- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-K/A
----------------
[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 January 14,
2000 as reported by The Nasdaq Stock Market's National Market, was
approximately $305,354,170.
As of January 14, 2000 there were 46,977,566 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.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
EXPLANATORY NOTE
This Form 10-K/A is filed by Premiere Technologies, Inc. to amend certain
portions of its Annual Report on Form 10-K for the year ended December 31,
1998, as previously amended by Form 10-K/A filed with the Commission on
April 1, 1999, in response to comments from the Commission.
FORWARD LOOKING STATEMENTS
When used in this Form 10-K/A 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/A;
. 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/A and in documents
incorporated in this Form 10-K/A 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/A. 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/A, or the date of the
statement, if a different date.
PART II
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated balance sheet and statement of
operations data as of and for the years ended December 31, 1998, 1997, 1996
and 1995, and the consolidated balance sheet data as of December 31, 1998 and
1997, have been derived from the audited 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 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.
EBITDA before accrued settlement costs, acquired research and development
costs and restructuring, merger and other special charges is defined as net
income before taxes, other income (expense), interest income (expense),
depreciation and amortization, accrued settlement costs, acquired research and
development costs and restructuring, merger costs and other special charges.
EBITDA before accrued settlement costs, acquired research and development
costs and restructuring, merger and other special charges is considered a key
management performance indicator of financial condition because it excludes
the effects of goodwill and intangible amortization attributable to
acquisitions primarily acquired using the Company's common stock, the effects
of prior years' cash investing and financing activities that affect current
period profitability and the effect of one time cash or non-cash charges
associated with acquisitions and internal exit activities. EBITDA, as defined
by the Company, is used as an indicator of operating cash flow before payments
for interest and taxes. EBITDA before accrued settlement costs, acquired
research and development costs and restructuring, merger and other special
charges may not be comparable to similarly titled measures presented by other
companies and could be misleading unless all companies and analysts calculate
them in the same manner.
1
YEAR ENDED DECEMBER 31
---------------------------------------------------
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)
Statement of Cash Flow
Data:
Cash provided by operating
activities(3)............ 22,248 27,159 36,889 13,559 --
Cash provided by (used) in
investing activities(3).. 21,292 (160,055) (96,112) (13,186) --
Cash provided by financing
activities(3)............ (46,115) 138,730 66,196 3,523 --
- --------
(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).
(3) Cash flow information for 1994 was not available under the pooling of
interests method of accounting as this financial statement was not
required for this year for the Voice-Tel and VoiceCom acquisitions.
2
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 1000 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 intranets" 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 before accrued settlement costs, acquired research and development
costs and restructuring, merger and other special charges is defined as net
income before taxes, other income (expense), interest income (expense),
depreciation and amortization, accrued settlement costs, acquired research and
development costs and restructuring, merger costs and other special charges.
EBITDA before accrued settlement costs, acquired research and development
costs and restructuring, merger and other special charges is considered a key
management performance indicator of financial condition because it excludes
the effects of goodwill and intangible amortization attributable to
acquisitions primarily acquired using the Company's common stock, the effects
of prior years' cash investing and financing activities that affect current
period profitability and the effect of one time cash or non-cash charges
associated with acquisitions and internal exit activities. EBITDA, as defined
by the Company, is used as an indicator of operating cash flow before payments
for interest and taxes. EBITDA before accrued settlement costs, acquired
research and development costs and restructuring, merger and other special
charges may not be comparable to similarly titled measures presented by other
companies and could be misleading unless all companies and analysts calculate
them in the same manner.
3
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.
4
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 ........................ $ 75.7 $ 13.5 $ 5.0
Emerging Enterprise Solutions.......................... 18.7 50.6 28.3
Corporate and eliminations............................. (26.4) -- --
------ ------ ------
Totals................................................. $ 68.0 $ 64.1 $ 33.3
====== ====== ======
5
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(R) suite of product offerings.
The Company anticipates continued growth in operating revenues through
selective acquisitions of complementary businesses, international expansion,
increased sales of existing services and the development of new services. This
anticipated growth is premised on the global demand for a unified solution to
the communication needs of businesses and consumers and the anticipated growth
in that demand. The Company's anticipated future growth is based on a number
of assumptions and estimates that are inherently uncertain and subject to
significant risks and uncertainties, many of which are beyond the Company's
control. See "Special Note Regarding Forward Looking Statements." The Company
cannot provide any assurance to investors that anticipated future growth will
actually occur.
EBITDA before accrued settlement costs, acquired research and development
costs and restructuring, merger and other special charges was $68.0 million or
15.3% of revenues in 1998, $64.1 million or 27.9% of revenues in 1997 and
$33.3 million or 16.9% of revenues in 1996.
EBITDA before accrued settlement costs, acquired research and development
costs and restructuring, merger and other special charges increased as a
percentage of revenue in 1997 as a result of:
. revenue commitments under the strategic alliance agreement with MCI
WorldCom entered into in September of 1996;
. increased wholesale Enhanced Calling Services customers;
. improved per unit telecommunications costs; and
. restructuring efforts from the Voice-Tel and Voice-Com acquisitions in
the second half of 1997.
This increase was partially offset by certain unprofitable prepaid calling
card programs.
EBITDA before accrued settlement costs, acquired research and development
costs and restructuring, merger and other special charges declined as a
percentage of revenue in 1998 as result of:
. the expiration of revenue commitments under the strategic alliance
agreement with MCI WorldCom in September 1998;
. lost revenues and bad debt expenses from the bankruptcy of two wholesale
Enhanced Calling Card customers that began business with the Company in
late 1996;
. the expansion of the Company's management infrastructure; and
. start-up costs associated with the Company's Orchestrate product.
6
This decline was partially offset by the acquisitions of Xpedite in February
1998 and ATS in April 1998, restructuring efforts from the Voice-Tel, VoiceCom
and Xpedite acquisitions and discontinuance of certain unprofitable prepaid
calling card programs.
EBITDA before accrued settlement costs, acquired research and development
costs and restructuring, merger and other special charges is difficult to
predict, and we expect it to fluctuate in the future. If it falls below the
expectations of investors or public market analysts, the price of the
Company's common stock could fall. EBITDA before accrued settlement costs,
acquired research and development costs and restructuring, merger and other
special charges may continue in the future to be lower than historical levels
due to:
. the expiration of revenue commitments under the strategic alliance
agreement with MCIWorldcom in September 1998;
. the continued expansion of the Company's management infrastructure which
began in the second half of 1998; and
. the anticipated start up of the Company's Orchestrate line of business.
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 Enterprise
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 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.
7
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
Note 6--Strategic Alliances and Investments.
Net interest expense increased to $14.7 million in 1998, from $0.9 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 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
8
VoiceCom acquisition in September 1997. The majority of these obligations were
repaid subsequent to the acquisitions.
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 $1.5 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 3 of Part
I 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 acquired research and development was valued using
the income approach, which consisted of estimating the expected after-tax cash
flows attributable to this asset over its life and converting this after-tax
cash flow to present value through discounting. 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 unit 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-
9
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.
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 paid cash 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
10
at this date. See also Note 8--Indebtedness and Note 15--Contingencies and
Commitments in Notes to Consolidated Financial Statements.
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
Between the second quarter of 1997 and the fourth quarter of 1998, Premiere
made several acquisitions, including the acquisitions of Voice-Tel, VoiceCom
and Xpedite. In connection with these acquisitions, management formulated
separate plans to exit activities of those acquired companies or to exit
activities of existing Premiere operations. Premiere also incurred substantial
transaction costs in connection with these acquisitions. Accordingly, Premiere
expensed the costs associated with these management plans and the associated
transaction costs. In the second quarter of 1997, Premiere recorded costs of
$45.4 million in connection with its acquisition of Voice-Tel, which was
accounted for as a pooling-of-interests and is now part of the Emerging
Enterprise Solutions ("EES") operating unit. In the third quarter of 1997,
Premiere recorded costs of $28.2 million in connection with its acquisition of
VoiceCom, which was accounted for as a pooling-of-interests and whose
operations are now part of the Corporate Enterprise Solutions ("CES")
operating unit. In the first quarter of 1998, Premiere recorded costs of $7.5
million associated with management's plan to close existing activities of both
the Voice-Tel and VoiceCom acquisitions that were duplicative of those of
Xpedite and were not part of any exit plans associated with those previous
acquisitions. Also in the first quarter of 1998, Premiere expensed costs to
exit certain activities existing in its Enhanced Calling Card operations that
are currently in the EES operating unit. During the fourth quarter of 1998,
Premiere recorded a $17.8 million write-off as part of management's quarterly
assessment of the carrying value of its strategic investments. Certain
investments were deemed permanently impaired and accordingly written down to
fair value. Also, during the fourth quarter of 1998, management reorganized
Premiere into two operating units, EES and CES. As part of this reorganization
into two business units, management abandoned its earlier plans to integrate
the services and products acquired in the acquisitions of Voice-Tel, VoiceCom
and Xpedite onto a single unified service platform and decided not to exit
certain duplicative services and products. Accordingly, management amended or
ceased certain exit plans that were originally established during these prior
acquisitions resulting in the net reduction of $9.7 million of existing
restructuring reserves. A detailed discussion of the components of the costs
for each of these plans is set forth below.
