $ 75.8 $ 13.5 $ 5.0
Emerging Enterprise Solutions.......................... 18.7 50.6 28.3
Corporate and eliminations............................. (26.4) -- --
Restructuring, merger and other special charges........ (15.6) (73.6) --
Acquired research and development...................... (15.5) -- (11.0)
Accrued settlement costs............................... (1.5) (1.5) (1.3)
------ ------ ------
Total................................................. $ 35.5 $(11.0) $ 21.0
====== ====== ======
Identifiable assets
Corporate Enterprise Solutions......................... $606.9 $ 13.9 $ 19.5
Emerging Enterprise Solutions.......................... 133.0 154.9 100.9
Corporate and eliminations............................. 62.9 212.3 81.1
------ ------ ------
Total................................................. $802.8 $381.1 $201.5
====== ====== ======
73
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table presents financial information based on the Company's
geographic segments for the years ended December 31, 1998, 1997 and 1996 (in
thousands):
Operating
Net Income Identifiable
Revenues (Loss) Assets
-------- --------- ------------
1998
North America................................... 351,929 (94,062) 743,809
Asia Pacific.................................... 51,438 7,609 33,736
Europe.......................................... 47,347 12,286 191,811
Eliminations.................................... (5,896) (415) (166,605)
------- ------- --------
Total.......................................... 444,818 (74,582) 802,751
======= ======= ========
1997
North America................................... 225,413 (27,970) 379,581
Asia Pacific.................................... 3,939 (131) 1,527
------- ------- --------
Total.......................................... 229,352 (28,101) 381,108
======= ======= ========
1996
North America................................... 192,916 7,939 198,403
Asia Pacific.................................... 4,558 (1,133) 3,138
------- ------- --------
Total.......................................... 197,474 6,806 201,541
======= ======= ========
74
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been no disagreements with or change in the registrant's
independent accountant since the Company's inception.
76
PART III
Certain information required by Part III is omitted from this report in that
the Registrant will file a Definitive Proxy Statement pursuant to Regulation
14A ("Proxy Statement") not later than 120 days after the end of the fiscal
year covered by this report.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is incorporated herein by reference to
the Company's Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated herein by reference to
the Company's Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated herein by reference to
the Company's Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated herein by reference to
the Company's Proxy Statement.
77
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1.Financial Statements
The financial statements listed in the index set forth in Item 8 of this
report are filed as part of this report.
2.Financial Statement Schedules
Financial statement schedules required to be included in this report are
either shown in the financial statements and notes thereto, included in Item 8
of this report or have been omitted because they are not applicable.
3.Exhibits
2.1 Agreement and Plan of Merger, together with exhibits, dated as of
April 2, 1997 by and among Premiere Technologies, Inc., PTEK Merger
Corporation and Voice-Tel Enterprises, Inc. and the Stockholders of
Voice-Tel Enterprises, Inc. (incorporated by reference to Exhibit
2.1 to the Registrant's Current Report on Form 8-K dated April 2,
1997 and filed April 4, 1997).
2.2 Agreement and Plan of Merger, together with exhibits, dated as of
April 2, 1997 by and among Premiere Technologies, Inc., PTEK Merger
Corporation II, VTN, Inc. and the Stockholders of VTN, Inc.
(incorporated by reference to Exhibit 2.2 to the Registrant's
Current Report on Form 8-K dated April 2, 1997 and filed April 4,
1997).
2.3 Purchase and Sale Agreement dated April 2, 1997 by and between
Premiere Technologies, Inc. and Merchandising Productions, Inc.
(incorporated by reference to Exhibit 2.3 to the Registrant's
Current Report on Form 8-K dated April 2, 1997 and filed April 4,
1997).
2.4 Transfer Agreement dated as of April 2, 1997 by and among Premiere
Technologies, Inc., Continuum, Inc. and Owners of Continuum,
Inc.(incorporated by reference to Exhibit 2.4 to the Registrant's
Current Report on Form 8-K dated April 30, 1997 and filed May 14,
1997).
2.5 Transfer Agreement dated as of April 2, 1997 by and among Premiere
Technologies, Inc., DMG, Inc. and Owners of DMG, Inc. and Transfer
Agreement dated as of April 2, 1997 by and among Premiere
Technologies, Inc., VTG, Inc. and Owners of VTG, Inc. (incorporated
by reference to Exhibit 2.5 to the Registrant's Current Report on
Form 8-K dated April 30, 1997 and filed May 14, 1997).
2.6 Transfer Agreement dated as of April 2, 1997 by and among Premiere
Technologies, Inc., Penta Group, Inc. and Owners of Penta Group,
Inc. and Transfer Agreement dated as of April 2, 1997 by and among
Premiere Technologies, Inc., Scepter Communications, Inc. and
Owners of Scepter Communications, Inc. (incorporated by reference
to Exhibit 2.6 to the Registrant's Current Report on Form 8-K dated
April 30, 1997 and filed May 14, 1997).
2.7 Transfer Agreement dated as of April 2, 1997 by and among Premiere
Technologies, Inc., Premiere Business Services, Inc. and Owners of
Premiere Business Services, Inc. (incorporated by reference to
Exhibit 2.7 to the Registrant's Current Report on Form 8-K dated
April 30, 1997 and filed May 14, 1997).
2.8 Transfer Agreement dated as of April 2, 1997 by and among Premiere
Technologies, Inc., Dunes Communications, Inc., Sands
Communications, Inc., Sands Comm, Inc., SandsComm, Inc., and Owner
of Dunes Communications, Inc., Sands Communications, Inc., Sands
Comm, Inc., and SandsComm, Inc. (incorporated by reference to
Exhibit 2.8 to the Registrant's Current Report on Form 8-K dated
April 30, 1997 and filed May 14, 1997).
78
2.9 Transfer Agreement dated as of April 2, 1997 by and among Premiere
Technologies, Inc., Shamlin, Inc. and Owner of Shamlin, Inc.
(incorporated by reference to Exhibit 2.9 to the Registrant's
Current Report on Form 8-K dated April 30, 1997 and filed May 14,
1997).
2.10 Transfer Agreement dated as of April 2, 1997 by and among Premiere
Technologies, Inc., VT of Ohio, Inc. and Owners of VT of Ohio,
Inc.; Transfer Agreement dated as of April 2, 1997 by and among
Premiere Technologies, Inc., Carter Voice, Inc. and Owners of
Carter Voice, Inc.; Transfer Agreement dated as of April 2, 1997
by and among Premiere Technologies, Inc., Widdoes Enterprises,
Inc. and Owners of Widdoes Enterprises, Inc.; and Transfer
Agreement dated as of April 2, 1997 by and among Premiere
Technologies, Inc., Dowd Enterprises, Inc. and Owners of Dowd
Enterprises, Inc. (incorporated by reference to Exhibit 2.10 to
the Registrant's Current Report on Form 8-K dated April 30, 1997
and filed May 14, 1997).
2.11 Transfer Agreement dated as of April 2, 1997 by and among Premiere
Technologies, Inc., SDVT, Inc. and Owners of SDVT, Inc.
(incorporated by reference to Exhibit 2.11 to the Registrant's
Current Report on Form 8-K dated April 30, 1997 and filed May 14,
1997).
2.12 Amended and Restated Transfer Agreement dated as of April 2, 1997
by and among Premiere Technologies, Inc., Car Zee, Inc. and Owners
of Car Zee, Inc. (incorporated by reference to Exhibit 2.12 to the
Registrant's Current Report on Form 8-K dated April 30, 1997 and
filed May 14, 1997).
2.13 Transfer Agreement dated as of March 31, 1997 by and among
Premiere Technologies, Inc. and Owners of the VTEC Franchisee:
1086236 Ontario, Inc. (incorporated by reference to Exhibit 2.13
to the Registrant's Current Report on Form 8-K dated April 30,
1997 and filed May 14, 1997).
2.14 Transfer Agreement dated as of March 31, 1997 by and among
Premiere Technologies, Inc. and Owners of the Eastern Franchisees:
1139133 Ontario Inc., 1116827 Ontario Inc., 1006089 Ontario Inc.,
and 1063940 Ontario Inc. (incorporated by reference to Exhibit
2.14 to the Registrant's Current Report on Form 8-K dated April
30, 1997 and filed May 14, 1997).
