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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________
COMMISSION FILE NUMBER 0-17920
BRITE VOICE SYSTEMS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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KANSAS 48-0986248
(STATE OF (I.R.S. EMPLOYER IDENTIFICATION
INCORPORATION) NO.)
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7309 E. 21ST STREET NORTH
WICHITA, KANSAS 67206
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (316) 652-6500
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, NO PAR VALUE
(TITLE OF CLASS)
------------------------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes __X__ No ______
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K: [X]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, as of February 25, 1997, was $110,196,000, based upon the last
reported sales price on such date. For purposes of this disclosure, shares of
common stock beneficially owned by executive officers and directors of the
Registrant have been excluded because such persons may be deemed to be
affiliates. This determination is not necessarily conclusive.
On February 25, 1997, there were 11,830,095 shares of the Registrant's
common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for the Annual Meeting of
Stockholders scheduled to be held on May 13, 1997 are incorporated by reference
into Part III of this report. The Proxy Statement is expected to be filed with
the Commission not later than April 4, 1997.
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BRITE VOICE SYSTEMS, INC.
1996 FORM 10-K
TABLE OF CONTENTS
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Item 1. Business.................................................................... 1
Item 2. Properties.................................................................. 13
Item 3. Legal Proceedings........................................................... 13
Item 4. Submission of Matters to a Vote of Security Holders......................... 14
Item 5. Market for the Company's Common Equity and Related Stockholder Matters...... 14
Item 6. Selected Financial Data..................................................... 15
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations.................................................................. 16
Item 8. Financial Statements and Supplementary Data................................. 21
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure.................................................................. 37
Item 10. Directors and Executive Officers of the Registrant.......................... 37
Item 11. Executive Compensation...................................................... 37
Item 12. Security Ownership of Certain Beneficial Owners and Management.............. 37
Item 13. Certain Relationships and Related Transactions.............................. 38
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K............. 38
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PART I
ITEM 1. BUSINESS
GENERAL
Brite Voice Systems, Inc. (the "Company" or "Brite") designs, integrates,
assembles, markets and supports voice processing systems and services which
incorporate voice response, voice recognition, voice/ facsimile messaging,
audiotex and interactive computer applications into customized market solutions.
The Company also offers a broad array of telecommunications management services.
Voice processing systems allow callers to use a telephone to leave or
retrieve messages, obtain information stored in a computer database, or input
and retrieve information from a host computer. A caller who accesses a voice
processing system is typically greeted by a message identifying the owner or
principal sponsor of the system, and is then requested to select options from a
menu of choices. Most callers using touch-tone telephones input responses by
pushing the keys on their telephone key pad. Many of the Company's systems, such
as voice activated dialers, allow input of information using spoken commands.
The Company's products can be divided into two categories: those that
increase its customers' revenues through increased subscription or user fees,
and those that reduce customers' costs or improve the efficiency of services
provided to end user customers.
Examples of revenue enhancing products include the Company's Voice
Directories-Registered Trademark- and CityLine-Registered Trademark- products,
sold to publishers of Yellow Pages directories and newspapers, who generate
revenue through the sale of sponsorships to categories of information of
interest to callers, such as sports scores, weather, stock quotes, business news
or similar information. In addition, the Company provides systems to wireless
network operators who provide voice activated dialing and debit billing services
to their subscriber base, thus increasing network usage and revenues.
Typical applications that reduce customers' costs or improve efficiency
allow callers to access personalized account balances for bank, credit card or
mutual fund accounts, order products or product literature for delivery by mail
or by facsimile, pay bills, enroll for college courses, apply for credit cards
and receive stock quotes or other personalized information. The use of the
Company's systems to respond to routine requests for information reduces
customers' direct labor costs, allowing live agents to handle more complex
questions and problems, thereby improving customer service.
The Company also provides a wide range of services to support its customers'
voice response activities. In addition to traditional maintenance services, the
Company employs a staff of writers and broadcasters who record information for
playback on customers' systems, and a staff of telephone operators who process
callers' requests for information, provide back office support such as
advertiser and system management for Yellow Pages publishers, and assist
customers in modifying voice response content for use in Internet or other
on-line applications.
Incorporated in Kansas in 1984, the Company initially concentrated its
efforts on the provision of audiotex systems, primarily to newspaper publishers
which used the systems to establish themselves as leading information providers
in their respective markets. In May 1991, the Company, through its newly-formed
subsidiary, Brite Voice Systems Group, Limited ("BVSGL"), acquired substantially
all of the assets of the Voice Systems Group of Ferranti Business
Communications, Ltd. BVSGL manufactures and markets voice processing systems
which are sold both as customer premise equipment and as public telephone
network equipment. BVSGL is responsible for the Company's European business and
maintains design and production facilities in Manchester, England and sales and
support offices in Cambridge, England; Germany; Switzerland; and Italy.
In July 1993, the Company merged with one of its leading competitors,
Perception Technology Corporation ("Perception"). Perception's experience as a
provider of interactive voice response systems
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significantly broadened the Company's participation in the voice response
industry. In addition, the Company believes that the combined audiotex
experience of the two companies established the Company as the leading provider
of audiotex systems and information services to the newspaper and Yellow Pages
publishing industries.
In March 1995, the Company acquired Touch-Talk, Incorporated ("Touch-Talk"),
based in Dallas, Texas. Prior to the merger, Touch-Talk had been the largest
provider of customized application software solutions used by the Company in
providing interactive voice response applications. In addition, the Company had
licensed from Touch-Talk certain application software development tools for
sublicense to customers. The acquisition of Touch-Talk broadened the Company's
capabilities in providing turnkey voice response applications to customers
seeking a single vendor for all of their voice response requirements.
In August 1995, the Company acquired Telecom Services Limited (U.S.), Inc.,
Telecom Services Limited (West), Inc., TSL Software Services, Inc., and TSL
Management Group, Inc., (collectively the "TSL Companies" or "TSL"), which were
affiliated by common ownership. As a result of this acquisition (hereinafter the
"TSL Merger"), the Company now offers a broad array of services and products
which assist clients in managing various aspects of their telecommunications
functions, including controlling and reducing expenses, developing management
reports and applications, selecting service and equipment vendors, designing and
implementing telecommunications systems and managing day-to-day operations.
The Company expects to continue to evaluate prospects for future
acquisitions or other corporate development activities to supplement its
internal technology and product development activities. In addition, the Company
regularly evaluates all of its product and services offerings for profitability
and growth potential, and redesigns, redirects or eliminates those products or
services which fail to demonstrate profitability or significant growth
potential.
THE COMPANY'S PRODUCTS
PLATFORMS
The Company's voice processing products are designed around a variety of
platforms. Each platform has two main components, the "client," which interfaces
to the network and provides the caller interface, and the "server," which runs
the application and links into other systems. The client houses a high-capacity
hard disk drive, random access memory for vocabulary and speech storage, and
telecommunications modules. The server can share the same processor as the
client, be housed in a separate PC or be part of a larger computer system.
The Company's platforms use various operating systems (primarily QNX-TM-,
UNIX-TM-, Windows NT-TM-, OS/2-TM- and proprietary systems), and a library of
software programs that form the basis of the Company's voice processing
products. Regardless of the platform on which a customer application resides,
each of the Company's products is designed to accept incoming telephone calls,
interpret touch-tone inputs or voice commands from callers, and respond to the
callers' requests.
The Company's platforms can be used as stand-alone voice processing systems,
be integrated into existing network systems, or be utilized as a server to a
host computer. Company platforms support a number of telephony interfaces,
including CAS, ISDN and CCITT SS7 signaling. Optional RAID disk architectures
are available for high-capacity, fault-tolerant message storage. Platforms are
being installed around the world and have been integrated with many types of
switches including open-programmable switches such as those manufactured by
Summa Four and Excel. The Company also provides switch control software routing
which integrates the Company's software applications with the switching
platform.
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This has enabled single systems to be simultaneously connected to different
types of networks (cellular, PCS and wireline). Principal platforms currently
supported are as follows:
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VOICE TECHNOLOGY PLATFORM NAME USES
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Dialogic Based VoiceSelect Network based enhanced applications
Brite Enabler Network media server
VSD systems Network based messaging and enhanced applications
BriteLink International IVR systems
VoicePrint Electronic publishing and managed services
Proprietary Hardware BT series Domestic VPU server
VOCOM series Domestic IVR systems
NMS Based VM series Small voice mail systems
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APPLICATION PROGRAMS
Application programs currently in use by many of the Company's customers are
as follows:
VOICE ACTIVATED DIALING. VoiceSelect-Registered Trademark- allows wireless
carriers to provide a cellular telephone user access to telephone numbers using
spoken commands rather than the keys on the cellular telephone, thereby enabling
drivers to keep their hands on the wheel and eyes on the road, promoting safety
and convenience of use. VoiceSelect is marketed to cellular providers around the
world.
DEBIT/PREPAID CALLING. BriteDEBIT-TM- allows carriers to provide cellular
telephone service to customers who have not established creditworthiness with
the carrier. Customers purchase a telephone and associated airtime and all calls
are routed through the Company's system, which keeps track of airtime used and
notifies the user shortly prior to expiration of prepaid airtime. The customer
may then purchase additional airtime through a variety of methods. Benefits to
the customer include access to a cellular phone without a long-term commitment
to the cellular provider, and the ability to manage the cost of a cellular phone
while paying only for the usage desired. Advantages to the carrier include low
cost customer acquisition and increased market penetration without increasing
the risk of uncollectible accounts.
VOICE MESSAGING. Voice messaging (or voice mail) allows users to store,
send and receive information over the telephone or Internet. In addition to
voice mail, call answering, call routing, paging, short message delivery,
dictation and automated attendant features are all available. The Company's
range of voice messaging features can be combined with other applications to
offer a wide range of value-added services in sizes up to five million mailboxes
in a single integrated system.