Voice-Tel Acquisition
In the second quarter of 1997, Premiere recorded restructuring, merger costs
and other special charges of approximately $45.4 million in connection with
its pooling-of-interests with Voice-Tel. These 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. Such amounts consist of $9.5 million of severance and exit costs,
$3.1 million of contractual obligations, $17.2 million of transaction
obligations, $8.6 million of asset impairments and $7 million of other costs,
primarily to exit facilities and certain activities.
Severance and exit costs are attributable to the termination of 234
employees primarily associated with the former owners and administrative
functions of the Voice-Tel franchise organization that management is
reorganizing under a corporate structure. Severance and exit costs are cash
outlays. In 1997 and 1998, Premiere paid severance and exit costs of $4.5
million and $2.0 million, respectively. Employees terminated under this plan
in 1997 and 1998 were 129 and 57, respectively. Total estimated annual savings
from these terminations in
11
1997 and 1998 was approximately $14.2 million. Severance and exit costs
attributable to 48 employees was recognized in the fourth quarter of 1998,
which is discussed below under "--Reorganization of Company into EES and CES
Business Units."
Contractual obligations are primarily lease termination costs associated
with the closure of equipment site locations in the Voice-Tel voice messaging
network. Contractual obligations are cash outlays. In 1997 and 1998, Premiere
paid contractual obligation costs of $0.4 million and $0.2 million,
respectively. In the fourth quarter of 1998, management revised their plan
regarding the equipment site closures by reducing the number of sites to be
closed, as discussed below under "--Reorganization of Company into EES and CES
Business Units."
Transaction obligations are primarily cash outlays for professional services
rendered surrounding the activities of acquiring Voice-Tel and are comprised
of investment banker fees, legal fees, accounting and tax fees and other
consulting services. Premiere paid transaction obligations in 1997 and 1998 of
$13.1 million and $3.5 million, respectively. Management does not anticipate
additional transaction obligation cash outlays beyond 1998.
Asset valuation allowances relate primarily to equipment site locations
associated with the voice messaging network of Voice-Tel. Non-cash asset
write-down's against this valuation allowance in 1997 and 1998 were $0.4
million and $1.4 million, respectively. Management revised their plan in the
fourth quarter of 1998 on equipment site closures by reducing the number of
sites to be closed and, therefore, reversed valuation alowances related to
these assets. Management does not expect any additional write-downs of
equipment beyond 1998 associated with this plan. The annual reduction in
depreciation expense as a result of such disposals is approximately $0.9
million.
Other costs, primarily to exit facilities and certain activities are
primarily related to office closure clean up costs, costs to terminate
contractual arrangements between franchisors and franchisees in the franchise
network, outplacement service costs associated with termination of employees,
costs to consolidate the financial statements of the acquired franchisor and
the related franchisees, and professional fees associated with predecessor
franchise tax and pension matters. All such costs are cash outlays. Premiere
paid other costs in 1997 and 1998 of $6.1 million and $0.9 million,
respectively. Management does not anticipate additional costs beyond 1998
under this plan.
In the fourth quarter of 1998, management revised this plan, as discussed
below under "--Reorganization of Company into EES and CES Business Units." All
cash outlays for this plan were funded from cash flows from operating
activities and cash and marketable securities investments on hand.
VoiceCom Acquisition
In the third quarter of 1997, Premiere recorded restructuring, merger cost
and other special charges of approximately $28.2 million in connection with
its pooling-of-interests with VoiceCom. These charges resulted from
management's plan to restructure VoiceCom's operations by reducing its
workforce, exiting certain facilities, discontinuing duplicative enhanced
calling services and restructuring certain contractual obligations. Such
amounts consist of severance and exit costs of $2.4 million, contractual
obligations of $14.8 million, transaction obligations of $2.9 million, asset
impairments of $4.8 million and other exit costs, primarily to exit facilities
and certain activities of $3.4 million.
Severance and exit costs are attributable to the termination of 84
employees. Severance and exit costs are cash outlays. In 1997 and 1998,
Premiere paid severance and exit costs of $1.2 million and $1.2 million,
respectively, on the termination of the 84 employees. Total estimated
annualized savings from these terminations is approximately $3.0 million.
Contractual obligations consist primarily of lease termination costs to exit
certain facilities, costs associated with payments to shorten the term of a
take or pay telecommunications contract and also to provide for anticipated
volume shortfalls associated with the revised term of this take or pay
contract. In 1997 and 1998, Premiere paid contractual obligations associated
with these lease terminations and the loss contract of $4.1 million and $4.4
million, respectively. During the fourth quarter of 1998, management
negotiated the waiver of the anticipated remaining volume shortfalls and
completed all lease terminations of certain facilities at lower than expected
costs and accordingly reversed any remaining accrued obligations associated
with these contracts. Management's revised plans are discussed below under "--
Reorganization of Company into EES and CES Business Units."
12
Transaction obligations are primarily cash outlays for professional services
rendered surrounding the activities of acquiring VoiceCom and are comprised of
investment banker fees, legal fees, accounting and tax fees and other
consulting services. Premiere paid transaction obligations in 1997 and 1998 of
$2.0 million and $0.7 million, respectively. Management does not anticipate
additional transaction obligation cash outlays beyond 1998.
Asset valuation allowances relate primarily to certain assets related to
both voice messaging and enhanced calling services products and certain
administrative assets associated with facility closures, all of which were
held for disposal. In 1997 and 1998, non-cash write-offs of certain voice
messaging assets and administrative assets were $2.1 million and $1.0 million,
respectively. In the fourth quarter of 1998, management revised their plans
and determined not to exit certain duplicative enhanced calling services and
products and, therefore, reversed all valuation allowances associated with
these assets. Management does not expect additional write-downs of equipment
beyond 1998 associated with this plan. The annual reduction in depreciation
expense as a result of the disposals is approximately $1.0 million.
Other costs, primarily to exit facilities and certain activities is related
to office closure clean up costs and outplacement service costs associated
with termination of employees. All such costs are cash outlays. Premiere paid
other costs in 1997 and 1998 of $2.0 million and $0.7 million, respectively.
In the fourth quarter of 1998, management revised this plan, as discussed
below under "--Reorganization of Company into EES and CES Business Units."
Management does not anticipate additional costs beyond 1998 under this
existing plan. All cash outlays for this plan were funded from cash flows from
operating activities and cash and marketable securities investments on hand.
Xpedite Merger
In the first quarter of 1998, Premiere recorded restructuring, merger and
other special charges of approximately $7.5 million in connection with
management's plan to close existing activities of both the Voice-Tel and
VoiceCom operations that were duplicative of those of Xpedite and were not
part of any exit plans associated with those previous acquisitions. Such
amounts consist of severance and exit costs of $1.8 million, contractual
obligations of $0.4 million, transaction obligations of $0.8 million, asset
impairments of $0.7 million and other exit costs of $3.8 million.
Severance and exit costs consist of the termination of 122 employees
associated with administrative, operations and sales functions of Voice-Tel
and VoiceCom operations that are duplicative of existing Xpedite operations.
The Company paid severance and exit costs of $1.5 million in 1998. Management
terminated 122 employees with annualized salary savings of approximately $6.0
million. Management does not expect any terminations associated with this plan
beyond 1998.
Contractual obligations were associated with lease termination costs of 65
former Voice-Tel and VoiceCom sales locations. Management discontinued this
plan of action in the fourth quarter of 1998 as part of the reorganization of
the Company into the EES and CES business units and, therefore, no lease
termination costs were incurred.
Transaction obligations associated with the merger were related to
consulting fees associated with the termination of the 122 employees. The
Company paid $0.7 million of such fees in 1998. Management does not anticipate
additional costs beyond 1998.
Other exit costs were primarily loss commitments under certain in-flight
magazine advertising contract obligations for enhanced calling services.
During the first quarter of 1998, the Company had determined, based on
internal statistical data used to monitor the effectiveness of these
advertising programs, that customer sign-ups from these in-flight advertising
programs did not generate enough incremental revenue to cover the costs
associated with the advertising. Premiere believed that the cause of this was
the entrance of discount competitors
13
into this market through in-flight magazine advertisements. Therefore, in the
first quarter of 1998 management decided to exit all in-flight advertising
programs for Premiere calling cards. However, these programs had contractual
obligations that extended through the end of the second quarter of 1998.