2.15 Transfer Agreement dated as of April 2, 1997 by and among Premiere
Technologies, Inc., Communications Concepts, Inc. and Owners of
Communications Concepts, Inc. (incorporated by reference to
Exhibit 2.1 to the Registrant's Current Report on Form 8-K dated
May 16, 1997 and filed June 2, 1997).
2.16 Transfer Agreement dated as of May 20, 1997 by and among Premiere
Technologies, Inc., DARP, Inc. and Owners of DARP, Inc.
(incorporated by reference to Exhibit 2.2 to the Registrant's
Current Report on Form 8-K dated May 16, 1997 and filed June 2,
1997).
2.17 Transfer Agreement dated as of April 2, 1997 by and among Premiere
Technologies, Inc., Hi-Pak Systems, Inc. and Owners of Hi-Pak
Systems, Inc. (incorporated by reference to Exhibit 2.3 to the
Registrant's Current Report on Form 8-K dated May 16, 1997 and
filed June 2. 1997).
2.18 Transfer Agreement dated as of May 29, 1997 by and among Premiere
Technologies, Inc., MMP Communications, Inc. and Owners of MMP
Communications, Inc. (incorporated by reference to Exhibit 2.4 to
the Registrant's Current Report on Form 8-K dated May 16, 1997 and
filed June 2, 1997).
2.19 Transfer Agreement dated as of May 16, 1997 by and among Premiere
Technologies, Inc., Lar-Lin Enterprises, Inc., Lar-Lin
Investments, Inc. and Voice-Mail Solutions, Inc. and Owners of
Lar-Lin Enterprises, Inc., Lar-Lin Investments, Inc. and Voice-
Mail Solutions, Inc. (incorporated by reference to Exhibit 2.5 to
the Registrant's Current Report on Form 8-K dated May 16, 1997 and
filed June 2, 1997).
2.20 Transfer Agreement dated as of April 2, 1997 by and among Premiere
Technologies, Inc., Voice-Net Communications Systems, Inc. and
Owners of Voice-Net Communications Systems, Inc. and
79
Transfer Agreement dated as of April 2, 1997 by and among Premiere
Technologies, Inc., VT of Long Island Inc. and Owners of VT of Long
Island Inc. (incorporated by reference to Exhibit 2.6 to the
Registrant's Current Report on Form 8-K dated May 16, 1997 and filed
June 2, 1997).
2.21 Transfer Agreement dated as of May 22, 1997 by and among Premiere
Technologies, Inc. Voice Systems of Greater Dayton, Inc. and Owner
of Voice Systems of Greater Dayton, Inc. and Transfer Agreement
dated as of May 22, 1997 by and among Premiere Technologies, Inc.,
Premiere Acquisition Corporation, L'Harbot, Inc. and the Owners of
L'Harbot, Inc. (incorporated by reference to Exhibit 2.7 to the
Registrant's Current Report on Form 8-K dated May 16, 1997 and
filed June 2, 1997).
2.22 Transfer Agreement dated as of May 30, 1997 by and among Premiere
Technologies, Inc., Audioinfo Inc. and Owners of Audioinfo Inc.
(incorporated by reference to Exhibit 2.8 to the Registrant's
Current Report on Form 8-K dated May 16, 1997 and filed June 2,
1997).
2.23 Transfer Agreement dated as of April 2, 1997 by and among Premiere
Technologies, Inc., D&K Communications Corporation and Owners of
D&K Communications Corporation (incorporated by reference to
Exhibit 2.10 to the Registrant's Current Report on Form 8-K dated
May 16, 1997 and filed June 2, 1997).
2.24 Transfer Agreement dated as of May 19, 1997 by and among Premiere
Technologies, Inc. Voice-Tel of South Texas, Inc. and Owners of
VoiceTel of South Texas, Inc. (incorporated by reference to
Exhibit 2.11 to the Registrant's Current Report on Form 8-K dated
May 16, 1997 and filed June 2, 1997).
2.25 Transfer Agreement dated as of May 31, 1997 by and among Premiere
Technologies, Inc. Indiana Communicator, Inc. and Owner of Indiana
Communicator, Inc. (incorporated by reference to Exhibit 2.12 to
the Registrant's Current Report on Form 8-K dated May 16, 1997 and
filed June 2, 1997).
2.26 Transfer Agreement dated as of April 2, 1997 by and among Premiere
Technologies, Inc., Voice Messaging Development Corporation of
Michigan and the Owners of Voice Messaging Development Corporation
of Michigan (incorporated by reference to Exhibit 2.1 to the
Registrant's Current Report on Form 8-K/A dated May 16, 1997 and
filed June 24, 1997).
2.27 Transfer Agreement dated as of June 13, 1997 by and among Premiere
Technologies, Inc., Voice Partners of Greater Mahoning Valley,
Ltd. and the Owners of Voice Partners of Greater Mahoning Valley,
Ltd. (incorporated by reference to Exhibit 2.2 to the Registrant's
Current Report on Form 8-K/A dated May 16, 1997 and filed June 24,
1997).
2.28 Transfer Agreement dated as of April 2, 1997 by and among Premiere
Technologies, Inc. In-Touch Technologies, Inc. and the Owners of
InTouch Technologies, Inc. (incorporated by reference to Exhibit
2.3 to the Registrant's Current Report on Form 8-K/A dated May 16,
1997 and filed June 24, 1997).
2.29 Transfer Agreement dated as of March 31, 1997 by and among
Premiere Technologies, Inc. and Owners of the Western Franchisees:
3325882 Manitoba Inc., 601965 Alberta Ltd., 3266622 Manitoba Inc.,
3337821 Manitoba Inc. and 3266631 Manitoba Inc. (incorporated by
reference to Exhibit 2.4 to the Registrant's Current Report on
Form 8-K/A dated May 16, 1997 and filed June 24, 1997).
2.30 Uniform Terms and Conditions, Exhibit A to Transfer Agreements by
and among Premiere Technologies, Inc., Wave One Franchisees and
Owners of Wave One Franchisees (incorporated by reference to
Exhibit A to Exhibit 2.4 to the Registrant's Current Report on
Form 8-K dated April 2, 1997 and filed April 4, 1997).
2.31 Uniform Terms and Conditions, Exhibit A to Transfer Agreements by
and among Premiere Technologies, Inc., Wave Two Franchisees and
owners of Wave Two Franchisees (incorporated
80
by reference to Exhibit 2.14 to the Registrant's Current Report on
dated May 16, 1997 and filed June 2, 1997).
2.32 Stock Purchase Agreement, together with exhibits, dated as of
September 12, 1997, by and among Premiere Technologies, Inc.,
VoiceCom Holdings, Inc. and the Shareholders of VoiceCom Holdings,
Inc. (incorporated by reference to Exhibit 2.1 to the Registrant's
Quarterly Report on Form 10-Q for the Quarter Ended September 30,
1997).
2.33 Agreement and Plan of Merger, dated as of November 13, 1997,
together with exhibits, by and among Premiere Technologies, Inc.,
Nets Acquisition Corp. and Xpedite Systems, Inc. (incorporated by
reference to Exhibit 99.2 to the Registrant's Current Report on
Form 8-K dated November 13, 1997 and filed December 5, 1997, as
amended by Form 8-K/A filed December 23, 1997).
2.34 Agreement and Plan of Merger, dated April 22, 1998, by and among
the Company, American Teleconferencing Services, Ltd. ("ATS"),
PTEK Missouri Acquisition Corp. and the shareholders of ATS
(incorporated by reference to Exhibit 99.1 of the Company's
Current Report on Form 8-K dated April 23, 1998, and filed with
the Commission on April 28, 1998.)
3.1 Articles of Incorporation of Premiere Technologies, Inc., as
amended, (incorporated by reference to Exhibit 3.1 to the
Registrant's Quarterly Report on Form 10-Q for the Quarter Ended
June 30, 1998).