AUDIOTEX AND MANAGED SERVICES APPLICATIONS. The Company has written
application programs to create turnkey solutions for specific industries. For
example, CityLine, sold to daily newspapers, consists of a wide variety of
information, including stock quotes, sports scores, business news, weather and
public opinion polling, all of which is provided without charge to the caller.
Newspapers offering CityLine generate revenues by selling advertising
sponsorships on their systems. Voice Directories, sometimes called "Talking
Yellow Pages", is a similar product designed for Yellow Pages publishers and
telephone companies.
IVR APPLICATION PROGRAMS. Designed for use with IVR systems, IVR
application programs are often customized and can be written by the Company, by
the customer, or written in cooperation with a series of independent software
vendors ("ISVs"). ISVs typically have specialized skills which allow the Company
to economically obtain specialized, industry-specific programming. IVR
application programs can be designed to operate on a stand-alone basis or to
provide customer applications requiring remote data entry/data access to a
mainframe host computer. They can also perform statistical logging and archiving
and include dial-up modems for remote diagnostic and maintenance support. Many
application software
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packages can be used to create products targeted for specific vertical markets.
Examples include applications for: higher education, which enable university and
college students to register for courses 24 hours a day via touch-tone phones;
the financial services market, which allow callers to perform a wide range of
banking transactions by phone 24 hours a day; and utility companies, which
provide automated customer service functions such as power outage reporting,
billing inquiries and meter reading.
APPLICATION PROGRAM DEVELOPMENT
Write-1-Registered Trademark- is a language developed by Brite for writing
media applications and performing host connectivity that runs under a range of
UNIX operating systems. It also contains a library of interfaces to third party
development tools such as databases, host connections and Dialogic's CT Connect
product. The Company has created an application software development environment
by enhancing Write-1 with a Graphical User Interface ("GUI") running under
Windows NT. This package is designed to meet a wide variety of programming
needs, from creating simple menu-based call flows to development of complex
network-based applications. It also isolates the programmer from the operating
system and hardware platform, thus making applications more portable and
expandable.
The Company has adopted a strategy of developing all new applications using
a set of common components. The goal is to provide applications that can be
combined as a series of building blocks integrated with platforms in a range of
sizes and architectures. This strategy has increased the commonality between
platforms and enables customers to upgrade their platforms while continuing to
offer existing applications. Systems based on a VAX-TM-, a PC compatible
machine, and an RS6000-TM-, all run the same programming environment and
applications under their respective UNIX operating systems.
The Company's Write-1 language contains a range of features which enable
customers to produce state of the art applications. Examples of
customer-developed applications include a benefits information line which links
callers to part of the IRS database, child support help lines and a large call
center help desk which includes automated display of pertinent caller
information on the computer screen of a customer service representative.
The Company believes that as the voice processing industry evolves,
application programs will continue to increase in importance relative to
hardware platforms. As a result, the Company's development policy is based on
the use of industry standard interfaces and systems which enable the Company's
products to be used in conjunction with other companies' products. This allows
the Company to take advantage of new technologies as they become available, and
also protects customers' investments in existing technology by providing
efficient, effective upgrade paths.
Standards included in the new common platform components include the
Dialogic SC bus architecture and Dialogic's open standard Antares system.
Operation, administration and maintenance interfaces are provided through an
open interface standard. In the future, the application programming interface
between components will adopt much of the work being done by the ECTF by using
standard interfaces.
SERVICES
The Company offers a wide range of services in conjunction with its voice
processing systems. These services are typically available on either an annual
or quarterly basis and generally complement or support the Company's voice
processing systems. The Company also provides a variety of telecommunications
management services.
MANAGED SERVICES
As a complement to its system sales, the Company provides certain voice
processing services on a managed service basis. In a typical managed service
relationship, the Company provides all necessary equipment and personnel,
allowing the customer to avoid both the front-end cost of purchasing equipment
and the continuing cost of having operational personnel on staff. Charges for
these services may be based
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on fixed rates per month, per call or per minute, or may consist of a share of
the revenue or profits generated by the service. The Company provides both
inbound and outbound telemarketing functions for customers in conjunction with
these services. The Company generally provides managed services in niche markets
where the customer does not have the expertise on staff, has a desire to
outsource the voice processing function, or where the Company can provide
significant added value to the customer.
The Company's TeleRent-Registered Trademark- service provides readers of
apartment rental guides access to information concerning rental properties in
the local area. Callers to the system may receive more detailed information
about an apartment or complex than can be conveyed in a printed ad. Callers can
direct connect to the leasing agent, leave messages or receive a fax of a floor
plan or contract. The Company receives a monthly fee for each listing sold in
the rental guide.
In conjunction with audiotex systems placed in a Yellow Pages publisher's
market, the Company writes, produces and manages information scripts (Consumer
Tips-TM-) included as the opening position in the Yellow Pages top 200
advertising categories. Consumer Tips typically include four to five topics of
interest to shoppers who call these advertising categories. The Yellow Pages
publisher sells sponsorships to the Consumer Tips, and the Company produces the
information and maintains contact with the advertisers throughout the year to
provide feedback on the success of the sponsorship and helps update the
advertisers' messages for seasonal specials and other changes that cannot be
made to printed advertisements. Current customers include Ameritech, Bell South,
NYNEX, Rochester Telephone, SNET, Southwestern Bell, U.S. West and a number of
independent directory publishers.
During 1996, the Company began offering advertising sales services as an
additional turnkey service to its Consumer Tips customers. The sales staff of a
Yellow Pages publisher is generally trained only to sell print advertising. The
Company believes that sales of audio products in the Yellow Pages market
requires specialized skills, and provides a trained sales force to the Yellow
Pages publisher to increase the penetration of audio sponsorships. The Company
believes this service complements the creation of information content and
advertiser management currently offered to these publishers.
The Company also provides Internet services to its media customers. These
services include application hosting, application and home page development,
software order processing, help desk services and information content for local
web site applications. Because Brite is currently an information provider via
audio and facsimile to newspaper, rental guide and Yellow Pages publishers, the
conversion to an on-line format is relatively simple, and the Company believes
its existing relationships provide a competitive advantage over other companies
offering similar services to these customers.
TELECOMMUNICATIONS MANAGEMENT SERVICES
Through its August 1995 acquisition of the TSL Companies, the Company
provides a broad range of telecommunications management services.
BILLING VERIFICATION SERVICES. The Company's billing verification service
consists of auditing telephone rates, tariffs, taxes, surcharges and other
charges billed by telecommunications carriers and vendors. The Company (i)
verifies that the client pays only for the services, circuits and equipment it
actually uses and for which it has contracted; (ii) ensures that the proper
rates, tariffs, taxes and surcharges, primarily for services and equipment, and
also usage, are applied; (iii) corrects billing discrepancies; and (iv) prepares
claims and negotiates and collects refunds. Billing verification services
generate refunds of historical overcharges and reduce costs, generally producing
ongoing savings to the Company's clients. The Company also provides optimization
services to clients, whereby recommendations are made to reduce ongoing
expenses, for which the Company receives a percentage of future savings.
MANAGEMENT SOFTWARE APPLICATIONS AND SERVICES. The Company has developed
software which enables its clients to better understand, control and allocate
their telecommunications expenses. Telecommunications expense management
software products and services are provided either on a service bureau basis
through the Company's New Jersey data center, or on a licensed basis with
ongoing services aimed at
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tracking, processing and allocating the expenses associated with a client's
daily calls. These products and services include: (i) call accounting services
for telecommunications expense management; (ii) Fraud-Chek-Registered Trademark-
a service which curtails unauthorized employee phone calls and abuses, which are
detected automatically once predetermined thresholds are reached, triggering an
alarm call to the Company's 24 hour toll fraud line; (iii) EZ-TRAK-TM-, a
reporting product which enables a client to view its call record details, search
for and sort data in order to manage call efficiencies and costs, and produce
management reports; and (iv) Telecommunications On-Line Management Systems, a
PC-based, on-line operations management system, which aids clients in more
effectively managing facilities, including equipment inventories and circuits,
work orders and phone and data systems expenses.
OPERATIONS MANAGEMENT. Operations management services have developed as an
outgrowth of the Company's other telecommunications management products and
services, and consist of on-site and off-site continuing support to clients
wishing to outsource certain telecommunications-related functions, such as
technology invoice processing, telephone moves and installations, telephone
circuit installations and moves for data service providers, trouble reporting
and resolution, and internal telephone billing. These services are typically
delivered pursuant to oral agreements, and often create an opportunity to
provide additional software services to clients.
TECHNICAL CONSULTING. Technical consulting consists of designing,
engineering, procuring and implementing telecommunications services, networks,
systems and equipment. The Company provides clients with both technical and
engineering expertise, drawing upon the experience of the Company's consultants,
engineers and management to complete large projects. Projects include strategic
planning related to telecommunications systems, such as a corporate relocation,
data communications network design, voice communications system design, disaster
recovery planning, the relocation or creation of financial institution trading
floor systems, and other technical advice regarding available systems and
services.
SERVICE CONTRACT AND REPAIR
The Company's systems are generally sold with limited warranties which range
from 90 days to one year. All systems contain built-in modems, allowing Company
personnel to perform diagnostic procedures and many software upgrades and
enhancements remotely. Customers may contract for extended warranty coverage
under any of several plans.
The Company maintains a customer service department consisting of a help
desk function, a field service organization and a training department. The help
desk function is staffed by professionals with specialized skills in hardware
diagnostics, software support and applications programming, who respond to
customer questions regarding software warranty claims and assist customers in
developing and debugging application programs.
A geographically dispersed field service staff is responsible for system
installation and on-site hardware maintenance, including warranty claims. To
date, warranty claims have not been significant.
The training department provides beginning and advanced training sessions
for both customers and employees on topics such as product orientation, system
operation and programming and advanced software and technical development.