Accordingly, management reserved for these future losses that would extend
into the second quarter of 1998. Management continued to assess these programs
through the second quarter of 1998 and determined that the facts surrounding
the decision to exit in the first quarter of 1998 had not changed. Other exit
costs also included the estimated aggregate cost to buy out and terminate
certain unfavorable reseller agreements and clean up costs to exit certain
sales offices that were duplicative of existing Xpedite sites following the
Xpedite merger. No additional costs beyond the second quarter of 1998 were
incurred on these programs.
Asset impairments of $0.7 million were attributable to certain switching
equipment related to Voice-Tel that were duplicative of existing equipment at
Xpedite. The Company disposed of this duplicative equipment in 1998.
All cash outlays associated with the above plan were funded from cash flows
from operating activities and cash and marketable securities investments on
hand.
Management Assessment of Carrying Value of Strategic Investments
In the fourth quarter of 1998, Premiere recorded a non cash charge of $17.8
million as part of management's quarterly assessment of the carrying value of
its strategic investments. Premiere recorded a $13.9 million charge to write-
down the value of its strategic alliance intangible asset with MCI WorldCom.
This charge was required based upon management's evaluation of revenue levels
expected from this alliance. The Company reevaluated the carrying value and
remaining life of the MCI WorldCom strategic alliance in light of the
expiration of certain minimum revenue requirements under the strategic
alliance agreement and the level of revenues expected to be achieved from the
alliance following the merger of WorldCom and MCI in the third quarter of
1998. Accordingly, Premiere recorded a write-down in the carrying value of
this investment based on estimated future cash flows discounted at a rate of
12%. In addition, Premiere recorded a charge of $3.9 million to reduce the
carrying value of its investment in certain equity securities to fair market
value. This charge was necessitated based upon management's assessment that
the decline in the value of these securities was not temporary.
Reorganization of Company into EES and CES Business Units
During the fourth quarter of 1998, management reorganized the Company into
two operating units, EES and CES. As part of this reorganization into two
business units, management abandoned its earlier plans to integrate the
services and products acquired in the acquisitions of Voice-Tel, VoiceCom and
Xpedite onto a single unified service platform and decided not to exit certain
duplicative services and products. Accordingly, management amended or ceased
certain exit plans that were originally established in connection with the
prior acquisitions discussed above. The net reduction of $9.7 million in the
fourth quarter of 1998 is comprised of the following expense reversals related
to remaining reserves with respect to the following charges: $12.9 million
related to the Voice-Tel acquisition, $8.0 million related to the VoiceCom
acquisition and $1.1 million related to the first quarter of 1998 charge. In
total, $22.0 million of reserve was reversed, which related to the aggregate
of $81.1 million of charges. Offsetting the $22.0 million of reserve reversals
in the fourth quarter of 1998 was a fourth quarter charge of $12.3 million
that reflected management's revision of the initial restructuring plans
established in connection with each acquisition.
The fourth quarter 1998 net reduction of $3.7 million in asset valuation
allowances is attributable to a reversal of $6.7 million from the Voice-Tel
acquisition, $1.7 million related to the VoiceCom acquisition and an
establishment of new valuation allowances of $4.7 million. The asset valuation
allowances not used as part of the Voice-Tel acquisition related to equipment
sites that management decided in the fourth quarter of 1998 not to close. The
asset valuation allowances not used as part of the VoiceCom acquisition was
related to equipment associated with certain legacy platforms that management
decided not to dispose of in the fourth quarter of 1998.
14
The established new valuation allowances of $4.7 million related to certain
switching equipment associated with the Company's enhanced calling services.
This switching equipment was determined to be no longer operational due to the
reduced volume of business associated with the enhanced calling services
product and is anticipated to be disposed of within twelve months of
management's decision.
The fourth quarter 1998 net increase of $1.6 million in severance and exit
costs is attributable to a reversal of $3.0 million from the Voice-Tel
acquisition, $0.3 million related to the first quarter charge and $4.8 million
related to the establishment of new reserves and portions of various other
reserve reversals. The severance and exit costs not used as part of the Voice-
Tel acquisition relate to management's revision of the plan to exit certain
Voice-Tel regional administrative functions and the Voice-Tel corporate
headquarters in the fourth quarter of 1998. Under the revised plan, additional
headcount reduction and extended timing of the closures were implemented.
Under the revised plan, 48 employees were identified, which was an increase of
20 employees from the original estimate. The annual cost savings from the
revised plan is approximately $2.5 million. Management expects completion of
these exit activities to take 12 months subsequent to the fourth quarter of
1998. The severance and exit costs not used as part of the first quarter
charge relate to management's revision of the plan to exit a certain
operational site. Under the revised plan, management intends to exit this site
within 12 months subsequent to the fourth quarter of 1998. The annual costs
savings from the termination of 19 employees and from this site closure is
anticipated to be approximately $1.0 million. The establishment of additional
severance and exit costs from various other reserve reversals is a result of
management's decision in the fourth quarter of 1998 to terminate 11 managers
associated with the acquisitions of Voice-Tel, VoiceCom and Xpedite. The
estimated annual cost savings from these terminations is approximately $2.5
million. The severance associated with these managers is expected to be paid
over one to three years.
The fourth quarter 1998 net reduction of $8.7 million in contractual
obligations is attributable to a reversal of $2.5 million from the Voice-Tel
acquisition, $6.2 million related to the VoiceCom acquisition, $0.4 million
related to the first quarter charge and an establishment of new reserves of
$0.4 million. The contractual obligations not used as part of the Voice-Tel
acquisition relate to management's decision not to exit certain equipment
sites and the revision of management's plan to exit the Voice-Tel corporate
headquarters. The contractual obligations not used as part of the VoiceCom
acquisition related to costs associated with lease terminations of facilities
at lower than originally estimated costs and management's ability to obtain
future anticipated volume shortfall waivers on the loss telecommunications
contract. The establishment of contractual obligations is associated with
management's plan to exit the Voice-Tel corporate headquarters and a certain
Xpedite operational site. Management expects these revised plans to require a
cash outlay within the next 12 months.
The fourth quarter 1998 net reduction of $0.9 million in transaction
obligations is attributable to a reversal of $0.6 million from the Voice-Tel
acquisition, $0.1 million related to the VoiceCom acquisition and $0.2 million
from the first quarter charge. The reversals related to the Voice-Tel,
VoiceCom and first quarter charge are related to actual payments being less
than anticipated by management's original estimate.
The fourth quarter 1998 net increase of $2.0 million in other costs,
primarily to exit facilities and certain activities, is attributable to a
reversal of approximately $28,000 related to the Voice-Tel acquisition, $0.3
million related to the first quarter charge and $2.3 million related to the
establishment of new reserves and portions of various other reserve reversals.
The reversals related to both the Voice-Tel and first quarter charge are
related to actual payments being less than anticipated by management's
original estimate. The establishment of new reserves of $2.3 million is
attributable to increased estimates of exit costs associated with management's
revised plan to terminate approximately 11 managers associated with previous
acquisitions, the exit of the Voice-Tel corporate headquarters, the exit of
various Voice-Tel regional administrative functions and management's revised
cost estimates on professional fees related to consultation on various
predecessor benefits plans and tax matters related to the Voice-Tel and
VoiceCom acquisitions. Management estimates that all such costs will be cash
outlays, which will be paid in installments over the next 12 to 24 months.
15
The Year 2000 Issue
The term "Year 2000 issue" is a general term used to describe the various
problems that may result from the improper processing of dates and date-
sensitive calculations by computers and other machinery as the Year 2000 is
approached and reached. These problems generally arise from the fact that most
of the world's computer hardware and software has historically used only two
digits to identify the year in a date, often meaning that the computer will
fail to distinguish dates in the "2000s" from dates in the "1900s." These
problems may also arise from other sources as well, such as the use of special
codes and conventions in software that make use of the date field.
The Company's State Of Readiness. The Company has formed a Year 2000
Executive Committee comprised of members of senior management and a Year 2000
Task Force comprised of project leaders for each of the Company's operating
subsidiaries and key corporate functional areas. The Year 2000 Executive
Committee and the Task Force are charged with evaluating the Company's Year
2000 issue and taking appropriate actions so that the Company will incur
minimal disruption from the Year 2000 issue ("Year 2000 ready"). The Year 2000
Task Force has developed and is implementing a comprehensive initiative (the
"Initiative") to make the Company's necessary software applications and/or
systems ("Software Applications") and hardware platforms ("Hardware
Platforms") Year 2000 ready. The Initiative covers the following seven phases:
(i) inventory of all appropriate Software Applications and Hardware Platforms,
(ii) assessment of appropriate repair requirements, (iii) repair or
replacement of Software Applications and Hardware Platforms, where
appropriate, (iv) researching and/or testing of appropriate individual
Software Applications and Hardware Platforms to determine correct manipulation
of dates and date-related data regarding the Year 2000 issue, (v)
certification by users or testers within the Company that such Software
Applications and Hardware Platforms appropriately handle dates and date-
related data regarding the Year 2000 issue, (vi) appropriate system
integration testing of multiple Software Applications and Hardware Platforms
to determine correct manipulation of dates and date-related data regarding the
Year 2000 issue, and (vii) creation of commercially reasonable contingency
plans in the event certain Year 2000 readiness efforts fail. The Company is
aware that some of its Hardware Platforms contain embedded microprocessors and
it has included the repair or replacement of such embedded microprocessors as
part of the Initiative.