3.2 Amended and Restated Bylaws of Premiere Technologies, Inc., as
further amended on August 1, 1998 (incorporated by reference to
Exhibit 3.2 to the Registrant's Quarterly Report on Form 10-Q for
the Quarter Ended June 30, 1998).
4.1 See Exhibits 3.1--3.2 for provisions of the Articles of
Incorporation and Bylaws defining the rights of the holders of
common stock of the Registrant.
4.2 Specimen Stock Certificate (incorporated by reference to Exhibit
4.2 to the Registrant's Registration Statement on Form S-1 (No. 33-
80547)).
4.3 Indenture, dated as of June 15, 1997, between Premiere
Technologies, Inc. and IBJ Schroder Bank & Trust Company, as
Trustee (incorporated by reference to Exhibit 4.1 to the
Registrant's Current Report on Form 8-K dated July 25, 1997 and
filed August 5, 1997).
4.4 Form of Global Convertible Subordinated Note due 2004 (incorporated
by reference to Exhibit 4.2 to the Registrant's Current Report on
Form 8-K dated July 25, 1997 and filed August 5, 1997).
4.5 Registration Rights Agreement, dated as of June 15, 1997, by and
among the Registrant, Robertson, Stephens & Company LLC, Alex.
Brown & Sons Incorporated and Donaldson, Lufkin & Jenrette
Securities Corporation (incorporated by reference to Exhibit 4.3 to
the Registrant's Current Report on Form 8-K dated July 25, 1997 and
filed August 5, 1997).
4.6 Registration Rights Agreement, dated as of April 30, 1997, by and
among the Registrant, those stockholders of Voice-Tel Enterprises,
Inc. ("VTE") appearing as signatories thereto, those shareholders
of VTN, Inc. appearing as signatories thereto and those
stockholders or other equity owners of franchisees of VTE that
executed adoption agreements (incorporated by reference to Exhibit
4 to Exhibit 2.1 to the Registrant's Current Report on Form 8-K
dated April 2, 1997 and filed April 4, 1997).
4.7 Stock Restriction and Registration Rights Agreement dated as of
September 30, 1997, by and among the Registrant and those
shareholders of VoiceCom Holdings, Inc. appearing as signatories
thereto (incorporated by reference to Exhibit 3 to Exhibit 2.1 to
the Registrant's Quarterly Report on Form 10-Q for the Quarter
Ended September 30, 1997).
81
4.8 Stock Restriction and Registration Rights Agreement dated as of
April 22, 1998, by and among the Registrant and those shareholders
of American Teleconferencing Services, Ltd. appearing as
signatories thereto.
4.9 Shareholder Protection Rights Agreement, dated June 23, 1998,
between the Company and SunTrust Bank, Atlanta, as Rights Agent
(incorporated by reference to Exhibit 99.1 of the Company's Current
Report on Form 8-K dated June 23, 1998, and filed with the
Commission on June 26, 1998).
10.1 Shareholder Agreement dated as of January 18, 1994 among the
Registrant, NationsBanc Capital Corporation, Boland T. Jones, D.
Gregory Smith, Leonard A. DeNittis and Andrea L. Jones
(incorporated by reference to Exhibit 10.12 to the Registrant's
Registration Statement on Form S-1 (No. 33-80547)).
10.2 Amended and Restated Executive Employment Agreement and Incentive
Option Agreement dated November 6, 1995 between the Registrant and
David Gregory Smith (incorporated by reference to Exhibit 10.15 to
the Registrant's Registration Statement on Form S-1
(No. 33-80547)).**
10.3 Amended and Restated Executive Employment Agreement dated November
6, 1995 between Premiere Communications, Inc. and David Gregory
Smith (incorporated by reference to Exhibit 10.16 to the
Registrant's Registration Statement on Form S-1 (No. 33-80547)).**
10.3 Amended and Restated Executive Employment Agreement dated November
6, 1995 between Premiere Communications, Inc. and David Gregory
Smith (incorporated by reference to Exhibit 10.16 to the
Registrant's Registration Statement on Form S-1 (No. 33-80547)).**
10.4 Mutual Release dated December 5, 1997 by and among the Registrant,
Premiere Communications, Inc. and David Gregory Smith (incorporated
by reference to Exhibit 10.6 to Registrant's Annual Report on Form
10-K for the year ended December 31, 1997).
10.5 Amended and Restated Executive Employment and Incentive Option
Agreement dated November 6, 1995 between the Registrant and Boland
T. Jones (incorporated by reference to Exhibit 10.17 to the
Registrant's Registration Statement on Form S-1 (No. 33-80547)).**
10.6 Amended and Restated Executive Employment Agreement dated November
6, 1995 between Premiere Communications, Inc. and Boland T. Jones
(incorporated by reference to Exhibit 10.18 to the Registrant's
Registration Statement on Form S-1 (No. 33-80547)).**
10.7 Executive Employment and Incentive Option Agreement dated November
1, 1995 between the Registrant and Patrick G. Jones (incorporated
by reference to Exhibit 10.19 to the Registrant's Registration
Statement on Form S-1 (No. 33-80547)).**
10.8 Executive Employment Agreement dated November 1, 1995 between
Premiere Communications, Inc. and Patrick G. Jones (incorporated by
reference to Exhibit 10.20 to the Registrant's Registration
Statement on Form S-1 (No. 33-80547)).**
10.9 Promissory Note dated November 17, 1995 payable to the Registrant
made by Patrick G. Jones (incorporated by reference to Exhibit
10.27 to the Registrant's Registration Statement on Form S-1 (No.
33-80547)).**
10.10 Amended and Restated Employment Agreement, made as of April 30,
1997, by and between Xpedite Systems, Inc., and Roy B. Anderson,
Jr. (incorporated by reference to Exhibit 10.5 to the Registrant's
Quarterly Report on Form 10-Q for the Quarter ended March 31,
1998.)**
10.11 Executive Employment and Incentive Option Agreement, effective as
of July 24, 1997, by and between the Company and Jeffrey A. Allred
(incorporated by reference to Exhibit 10.1 to the Registrant's
Quarterly Report on Form 10-Q for the Quarter ended June 30,
1998.).**
82
10.12 Executive Employment and Incentive Option Agreement, effective as
of July 6, 1998, by and between the Company and William Porter
Payne.**
10.13 Memorandum of Understanding dated as of July 6, 1998, by and
between the Company and William Porter Payne.**
10.14 Executive Employment Agreement, effective as of May 4, 1998, by
and between the Company and Harvey A. Wagner.**
10.15 Promissory Note dated May 11, 1998 payable to the Registrant made
by Harvey A. Wagner.**
10.16 Split-Dollar Agreement dated as of November 11, 1998 by and
between the Company and Harvey A. Wagner.**
10.17 Premiere Communications, Inc. 401(k) Profit Sharing Plan
(incorporated by reference to Exhibit 10.30 to the Registrant's
Registration Statement on Form S-1 (No. 33-80547)).**
10.18 Form of Director Indemnification Agreement between the Registrant
and Non-employee Directors (incorporated by reference to Exhibit
10.31 to the Registrant's Registration Statement on Form S-1 (No.
33- 80547)).**
10.19 Park Place Office Lease dated May 31, 1993 between Premiere
Communications, Inc. and Mara-Met Venture, as amended by First
Amendment dated December 15, 1995 (incorporated by reference to
Exhibit 10.34 to the Registrant's Registration Statement on Form
S-1 (No. 33-80547)).
10.20 Second and Third Amendment to 55 Park Place Office Lease dated
November 5, 1996 between Premiere Communications, Inc. and Mara-
Met Venture (incorporated by reference to Exhibit 10.49 to
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1996).
10.21 Office Lease Agreement dated May 12, 1996 between Premiere
Communications, Inc. and Beverly Hills Center LLC, as amended by
the First Amendment dated August 1, 1996 (incorporated by
reference to Exhibit 10.50 to Registrant's Annual Report on Form
10-K for the year ended December 31, 1996).