ELECTRONIC INFORMATION SERVICES
The Company creates, produces and broadcasts electronic information
services, which it provides to purchasers of its audiotex systems, primarily
newspapers, Yellow Pages publishers and telephone companies. These services
provide pre-packaged content for the Company's systems and relieve the purchaser
of the responsibility for creating and loading information on the system. The
Company's staff of writers, editors and broadcasters produces audio information
under many broad categories, such as news, weather and sports, and under many
specialized categories such as gardening tips, horoscopes and soap opera
updates. The Company produces over 5,000 categories of information, of which
over 1,800 are updated on
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a daily basis. Subscribers to the Company's information services receive
category updates by satellite transmission, some of which occur as often as
every 15 minutes. Newspapers or Yellow Pages publishers which subscribe to the
service are licensed to receive the network on an annual basis. The publisher
generally provides the information to callers without charge, and generates
revenue by selling advertising sponsorships to the various categories. Much of
the information available in audio form is also available by facsimile, or in an
on-line format.
In addition to its audio networks, the Company writes and produces "library
programs" in both audio and facsimile formats which are installed on systems
sold to hospitals, real estate brokerage firms and other customers for specific
applications. These library programs are updated periodically and billed on an
annual basis.
SALES AND MARKETING
MARKETS SERVED
The Company's hardware systems are sold to two principal markets, the
business systems or commercial market, and the network operator market.
The business systems market is broadly defined to include organizations
which would use either the Company's audiotex or IVR products to service large
volumes of telephone callers on a regular basis. The market for audiotex systems
includes organizations which distribute the same information to numerous callers
simultaneously. The Company's audiotex system customers are primarily in the
publishing and health care industries. The market for IVR and voice messaging
systems includes organizations seeking to streamline internal and external
communications, reduce interruptions and provide enhanced customer service. The
Company has historically sold these products to the financial services,
education, health care, telecommunications, government and utility markets.
The network operator market is comprised of wireless operators, including
companies deploying cellular and personal communications services, Regional Bell
Operating Companies, Post Telephone and Telegraph organizations, international
network operators and interexchange carriers. Network operators purchase and
install the Company's systems in or near their central switching offices. The
enhanced services made available to the operator's subscribers include voice
messaging, voice activated dialing, prepaid calling and other revenue producing
services.
The markets for the Company's telecommunications management and managed
services include almost any public or private entity which is a substantial user
of telecommunications services.
DOMESTIC SALES
Revenues within North America were $71,320,000, $69,938,000 and $60,283,000
in 1996, 1995 and 1994, respectively. The Company sells its systems and services
domestically primarily through a direct sales force, with individual personnel
being responsible for either a specific industry, territory or product line.
There are 41 direct sales personnel located throughout the United States,
including the Company's offices in Wichita, Kansas; Canton, Massachusetts;
Dallas, Texas; New York City; Parsippany, New Jersey; and San Francisco,
California.
The Company also markets its systems through companies offering integrated
systems or services for sale to end users using the Company's hardware
platforms. These companies include Alltel, Amarex Technology, Inc., Digital Data
Voice Systems, Intecom, Quotient Software, Inc., Southwestern Bell Telecom, and
United States Advanced Networks.
INTERNATIONAL SALES
International revenues were $39,089,000, $27,140,000 and $19,657,000, in
1996, 1995 and 1994, respectively, and amounted to 35%, 28% and 25% of revenues
for such periods.
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Sales outside the United States are made through a number of sources. Sales
into Europe are made by the Company's subsidiaries: BVSGL (Manchester and
Cambridge, England), Brite Voice Systems Group, GmbH (Wiesbaden, Germany), Brite
Voice Systems S.p.A. (Rome, Italy) and Brite Voice Systems A.G. (Zurich,
Switzerland). Sales into Canada and South America are made by the Company's
U.S.-based sales force, and sales into other areas of the world are made through
a combination of the Company's U.S.-based sales force, distributors and local
agents. The Company has employees based in Dubai, United Arab Emirates;
Johannesburg, South Africa; and Singapore, who are responsible for sales and
support to the Middle East, Africa and Asia.
The Company's European subsidiaries market systems to two distinct sectors
of the voice processing market throughout Europe. A dedicated sales staff
targets corporate users for the sale of voice messaging, audiotex and
interactive voice response systems. The Company concentrates its efforts on five
different vertical markets: telecommunications, home shopping, travel and
transport, finance and utilities. The Company also relies on indirect
distribution of its systems through prominent PBX manufacturers such as Philips,
Ericsson, Telenorma and S.E.L.
The Company also maintains a dedicated sales staff responsible for the sale
of systems to network operators throughout Europe, the Middle East and Africa.
The principal products sold to these markets are voice messaging, voice
activated dialing and debit billing. During 1996, the Company significantly
expanded the installed base of its Voice Services Director system ("VSD"), a
multi-application voice processing platform for sale to wireless operators,
primarily for the provision of enhanced telecommunications services,
establishing 13 new customers in 12 new countries. Nevertheless, during 1996,
78% of the sales by the Company's European subsidiaries were concentrated in ten
customers. In addition, one customer, Cellnet, represented 10% of the Company's
consolidated revenues. The loss of any of these customers could have a material
impact on the Company's revenues and results of operations.
The Company believes that the European market is behind the United States in
terms of market penetration of audiotex and IVR systems and that significant
future growth is possible. During 1996, much of the Company's effort was focused
on shifting the emphasis in this marketplace from the small, PBX-based voice
messaging systems to audiotex and IVR applications. The Company believes that
this effort has been successful, as sales of IVR products in Europe increased
95% from the prior year. The Company intends to continue this focus into 1997.
The Company sells its audiotex, IVR and voice dialing systems throughout the
rest of the world through its direct sales force, independent sales agents and
value-added resellers ("VARs"). Where possible, the Company uses the services of
agents and VARs in foreign markets because of their familiarity with local
markets and their knowledge of, and abilities to work within, local governmental
regulations. VARs typically purchase the Company's hardware and license the
operating software. In some instances, VARs provide additional software
programming or information packages to complete the systems. Agents used by the
Company typically receive a commission on sales made into their territories.
The Company faces a number of risks in conducting its international business
that do not affect its domestic business, including greater concentration of
business with fewer customers, longer payment cycles, greater difficulty in
accounts receivable collection, and difficulty in staffing and managing foreign
subsidiary operations. Installation of the Company's products outside the United
States requires that the Company conform to local telephone and electrical
regulations. The Company has traditionally relied on its suppliers to obtain the
necessary registrations in order for the Company to install products within
specific countries. There can be no assurance that these factors will not have
an adverse impact on the Company's future international sales or operating
results. See Note 12 to the Consolidated Financial Statements contained herein
for additional information with respect to foreign and domestic sales and
assets.
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RESEARCH AND ENGINEERING
The voice processing industry is subject to rapid technological change,
including continuing improvements in hardware and software performance. In order
to maintain its competitive position, the Company must continually release new
products and develop enhancements and new features for its existing products on
a timely basis. There can be no assurance that the Company will be successful in
developing and marketing, on a timely basis, product modifications or
enhancements or new products that respond to technological advances by others,
or that such new or enhanced products or features will adequately and
competitively address the needs of the marketplace. Because of the increasing
complexity of the Company's products, these efforts can be expected to continue
to increase in technical difficulty. Moreover, the Company must manage product
transitions successfully, since announcements or introductions, or the
perception that such events are likely to occur, by either the Company or its
competitors, could adversely affect sales of existing Company products.
Research and product engineering activities are conducted in Wichita,
Kansas; Canton, Massachusetts; Dallas, Texas; Parsippany, New Jersey; and
Manchester, England. During 1996, 1995 and 1994, the Company spent approximately
$11,241,000, $8,520,000 and $6,436,000, respectively, on research and
engineering. As a percentage of revenues, these amounts represent 10.2%, 8.8%
and 8.1%, respectively. The Company believes that it must continue to increase
spending on research and engineering activities in absolute terms in order to
remain competitive in the voice response market. Although it is not the
Company's intent, such expenses could also increase as a percentage of revenues.
MANUFACTURING
The Company's manufacturing operations consist primarily of assembly of
components, burn-in, testing, and quality assurance functions, which are
performed at both its Canton, Massachusetts and Manchester, England facilities.
Limited assembly work is performed at the Company's office in Wiesbaden,
Germany.
During 1996, the Company relocated its manufacturing facilities in
Manchester to larger facilities in order to accommodate anticipated increases in
sales. The new facility contains approximately 4,500 square feet of
manufacturing space and is expected to be adequate for the Company's European
manufacturing requirements for the foreseeable future.
Manufacturing in Canton is performed on only one shift, and the Company
devotes less than 25% of its Canton facilities to manufacturing; therefore, the
Company believes its production facilities are adequate for U.S. operations for
the foreseeable future.
For product standardization, quality control and volume purchasing
efficiencies, the Company has elected to purchase certain components from sole
suppliers. Although the Company historically has been able to obtain supplies of
these components in a timely manner, the interruption in supply of any of these
components could have an adverse impact on the Company's revenues and operating
results. While the Company believes that other suppliers could provide required
components in the event of an interruption in supply, a change in suppliers
could cause a delay in manufacturing and a possible loss of sales, which would
adversely affect operating results.
BACKLOG
The Company maintains an inventory of component parts which generally
enables it to assemble, test and ship complete systems within two weeks of
receipt of an order. The short lead time prior to shipment of systems generally
results in a minimal backlog of systems orders. As of December 31, 1996, the
Company and its subsidiaries had a systems backlog of $17,900,000, compared to
$11,578,000 as of December 31, 1995, and $8,087,000 as of December 31, 1994. All
of the backlog at December 31, 1996 is scheduled to be shipped in 1997. There
can be no assurance that any such orders will not be canceled or re-
9
<PAGE>
scheduled. Because of the possibility of customer changes in delivery schedules
or cancellations of orders, the Company's backlog as of any particular date may
not be indicative of actual revenues for any future period.