The Company retained a nationally recognized independent consultant
("Consultant") to assist in assessing and recommending revisions to the
Initiative, and such recommendations have been taken into consideration in
developing the Initiative. The Company will periodically review its progress
with respect to the Initiative as the Year 2000 is approached and reached.
This periodic review by the Company will include additional adjustments to the
Initiative, as required.
The Company has materially completed the first six phases of the Initiative
for certain of its Software Applications and Hardware Platforms. While each of
the Company's operating subsidiaries is at a different stage of completion of
the Initiative, the Initiative calls for a majority of the Company's operating
subsidiaries to complete the first six phases of the Initiative by June 30,
1999. In one operating subsidiary, one operational challenge not related to
Year 2000 has the potential to delay the completion of software deployment in
one subsystem into third quarter of 1999. Two contingency plans are being
pursued in parallel with the primary initiative to insure that there is
minimal impact on customers' use of the Company's services. The system
integration testing of Software Applications and Hardware Platforms required
by phase (vi) of the Initiative has begun with respect to some of the
Company's business activities. The Initiative calls for initiation of final
testing throughout the Company by no later than the middle of the second
quarter of 1999.
In the process of assessing the Year 2000 readiness of Software Applications
and Hardware Platforms as required by phase (ii) of the Initiative, the
Company has communicated with many of its suppliers of Software Applications
and Hardware Platforms to determine (1) whether the Software Applications and
Hardware Platforms provided to the Company will correctly manipulate dates and
date-related data as the Year 2000 is approached and reached, and (2) whether
the suppliers will solve their Year 2000 problems in order to continue
providing the Company products and services as the Year 2000 is approached and
reached. The Company has
16
received verification that the majority of suppliers' Software Applications
and Hardware Platforms, with appropriate "version modification," will
correctly manipulate dates and date-related data as the Year 2000 is
approached and reached. If a supplier informs the Company that it will not
appropriately rectify its Year 2000 issues, then the Company will use that
information to develop appropriate contingency plans as required by phase
(vii) of the Initiative. As a general matter, the company may be vulnerable to
a supplier's inability to remedy its own Year 2000 issues. Other than the
Company's own remediation efforts, there can be no assurance that the Software
Applications and Hardware Platforms supplied by third parties on which the
Company's business relies will correctly manipulate dates and date-related
data as the Year 2000 is approached and reached. Such failures could have a
material adverse effect on the Company's business, financial condition and
results of operations.
To operate its business, the Company relies upon providers of
telecommunication services, government agencies, utility companies and other
third party service providers ("External Providers"), over which it can assert
little control. If the inability of any of these entities to correct their
Year 2000 issues results in a failure to provide the Company's services, the
Company's operations may be materially adversely impacted and may result in a
material adverse effect on the Company's business, financial condition and
results of operations. The Company depends upon telecommunications carriers to
conduct its business and is heavily dependent upon the ability of such
telecommunications carriers to correctly fix their Year 2000 issues. If
telecommunications carriers and other External Providers do not appropriately
rectify their Year 2000 issues and are unable to provide the Company services,
the Company's ability to conduct its business may be materially impacted,
which could result in a material adverse effect on the Company's business,
financial condition and results of operations.
A significant portion of the Company's business is conducted outside of the
United States. External Providers located outside of the United States may
face significantly more severe Year 2000 issues than similar entities located
in the United States. If such External Providers located outside the United
States are unable to rectify their Year 2000 issues, the Company may be unable
to effectively conduct the international portion of its business, which could
result in a material adverse effect on the Company's business, financial
condition and results of operations.
Costs to Address the Company's Year 2000 Issues. Thus far the majority of
the work on the Initiative has been performed by the Company's employees and
subcontractors, which has limited the cost spent to date. The Company
estimates that the total historical and future costs of implementing the
Initiative will be approximately $7 million, the majority of which relate to
capital expenditures. However, because the Initiative may undergo changes as a
result of many factors, including but not limited to, the results of any phase
of the Initiative, the Company's periodic review of its progress or
recommendations of the Consultant, the Company's estimate of the total cost of
implementation may be revised as the Initiative progresses. In the event such
costs need to be revised, such revised costs could have a material adverse
effect on the Company's financial condition and results of operations. The
Company will fund the costs of implementing the Initiative from cash flows.
The Company has not deferred any specific information technology project as a
result of the implementation of the Initiative. The Company does not expect
that the opportunity cost of implementation of the Initiative will have a
material effect on the financial condition of the Company or its results of
operations.
Risks Presented by Year 2000 Issues. Until system integration testing is
substantially complete, the Company cannot fully estimate the risks of its
Year 2000 issue. As a result of system integration testing, the Company may
identify business activities that are at risk of Year 2000 disruption. The
absence of any such determination at this point represents only the status
currently in the implementation of the Initiative, and should not be construed
to mean that there is no business activity which is at risk of a Year 2000
related disruption. It is possible that one or more disruptions to a major
business activity could have a material adverse effect on the Company's
business, financial condition and results of operations. In addition, as noted
above, many of the Company's business critical External Providers may not
appropriately address their Year 2000 issues, the result of which could have a
material adverse effect on the Company's business, financial condition and
results of operations.
17
The Company's Contingency Plans. The Initiative includes the development of
commercially reasonable contingency plans for business activities that are
susceptible to a substantial risk of a disruption resulting from a Year 2000
related event. Because the Company has not fully assessed its risk from
potential Year 2000 failures, the Company has not yet developed detailed
contingency plans specific to Year 2000 events for any business activity. The
Company is aware of the possibility that certain business activities may be
hereafter identified as at risk. Consistent with the Initiative, the Company
is developing contingency plans for such business activities as and if such
determinations are made.
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;
18
. 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.
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 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.
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
enhanced travel, concierge, news and e-mail services compete with services
provided by America Online, Prodigy and numerous Internet service providers.
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 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.
19
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.
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.
20
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).
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.
21
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.
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.
22
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
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 technical 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 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
23
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
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
24
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 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. There can be no assurance 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 and Network Infrastructure 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
25
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 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
26
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
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."
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 "Business--
Proprietary Rights and Technology." 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;
27
. 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(R) 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
28
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 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
29
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.
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 and 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.
30
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.
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 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
31
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 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.
32
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 its 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 has
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 derivatives 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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Premiere Technologies, Inc. and Subsidiaries Index to Consolidated Financial
Statements
Report of Independent Public Accountants.................................. 34
Consolidated Balance Sheets, December 31, 1998 and 1997................... 35
Consolidated Statements of Operations, Years Ended December 31, 1998, 1997
and 1996................................................................. 36
Consolidated Statements of Shareholders' Equity (Deficit), Years Ended
December 31, 1998, 1997 and 1996......................................... 37
Consolidated Statements of Cash Flows, Years Ended December 31, 1998, 1997
and 1996................................................................. 38
Notes to Consolidated Financial Statements................................ 39
33
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
34
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, merger costs and other special
charges................................................. 7,545 28,283
-------- --------
Total current liabilities............................... 218,363 101,970
-------- --------
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 2,533
Deferred income taxes, net............................... 4,162 --
-------- --------
Total long-term liabilities............................. 183,494 178,324
-------- --------
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.
35
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.
36
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
loss............
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) $ -- $(152,844) $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
loss............ (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.
37
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.
38
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. Accordingly, the Company has restated its
unaudited interim financial statements. 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
39
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
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 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
As permitted under the provisions of SFAS No. 123, "Accounting for Stock-
Based Compensation," the Company has elected to apply Accounting Principles
Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees."
Accordingly, no compensation expense is recorded for stock based awards issued
at
40
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 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
======== ====== ====== ======== ====== ====== ====== ====== =====
41
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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).
New Accounting Pronouncements
In June 1998, 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.