10.22 Second Amendment of Lease dated July 1, 1997, between Premiere
Communications, Inc. and Beverly Hills Center LLC (incorporated by
reference to Exhibit 10.18 to Registrant's Annual Report on Form
10-K for the year ended December 31, 1997).
10.23 Agreement of Lease between Corporate Property Investors and
Premiere Communications, Inc., dated as of March 3, 1997, as
amended by Modification of Lease dated August 4, 1997, as amended,
by Second Modification of Lease, dated October 30, 1997
(incorporated by reference to Exhibit 10.19 to Registrant's Annual
Report on Form 10-K for the year ended December 31, 1997).
10.24 Sublease Agreement dated as of December 16, 1997, by and between
Premiere Communications, Inc. and Endeavor Technologies, Inc.
(incorporated by reference to Exhibit 10.20 to Registrant's Annual
Report on Form 10-K for the year ended December 31, 1997).
10.25 Form of Officer Indemnification Agreement between the Registrant
and each of the executive officers (incorporated by reference to
Exhibit 10.36 to the Registrant's Registration Statement on Form
S-1 (No. 33- 80547)).**
10.26 Telecommunications Services Agreement dated December 1, 1995
between Premiere Communications, Inc. and WorldCom Network
Services, Inc. d/b/a WilTel (incorporated by reference to Exhibit
10.40 to the Registrant's Registration Statement on Form S-1
(No. 33-80547)).
10.27 Amended and Restated Program Enrollment Terms dated September 30,
1997 by and between Premiere Communications, Inc. and WorldCom
Network Services, Inc., d/b/a WilTel, as amended by Amendment No.
1 dated November 1, 1997 (incorporated by reference to Exhibit
10.26 to Registrant's Annual Report on Form 10-K for the year
ended December 31, 1997).*
83
10.28 Service Agreement dated September 30, 1997, by and between
VoiceCom Systems, Inc. and AT&T Corp. (incorporated by reference
to Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q
for the Quarter Ended September 30, 1997).*
10.29 Strategic Alliance Agreement dated November 13, 1996 by and
between the Registrant and WorldCom, Inc. (incorporated by
reference to Exhibit 10.1 to the Registrant's Current Report on
Form 8-K dated November 13, 1996).*
10.30 Investment Agreement dated November 13, 1996 by and between the
Registrant and WorldCom, Inc. (incorporated by reference to
Exhibit 10.2 to the Registrant's Current Report on Form 8-K dated
November 13, 1996).
10.31 Service and Reseller Agreement dated September 28, 1990 by and
between Amway Corporation and Voice-Tel Enterprises, Inc.
(incorporated by reference to Exhibit 2.33 to the Registrant's
Quarterly Report on Form 10-Q for the Quarter Ended June 30,
1997).*
10.32 Independent Distributor Agreement dated September 26, 1997, by and
between Registrant and Digitec 2000, Inc. (incorporated by
reference to Exhibit 10.2 to the Registrant's Quarterly Report as
Form 10-Q for the Quarter ended September 30, 1997).
10.33 Form of Stock Purchase Warrant Agreement (incorporated by
reference to Exhibit 4.3 to the Registrant's Registration
Statement on Form S-8 (No. 333-11281)).
10.34 Form of Warrant Transaction Statement (incorporated by reference
to Exhibit 4.4 to the Registrant's Registration Statement on Form
S-8 (No. 333-11281)).
10.35 Form of Director Stock Purchase Warrant (incorporated by reference
to Exhibit 4.3 to the Registrant's Registration Statement on Form
S-8 (No. 333-17593)).**
10.36 Purchase Agreement, dated June 25, 1997, by and among Premiere
Technologies, Inc., Robertson, Stephens & Company LLC, Alex. Brown
& Sons Incorporated and Donaldson, Lufkin & Jenrette Securities
Corporation (incorporated by reference to Exhibit 10.1 to the
Registrant's Current Report on Form 8-K dated July 25, 1997 and
filed August 5, 1997).
10.37 1991 Non-Qualified and Incentive Stock Option Plan of Voice-Tel
Enterprises, Inc. (assumed by the Registrant) (incorporated by
reference to Exhibit 4.2 to the Registrant's Registration
Statement on Form S-8 (No. 333-29787)).
10.38 1991 Non-Qualified and Incentive Stock Option Plan of VTN, Inc.
(assumed by the Registrant) (incorporated by reference to Exhibit
4.3 to the Registrant's Registration Statement on Form S-8 (No.
333-29787)).
10.39 Form of Stock Option Agreement by and between the Registrant and
certain current or former employees of Voice-Tel Enterprises, Inc.
(incorporated by reference to Exhibit 4.4 to the Registrant's
Registration Statement on Form S-8 (No. 333-29787)).
10.40 Premiere Technologies, Inc. Second Amended and Restated 1995 Stock
Plan (incorporated by reference to Exhibit A to the Registrant's
Definitive Proxy Statement distributed in connection with the
Registrant's June 11, 1997 annual meeting of shareholders, filed
April 30, 1997).
10.41 First Amendment to Premiere Technologies, Inc. Second Amended and
Restated 1995 Stock Plan (incorporated by reference to Exhibit
10.43 to Registrant's Annual Report on Form 10-K for the year
ended December 31, 1997).
84
10.42 VoiceCom Holdings, Inc. 1995 Stock Option Plan (assumed by the
Registrant) (incorporated by reference to Exhibit 10.44 to
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1997).
10.43 VoiceCom Holdings, Inc. Amended and Restated 1985 Stock Option
Plan (assumed by the Registrant) (incorporated by reference to
Exhibit 10.45 to Registrant's Annual Report on Form 10-K for the
year ended December 31, 1997).
10.44 Premiere Technologies, Inc., 1998 Stock Plan (incorporated by
reference to Exhibit 10.2 to the Registrant's Quarterly Report on
Form 10-Q for the Quarter ended June 30, 1998.).
10.45 Xpedite Systems, Inc. 1992 Incentive Stock Option Plan (assumed by
the Registrant) (incorporated by reference to Exhibit to
Xpedite's Registration Statement on Form S-1 (No. 33-73258)).
10.46 Xpedite Systems, Inc. 1993 Incentive Stock Option Plan (assumed by
the Registrant) (incorporated by reference to Exhibit to
Xpedite's Registration Statement on Form S-1 (No. 33-73258)).
10.47 Xpedite Systems, Inc. 1996 Incentive Stock Option Plan (assumed by
the Registrant) (incorporated by reference to Exhibit to
Xpedite's Annual Report on Form 10-K for the year ended December
31, 1995).
10.48 Xpedite Systems, Inc. Non-Employee Directors' Warrant Plan
(assumed by the Registrant) (incorporated by reference to Exhibit
10.31 to Xpedite's Annual Report on Form 10-K for the year ended
December 31, 1996).
10.49 Xpedite Systems, Inc. Officer's Contingent Stock Option Plan
(assumed by the Registrant) (incorporated by reference to Exhibit
10.30 to Xpedite's Annual Report on Form 10-K for the year ended
December 31, 1996).
10.50 Credit Agreement dated as of December 17, 1997, as amended and
restated as of December 16, 1998, by and among Xpedite Systems,
Inc. and Xpedite Systems Holdings (UK) Limited, as Borrowers, and
the Guarantors party thereto, the banks listed on the signature
pages thereof, NationsBank, N.A., as Documentation Agent and The
Bank of New York, as Administrative Agent.
10.51 Share Purchase Agreement dated as of August 8, 1997, by and among
Xpedite Systems, Inc., Xpedite Systems Holdings (UK) Limited, and
the shareholders of Xpedite Systems Limited (incorporated by
reference to Exhibit 99.3 to the Registrant's Current Report on
Form 8-K dated November 13, 1997 and filed December 5, 1997, as
amended by Form 8-K/A filed December 23, 1997 and Form 8-K/A filed
January 27, 1998)).
10.52 Amendment to the Share Purchase Agreement, dated December 17,
1997, by and among Xpedite Systems, Inc., Xpedite Systems Holdings
(UK) Limited and the shareholders of Xpedite Systems Limited
(incorporated by reference to Exhibit 10.4 to the Registrant's
Quarterly Report on Form 10-Q for the Quarter ended March 31,
1998.)