Because of the short duration of its contracts for maintenance and
information services, and the contingencies related to valuation of its billing
verification contracts, the Company has not historically valued its backlog of
service revenues.
COMPETITION
The market for voice processing systems is highly competitive and includes
numerous suppliers of hardware and software of varying specifications. The
Company's competition in general purpose voice response systems includes Edify,
Intervoice, Periphonics, Syntellect and other voice processing system
manufacturers. In addition, the Company competes with larger companies, such as
IBM, Lucent Technologies and Digital, for whom voice response is a small portion
of their overall business. The Company also faces competition for its audiotex
and European voice messaging systems from voice mail providers such as Boston
Technology, Comverse Technology and Octel. Because there are no significant
technological barriers to entry into these markets, many small companies also
offer competing products. In addition, as the Company's markets continue to
grow, increasing numbers of applications will be introduced by existing and new
competition.
The Company believes that the principal factors affecting competition in the
market for voice processing systems are ease of use, flexibility, reliability,
overall technical performance, price and customer service, and that the Company
competes favorably as to these factors.
The market for telecommunications management services such as those provided
by the Company is extremely fragmented, and competitors range from small
start-up companies who compete on a local basis, to large, nationally-known
firms such as AT&T, Electronic Data Systems and IBM. The Company competes with
the small local companies on the basis of its well recognized client base,
general reputation, credibility with telecommunications vendors and proven
methodology. The Company believes these factors enable it to compete effectively
against these competitors.
Large firms such as AT&T, Electronic Data Systems and IBM often attempt to
capture an organization's entire telecommunications-related activities. The
Company, on the other hand, limits its products and services to those in which
it has particular expertise, and believes that its software resources and the
abilities of its personnel enable it to compete favorably with these companies.
The Company expects that additional competition will develop, and such
competition may include large companies with substantially greater financial,
marketing and technical resources than those available to the Company. Such
competition could adversely affect the revenues and operating results of the
Company.
SOFTWARE PROTECTION, SERVICE MARKS AND PATENTS
The Company regards its software as proprietary and has implemented measures
of both a legal and practical nature to ensure that the software retains that
status. The Company derives considerable practical protection for its software
by licensing only the object code to customers and keeping the source code
confidential. In addition, by licensing the software rather than transferring
title, the Company in most cases has been able to incorporate restrictions in
licensing agreements which impose limitations on disclosure and transferability
of the software. No determination has yet been made, however, as to the legal or
practical enforceability of these restrictions or the extent of customer
liability for violations.
10
<PAGE>
Like many other companies in the industry, the Company does not have patent
protection for its software. However, protection against unauthorized copying of
the source and object code portions of the software is sought through reliance
upon copyright laws. Despite these protections, competitors may be able to copy
aspects of the Company's products or to obtain information which the Company
regards as trade secret.
In addition, the Company may be subjected to claims by third parties
asserting rights on certain of the Company's products and product features. (See
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations--Certain Trends and Uncertainties.)
The Company has registered with the United States Patent and Trademark
Office trademarks on CityLine, TeleCare, Cellular Information Network, Voice
Directories, Real Estate Hotline, TeleRent, TeleSchool, BriteFax, Perception,
Fraud-Chek, Write-1, VoiceSelect, Giving Voice to Information, Brite Mail, Value
Added Classifieds and Brite & Design.
EXECUTIVE OFFICERS
The executive officers of the Company, their ages and the period during
which each has served in his present office are as follows:
Stanley G. Brannan (47) is the Company's founder and Chairman of the Board
of Directors. Prior to December 1996, Mr. Brannan also served as President and
Chief Executive Officer since the Company's inception. Prior to founding the
Company, Mr. Brannan founded Mycro-Tek, Inc., a company specializing in the
manufacture of microprocessor-based products used in electronic newsroom systems
and television character generators. When Mycro-Tek, Inc. was acquired by Allied
Corporation in 1980, Mr. Brannan was employed by Allied and eventually became
president of the company's Merganthaler USA Division.
David S. Gergacz (47) joined the Company in December 1996 as President and
Chief Executive Officer. Prior to joining the Company, Mr. Gergacz served as
president and CEO for Cincinnati Bell Telephone, from September 1995 to October
1996. From April 1993 to August 1995 he was president and CEO for Rogers Cantel
Communications, Canada's leading provider of wireless communications, cable
television, long distance, publishing and television and radio. From 1991 to
1993 he served as president and CEO of Boston Technology. He has also held many
management positions with companies in the telecommunications industry,
including Sprint, Bell Laboratories, AT&T and NYNEX. Mr. Gergacz has been a
member of Brite's board of directors since 1994.
Gerald V. Butler (56) has served as Executive Vice President of Engineering
and Worldwide Operations since May 1996. He joined the Company in November 1994
as Senior Vice President at the Company's Canton facility. From 1992 until
joining the Company, Mr. Butler operated Business Basics, a project and data
management consulting service. From 1988 to 1992, Mr. Butler served as president
of the systems integration business unit of Prime/Computervision, president and
CEO of Culler Scientific from 1984 to 1988, and as vice president-computer
special systems at Digital Equipment Corp. from 1979 to 1984.
Glenn A. Etherington (42) has served as Chief Financial Officer of the
Company since August 1988. He was Treasurer from August 1988 until August 1993,
and has been Secretary since August 1993. From April 1984 until joining the
Company, he served in various capacities including vice president of finance,
controller and treasurer of American City Business Journals, Inc., a publisher
of weekly business newspapers. Mr. Etherington is a certified public accountant.
Victoria C. Farris (40) has served as Vice President of Finance since
September 1995 and Treasurer since May 1996. From 1988 until 1995, she was
general manager of Sun Publications in Overland Park, Kansas, a publisher of
community newspapers. From 1985 until 1988, she was controller of American City
Business Journals, a publisher of weekly business newspapers. Ms. Farris is a
certified public accountant.
11
<PAGE>
Stuart Hallam (50) joined the Company as Chief Executive for European
Operations in February 1995. Prior to joining the Company, Mr. Hallam served as
managing director of the Large Systems Division of Alcatel Business Systems
Group in the United Kingdom from 1993 to 1995. Prior to his employment at
Alcatel, Mr. Hallam held senior positions with GPT of Siemens/GEC company
(formerly Plessey) from 1980 to 1986 and Phillips Business Communications, where
he was managing director from 1986 to 1993.
David F. Hemmings (50) was appointed Executive Vice President of Brite in
September 1993. Mr. Hemmings served as senior vice president of Boston
Technology, Inc., a worldwide voice mail systems supplier, from 1991 until
joining the Company in 1993, and prior to that was president of International
Systems Integration, Inc. from 1985 to 1991. International Systems Integration
was a business consulting firm responsible for, among other things, assisting
Sprint in winning the Federal Telecommunications Systems contract from the
federal government.
Alan C. Maltz (46) became Executive Vice President and a Director of the
Company in August 1995, immediately following the acquisition of the TSL
Companies. Mr. Maltz served as vice president and a director of TSL (West) and
as president and a director of each of the other TSL Companies since their
incorporation at various times between July 1986 and December 1992. Prior to the
founding of the TSL Companies, Mr. Maltz was vice president of
telecommunications systems at Bankers Trust Company, where he managed the
engineering, design and operation of all global telecommunications systems since
1974. Prior to his employment by Bankers Trust Company, Mr. Maltz was employed
as a project engineer by Western Union and New York Telephone Company.
Scott A. Maltz (40) was appointed Executive Vice President of Strategy and
Business Development in June 1996, having served as Vice President and a
Director of the Company since August 1995, immediately following the Company's
acquisition of the TSL Companies. Mr. Maltz was president of TSL (West) since
its formation in 1989. Prior to joining TSL, Mr. Maltz was employed by Bain &
Company, a management consulting firm where he consulted with clients in the
telecommunications, financial services and personal computer industries.
Donald R. Walsh (60) joined the Company as Executive Vice President in
August 1990. From 1987 to August 1990, he served as president of the Information
Services subsidiary of Philadelphia Suburban Corporation. Prior to 1987, he was
employed by IBM, where he held several management positions, primarily relating
to sales and marketing.
The Company's executive officers are elected by, and serve at the discretion
of, the Board of Directors.
EMPLOYEES
As of December 31, 1996, the Company and its subsidiaries had 751 employees,
of which 708 were full-time employees. Of the full-time employees, 505 are
located in the United States, and 203 are located in either Europe, the Middle
East, Africa or Singapore.
The Company believes that future growth is dependent in large part on its
ability to attract and retain key management, technical and sales personnel. The
Company has never had a work stoppage, no employees are represented by a labor
organization and the Company considers its employee relations to be good.
12
<PAGE>
ITEM 2. PROPERTIES
The Company owns its headquarters building in Wichita, Kansas, which
contains 40,480 square feet and houses its principal corporate offices, research
and engineering and information services facilities. The Company also maintains
principal facilities in Canton, Massachusetts; Carrollton, Texas; New York, New
York; Parsippany, New Jersey; and San Francisco, California. These and other
facilities are leased by either the Company or, in foreign countries, certain of
its subsidiaries, as follows:
<TABLE>
<CAPTION>
LOCATION SQUARE FEET USE LEASE EXPIRES
- ---------------------------- ----------- ---------------------------------------------- ----------------------
<S> <C> <C> <C>
Wichita, Kansas 31,250 administrative, sales and call center June 1997, with option
activities to renew for two
additional one-year
terms
Canton, Massachusetts 42,600 administrative, research and engineering, and March 1998
manufacturing facilities
Carrollton, Texas 17,340 administrative, sales, engineering and product September 1997
development facilities
New York, New York 10,000 office space which serves as primary base of August 2006
operations for East Coast telecommunications
management services
Parsippany, New Jersey 8,500 certain data processing operations November 2002
San Francisco, California 4,000 office space for the Company's West Coast December 1999
telecommunications management services
Manchester, England 27,000 administrative, engineering and manufacturing December 2002
facilities, and the sales and marketing
departments of BVSGL
Cambridge, England 10,200 administrative offices September 2001
Wiesbaden, Germany 5,500 office space for administrative and sales September 2001
staff
Rome, Italy 700 office space for administrative and sales March 2001
staff
Glattbrugg, Switzerland 2,500 office space for administrative and sales September 1999
staff
Singapore 1,350 office space for administrative and sales January 1999
staff
</TABLE>
The Company also maintains regional sales and support offices in North
Olmsted, Ohio; Orange, Connecticut; Pittsburgh, Pennsylvania; Orlando, Florida;
Annapolis, Maryland; Rancho Cordova, California; Balboa, California; Allendale,
Michigan; Temecula, California; and Woodstock, Georgia. These facilities are
generally subject to short-term leases of one year or less.