42
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
3. RESTRUCTURING, MERGER COSTS AND OTHER SPECIAL CHARGES
Between the second quarter of 1997 and the fourth quarter of 1998, Premiere
made several acquisitions, including the acquisitions of Voice-Tel, VoiceCom
and Xpedite. In connection with these acquisitions, management formulated
separate plans to exit activities of those acquired companies or to exit
activities of existing Premiere operations. Premiere also incurred substantial
transaction costs in connection with these acquisitions. Accordingly, Premiere
expensed the costs associated with these management plans and the associated
transaction costs. In the second quarter of 1997, Premiere recorded costs of
$45.4 million in connection with its acquisition of Voice-Tel, which was
accounted for as a pooling-of-interests and is now part of the Emerging
Enterprise Solutions ("EES") operating unit. In the third quarter of 1997,
Premiere recorded costs of $28.2 million in connection with its acquisition of
VoiceCom, which was accounted for as a pooling-of-interests and whose
operations are now part of the Corporate Enterprise Solutions ("CES")
operating unit. In the first quarter of 1998, Premiere recorded costs of $7.5
million associated with management's plan to close existing activities of both
the Voice-Tel and VoiceCom acquisitions that were duplicative of those of
Xpedite and were not part of any exit plans associated with those previous
acquisitions. Also in the first quarter of 1998, Premiere expensed costs to
exit certain activities existing in its Enhanced Calling Card operations that
are currently in the EES operating unit. During the fourth quarter of 1998,
Premiere recorded a $17.8 million write-off as part of management's quarterly
assessment of the carrying value of its strategic investments. Certain
investments were deemed permanently impaired and accordingly written down to
fair value. Also, during the fourth quarter of 1998, management reorganized
Premiere into two operating units, EES and CES. As part of this reorganization
into two business units, management abandoned its earlier plans to integrate
the services and products acquired in the acquisitions of Voice-Tel, VoiceCom
and Xpedite onto a single unified service platform and decided not to exit
certain duplicative services and products. Accordingly, management amended or
ceased certain exit plans that were originally established during these prior
acquisitions resulting in the net reduction of $9.7 million of existing
restructuring reserves. A detailed discussion of the components of the costs
for each of these plans is set forth below.
Voice-Tel Acquisition
In the second quarter of 1997, Premiere recorded restructuring, merger costs
and other special charges of approximately $45.4 million in connection with
its pooling-of-interests with Voice-Tel. These 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. Such amounts consist of $9.5 million of severance and exit costs,
$3.1 million of contractual obligations, $17.2 million of transaction
obligations, $8.6 million of asset impairments and $7 million of other costs,
primarily to exit facilities and certain activities.
Severance and exit costs are attributable to the termination of 234
employees primarily associated with the former owners and administrative
functions of the Voice-Tel franchise organization that management is
reorganizing under a corporate structure. Severance and exit costs are cash
outlays. In 1997 and 1998, Premiere paid severance and exit costs of $4.5
million and $2.0 million, respectively. Employees terminated under this plan
in 1997 and 1998 were 129 and 57, respectively. Total estimated annual savings
from these terminations in 1997 and 1998 was approximately $14.2 million.
Severance and exit costs attributable to 48 employees was recognized in the
fourth quarter of 1998, which is discussed below under "--Reorganization of
Company into EES and CES Business Units."
Contractual obligations are primarily lease termination costs associated
with the closure of equipment site locations in the Voice-Tel voice messaging
network. Contractual obligations are cash outlays. In 1997 and 1998, Premiere
paid contractual obligation costs of $0.4 million and $0.2 million,
respectively. In the fourth quarter of 1998, management revised their plan
regarding the equipment site closures by reducing the number of sites to be
closed, as discussed below under "--Reorganization of Company into EES and CES
Business Units."
43
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Transaction obligations are primarily cash outlays for professional services
rendered surrounding the activities of acquiring Voice-Tel and are comprised
of investment banker fees, legal fees, accounting and tax fees and other
consulting services. Premiere paid transaction obligations in 1997 and 1998 of
$13.1 million and $3.5 million, respectively. Management does not anticipate
additional transaction obligation cash outlays beyond 1998.
Asset valuation allowances relate primarily to equipment site locations
associated with the voice messaging network of Voice-Tel. Non-cash asset
write-down's against this valuation allowance in 1997 and 1998 were
$0.4 million and $1.4 million, respectively. Management revised their plan in
the fourth quarter of 1998 on equipment site closures by reducing the number
of sites to be closed and, therefore, reversed valuation allowances related to
these assets. Management does not expect any additional write-downs of
equipment beyond 1998 associated with this plan. The annual reduction in
depreciation expense as a result of such disposals is approximately $0.9
million.
Other costs, primarily to exit facilities and certain activities are
primarily related to office closure clean up costs, costs to terminate
contractual arrangements between franchisors and franchisees in the franchise
network, outplacement service costs associated with termination of employees,
costs to consolidate the financial statements of the acquired franchisor and
the related franchises, and professional fees associated with predecessor
franchise tax and pension matters. All such costs are cash outlays. Premiere
paid other costs in 1997 and 1998 of $6.1 million and $0.9 million,
respectively. Management does not anticipate additional costs beyond 1998
under this plan.
In the fourth quarter of 1998, management revised this plan, as discussed
below under "--Reorganization of Company into EES and CES Business Units." All
cash outlays for this plan were funded from cash flows from operating
activities and cash and marketable securities investments on hand.
VoiceCom Acquisition
In the third quarter of 1997, Premiere recorded restructuring, merger cost
and other special charges of approximately $28.2 million in connection with
its pooling-of-interests with VoiceCom. These charges resulted from
management's plan to restructure VoiceCom's operations by reducing its
workforce, exiting certain facilities, discontinuing duplicative enhanced
calling services and restructuring certain contractual obligations. Such
amounts consist of severance and exit costs of $2.4 million, contractual
obligations of $14.8 million, transaction obligations of $2.9 million, asset
impairments of $4.8 million and other exit costs, primarily to exit facilities
and certain activities of $3.4 million.
Severance and exit costs are attributable to the termination of 84
employees. Severance and exit costs are cash outlays. In 1997 and 1998,
Premiere paid severance and exit costs of $1.2 million and $1.2 million,
respectively, on the termination of the 84 employees. Total estimated
annualized savings from these terminations is approximately $3.0 million.
Contractual obligations consist primarily of lease termination costs to exit
certain facilities, costs associated with payments to shorten the term of a
take or pay telecommunications contract and also to provide for anticipated
volume shortfalls associated with the revised term of this take or pay
contract. In 1997 and 1998, Premiere paid contractual obligations associated
with these lease terminations and the loss contract of $4.1 million and $4.4
million, respectively. During the fourth quarter of 1998, management
negotiated the waiver of the anticipated remaining volume shortfalls and
completed all lease terminations of certain facilities at lower than expected
costs and accordingly reversed any remaining accrued obligations associated
with these contracts. Management's revised plans are discussed below under "--
Reorganization of Company into EES and CES Business Units."
Transaction obligations are primarily cash outlays for professional services
rendered surrounding the activities of acquiring VoiceCom and are comprised of
investment banker fees, legal fees, accounting and tax
44
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
fees and other consulting services. Premiere paid transaction obligations in
1997 and 1998 of $2.0 million and $0.7 million, respectively. Management does
not anticipate additional transaction obligation cash outlays beyond 1998.
Asset valuation allowances relate primarily to certain assets related to
both voice messaging and enhanced calling services products and certain
administrative assets associated with facility closures, all of which were
held for disposal. In 1997 and 1998, non-cash write-offs of certain voice
messaging assets and administrative assets were $2.1 million and $1.0 million,
respectively. In the fourth quarter of 1998, management revised their plans
and determined not to exit certain duplicative enhanced calling services and
products and, therefore, reversed all valuation allowances associated with
these assets. Management does not expect additional write-downs of equipment
beyond 1998 associated with this plan. The annual reduction in depreciation
expense as a result of the disposals is approximately $1.0 million.
Other costs, primarily to exit facilities and certain activities is related
to office closure clean up costs and outplacement service costs associated
with termination of employees. All such costs are cash outlays. Premiere paid
other costs in 1997 and 1998 of $2.0 million and $0.7 million, respectively.
In the fourth quarter of 1998, management revised this plan, as discussed
below under "--Reorganization of Company into EES and CES Business Units."
Management does not anticipate additional costs beyond 1998 under this
existing plan. All cash outlays for this plan were funded from cash flows from
operating activities and cash and marketable securities investments on hand.
Xpedite Merger
In the first quarter of 1998, Premiere recorded restructuring, merger and
other special charges of approximately $7.5 million in connection with
management's plan to close existing activities of both the Voice-Tel and
VoiceCom operations that were duplicative of those of Xpedite and were not
part of any exit plans associated with those previous acquisitions. Such
amounts consist of severance and exit costs of $1.8 million, contractual
obligations of $0.4 million, transaction obligations of $0.8 million, asset
impairments of $0.7 million and other exit costs of $3.8 million.
Severance and exit costs consist of the termination of 122 employees
associated with administrative, operations and sales functions of Voice-Tel
and VoiceCom operations that are duplicative of existing Xpedite operations.