11.1 Statement re: Computation of Per Share Earnings.
85
21.1 Subsidiaries of the Registrant.
23.1 Consent of Arthur Andersen LLP.
27.1 Financial Data Schedule for the year ended December 31, 1998.
- - --------
* Confidential treatment has been granted. The copy on file as an exhibit
omits the information subject to the confidentiality request. Such omitted
information has been filed separately with the Commission.
**Management contracts and compensatory plans and arrangements required to be
filed as exhibits pursuant to Item 14(c) of this report.
(b) The Registrant did not file any Current Reports on Form 8-K during the
fourth quarter of 1998.
86
SIGNATURES
PREMIERE TECHNOLOGIES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Premiere Technologies, Inc.
By: _________________________________
Boland T. Jones, Chairman of the
Board and Chief Executive Officer
Date: March , 1999
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant in the capacities and on the dates
indicated.
Signature Title Date
Chairman of the March , 1999
- - ------------------------------------- Board and Chief
Boland T. Jones Executive Officer
(principal executive
officer)
Executive Vice March , 1999
- - ------------------------------------- President of Finance
Harvey A. Wagner and Administration
and Chief Financial
Officer (principal
financial and
accounting officer)
Director March , 1999
- - -------------------------------------
George W. Baker, Sr.
Director March , 1999
- - -------------------------------------
Raymond H. Pirtle, Jr.
Director March , 1999
- - -------------------------------------
Roy B. Andersen, Jr.
Director March , 1999
- - -------------------------------------
Jackie M. Ward
President and Chief March , 1999
- - ------------------------------------- Operating Officer
Jeffrey A. Allred and Director
Vice Chairman and March , 1999
- - ------------------------------------- Director
William P. Payne
87
EXHIBIT INDEX
Exhibit
Number Description
2.1 Agreement and Plan of Merger, together with exhibits, dated as of
April 2, 1997 by and among Premiere Technologies, Inc., PTEK Merger
Corporation and Voice-Tel Enterprises, Inc. and the Stockholders of
Voice-Tel Enterprises, Inc. (incorporated by reference to Exhibit 2.1
to the Registrant's Current Report on Form 8-K dated April 2, 1997
and filed April 4, 1997).
2.2 Agreement and Plan of Merger, together with exhibits, dated as of
April 2, 1997 by and among Premiere Technologies, Inc., PTEK Merger
Corporation II, VTN, Inc. and the Stockholders of VTN, Inc.
(incorporated by reference to Exhibit 2.2 to the Registrant's Current
Report on Form 8-K dated April 2, 1997 and filed April 4, 1997).
2.3 Purchase and Sale Agreement dated April 2, 1997 by and between
Premiere Technologies, Inc. and Merchandising Productions, Inc.
(incorporated by reference to Exhibit 2.3 to the Registrant's Current
Report on Form 8-K dated April 2, 1997 and filed April 4, 1997).
2.4 Transfer Agreement dated as of April 2, 1997 by and among Premiere
Technologies, Inc., Continuum, Inc. and Owners of Continuum, Inc.
(incorporated by reference to Exhibit 2.4 to the Registrant's Current
Report on Form 8-K dated April 30, 1997 and filed May 14, 1997).
2.5 Transfer Agreement dated as of April 2, 1997 by and among Premiere
Technologies, Inc., DMG, Inc. and Owners of DMG, Inc. and Transfer
Agreement dated as of April 2, 1997 by and among Premiere
Technologies, Inc., VTG, Inc. and Owners of VTG, Inc. (incorporated
by reference to Exhibit 2.5 to the Registrant's Current Report on
Form 8-K dated April 30, 1997 and filed May 14, 1997).
2.6 Transfer Agreement dated as of April 2, 1997 by and among Premiere
Technologies, Inc., Penta Group, Inc. and Owners of Penta Group, Inc.
and Transfer Agreement dated as of April 2, 1997 by and among
Premiere Technologies, Inc., Scepter Communications, Inc. and Owners
of Scepter Communications, Inc. (incorporated by reference to Exhibit
2.6 to the Registrant's Current Report on Form 8-K dated April 30,
1997 and filed May 14, 1997).
2.7 Transfer Agreement dated as of April 2, 1997 by and among Premiere
Technologies, Inc., Premiere Business Services, Inc. and Owners of
Premiere Business Services, Inc. (incorporated by reference to
Exhibit 2.7 to the Registrant's Current Report on Form 8-K dated
April 30, 1997 and filed May 14, 1997).
2.8 Transfer Agreement dated as of April 2, 1997 by and among Premiere
Technologies, Inc., Dunes Communications, Inc., Sands Communications,
Inc., Sands Comm, Inc., SandsComm, Inc., and Owner of Dunes
Communications, Inc., Sands Communications, Inc., Sands Comm, Inc.,
and SandsComm, Inc. (incorporated by reference to Exhibit 2.8 to the
Registrant's Current Report on Form 8-K dated April 30, 1997 and
filed May 14, 1997).
2.9 Transfer Agreement dated as of April 2, 1997 by and among Premiere
Technologies, Inc., Shamlin, Inc. and Owner of Shamlin, Inc.
(incorporated by reference to Exhibit 2.9 to the Registrant's Current
Report on Form 8-K dated April 30, 1997 and filed May 14, 1997).
2.10 Transfer Agreement dated as of April 2, 1997 by and among Premiere
Technologies, Inc., VT of Ohio, Inc. and Owners of VT of Ohio, Inc.;
Transfer Agreement dated as of April 2, 1997 by and among Premiere
Technologies, Inc., Carter Voice, Inc. and Owners of Carter Voice,
Inc.; Transfer Agreement dated as of April 2, 1997 by and among
Premiere Technologies, Inc., Widdoes Enterprises, Inc. and Owners of
Widdoes Enterprises, Inc.; and Transfer Agreement dated as of April
2, 1997 by and among Premiere Technologies, Inc., Dowd Enterprises,
Inc. and Owners of Dowd Enterprises, Inc. (incorporated by reference
to Exhibit 2.10 to the Registrant's Current Report on Form 8-K dated
April 30, 1997 and filed May 14, 1997).
Exhibit
Number Description
2.11 Transfer Agreement dated as of April 2, 1997 by and among Premiere
Technologies, Inc., SDVT, Inc. and Owners of SDVT, Inc. (incorporated
by reference to Exhibit 2.11 to the Registrant's Current Report on
Form 8-K dated April 30, 1997 and filed May 14, 1997).
2.12 Amended and Restated Transfer Agreement dated as of April 2, 1997 by
and among Premiere Technologies, Inc., Car Zee, Inc. and Owners of
Car Zee, Inc. (incorporated by reference to Exhibit 2.12 to the
Registrant's Current Report on Form 8-K dated April 30, 1997 and
filed May 14, 1997).
2.13 Transfer Agreement dated as of March 31, 1997 by and among Premiere
Technologies, Inc. and Owners of the VTEC Franchisee: 1086236
Ontario, Inc. (incorporated by reference to Exhibit 2.13 to the
Registrant's Current Report on Form 8-K dated April 30, 1997 and
filed May 14, 1997).
2.14 Transfer Agreement dated as of March 31, 1997 by and among Premiere
Technologies, Inc. and Owners of the Eastern Franchisees: 1139133
Ontario Inc., 1116827 Ontario Inc., 1006089 Ontario Inc., and 1063940
Ontario Inc. (incorporated by reference to Exhibit 2.14 to the
Registrant's Current Report on Form 8-K dated April 30, 1997 and
filed May 14, 1997).
2.15 Transfer Agreement dated as of April 2, 1997 by and among Premiere
Technologies, Inc., Communications Concepts, Inc. and Owners of
Communications Concepts, Inc. (incorporated by reference to Exhibit
2.1 to the Registrant's Current Report on Form 8-K dated May 16, 1997
and filed June 2, 1997).
2.16 Transfer Agreement dated as of May 20, 1997 by and among Premiere
Technologies, Inc., DARP, Inc. and Owners of DARP, Inc. (incorporated
by reference to Exhibit 2.2 to the Registrant's Current Report on
Form 8-K dated May 16, 1997 and filed June 2, 1997).