ITEM 3. LEGAL PROCEEDINGS
The Company is subject to claims and litigation from time to time arising in
the normal operation of its business. Management believes that the ultimate
resolution of any pending claim will not result in any material loss to the
Company.
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<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No information is required in response to this Item, as no matter was
submitted to a vote of the Company's stockholders during the fourth quarter of
the fiscal year covered by this report.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded on the Nasdaq Stock Market under the
symbol BVSI. Prices per share reflected in the following table represent the
range of high and low sales prices reported by the Nasdaq Stock Market for the
quarters indicated.
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
1996
March 31............................................................................. $ 19.00 $ 10.50
June 30.............................................................................. 27.38 17.38
September 30......................................................................... 22.50 10.63
December 31.......................................................................... 16.38 10.88
1995
March 31............................................................................. $ 21.88 $ 15.25
June 30.............................................................................. 21.00 15.88
September 30......................................................................... 24.50 18.25
December 31.......................................................................... 18.50 12.00
</TABLE>
Since becoming a public company in 1989, the Company has not paid cash
dividends on its common stock. The Company is not bound by any contractual terms
that prohibit or restrict the payment of dividends; however, the Company
presently intends to retain its earnings to finance future growth of its
business and does not plan to pay cash dividends to its stockholders in the near
future.
As of February 25, 1997, the Company had 473 stockholders of record,
excluding individual participants in security position listings.
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<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following table contains certain selected financial data which should be
read in conjunction with the Company's financial statements and notes thereto
and with Management's Discussion and Analysis of Financial Condition and Results
of Operations. The selected financial data as of and for the years ended
December 31, 1996, 1995, 1994 and 1993 have been derived from the financial
statements of the Company audited by Arthur Andersen LLP, independent public
accountants, except for the balance sheet and statement of operations data as of
and for the years ended December 31, 1994 and 1993. The balance sheet and
statement of operations data as of and for the years ended December 31, 1994 and
1993 have been restated by the Company to reflect the TSL Merger, and are
derived from the financial statements of the Company audited by Arthur Andersen
LLP and the financial statements of the TSL Companies as of and for the years
ended December 31, 1994 and 1993, audited by Ernst & Young LLP, independent
accountants. The selected financial data as of and for the year ended December
31, 1992 have been restated by the Company to reflect the TSL Merger, and are
derived from the financial statements of the Company audited by Baird, Kurtz &
Dobson, independent certified public accountants, and the financial statements
of the TSL Companies. The balance sheet as of December 31, 1992 of the TSL
Companies from which the selected financial data is derived are unaudited.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------
1996 1995 1994 1993 1992
---------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................................ $ 110,409 $ 97,078 $ 79,940 $ 56,412 $ 42,265
Operating income (loss)................................. 11,699 5,708 6,005 (1,606) (3,951)
Net income (loss)....................................... 8,555 3,950 4,425 (1,303) (2,423)
Net income (loss) per share............................. .71 .33 .38 (.12) (.22)
Weighted average shares used in computation............. 12,127 11,922 11,526 11,068 10,865
BALANCE SHEET DATA:
Working capital......................................... $ 37,558 $ 26,934 $ 23,772 $ 20,918 $ 22,522
Total assets............................................ 74,882 58,832 51,888 41,328 39,745
Long term debt.......................................... -- -- -- 1,040 1,055
Stockholders' equity.................................... 54,181 40,446 35,547 29,655 30,669
</TABLE>
15
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD-LOOKING STATEMENTS
From time to time, information provided by the Company, statements made by
its employees or information included in its filings with the Securities and
Exchange Commission, including this Form 10-K, may contain certain
"forward-looking" information, as that term is defined by the Private Securities
Litigation Reform Act of 1995 (the "Act"). The words "expects," "anticipates,"
"believes" and similar words generally signify a "forward-looking" statement.
These forward-looking statements are made pursuant to the safe harbor provisions
of the Act. The reader is cautioned that all forward-looking statements are
necessarily speculative and that there are certain risks and uncertainties that
could cause actual events or results to differ materially from those referred to
in such forward-looking statements. Such risks and uncertainties include those
inherent generally in the voice processing and telecommunications consulting
industries, such as product demand, pricing, market acceptance, reliance on
significant customers, intellectual property rights, risks in product and
technology developments, and other risk factors detailed in the section entitled
"Certain Trends and Uncertainties" below and other risks detailed throughout
this Form 10-K and in the Company's other Securities and Exchange Commission
filings. The Company undertakes no obligation to publicly revise any
forward-looking statement due to changes in circumstances after the date of this
report, or to reflect the occurrence of unanticipated events.
BASIS OF PRESENTATION
Effective August 9, 1995, the TSL Companies were merged into the Company in
a transaction accounted for as a pooling of interests (see Note 2 to the
Consolidated Financial Statements). The acquisition resulted in the issuance of
3,331,000 shares of the Company's common stock in exchange for all of the
outstanding common stock of the TSL Companies. The financial information
presented herein has been restated to include the accounts and operations of the
TSL Companies for all periods.
RESULTS OF OPERATIONS
The Company derives revenue from the sale of voice processing systems to
domestic and international customers and the provision of services related to
the operation of these systems. The Company's products can be divided into two
categories: those that increase its customers' revenues through increased
subscription or user fees, and those that reduce customers' costs or improve the
efficiency of services provided to end user customers.
Total revenues increased $13,331,000, or 13.7%, for the year ended December
31, 1996 and $17,138,000, or 21.4%, for the year ended December 31, 1995. These
increases are due primarily to a larger volume of system sales to both new and
existing domestic and international customers, and to increased penetration of
the Company's customer base for the sale of services. There were no significant
changes in the prices of the Company's products between periods.
International sales increased $9,071,000, or 37.4%, in 1996 and $9,791,000,
or 67.7%, in 1995. Introduced in 1994, the VSD was sold to two large wireless
carriers in Europe, and the increases in revenue during 1995 and 1996 generally
reflect the continuing penetration of these accounts. In addition, the Company
expanded its customer base in the Pacific Rim, Middle East and Latin America
during 1996, through installation of both VSD systems and voice activated
dialing systems. The Company believes that international markets are behind the
United States in terms of market penetration of voice processing systems and
that significant growth potential exists within these markets.
Domestic system sales increased $2,212,000, or 7.8%, in 1996 and decreased
$220,000, or 0.8%, in 1995. The increase in 1996 is due primarily to system
expansions by existing customers and new system
16
<PAGE>
sales of general purpose voice response systems. The slight decline in 1995 was
due primarily to a decrease in the demand for the Company's electronic
publishing systems.
General purpose voice response system sales increased $2,238,000, or 9.3%,
in 1996 and $3,001,000, or 14.3%, in 1995, due primarily to continued expansion
of the voice response market as these types of systems become a more accepted
means of disseminating information to callers. These increases are the result of
system expansion and software upgrades by existing customers and the addition of
new customers who are installing systems for the first time, or replacing first
generation voice response equipment of other vendors.
Electronic publishing system sales decreased $26,000, or 0.6%, in 1996 and
decreased $3,221,000, or 42.0%, in 1995. The Company attributes these decreases
to the continued saturation of the market for audiotex systems sold to
newspapers and Yellow Pages publishers. The Company believes that it is the
market share leader in these types of systems, and that many newspapers and
Yellow Pages publishers have begun focusing their efforts and capital
expenditures on Internet-based applications. Future growth in this area will be
dependent upon identifying new applications for use by both new and current
customers.
System sales are dependent upon continued orders by existing customers,
orders from new customers and development of new products. Orders by existing
customers are dependent, in part, upon factors beyond the Company's control.
There can be no assurance that the Company will be able to increase or maintain
its market share in the future or to sustain recent growth rates.
Services revenues are derived from sales of managed services,
telecommunications management services, contracts for repair and maintenance of
the Company's voice processing systems, and the broadcast of electronic
information services to purchasers of electronic publishing systems.
Services revenues increased $2,048,000, or 4.6%, in 1996 and $7,567,000, or
20.6%, in 1995, principally due to expansion of the Company's customer base,
offset by the elimination of certain managed services products which were not
profitable.
Managed services revenues decreased $1,222,000, or 10.0%, in 1996, but
increased $2,943,000, or 31.5%, in 1995. The decline in 1996 was due primarily
to the Company's decision to discontinue two voice personals products. The
Company discontinued its "Person-to-Person" product at the end of the third
quarter in 1995 and sold its "900 Voice Personals" product line in July 1996.
Excluding the revenues from these two products for both 1995 and 1996, managed
services revenues would have increased $3,093,000, or 60.1%, for the year ended
1996. This increase, as well as the increase from 1994 to 1995, was due
primarily to an expanding customer base for the Company's Consumer Tips and
TeleRent products.