The Company paid severance and exit costs of $1.5 million in 1998. Management
terminated 122 employees with annualized salary savings of approximately $6.0
million. Management does not expect any terminations associated with this plan
beyond 1998.
Contractual obligations were associated with lease termination costs of 65
former Voice-Tel and VoiceCom sales locations. Management discontinued this
plan of action in the fourth quarter of 1998 as part of the reorganization of
the Company into the EES and CES business units and, therefore, no lease
termination costs were incurred.
Transaction obligations associated with the merger were related to
consulting fees associated with the termination of the 122 employees. The
Company paid $0.7 million of such fees in 1998. Management does not anticipate
additional costs beyond 1998.
Other exit costs were primarily loss commitments under certain in-flight
magazine advertising contract obligations for enhanced calling services.
During the first quarter of 1998, the Company had determined,
45
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
based on internal statistical data used to monitor the effectiveness of these
advertising programs, that customer sign-ups from these in-flight advertising
programs did not generate enough incremental revenue to cover the costs
associated with the advertising. Premiere believed that the cause of this was
the entrance of discount competitors into this market through in-flight
magazine advertisements. Therefore, in the first quarter of 1998 management
decided to exit all in-flight advertising programs for Premiere calling cards.
However, these programs had contractual obligations that extended through the
end of the second quarter of 1998. Accordingly, management reserved for these
future losses that would extend into the second quarter of 1998. Management
continued to assess these programs through the second quarter of 1998 and
determined that the facts surrounding the decision to exit in the first
quarter of 1998 had not changed. Other exit costs also included the estimated
aggregate cost to buy out and terminate certain unfavorable reseller
agreements and clean up costs to exit certain sales offices that were
duplicative of existing Xpedite sites following the Xpedite merger. No
additional costs beyond the second quarter of 1998 were incurred on these
programs.
Asset impairments of $0.7 million were attributable to certain switching
equipment related to Voice-Tel that were duplicative of existing equipment at
Xpedite. The Company disposed of this duplicative equipment in 1998.
All cash outlays associated with the above plan were funded from cash flows
from operating activities and cash and marketable securities investments on
hand.
Management Assessment of Carrying Value of Strategic Investments
In the fourth quarter of 1998, Premiere recorded a non cash charge of $17.8
million as part of management's quarterly assessment of the carrying value of
its strategic investments. Premiere recorded a $13.9 million charge to write-
down the value of its strategic alliance intangible asset with MCI WorldCom.
This charge was required based upon management's evaluation of revenue levels
expected from this alliance. The Company reevaluated the carrying value and
remaining life of the MCI WorldCom strategic alliance in light of the
expiration of certain minimum revenue requirements under the strategic
alliance agreement and the level of revenues expected to be achieved from the
alliance following the merger of WorldCom and MCI in the third quarter of
1998. Accordingly, Premiere recorded a write-down in the carrying value of
this investment based on estimated future cash flows discounted at a rate of
12%. In addition, Premiere recorded a charge of $3.9 million to reduce the
carrying value of its investment in certain equity securities to fair market
value. This charge was necessitated based upon management's assessment that
the decline in the value of these securities was not temporary.
Reorganization of Company into EES and CES Business Units
During the fourth quarter of 1998, management reorganized the Company into
two operating units, EES and CES. As part of this reorganization into two
business units, management abandoned its earlier plans to integrate the
services and products acquired in the acquisitions of Voice-Tel, VoiceCom and
Xpedite onto a single unified service platform and decided not to exit certain
duplicative services and products. Accordingly, management amended or ceased
certain exit plans that were originally established in connection with the
prior acquisitions discussed above. The net reduction of $9.7 million in the
fourth quarter of 1998 is comprised of the following expense reversals related
to remaining reserves with respect to the following charges: $12.9 million
related to the Voice-Tel acquisition, $8.0 million related to the VoiceCom
acquisition and $1.1 million related to the first quarter of 1998 charge. In
total, $22.0 million of reserve was reversed, which related to the aggregate
of $81.1 million of charges. Offsetting the $22.0 million of reserve reversals
in the fourth quarter of 1998 was a fourth quarter charge of $12.3 million
that reflected management's revision of the initial restructuring plans
established in connection with each acquisition.
The fourth quarter 1998 net reduction of $3.7 million in asset valuation
allowances is attributable to a reversal of $6.7 million from the Voice-Tel
acquisition, $1.7 million related to the VoiceCom acquisition and an
establishment
46
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
of new valuation allowances of $4.7 million. The asset valuation allowances
not used as part of the Voice-Tel acquisition related to equipment sites that
management decided in the fourth quarter of 1998 not to close. The asset
valuation allowances not used as part of the VoiceCom acquisition was related
to equipment associated with certain legacy platforms that management decided
not to dispose of in the fourth quarter of 1998. The established $4.7 million
of new valuation allowances related to certain switching equipment associated
with the Company's enhanced calling services. This switching equipment was
determined to be no longer operational due to the reduced volume of business
associated with the enhanced calling services product and is anticipated to be
disposed of within twelve months of management's decision.
The fourth quarter 1998 net increase of $1.6 million in severance and exit
costs is attributable to a reversal of $3.0 million from the Voice-Tel
acquisition, $0.3 million related to the first quarter charge and $4.8 million
related to the establishment of new reserves and portions of various other
reserve reversals. The severance and exit costs not used as part of the Voice-
Tel acquisition relate to management's revision of the plan to exit certain
Voice-Tel regional administrative functions and the Voice-Tel corporate
headquarters in the fourth quarter of 1998. Under the revised plan, additional
headcount reduction and extended timing of the closures were implemented.
Under the revised plan, 48 employees were identified, which was an increase of
20 employees from the original estimate. The annual cost savings from the
revised plan is approximately $2.5 million. Management expects completion of
these exit activities to take 12 months subsequent to the fourth quarter of
1998. The severance and exit costs not used as part of the first quarter
charge relate to management's revision of the plan to exit a certain
operational site. Under the revised plan, management intends to exit this site
within 12 months subsequent to the fourth quarter of 1998. The annual costs
savings from the termination of 19 employees and from this site closure is
anticipated to be approximately $1.0 million. The establishment of additional
severance and exit costs from various other reserve reversals is a result of
management's decision in the fourth quarter of 1998 to terminate 11 managers
associated with the acquisitions of Voice-Tel, VoiceCom and Xpedite. The
estimated annual cost savings from these terminations is approximately $2.5
million. The severance associated with these managers is expected to be paid
over one to three years.
The fourth quarter 1998 net reduction of $8.7 million in contractual
obligations is attributable to a reversal of $2.5 million from the Voice-Tel
acquisition, $6.2 million related to the VoiceCom acquisition, $0.4 million
related to the first quarter charge and an establishment of new reserves of
$0.4 million. The contractual obligations not used as part of the Voice-Tel
acquisition relate to management's decision not to exit certain equipment
sites and the revision of management's plan to exit the Voice-Tel corporate
headquarters. The contractual obligations not used as part of the VoiceCom
acquisition related to costs associated with lease terminations of facilities
at lower than originally estimated costs and management's ability to obtain
future anticipated volume shortfall waivers on the loss telecommunications
contract. The establishment of contractual obligations is associated with
management's plan to exit the Voice-Tel corporate headquarters and a certain
Xpedite operational site. Management expects these revised plans to require a
cash outlay within the next 12 months.
The fourth quarter 1998 net reduction of $0.9 million in transaction
obligations is attributable to a reversal of $0.6 million from the Voice-Tel
acquisition, $0.1 million related to the VoiceCom acquisition and $0.2 million
from the first quarter charge. The reversals related to the Voice-Tel,
VoiceCom and first quarter charge are related to actual payments being less
than anticipated by management's original estimate.
The fourth quarter 1998 net increase of $2.0 million in other costs,
primarily to exit facilities and certain activities, is attributable to a
reversal of approximately $28,000 related to the Voice-Tel acquisition, $0.3
million related to the first quarter charge and $2.3 million related to the
establishment of new reserves and portions of various other reserve reversals.
The reversals related to both the Voice-Tel and first quarter charge are
related to
47
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
actual payments being less than anticipated by management's original estimate.
The establishment of new reserves of $2.3 million is attributable to increased
estimates of exit costs associated with management's revised plan to terminate
approximately 11 managers associated with previous acquisitions, the exit of
the Voice-Tel corporate headquarters, the exit of various Voice-Tel regional
administrative functions and management's revised cost estimates on
professional fees related to consultation on various predecessor benefits
plans and tax matters related to the Voice-Tel and VoiceCom acquisitions.
Management estimates that all such costs will be cash outlays, which will be
paid in installments over the next 12 to 24.