2.17 Transfer Agreement dated as of April 2, 1997 by and among Premiere
Technologies, Inc., Hi-Pak Systems, Inc. and Owners of Hi-Pak
Systems, Inc. (incorporated by reference to Exhibit 2.3 to the
Registrant's Current Report on Form 8-K dated May 16, 1997 and filed
June 2. 1997).
2.18 Transfer Agreement dated as of May 29, 1997 by and among Premiere
Technologies, Inc., MMP Communications, Inc. and Owners of MMP
Communications, Inc. (incorporated by reference to Exhibit 2.4 to the
Registrant's Current Report on Form 8-K dated May 16, 1997 and filed
June 2, 1997).
2.19 Transfer Agreement dated as of May 16, 1997 by and among Premiere
Technologies, Inc., Lar-Lin Enterprises, Inc., Lar-Lin Investments,
Inc. and Voice-Mail Solutions, Inc. and Owners of Lar-Lin
Enterprises, Inc., Lar-Lin Investments, Inc. and Voice-Mail
Solutions, Inc. (incorporated by reference to Exhibit 2.5 to the
Registrant's Current Report on Form 8-K dated May 16, 1997 and filed
June 2, 1997).
2.20 Transfer Agreement dated as of April 2, 1997 by and among Premiere
Technologies, Inc., Voice-Net Communications Systems, Inc. and Owners
of Voice-Net Communications Systems, Inc. and Transfer Agreement
dated as of April 2, 1997 by and among Premiere Technologies, Inc.,
VT of Long Island Inc. and Owners of VT of Long Island Inc.
(incorporated by reference to Exhibit 2.6 to the Registrant's Current
Report on Form 8-K dated May 16, 1997 and filed June 2, 1997).
2.21 Transfer Agreement dated as of May 22, 1997 by and among Premiere
Technologies, Inc. Voice Systems of Greater Dayton, Inc. and Owner of
Voice Systems of Greater Dayton, Inc. and Transfer Agreement dated as
of May 22, 1997 by and among Premiere Technologies, Inc., Premiere
Acquisition Corporation, L'Harbot, Inc. and the Owners of L'Harbot,
Inc. (incorporated by reference to Exhibit 2.7 to the Registrant's
Current Report on Form 8-K dated May 16, 1997 and filed June 2,
1997).
2.22 Transfer Agreement dated as of May 30, 1997 by and among Premiere
Technologies, Inc., Audioinfo Inc. and Owners of Audioinfo Inc.
(incorporated by reference to Exhibit 2.8 to the Registrant's Current
Report on Form 8-K dated May 16, 1997 and filed June 2, 1997).
Exhibit
Number Description
2.23 Transfer Agreement dated as of April 2, 1997 by and among Premiere
Technologies, Inc., D&K Communications Corporation and Owners of D&K
Communications Corporation (incorporated by reference to Exhibit 2.10
to the Registrant's Current Report on Form 8-K dated May 16, 1997 and
filed June 2, 1997).
2.24 Transfer Agreement dated as of May 19, 1997 by and among Premiere
Technologies, Inc. Voice-Tel of South Texas, Inc. and Owners of
VoiceTel of South Texas, Inc. (incorporated by reference to Exhibit
2.11 to the Registrant's Current Report on Form 8-K dated May 16,
1997 and filed June 2, 1997).
2.25 Transfer Agreement dated as of May 31, 1997 by and among Premiere
Technologies, Inc. Indiana Communicator, Inc. and Owner of Indiana
Communicator, Inc. (incorporated by reference to Exhibit 2.12 to the
Registrant's Current Report on Form 8-K dated May 16, 1997 and filed
June 2, 1997).
2.26 Transfer Agreement dated as of April 2, 1997 by and among Premiere
Technologies, Inc., Voice Messaging Development Corporation of
Michigan and the Owners of Voice Messaging Development Corporation of
Michigan (incorporated by reference to Exhibit 2.1 to the
Registrant's Current Report on Form 8-K/A dated May 16, 1997 and
filed June 24, 1997).
2.27 Transfer Agreement dated as of June 13, 1997 by and among Premiere
Technologies, Inc., Voice Partners of Greater Mahoning Valley, Ltd.
and the Owners of Voice Partners of Greater Mahoning Valley, Ltd.
(incorporated by reference to Exhibit 2.2 to the Registrant's Current
Report on Form 8-K/A dated May 16, 1997 and filed June 24, 1997).
2.28 Transfer Agreement dated as of April 2, 1997 by and among Premiere
Technologies, Inc. In-Touch Technologies, Inc. and the Owners of
InTouch Technologies, Inc. (incorporated by reference to Exhibit 2.3
to the Registrant's Current Report on Form 8-K/A dated May 16, 1997
and filed June 24, 1997).
2.29 Transfer Agreement dated as of March 31, 1997 by and among Premiere
Technologies, Inc. and Owners of the Western Franchisees: 3325882
Manitoba Inc., 601965 Alberta Ltd., 3266622 Manitoba Inc., 3337821
Manitoba Inc. and 3266631 Manitoba Inc. (incorporated by reference to
Exhibit 2.4 to the Registrant's Current Report on Form 8-K/A dated
May 16, 1997 and filed June 24, 1997).
2.30 Uniform Terms and Conditions, Exhibit A to Transfer Agreements by and
among Premiere Technologies, Inc., Wave One Franchisees and Owners of
Wave One Franchisees (incorporated by reference to Exhibit A to
Exhibit 2.4 to the Registrant's Current Report on Form 8-K dated
April 2, 1997 and filed April 4, 1997).
2.31 Uniform Terms and Conditions, Exhibit A to Transfer Agreements by and
among Premiere Technologies, Inc., Wave Two Franchisees and owners of
Wave Two Franchisees (incorporated by reference to Exhibit 2.14 to
the Registrant's Current Report on dated May 16, 1997 and filed June
2, 1997).
2.32 Stock Purchase Agreement, together with exhibits, dated as of
September 12, 1997, by and among Premiere Technologies, Inc.,
VoiceCom Holdings, Inc. and the Shareholders of VoiceCom Holdings,
Inc. (incorporated by reference to Exhibit 2.1 to the Registrant's
Quarterly Report on Form 10-Q for the Quarter Ended September 30,
1997).
2.33 Agreement and Plan of Merger, dated as of November 13, 1997, together
with exhibits, by and among Premiere Technologies, Inc., Nets
Acquisition Corp. and Xpedite Systems, Inc. (incorporated by
reference to Exhibit 99.2 to the Registrant's Current Report on Form
8-K dated November 13, 1997 and filed December 5, 1997, as amended by
Form 8-K/A filed December 23, 1997).
Exhibit
Number Description
2.34 Agreement and Plan of Merger, dated April 22, 1998, by and among the
Company, American Teleconferencing Services, Ltd. ("ATS"), PTEK
Missouri Acquisition Corp. and the shareholders of ATS (incorporated
by reference to Exhibit 99.1 of the Company's Current Report on Form
8-K dated April 23, 1998, and filed with the Commission on April 28,
1998.)
3.1 Articles of Incorporation of Premiere Technologies, Inc., as amended,
(incorporated by reference to Exhibit 3.1 to the Registrant's
Quarterly Report on Form 10-Q for the Quarter Ended June 30, 1998).
3.2 Amended and Restated Bylaws of Premiere Technologies, Inc., as
further amended on August 1, 1998 (incorporated by reference to
Exhibit 3.2 to the Registrant's Quarterly Report on Form 10-Q for the
Quarter Ended June 30, 1998).
4.1 See Exhibits 3.1--3.2 for provisions of the Articles of Incorporation
and Bylaws defining the rights of the holders of common stock of the
Registrant.
4.2 Specimen Stock Certificate (incorporated by reference to Exhibit 4.2
to the Registrant's Registration Statement on Form S-1 (No. 33-
80547)).