Telecommunications management services revenues increased $452,000, or 2.7%,
in 1996, and $2,155,000, or 15.8%, in 1995. These increases were due primarily
to expansion of the customer base for operations management and management
software applications services. The modest increase in 1996 revenues was due to
the fact that billing verification and technical consulting revenues were lower
than anticipated, and declined from the previous year's results. The shortfall
in billing verification was due to the absence of large claim refunds during the
second half of the year, while the decline in technical consulting was the
result of increased competition and fewer contracts on which the Company chose
to bid. Future growth in this area is dependent upon achievement of large claims
similar to those received in prior years, and the availability of technical
consulting contracts which the Company wishes to pursue. The Company is unable
to predict whether or not these factors will occur.
Service contract and repair revenue increased $2,342,000, or 21.2%, in 1996
and increased $2,335,000, or 26.7%, in 1995, due primarily to the Company's
continuing emphasis on expanding its base of customers who subscribe to
quarterly or annual maintenance contracts. Information services revenue
increased $476,000, or 9.1%, in 1996 and increased $134,000, or 2.6%, in 1995,
due primarily to the introduction of new audio products. The Company believes
that due to the decline in electronic publishing system sales,
17
<PAGE>
continued expansion of information services revenue will be dependent upon
developing new audio products and applications.
Cost of system sales increased $4,920,000, or 21.6%, in 1996 and $3,651,000,
or 19.1%, in 1995. As a percentage of system sales, actual costs remained
constant at 43.3% for both 1996 and 1995, down from 44.4% in 1994. Actual costs
increased in both years due primarily to an increase in the number of systems
shipped by the Company's foreign subsidiaries and the United States-based sales
force to international customers. The Company expects to experience a gradual
decrease in system margins due to the highly competitive nature of the industry.
Cost of sales of service increased $1,622,000, or 7.3%, in 1996 and
$2,906,000, or 15%, in 1995. As a percentage of services revenues, actual costs
increased to 51.4% in 1996, compared to 50.1% in 1995 and 52.5% in 1994. The
increase in actual costs during 1996 was due primarily to an expansion of the
infrastructure of the telecommunications management services departments. The
decline in margins was due to the absence of large billing verification claim
refunds in the second half of the year and, to a lesser extent, lower consulting
services revenues. In 1995, these revenues typically had higher margins than
other components of services revenues.
Research and engineering expenses increased $2,721,000, or 31.9%, in 1996
and $2,084,000, or 32.4%, in 1995. As a percentage of revenue, these expenses
increased to 10.2% of total revenue in 1996, compared to 8.8% in 1995 and 8.1%
in 1994. The increase in actual costs was due to the addition of research
engineers to support the Company's existing products and to continue the
Company's commitment to new product development. The Company believes that it
must continue to increase spending on research and engineering activities in
absolute terms in order to continue to remain competitive in the voice response
market. Although it is not the Company's intent, such expenses could increase as
a percentage of revenue as well.
Selling, general and administrative expenses increased $6,707,000, or 23.0%,
in 1996 and $7,153,000, or 32.5%, in 1995. As a percentage of revenues, these
expenses increased to 32.5% in 1996 compared to 30.0% in 1995 and 27.5% in 1994.
The Company continues to expand its international sales and marketing efforts.
Sales offices in Cambridge, England, as well as Johannesburg, South Africa and
Singapore, were opened during 1995. In addition, significant staff increases
continue to support new sales opportunities in both the domestic and
international markets. The Company anticipates that these expenses as a
percentage of revenues will begin to decline as the additional staff begins
generating revenues.
S corporation distributions in 1995 and 1994 represent payments made to the
former TSL Companies' stockholders, which were approximately equal to the tax
basis earnings of the TSL Companies. Under the terms of the merger agreement,
the TSL Companies were allowed to distribute estimated tax basis income through
the closing date of the TSL Merger. These payments did not occur in 1996 and
will not recur in future periods.
In connection with the acquisition of TSL, the Company recorded a
non-recurring charge of $4,327,000 in 1995. This charge consisted of $3,509,000
for expenses incurred that are specific to the acquisition, primarily fees to
financial advisors, attorneys and accountants, and costs of integrating the
operations of the TSL Companies. Also included was a charge of $818,000,
reflecting the write-off of prepaid royalties and certain equipment associated
with the Company's Person-to-Person product.
Other income decreased $292,000, or 64.6%, in 1996 and $135,000, or 23.0%,
in 1995. The decrease in 1996 was due to the loss on disposal of assets of
$165,000, increased interest expense of $57,000 and a slight decrease in
interest income due to a lower average balance of funds invested in 1996. The
decrease in 1995 was due primarily to interest income which decreased $291,000
from 1994 due to a lower average balance of funds invested.
The effective income tax rate for 1996 was 27.9%, compared to 35.9% in 1995
and 32.9% in 1994. The variance from the United States statutory rate in 1996
was due primarily to the utilization of net operating
18
<PAGE>
loss and credit carryforwards acquired through the Company's 1993 merger with
Perception Technology Corporation, and a reduction in the Company's deferred tax
valuation allowance. The variance from the United States statutory rate in 1995
was due primarily to the non-deductibility of a majority of the costs incurred
in the acquisition of the TSL Companies, partially offset by the utilization of
net operating loss and credit carryforwards acquired through the Company's 1993
merger with Perception, and a reduction in the Company's deferred tax valuation
allowance.
CERTAIN TRENDS AND UNCERTAINTIES
The Company has historically operated with very little backlog. There are no
long-term supply agreements with customers and, as a result, revenues in any
quarter are dependent upon orders that are received and shipped during that
quarter. Further, a large percentage of any quarter's system shipments are
recorded in the last month of the quarter. Consequently, quarterly revenues and
operating results will depend on the volume and timing of new orders received
during a quarter, which are difficult to predict. Failure to receive adequate
amounts of new orders could adversely affect revenues and operating results, and
such shortfalls may not be known until very late in any quarter.
The Company faces a number of risks in conducting its international business
that do not affect its domestic business, including greater concentration of
business with fewer customers, longer payment cycles, greater difficulty in
accounts receivable collection, and difficulty in staffing and managing foreign
subsidiary operations. Installation of the Company's products outside the United
States requires that the Company conform to local telephone and electrical
regulations. The Company has traditionally relied on its suppliers to obtain the
necessary registrations in order for the Company to install products within
specific countries. There can be no assurance that these factors will not have
an adverse impact on the Company's future international sales or operating
results. See Note 12 to the Consolidated Financial Statements contained herein
for additional information with respect to foreign and domestic sales and
assets.
The voice processing industry is subject to rapid technological change,
including continuing improvements in hardware and software performance. In order
to maintain its competitive position, the Company must continually release new
products and develop enhancements and new features for its existing products on
a timely basis. There can be no assurance that the Company will be successful in
developing and marketing, on a timely basis, product modifications or
enhancements, or new products that respond to technological advances by others,
or that such new or enhanced products or features will adequately and
competitively address the needs of the marketplace. Because of the increasing
complexity of the Company's products, these efforts can be expected to continue
to increase in technical difficulty. Moreover, the Company must manage product
transitions successfully, since announcements or introductions, or the
perception that such events are likely to occur, by either the Company or its
competitors, could adversely affect sales of existing products.
For quality control, ease of development and purchasing efficiencies, the
Company has elected to purchase certain components from one supplier. Although
the Company has been able to obtain supplies of these components in a timely
manner, the interruption in supply of any of these components could have an
adverse impact on the Company's revenues and operating results. While the
Company believes that other suppliers could provide required components in the
event of an interruption in supply, a change in suppliers could cause a delay in
manufacturing and a possible loss of sales, which would adversely affect
operating results.
The Company has periodically received, and may receive in the future,
communications from third parties asserting patent rights or copyrights on
certain of the Company's products and product features. The Company believes
that its products and other proprietary rights do not infringe the proprietary
rights of third parties. There can be no assurance, however, that third parties
will not assert infringement claims against the Company in the future, or that
any such claims will not require the Company to enter into
19
<PAGE>
license arrangements or result in protracted and costly litigation, regardless
of the merits of such claims. There also can be no assurance that the Company
will be able to obtain licenses to disputed third party technology or that such
licenses, if available, would be available on commercially reasonable terms.
The market for the Company's stock is highly volatile. Any variance in
operating results from analysts' expectations, or changes in estimated results
by industry analysts could have an adverse affect on the trading price of the
Company's common stock in a given period. Furthermore, in recent years the
market prices of securities of many high technology companies have experienced
extreme fluctuations, in many cases for reasons unrelated to the operating
performance of the specific companies. These broad market fluctuations may
adversely affect the market price of the Company's common stock.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1996, the Company had a current ratio of 2.8 to 1, and
working capital of $37,588,000, compared to a current ratio of 2.5 to 1 and
working capital of $26,934,000 at December 31, 1995. Cash and cash equivalents
were $8,084,000 at December 31, 1996 compared to $3,405,000 at December 31,
1995.
Accounts receivable at December 31, 1996 increased by $6,377,000 compared to
December 31, 1995, principally due to an increase in international sales during
the year, which typically have longer payment and collection cycles. Inventory
increased by $1,997,000, due primarily to the lead time required for
international orders. The Company believes the increase in each of these areas
to be in line with the growth experienced in system sales during 1996, and the
backlog of orders at the end of the year. Increases in accounts receivable and
inventory have generally been funded, in part, by increases in accounts payable
and other accrued expenses.
The Company maintains a $5,000,000 line of credit that is used from time to
time to fund short-term cash requirements. There were no borrowings outstanding
under this line as of December 31, 1996.
The Company regularly invests excess funds in short-term securities, such as
bankers' acceptances, government obligations and variable rate demand notes,
having maturities up to one year. Management believes that restricting
investments to these types of securities maximizes financial flexibility and
minimizes exposure to interest rate and market risks. The Company utilizes these
investments as a source of liquidity, to the extent that cash requirements
exceed short-term cash receipts.
The Company expects to invest approximately $8,000,000 in capital
expenditures during 1997, but it has no significant capital commitments. The
Company believes that working capital on hand, funds provided from future
operations, and its current line of credit will be sufficient to fund the
Company's capital requirements on both a short-term and long-term basis.