Reserves for restructuring, merger costs and other special costs and charges
against operations for each restructuring plan for the years ended December
31, 1997 and 1998 are as follows (in thousands):
Accrued Accrued Accrued
Costs at 1997 Costs at 1998 Reversal and Costs at
December Charge To Costs December Charge To Costs Establishment December
Voice-Tel Merger 31, 1996 Operations Incurred 31, 1997 Operations Incurred of Charge, Net 31, 1998
- ---------------- -------- ----------- -------- -------- ------------- -------- -------------- --------
Valuation allowance--
property and
equipment.............. -- 8,601 428 8,173 -- 1,435 (6,738) --
--- ------ ------ ------ --- ------ ------- ---
Accrued restructuring,
merger costs and other
special charges
Severance and exit
costs................. -- 9,514 4,526 4,988 -- 2,012 (2,977) (1)
Contractual
obligations........... -- 3,130 446 2,684 -- 163 (2,521) --
Transaction
obligations........... -- 17,165 13,051 4,114 -- 3,497 (617) --
Other.................. -- 7,013 6,077 936 -- 908 (28) --
--- ------ ------ ------ --- ------ ------- ---
Accrued restructuring,
merger costs and other
special charges........ -- 36,822 24,100 12,722 -- 6,580 (6,143) (1)
--- ------ ------ ------ --- ------ ------- ---
Total restructuring,
merger costs and other
special charges
activity............... -- 45,423 24,528 20,895 -- 8,015 (12,881) (1)
=== ====== ====== ====== === ====== ======= ===
Accrued Accrued Accrued
Costs at 1997 Charge Costs at Reversal and Costs at
December To Costs December 1998 Charge Costs Establishment December
Voice-Com Merger 31, 1996 Operations Incurred 31, 1997 To Operations Incurred of Charge, Net 31, 1998
- ---------------- -------- ----------- -------- -------- ------------- -------- -------------- --------
Valuation allowance--
property and
equipment.............. -- 4,800 2,142 2,658 -- 1,007 (1,651) --
--- ------ ------ ------ --- ------ ------- ---
Accrued restructuring,
merger costs and other
special charges
Severance and exit
costs................. -- 2,367 1,154 1,213 -- 1,213 -- --
Contractual
obligations........... -- 14,781 4,111 10,670 -- 4,446 (6,224) --
Transaction
obligations........... -- 2,850 2,024 826 -- 731 (95) --
Other.................. -- 3,376 524 2,852 -- 2,852 -- --
--- ------ ------ ------ --- ------ ------- ---
Accrued restructuring,
merger costs and other
special charges........ -- 23,374 7,813 15,561 -- 9,242 (6,319) --
--- ------ ------ ------ --- ------ ------- ---
Total restructuring,
merger costs and other
special charges
activity............... -- 28,174 9,955 18,219 -- 10,249 (7,970) --
=== ====== ====== ====== === ====== ======= ===
48
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Accrued Accrued Accrued
Costs at 1997 Costs at 1998 Reversal and Costs at
December Charge To Costs December Charge To Costs Establishment of December
Xpedite Merger 31, 1996 Operations Incurred 31, 1997 Operations Incurred Charge, Net 31, 1998
- -------------- -------- ---------- -------- -------- ---------- -------- ---------------- --------
Valuation allowance--
property and equipment.. -- -- -- -- 707 707 -- --
---- ---- ---- ---- ------ ------ ------ ------
Accrued restructuring,
merger costs and other
special charges
Severance and exit
costs.................. -- -- -- -- 1,778 1,485 (293) --
Contractual
obligations............ -- -- -- -- 390 -- (390) --
Transaction
obligations............ -- -- -- -- 833 681 (152) --
Other................... -- -- -- -- 3,837 3,549 (288) --
---- ---- ---- ---- ------ ------ ------ ------
Accrued restructuring,
merger costs and other
special charges........ -- -- -- -- 6,838 5,715 (1,123) --
---- ---- ---- ---- ------ ------ ------ ------
Total restructuring,
merger costs and other
special charges
activity................ -- -- -- -- 7,545 6,422 (1,123) --
==== ==== ==== ==== ====== ====== ====== ======
Accrued Accrued Accrued
Management Assessment of Costs at 1997 Costs at 1998 Reversal and Costs at
Carrying Value of December Charge To Costs December Charge To Costs Establishment of December
Strategic Investments 31, 1996 Operations Incurred 31, 1997 Operations Incurred Charge, Net 31, 1998
- ------------------------ -------- ---------- -------- -------- ---------- -------- ---------------- --------
Asset Impairment in
Strategice Investments.. -- -- -- -- 17,777 17,777 -- --
---- ---- ---- ---- ------ ------ ------ ------
Accrued restructuring,
merger costs and other
special charges
Severance and exit
costs.................. -- -- -- -- -- -- -- --
Contractual
obligations............ -- -- -- -- -- -- -- --
Transaction
obligations............ -- -- -- -- -- -- -- --
Other................... -- -- -- -- -- -- -- --
---- ---- ---- ---- ------ ------ ------ ------
Accrued restructuring,
merger costs and other
special charges........ -- -- -- -- -- -- -- --
---- ---- ---- ---- ------ ------ ------ ------
Total restructuring,
merger costs and other
special charges
activity................ -- -- -- -- 17,777 17,777 -- --
==== ==== ==== ==== ====== ====== ====== ======
Accrued Accrued Accrued
Reorganization of Company Costs at 1997 Costs at 1998 Reversal and Costs at
into EES and CES Business December Charge To Costs December Charge To Costs Establishment of December
Groups 31, 1996 Operations Incurred 31, 1997 Operations Incurred Charge, Net 31, 1998
- ------------------------- -------- ---------- -------- -------- ---------- -------- ---------------- --------
Valuation allowance--
property and equipment.. -- -- -- -- -- -- 4,722 4,722
---- ---- ---- ---- ------ ------ ------ ------
Accrued restructuring,
merger costs and other
special charges
Severance and exit
costs.................. -- -- -- -- -- -- 4,837 4,837
Contractual
obligations............ -- -- -- -- -- -- 417 417
Transaction
obligations............ -- -- -- -- -- -- -- --
Other................... -- -- -- -- -- -- 2,292 2,292
---- ---- ---- ---- ------ ------ ------ ------
Accrued restructuring,
merger costs and other
special charges........ -- -- -- -- -- -- 7,546 7,546
---- ---- ---- ---- ------ ------ ------ ------
Total restructuring,
merger costs and other
special charges
activity................ -- -- -- -- -- -- 12,268 12,268
==== ==== ==== ==== ====== ====== ====== ======
49
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Accrued Accrued Accrued
Costs at 1997 Costs at 1998 Reversal and Costs at
December Charge To Costs December Charge To Costs Establishment of December
Consolidated 31, 1996 Operations Incurred 31, 1997 Operations Incurred Charge, Net 31, 1998
- ------------ -------- ---------- -------- -------- ---------- -------- ---------------- --------
Valuation allowance--
property and equip-
ment................... -- 13,401 2,570 10,831 18,484 20,926 (3,667) 4,722
---- ------ ------ ------ ------ ------ ------ ------
Accrued restructuring,
merger costs and other
special charges
Severance and exit
costs................. -- 11,881 5,680 6,201 1,778 4,710 1,567 4,836
Contractual
obligations........... -- 17,911 4,557 13,354 390 4,609 (8,718) 417
Transaction
obligations........... -- 20,015 15,075 4,940 833 4,909 (864) --
Other.................. -- 10,389 6,601 3,788 3,837 7,309 1,976 2,292
---- ------ ------ ------ ------ ------ ------ ------
Accrued restructuring,
merger costs and other
special charges....... -- 60,196 31,913 28,283 6,838 21,537 (6,039) 7,545
---- ------ ------ ------ ------ ------ ------ ------
Total restructuring,
merger costs and other
special charges
activity............... -- 73,597 34,483 39,114 25,322 42,463 (9,706) 12,267
==== ====== ====== ====== ====== ====== ====== ======
1998 Charge To
Operations............. 25,322
Q4 1998 Reversal and Es-
tablishment of Charge,
Net.................... (9,706)
------
1998 Restructuring
merger costs and other
special charges........ 15,616
======
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 712,000 shares of Premiere
common stock and cash consideration of approximately $22.1 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.
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 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 as follows (in thousands):
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
========
50
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The customer lists, developed technology and acquired research and
development were valued using the income approach, which consisted of
estimating the expected after-tax cash flows to present values through
discounting. The assembled workforce was valued using a cost approach, which
estimates the cost to replace the asset. 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. The acquired research
and development 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 Company expects to complete the
job monitor project during 1999 and anticipates that the cost to complete will
be approximately $350,000. 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 a discount
rate of 25% was used.
The developed technology is a software program called the job monitoring
system and related technologies that are primarily related to the Xpedite
document delivery system. This software and the related hardware is the basis
for Xpedite's enhanced facsimile delivery service.
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.
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.
51
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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
========
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 (valued at the close of market on
September 18, 1996 at approximately $11.2 million) 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.