4.3 Indenture, dated as of June 15, 1997, between Premiere Technologies,
Inc. and IBJ Schroder Bank & Trust Company, as Trustee (incorporated
by reference to Exhibit 4.1 to the Registrant's Current Report on
Form 8-K dated July 25, 1997 and filed August 5, 1997).
4.4 Form of Global Convertible Subordinated Note due 2004 (incorporated
by reference to Exhibit 4.2 to the Registrant's Current Report on
Form 8-K dated July 25, 1997 and filed August 5, 1997).
4.5 Registration Rights Agreement, dated as of June 15, 1997, by and
among the Registrant, Robertson, Stephens & Company LLC, Alex. Brown
& Sons Incorporated and Donaldson, Lufkin & Jenrette Securities
Corporation (incorporated by reference to Exhibit 4.3 to the
Registrant's Current Report on Form 8-K dated July 25, 1997 and filed
August 5, 1997).
4.6 Registration Rights Agreement, dated as of April 30, 1997, by and
among the Registrant, those stockholders of Voice-Tel Enterprises,
Inc. ("VTE") appearing as signatories thereto, those shareholders of
VTN, Inc. appearing as signatories thereto and those stockholders or
other equity owners of franchisees of VTE that executed adoption
agreements (incorporated by reference to Exhibit 4 to Exhibit 2.1 to
the Registrant's Current Report on Form 8-K dated April 2, 1997 and
filed April 4, 1997).
4.7 Stock Restriction and Registration Rights Agreement dated as of
September 30, 1997, by and among the Registrant and those
shareholders of VoiceCom Holdings, Inc. appearing as signatories
thereto (incorporated by reference to Exhibit 3 to Exhibit 2.1 to the
Registrant's Quarterly Report on Form 10-Q for the Quarter Ended
September 30, 1997).
4.8 Stock Restriction and Registration Rights Agreement dated as of April
22, 1998, by and among the Registrant and those shareholders of
American Teleconferencing Services, Ltd. appearing as signatories
thereto.
4.9 Shareholder Protection Rights Agreement, dated June 23, 1998, between
the Company and SunTrust Bank, Atlanta, as Rights Agent (incorporated
by reference to Exhibit 99.1 of the Company's Current Report on Form
8-K dated June 23, 1998, and filed with the Commission on June 26,
1998).
10.1 Shareholder Agreement dated as of January 18, 1994 among the
Registrant, NationsBanc Capital Corporation, Boland T. Jones, D.
Gregory Smith, Leonard A. DeNittis and Andrea L. Jones (incorporated
by reference to Exhibit 10.12 to the Registrant's Registration
Statement on Form S-1 (No. 33-80547)).
Exhibit
Number Description
10.2 Amended and Restated Executive Employment Agreement and Incentive
Option Agreement dated November 6, 1995 between the Registrant and
David Gregory Smith (incorporated by reference to Exhibit 10.15 to
the Registrant's Registration Statement on Form S-1
(No. 33-80547)).**
10.3 Amended and Restated Executive Employment Agreement dated November 6,
1995 between Premiere Communications, Inc. and David Gregory Smith
(incorporated by reference to Exhibit 10.16 to the Registrant's
Registration Statement on Form S-1 (No. 33-80547)).**
10.3 Amended and Restated Executive Employment Agreement dated November 6,
1995 between Premiere Communications, Inc. and David Gregory Smith
(incorporated by reference to Exhibit 10.16 to the Registrant's
Registration Statement on Form S-1 (No. 33-80547)).**
10.4 Mutual Release dated December 5, 1997 by and among the Registrant,
Premiere Communications, Inc. and David Gregory Smith (incorporated
by reference to Exhibit 10.6 to Registrant's Annual Report on Form
10-K for the year ended December 31, 1997).
10.5 Amended and Restated Executive Employment and Incentive Option
Agreement dated November 6, 1995 between the Registrant and Boland T.
Jones (incorporated by reference to Exhibit 10.17 to the Registrant's
Registration Statement on Form S-1 (No. 33-80547)).**
10.6 Amended and Restated Executive Employment Agreement dated November 6,
1995 between Premiere Communications, Inc. and Boland T. Jones
(incorporated by reference to Exhibit 10.18 to the Registrant's
Registration Statement on Form S-1 (No. 33-80547)).**
10.7 Executive Employment and Incentive Option Agreement dated November 1,
1995 between the Registrant and Patrick G. Jones (incorporated by
reference to Exhibit 10.19 to the Registrant's Registration Statement
on Form S-1 (No. 33-80547)).**
10.8 Executive Employment Agreement dated November 1, 1995 between
Premiere Communications, Inc. and Patrick G. Jones (incorporated by
reference to Exhibit 10.20 to the Registrant's Registration Statement
on Form S-1 (No. 33-80547)).**
10.9 Promissory Note dated November 17, 1995 payable to the Registrant
made by Patrick G. Jones (incorporated by reference to Exhibit 10.27
to the Registrant's Registration Statement on Form S-1 (No. 33-
80547)).**
10.10 Amended and Restated Employment Agreement, made as of April 30, 1997,
by and between Xpedite Systems, Inc., and Roy B. Anderson, Jr.
(incorporated by reference to Exhibit 10.5 to the Registrant's
Quarterly Report on Form 10-Q for the Quarter ended March 31,
1998.)**
10.11 Executive Employment and Incentive Option Agreement, effective as of
July 24, 1997, by and between the Company and Jeffrey A. Allred
(incorporated by reference to Exhibit 10.1 to the Registrant's
Quarterly Report on Form 10-Q for the Quarter ended June 30,
1998.).**
10.12 Executive Employment and Incentive Option Agreement, effective as of
July 6, 1998, by and between the Company and William Porter Payne.**
10.13 Memorandum of Understanding dated as of July 6, 1998, by and between
the Company and William Porter Payne.**
10.14 Executive Employment Agreement, effective as of May 4, 1998, by and
between the Company and Harvey A. Wagner.**
Exhibit
Number Description
10.15 Promissory Note dated May 11, 1998 payable to the Registrant made by
Harvey A. Wagner.**
10.16 Split-Dollar Agreement dated as of November 11, 1998 by and between
the Company and Harvey A. Wagner.**
10.17 Premiere Communications, Inc. 401(k) Profit Sharing Plan
(incorporated by reference to Exhibit 10.30 to the Registrant's
Registration Statement on Form S-1 (No. 33-80547)).**
10.18 Form of Director Indemnification Agreement between the Registrant and
Non-employee Directors (incorporated by reference to Exhibit 10.31 to
the Registrant's Registration Statement on Form S-1 (No. 33-
80547)).**
10.19 Park Place Office Lease dated May 31, 1993 between Premiere
Communications, Inc. and Mara-Met Venture, as amended by First
Amendment dated December 15, 1995 (incorporated by reference to
Exhibit 10.34 to the Registrant's Registration Statement on Form S-1
(No. 33-80547)).
10.20 Second and Third Amendment to 55 Park Place Office Lease dated
November 5, 1996 between Premiere Communications, Inc. and Mara-Met
Venture (incorporated by reference to Exhibit 10.49 to Registrant's
Annual Report on Form 10-K for the year ended December 31, 1996).
10.21 Office Lease Agreement dated May 12, 1996 between Premiere
Communications, Inc. and Beverly Hills Center LLC, as amended by the
First Amendment dated August 1, 1996 (incorporated by reference to
Exhibit 10.50 to Registrant's Annual Report on Form 10-K for the year
ended December 31, 1996).
10.22 Second Amendment of Lease dated July 1, 1997, between Premiere
Communications, Inc. and Beverly Hills Center LLC (incorporated by
reference to Exhibit 10.18 to Registrant's Annual Report on Form 10-K
for the year ended December 31, 1997).
10.23 Agreement of Lease between Corporate Property Investors and Premiere
Communications, Inc., dated as of March 3, 1997, as amended by
Modification of Lease dated August 4, 1997, as amended, by Second
Modification of Lease, dated October 30, 1997 (incorporated by
reference to Exhibit 10.19 to Registrant's Annual Report on Form 10-K
for the year ended December 31, 1997).