INFLATION
Inflation has not had a material impact on the Company's results of
operations. Because of the competitive nature of the computer industry, the
costs of parts used in the Company's products have remained relatively stable.
However, should inflation rise to higher levels, the Company believes that such
inflationary costs would be passed on to customers by both the Company and its
competition.
20
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Public Accountants................................................................... 22
Consolidated Balance Sheets as of December 31, 1996 and 1995............................................... 23
Consolidated Statements of Income for the Years Ended
December 31, 1996, 1995 and 1994.......................................................................... 25
Consolidated Statements of Changes in Stockholders' Equity for the Years Ended December 31, 1996, 1995 and
1994...................................................................................................... 26
Consolidated Statements of Cash Flows for the Years Ended December 31, 1996,
1995 and 1994............................................................................................. 27
Notes to Consolidated Financial Statements................................................................. 28
Supplemental Schedules:
Schedule II--Valuation and Qualifying Accounts............................................................. 37
</TABLE>
Note: Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is included in the
Financial Statements or notes thereto.
21
<PAGE>
ARTHUR ANDERSEN LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
BOARD OF DIRECTORS
BRITE VOICE SYSTEMS, INC.
We have audited the accompanying consolidated balance sheets of Brite Voice
Systems, Inc., (a Kansas corporation) and subsidiaries as of December 31, 1996
and 1995, and the related consolidated statements of income, changes in
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits. We did not audit the financial
statements of the TSL Companies, companies acquired during 1995 in a transaction
accounted for as a pooling of interests, as discussed in Note 2. Such statements
are included in the consolidated financial statements of the Company and reflect
total revenues of 17 percent in 1994 of the consolidated totals. These
statements were audited by other auditors whose report has been furnished to us
and our opinion, insofar as it relates to amounts included for the TSL
Companies, is based solely upon the report of the other auditors.
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 and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
financial statements referred to above present fairly in all material respects,
the financial position of Brite Voice Systems, Inc. and subsidiaries as of
December 31, 1996 and 1995, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index of
financial statements is presented for purposes of complying with the Securities
and Exchange Commission's rules and is not a required part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
/s/ Arthur Andersen LLP
Kansas City, Missouri,
February 7, 1997
22
<PAGE>
BRITE VOICE SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
ASSETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents................................................................. $ 8,084 $ 3,405
Accounts receivable, less allowance for doubtful accounts: 1996 - $471; 1995 - $481....... 35,067 28,690
Inventories (Note 4)...................................................................... 12,507 10,510
Prepaid expenses and other................................................................ 2,601 2,715
--------- ---------
Total Current Assets.................................................................... 58,259 45,320
--------- ---------
PROPERTY AND EQUIPMENT
Land and building......................................................................... 3,074 3,074
Furniture and equipment................................................................... 23,430 19,978
--------- ---------
26,504 23,052
Less accumulated depreciation............................................................. (12,204) (11,476)
--------- ---------
14,300 11,576
--------- ---------
OTHER ASSETS (Note 3)....................................................................... 2,323 1,936
--------- ---------
TOTAL ASSETS.......................................................................... $ 74,882 $ 58,832
--------- ---------
--------- ---------
</TABLE>
See Notes to Financial Statements
23
<PAGE>
BRITE VOICE SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
LIABILITIES AND STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable.......................................................................... $ 10,539 $ 9,503
Accrued salaries and wages................................................................ 1,974 1,726
Other accrued expenses.................................................................... 1,512 1,785
Deferred revenue.......................................................................... 2,063 1,364
Customer deposits......................................................................... 3,526 1,565
Advances from affiliates (Note 2)......................................................... -- 551
Income taxes payable...................................................................... 1,087 1,892
--------- ---------
Total Current Liabilities............................................................... 20,701 18,386
--------- ---------
COMMITMENTS AND CONTINGENCIES (Notes 6 and 10).............................................. -- --
STOCKHOLDERS' EQUITY (Note 8)
Preferred stock, no par value; authorized 10,000,000 shares; none outstanding............. -- --
Common stock, no par value; authorized 30,000,000 shares; outstanding 1996 -- 11,829,595
shares; 1995 -- 11,489,325 shares....................................................... 38,417 34,377
Retained earnings......................................................................... 14,938 6,383
Cumulative foreign currency translation adjustment........................................ 826 (314)
--------- ---------
Total Stockholders' Equity.............................................................. 54,181 40,446
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY............................................ $ 74,882 $ 58,832
--------- ---------
--------- ---------
</TABLE>
See Notes to Financial Statements
24
<PAGE>
BRITE VOICE SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
1996 1995 1994
---------- --------- ---------
<S> <C> <C> <C>
REVENUES
Systems....................................................................... $ 63,980 $ 52,697 $ 43,126
Services...................................................................... 46,429 44,381 36,814
---------- --------- ---------
110,409 97,078 79,940
---------- --------- ---------
COSTS AND EXPENSES
Cost of sales:
Systems..................................................................... 27,729 22,809 19,158
Services.................................................................... 23,871 22,249 19,343
Research and engineering...................................................... 11,241 8,520 6,436
Selling, general and administrative........................................... 35,869 29,162 22,009
S corporation distributions (Note 2).......................................... -- 4,303 6,989
Merger and other costs (Notes 2 and 3)........................................ -- 4,327 --
---------- --------- ---------
98,710 91,370 73,935
---------- --------- ---------
INCOME FROM OPERATIONS.......................................................... 11,699 5,708 6,005
---------- --------- ---------
OTHER INCOME (EXPENSE)
Interest income............................................................... 432 265 556
Interest expense.............................................................. (80) (18) (121)
Other, net.................................................................... (192) 205 152
---------- --------- ---------
160 452 587
---------- --------- ---------
INCOME BEFORE INCOME TAXES...................................................... 11,859 6,160 6,592
INCOME TAX PROVISION (Note 7)................................................... 3,304 2,210 2,167
---------- --------- ---------
NET INCOME...................................................................... $ 8,555 $ 3,950 $ 4,425
---------- --------- ---------
---------- --------- ---------
EARNINGS PER SHARE (Note 1)..................................................... $ 0.71 $ 0.33 $ 0.38
---------- --------- ---------
---------- --------- ---------
</TABLE>
See Notes to Financial Statements
25
<PAGE>
BRITE VOICE SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
CUMULATIVE
RETAINED FOREIGN
EARNINGS CURRENCY
COMMON (ACCUMULATED TRANSLATION
STOCK DEFICIT) ADJUSTMENT TOTAL
--------- ------------ ----------- ---------
<S> <C> <C> <C> <C>
Balance, December 31, 1993...................................... $ 32,166 $ (2,067) $ (444) $ 29,655
Net income.................................................... -- 4,425 -- 4,425
Sale of common stock.......................................... 847 -- -- 847
Non-qualified stock option compensation....................... 6 -- -- 6
Tax benefit of stock option transactions...................... 385 -- -- 385
Foreign currency translation adjustment....................... -- -- 229 229
--------- ------------ ----------- ---------
Balance, December 31, 1994...................................... 33,404 2,358 (215) 35,547
Net income.................................................... -- 3,950 -- 3,950
Issuance of shares for pooling transaction.................... 1 75 -- 76
Sale of common stock.......................................... 733 -- -- 733
Non-qualified stock option compensation....................... 5 -- -- 5
Tax benefit of stock option transactions...................... 234 -- -- 234
Foreign currency translation adjustment....................... -- -- (99) (99)
--------- ------------ ----------- ---------
Balance, December 31, 1995...................................... 34,377 6,383 (314) 40,446
Net income.................................................... -- 8,555 -- 8,555
Sale of common stock.......................................... 3,970 -- -- 3,970
Tax benefit of stock option transactions...................... 70 -- -- 70
Foreign currency translation adjustment....................... -- -- 1,140 1,140
--------- ------------ ----------- ---------
Balance, December 31, 1996...................................... $ 38,417 $ 14,938 $ 826 $ 54,181
--------- ------------ ----------- ---------
--------- ------------ ----------- ---------
</TABLE>
See Notes to Financial Statements
26
<PAGE>
BRITE VOICE SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income...................................................................... $ 8,555 $ 3,950 $ 4,425
Items not requiring (providing) cash:
Depreciation and amortization................................................. 3,845 3,677 2,705
Loss (gain) on disposition of assets.......................................... 162 -- (109)
Non-qualified stock option compensation....................................... -- 5 6
Changes in:
Accounts receivable........................................................... (5,437) (9,006) (4,640)
Inventories................................................................... (1,364) (2,231) (1,693)
Accounts payable and accrued expenses......................................... 1,127 1,955 3,087
Other current assets and liabilities.......................................... 1,273 1,132 756
--------- --------- ---------
Net cash provided by (used in) operating activities......................... 8,161 (518) 4,537
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment, net......................................... (6,421) (5,600) (3,886)
Proceeds from maturity of temporary investments................................. -- 8,580 15,067
Purchase of temporary investments............................................... -- (3,379) (14,651)
Proceeds from sale of property.................................................. 411 -- 228
Decrease (increase) in other assets............................................. (756) 29 (458)
Net cash received from business acquisitions.................................... -- 44 --
--------- --------- ---------
Net cash used in investing activities....................................... (6,766) (326) (3,700)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock........................................................ 3,970 733 847
Proceeds from shareholder loans................................................. -- 2,267 2,712
Principal payments on debt...................................................... (551) (4,428) (2,473)
--------- --------- ---------
Net cash provided by (used in) financing activities......................... 3,419 (1,428) 1,086
--------- --------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH........................................... (135) (99) 229
--------- --------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................................. 4,679 (2,371) 2,152
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR...................................... 3,405 5,776 3,624
--------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF YEAR............................................ $ 8,084 $ 3,405 $ 5,776
--------- --------- ---------
--------- --------- ---------
</TABLE>
See Notes to Financial Statements
27
<PAGE>
BRITE VOICE SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS AND PRINCIPLES OF CONSOLIDATION
Brite Voice Systems, Inc. (the "Company") designs, integrates, assembles,
markets and supports voice processing systems and services which incorporate
audiotex, voice response, voice recognition, voice/ facsimile messaging and
interactive computer applications into customized market solutions. The Company
also offers a broad array of telecommunications consulting services.