The acquired research and development was valued using the income approach,
which consisted of estimating the expected after-tax cash flows attributable
to this asset over its life and converting this after-tax cash flow to present
value through discounting.
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)
52
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 $45.3 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.
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
53
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
approximately $25.2 million (based on the average closing price of Premiere's
shares for the five days through the effective date of the transaction,
adjusted in consideration of the restrictions placed upon the shares), 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. 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 cash 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 interests 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
customers' visits to 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.
7. INTANGIBLES ASSETS
Intangible 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
======== =======
54
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 ............................................. $118,082 $ --
Notes payable to banks...................................... 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 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.
55
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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
========
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 due to their short maturities. 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
56
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
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, non-employee consultants and 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
57
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
common stock on such date. Again, the vesting schedules remained the same and
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, 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 under the provisions of Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation", the Company has
elected to apply Accounting Principles Board (APB) Opinion No. 25, "Accounting
for Stock Issued to Employees." 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)
58
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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
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--$4.99 2,531,976 4.58 $1.33 2,531,569 $1.33
$5.00--
$9.99 10,366,085 7.18 5.76 2,407,747 6.28
$10.00--
$14.99 497,520 6.09 10.41 216,833 10.62
$15.00--
$30.00 554,275 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.
59
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
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 as an
account receivable at December 31, 1998.
60
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 $11.2 million, $7.5
million and $8.3 million 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 long-distance
telecommunications services contracts that require the Company to purchase a
minimum amount of services each month. The total amount of the minimum
purchase requirements in 1998 were approximately $24.5 million, of which the
Company has incurred metered telecommunications costs in excess of these
minimums.
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.
61
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 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 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
62
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 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 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.
63
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
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
======== ======= ======
64
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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
======== ======= ======
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.
65
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(R),
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. EBITDA before accrued settlement costs, acquired research and
development costs and restructuring, merger and other special charges is
management's primary measure of segment profit and loss.
66
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Information concerning the operations in these reportable segments is as
follows (in thousands):
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 (1)......................... (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 (1)......................... (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......................... $ 75.7 $ 13.5 $ 5.0
Emerging Enterprise Solutions.......................... 18.7 50.6 28.3
Corporate and eliminations (1)......................... (26.4) -- --
------ ------ ------
Total................................................. $ 68.0 $ 64.1 $ 33.3
====== ====== ======
Identifiable assets
Corporate Enterprise Solutions......................... $606.9 $ 13.9 $ 19.5
Emerging Enterprise Solutions.......................... 133.0 154.9 100.9
Corporate and eliminations (1)......................... 62.9 212.3 81.1
------ ------ ------
Total................................................. $802.8 $381.1 $201.5
====== ====== ======
- --------
(1) Corporate and eliminations is primarily comprised of general and
administrative costs associated with the corporate headquarters management
infrastructure and revenue eliminations of business transacted between
Corporate Enterprise Solutions and Emerging Enterprise Solutions.
A reconciliation of operating income (loss) and EBITDA to Income (loss)
before income taxes is as follows (in millions):
1998 1997 1996
------- ------ ------
EBITDA.................. $ 68.0 $ 64.1 $ 33.3
Less depreciation and
amortization........... (110.0) (17.1) (14.2)
Less restructuring,
merger and other spe-
cial charges........... (15.6) (73.6) --
Less acquired research
and development........ (15.5) -- (11.0)
Less accrued settlement
costs.................. (1.5) (1.5) (1.3)
------- ------ ------
Operating income
(loss)................. $ (74.6) $(28.1) $ 6.8
------- ------ ------
Less interest expense,
net.................... (14.7) (0.9) (1.7)
Plus other income
(expense), net......... 0.3 .2 (0.3)
------- ------ ------
Income (loss) before
income taxes........... $ (89.0) $(28.8) $ 4.8
======= ====== ======
67
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Information concerning revenues from groups of similar products and services
are as follows (in millions):
1998 1997 1996
------ ------ ------
Enhanced calling services................................. $ 86.5 $ 87.3 $ 52.1
Unified messaging services................................ 127.6 138.6 142.4
Conferencing services..................................... 36.9 3.5 3.0
Electronic document distribution services................. 193.8 -- --
------ ------ ------
Total.................................................... $444.8 $229.4 $197.5
====== ====== ======
Information concerning depreciation expense for each reportable segment is
as follows (in millions):
1998 1997 1996
------ ------ ------
Corporate Enterprise Solutions............................ $ 20.1 $ 2.6 $ 2.6
Emerging Enterprise Solutions............................. 24.2 14.5 11.6
Corporate and eliminations................................ 0.2 -- --
------ ------ ------
Total.................................................... $ 44.5 $ 17.1 $ 14.2
====== ====== ======
Information concerning capital expenditures for each reportable segment is
as follows (in millions):
1998 1997 1996
------ ------ ------
Corporate Enterprise Solutions............................ $ 19.1 $ -- $ --
Emerging Enterprise Solutions............................. 39.9 33.4 21.9
Corporate and eliminations................................ 2.3 -- --
------ ------ ------
Total.................................................... $ 61.3 $ 33.4 $ 21.9
====== ====== ======
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
======= ======= ========
68
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.
69
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).
70
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
71
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
72
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).
73
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 (incorporated by reference to Exhibit 4.8 of
the Company's Annual Report on Form 10-K for the year ended
December 31, 1998.)
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.).**
74
10.12 Executive Employment and Incentive Option Agreement, effective as
of July 6, 1998, by and between the Company and William Porter
Payne (incorporated by reference to Exhibit 10.12 to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1998).**
10.13 Memorandum of Understanding dated as of July 6, 1998, by and
between the Company and William Porter Payne (incorporated by
reference to Exhibit 10.13 to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1998).**
10.14 Executive Employment Agreement, effective as of May 4, 1998, by
and between the Company and Harvey A. Wagner (incorporated by
reference to Exhibit 10.14 to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1998).**
10.15 Promissory Note dated May 11, 1998 payable to the Registrant made
by Harvey A. Wagner (incorporated by reference to Exhibit 10.15 to
the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1998).**
10.16 Split-Dollar Agreement dated as of November 11, 1998 by and
between the Company and Harvey A. Wagner (incorporated by
reference to Exhibit 10.16 to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1998).**
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)).**
75
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).*
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)).
76
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).
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 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 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 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 (incorporated by
reference to Exhibit 10.50 to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1998).
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 (incorporated by
reference to Exhibit 11.1 to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1998).
77
21.1 Subsidiaries of the Registrant (incorporated by reference to
Exhibit 21.1 to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1998).
23.1 Consent of Arthur Andersen LLP.
27.1 Amended Financial Data Schedule for the year ended December 31,
1998 (incorporated by reference to Exhibit 27.1 to the Registrant's
Annual Report on Form 10-K/A for the year ended December 31, 1998,
filed with the Commission on April 1, 1999).
- --------
* 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.
78
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Amendment to its
Annual Report on Form 10-K/A for the year ended December 31, 1998 to be signed
on its behalf by the undersigned, thereunto duly authorized.
Date: January 18, 2000
Premiere Technologies, Inc.
/s/ Patrick G. Jones
By: _________________________________
Patrick G. Jones, Executive Vice
President, Chief Legal Officer and
Chief Financial Officer (principal
financial and accounting officer)
79
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 (incorporated by reference to Exhibit 4.8 to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1998).
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
(incorporated by reference to Exhibit 10.12 to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1998).**
10.13 Memorandum of Understanding dated as of July 6, 1998, by and between
the Company and William Porter Payne (incorporated by reference to
Exhibit 10.13 to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1998).**
10.14 Executive Employment Agreement, effective as of May 4, 1998, by and
between the Company and Harvey A. Wagner. (incorporated by reference
to Exhibit 10.14 to the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1998).**
Exhibit
Number Description
------ -----------
10.15 Promissory Note dated May 11, 1998 payable to the Registrant made by
Harvey A. Wagner (incorporated by reference to Exhibit 10.15 to the
Registrant's Annual Report on Form 10-K for the year ended December
31, 1998.**
10.16 Split-Dollar Agreement dated as of November 11, 1998 by and between
the Company and Harvey A. Wagner (incorporated by reference to
Exhibit 10.16 to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1998.**
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 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 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 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 (incorporated by reference to
Exhibit 10.50 to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1998).
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 (incorporated by
reference to Exhibit 11.1 to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1998).
21.1 Subsidiaries of the Registrant (incorporated by reference to Exhibit
21.1 to the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1998).
23.1 Consent of Arthur Andersen LLP.
27.1 Amended Financial Data Schedule for the year ended December 31, 1998
(incorporated by reference to Exhibit 27.1 to the Registrant's Annual
Report on Form 10-K/A for the year ended December 31, 1999, filed
with the Commission on April 1, 1999).
- --------
* 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.