10.24 Sublease Agreement dated as of December 16, 1997, by and between
Premiere Communications, Inc. and Endeavor Technologies, Inc.
(incorporated by reference to Exhibit 10.20 to Registrant's Annual
Report on Form 10-K for the year ended December 31, 1997).
10.25 Form of Officer Indemnification Agreement between the Registrant and
each of the executive officers (incorporated by reference to Exhibit
10.36 to the Registrant's Registration Statement on Form S-1 (No. 33-
80547)).**
10.26 Telecommunications Services Agreement dated December 1, 1995 between
Premiere Communications, Inc. and WorldCom Network Services, Inc.
d/b/a WilTel (incorporated by reference to Exhibit 10.40 to the
Registrant's Registration Statement on Form S-1 (No. 33-80547)).
10.27 Amended and Restated Program Enrollment Terms dated September 30,
1997 by and between Premiere Communications, Inc. and WorldCom
Network Services, Inc., d/b/a WilTel, as amended by Amendment No. 1
dated November 1, 1997 (incorporated by reference to Exhibit 10.26 to
Registrant's Annual Report on Form 10-K for the year ended December
31, 1997).*
Exhibit
Number Description
10.28 Service Agreement dated September 30, 1997, by and between VoiceCom
Systems, Inc. and AT&T Corp. (incorporated by reference to Exhibit
10.1 to the Registrant's Quarterly Report on Form 10-Q for the
Quarter Ended September 30, 1997).*
10.29 Strategic Alliance Agreement dated November 13, 1996 by and between
the Registrant and WorldCom, Inc. (incorporated by reference to
Exhibit 10.1 to the Registrant's Current Report on Form 8-K dated
November 13, 1996).*
10.30 Investment Agreement dated November 13, 1996 by and between the
Registrant and WorldCom, Inc. (incorporated by reference to Exhibit
10.2 to the Registrant's Current Report on Form 8-K dated November
13, 1996).
10.31 Service and Reseller Agreement dated September 28, 1990 by and
between Amway Corporation and Voice-Tel Enterprises, Inc.
(incorporated by reference to Exhibit 2.33 to the Registrant's
Quarterly Report on Form 10-Q for the Quarter Ended June 30, 1997).*
10.32 Independent Distributor Agreement dated September 26, 1997, by and
between Registrant and Digitec 2000, Inc. (incorporated by reference
to Exhibit 10.2 to the Registrant's Quarterly Report as Form 10-Q for
the Quarter ended September 30, 1997).
10.33 Form of Stock Purchase Warrant Agreement (incorporated by reference
to Exhibit 4.3 to the Registrant's Registration Statement on Form S-8
(No. 333-11281)).
10.34 Form of Warrant Transaction Statement (incorporated by reference to
Exhibit 4.4 to the Registrant's Registration Statement on Form S-8
(No. 333-11281)).
10.35 Form of Director Stock Purchase Warrant (incorporated by reference to
Exhibit 4.3 to the Registrant's Registration Statement on Form S-8
(No. 333-17593)).**
10.36 Purchase Agreement, dated June 25, 1997, by and among Premiere
Technologies, Inc., Robertson, Stephens & Company LLC, Alex. Brown &
Sons Incorporated and Donaldson, Lufkin & Jenrette Securities
Corporation (incorporated by reference to Exhibit 10.1 to the
Registrant's Current Report on Form 8-K dated July 25, 1997 and filed
August 5, 1997).
10.37 1991 Non-Qualified and Incentive Stock Option Plan of Voice-Tel
Enterprises, Inc. (assumed by the Registrant) (incorporated by
reference to Exhibit 4.2 to the Registrant's Registration Statement
on Form S-8 (No. 333-29787)).
10.38 1991 Non-Qualified and Incentive Stock Option Plan of VTN, Inc.
(assumed by the Registrant) (incorporated by reference to Exhibit 4.3
to the Registrant's Registration Statement on Form S-8 (No. 333-
29787)).
10.39 Form of Stock Option Agreement by and between the Registrant and
certain current or former employees of Voice-Tel Enterprises, Inc.
(incorporated by reference to Exhibit 4.4 to the Registrant's
Registration Statement on Form S-8 (No. 333-29787)).
10.40 Premiere Technologies, Inc. Second Amended and Restated 1995 Stock
Plan (incorporated by reference to Exhibit A to the Registrant's
Definitive Proxy Statement distributed in connection with the
Registrant's June 11, 1997 annual meeting of shareholders, filed
April 30, 1997).
10.41 First Amendment to Premiere Technologies, Inc. Second Amended and
Restated 1995 Stock Plan (incorporated by reference to Exhibit 10.43
to Registrant's Annual Report on Form 10-K for the year ended
December 31, 1997).
Exhibit
Number Description
10.42 VoiceCom Holdings, Inc. 1995 Stock Option Plan (assumed by the
Registrant) (incorporated by reference to Exhibit 10.44 to
Registrant's Annual Report on Form 10-K for the year ended December
31, 1997).
10.43 VoiceCom Holdings, Inc. Amended and Restated 1985 Stock Option Plan
(assumed by the Registrant) (incorporated by reference to Exhibit
10.45 to Registrant's Annual Report on Form 10-K for the year ended
December 31, 1997).
10.44 Premiere Technologies, Inc., 1998 Stock Plan (incorporated by
reference to Exhibit 10.2 to the Registrant's Quarterly Report on
Form 10-Q for the Quarter ended June 30, 1998.).
10.45 Xpedite Systems, Inc. 1992 Incentive Stock Option Plan (assumed by
the Registrant) (incorporated by reference to Exhibit to
Xpedite's Registration Statement on Form S-1 (No. 33-73258)).
10.46 Xpedite Systems, Inc. 1993 Incentive Stock Option Plan (assumed by
the Registrant) (incorporated by reference to Exhibit to
Xpedite's Registration Statement on Form S-1 (No. 33-73258)).
10.47 Xpedite Systems, Inc. 1996 Incentive Stock Option Plan (assumed by
the Registrant) (incorporated by reference to Exhibit to
Xpedite's Annual Report on Form 10-K for the year ended December 31,
1995).
10.48 Xpedite Systems, Inc. Non-Employee Directors' Warrant Plan (assumed
by the Registrant) (incorporated by reference to Exhibit 10.31 to
Xpedite's Annual Report on Form 10-K for the year ended December 31,
1996).
10.49 Xpedite Systems, Inc. Officer's Contingent Stock Option Plan (assumed
by the Registrant) (incorporated by reference to Exhibit 10.30 to
Xpedite's Annual Report on Form 10-K for the year ended December 31,
1996).
10.50 Credit Agreement dated as of December 17, 1997, as amended and
restated as of December 16, 1998, by and among Xpedite Systems, Inc.
and Xpedite Systems Holdings (UK) Limited, as Borrowers, and the
Guarantors party thereto, the banks listed on the signature pages
thereof, NationsBank, N.A., as Documentation Agent and The Bank of
New York, as Administrative Agent.
10.51 Share Purchase Agreement dated as of August 8, 1997, by and among
Xpedite Systems, Inc., Xpedite Systems Holdings (UK) Limited, and the
shareholders of Xpedite Systems Limited (incorporated by reference to
Exhibit 99.3 to the Registrant's Current Report on Form 8-K dated
November 13, 1997 and filed December 5, 1997, as amended by Form 8-
K/A filed December 23, 1997 and Form 8-K/A filed January 27, 1998)).
10.52 Amendment to the Share Purchase Agreement, dated December 17, 1997,
by and among Xpedite Systems, Inc., Xpedite Systems Holdings (UK)
Limited and the shareholders of Xpedite Systems Limited (incorporated
by reference to Exhibit 10.4 to the Registrant's Quarterly Report on
Form 10-Q for the Quarter ended March 31, 1998.)
Exhibit
Number Description
11.1 Statement re: Computation of Per Share Earnings.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Arthur Andersen LLP.
27.1 Financial Data Schedule for the year ended December 31, 1998.
- - --------
* Confidential treatment has been granted. The copy on file as an exhibit
omits the information subject to the confidentiality request. Such omitted
information has been filed separately with the Commission.