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant inter-company accounts and
transactions have been eliminated in consolidation.
The 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
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Significant
estimates included in these financial statements include allowances for
uncollectible accounts and obsolete inventory, and warranty and other accrued
liabilities.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash investments with an original maturity
of three months or less.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out method and includes the cost of materials, direct
labor and manufacturing overhead. Provision is made for obsolete or slow moving
items where appropriate.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets which
range from three to 10 years for furniture and equipment and 35 years for
buildings and improvements.
RESEARCH AND ENGINEERING
Costs associated with internal development of new products or enhancements
of existing products are expensed as incurred because the marketability of such
products is not determinable until substantially all the costs are incurred.
REVENUE RECOGNITION
Revenues from the sale of systems generally are recognized upon shipment.
Software revenue is recognized in accordance with the American Institute of
Certified Public Accountants Statement 91-1, Software Revenue Recognition.
Revenues from maintenance and consulting services, and audio information
contracts for installed systems are recognized ratably over the service period.
Revenues from service bureau operations and consulting services are recognized
when the services are provided. Revenues from
28
<PAGE>
BRITE VOICE SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
billing verification services are recognized when claim proceeds are received
from the telecommunication provider.
CREDIT RISK
The Company extends unsecured credit to customers throughout the United
States and in certain foreign countries.
INCOME TAXES
Deferred tax liabilities and assets are recognized for the future tax
consequences of events that have been recognized in the financial statements or
tax returns. (See Note 7).
FOREIGN CURRENCY TRANSLATION ADJUSTMENT
Financial statements of the Company's foreign subsidiaries have been
translated into U.S. dollars at current and average exchange rates. Resulting
translation adjustments are recorded as a separate component of stockholders'
equity. Any transaction gains or losses are included in the Consolidated
Statements of Income.
EARNINGS PER SHARE
Earnings per share amounts are computed using the weighted average number of
shares outstanding of 12,127,000, 11,922,000 and 11,526,000, for the years ended
December 31, 1996, 1995 and 1994, respectively. All options are considered to be
common stock equivalents but are only included in the weighted average to the
extent that they are dilutive.
ACCOUNTING FOR STOCK OPTIONS
The Financial Accounting Standards Board issued SFAS No. 123, "Accounting
for Stock Based Compensation". Adoption of this standard is required in 1996.
Under the new standard, the Company must either change its method of computing
the compensation expense associated with the issuance of stock options and other
stock-based compensation or make pro forma disclosures as if the Company had
recorded the compensation expense. The Company has continued to record
compensation expense in accordance with APB No. 25. The Company has adopted SFAS
No. 123 by making the pro forma disclosures. (See Note 8).
NOTE 2: ACQUISITIONS
Effective August 9, 1995, the Company issued 3,331,000 shares of its common
stock for all of the outstanding common stock of Telecom Services Limited
(U.S.), Inc., Telecom Services Limited (West), Inc., TSL Software Services,
Inc., and TSL Management Group, Inc. (collectively the "TSL Companies" or "TSL")
and the TSL Companies were merged into the Company (the "TSL Merger"). The TSL
Merger has been accounted for as a pooling of interests and, accordingly, the
Company's consolidated financial statements have been restated for all periods
prior to the acquisition to include the results of operations, financial
position and cash flows of the TSL Companies.
29
<PAGE>
BRITE VOICE SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
NOTE 2: ACQUISITIONS (CONTINUED)
Prior to the TSL Merger, the TSL Companies elected to be taxed as S
corporations under the Internal Revenue Code. This election eliminates federal
income taxes at the corporate level, as a result of which the TSL Companies'
profits were included in the income tax returns of their stockholders for all
periods through the date of the TSL Merger. Accordingly, the TSL Companies
distributed the majority of their taxable earnings in the form of additional
compensation to officers and shareholders. Distributions in excess of the salary
and bonus amounts contracted for in the employment agreements entered into
between the Company and certain of the TSL stockholders were $4,303,000 and
$6,989,000 for the period ended August 8, 1995 and the year ended December 31,
1994, respectively. No adjustments have been made to the provision for income
taxes to reflect the impact had the TSL Companies been subject to federal income
taxes as the adjustment is immaterial.
Merger expenses of $3,509,000 were charged to expense during 1995. These
expenses represent brokerage, legal and other professional fees associated with
the consummation of the TSL Merger.
Prior to the TSL Merger, the TSL Companies financed working capital needs
through the use of non-interest bearing loans made by the TSL stockholders. Upon
consummation of the TSL Merger, the TSL stockholders had loaned $2,267,000 to
the Company. The balance due was $551,000 at December 31, 1995. Final payment
was made in March 1996.
NOTE 3: OTHER ASSETS
Other Assets consist of the following (in thousands):
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Goodwill................................................................... $ 898 $ 263
Deferred tax asset......................................................... 581 325
Prepaid licenses and other................................................. 1,289 1,884
--------- ---------
2,768 2,472
Accumulated amortization................................................... (445) (536)
--------- ---------
$ 2,323 $ 1,936
--------- ---------
--------- ---------
</TABLE>
In September 1992, the Company licensed certain patented technology for the
provision of electronic classified services, and advanced $1,250,000 in
nonrefundable royalties. The royalties were being amortized over a five year
period. In September 1995, due to continued unprofitability of the product, the
Company wrote off $818,000, representing the balance of the prepaid royalties
and the net book value of certain equipment related to the project. This charge
is included in "Merger and other costs" in the accompanying Statements of
Income.
Goodwill and other intangible assets are being amortized using the
straight-line method over the estimated useful lives of the assets or the
specific contract term, which range from three to 10 years. Amortization
expense, including the amortization of prepaid royalties, was $248,000, $619,000
and $434,000 in 1996, 1995 and 1994, respectively.
30
<PAGE>
BRITE VOICE SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
NOTE 4: INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Purchased parts......................................................... $ 4,060 $ 3,044
Work in progress........................................................ 5,581 4,146
Finished goods.......................................................... 2,866 3,320
--------- ---------
$ 12,507 $ 10,510
--------- ---------
--------- ---------
</TABLE>
NOTE 5: LINE OF CREDIT
The Company maintains a $5,000,000 line of credit that is used from time to
time to fund short-term cash requirements. There were no borrowings outstanding
under this line as of December 31, 1996.
NOTE 6: LEASES
The Company leases office space under noncancelable agreements expiring at
various times through 2002. Future minimum rental payments under these operating
leases are as follows (in thousands):
<TABLE>
<S> <C>
1997................................................................ $ 1,818
1998................................................................ 1,254
1999................................................................ 1,069
2000................................................................ 963
2001................................................................ 903
Thereafter.......................................................... 2,846
---------
$ 8,853
---------
---------
</TABLE>
Rent expense under the above agreements was $1,544,000, $1,023,000 and
$807,800 for the years ended December 31, 1996, 1995 and 1994, respectively.
NOTE 7: INCOME TAXES
The income tax provision includes the following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Taxes currently payable:
Federal........................................................ $ 2,736 $ 1,804 $ 1,918
State.......................................................... 552 355 150
Foreign........................................................ 791 651 449
Deferred taxes................................................... (775) (600) (350)
--------- --------- ---------
$ 3,304 $ 2,210 $ 2,167
--------- --------- ---------
--------- --------- ---------
</TABLE>
31
<PAGE>
BRITE VOICE SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
NOTE 7: INCOME TAXES (CONTINUED)
United States income taxes have not been provided on the cumulative
undistributed earnings of the Company's foreign subsidiaries of $4,881,000 at
December 31, 1996. It is intended that these earnings will be permanently
invested in operations outside the United States.
A reconciliation of income tax expense at the statutory rate to income tax
expense at the Company's effective rate, is as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Tax expense at the statutory rate............................... $ 4,075 $ 2,095 $ 2,886
Effect of foreign tax rates..................................... 50 8 28
Losses providing no current benefit............................. -- -- 49
Increase (decrease) in taxes resulting from:
Merger costs.................................................. -- 1,130 --
State income taxes, net of federal benefit.................... 390 234 197
Foreign sales corporation benefit............................. (34) (54) (112)
Utilization of net operating loss carryforward................ -- (321) (456)
Utilization of credit carryforwards........................... (48) (278) (276)
Reduction of valuation allowance.............................. (1,049) (600) (350)
Other permanent differences................................... (80) (4) 201
--------- --------- ---------
$ 3,304 $ 2,210 $ 2,167
--------- --------- ---------
--------- --------- ---------
</TABLE>
Deferred taxes are determined based on the estimated future tax effect of
differences between the financial statement and tax bases of assets and
liabilities given the provisions of the enacted tax laws. Deferred taxes consist
of the following (in thousands):
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Current deferred taxes
Gross assets.............................................................. $ 1,144 $ 662
Gross liabilities......................................................... -- --
--------- ---------
$ 1,144 $ 662
--------- ---------
--------- ---------
Noncurrent deferred taxes
Gross assets.............................................................. $ 1,036 $ 728
Gross liabilities......................................................... (455) (403)
--------- ---------
$ 581 $ 325
--------- ---------
--------- ---------
</TABLE>
32
<PAGE>
BRITE VOICE SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
NOTE 7: INCOME TAXES (CONTINUED)
The tax effect of significant temporary differences representing deferred
tax assets and liabilities is as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Federal regular tax operating loss, research and development credit,
investment tax credit and alternative minimum tax credit
carryforwards........................................................... $ 719 $ 1,293
Depreciation.............................................................. (455) (403)
Inventory obsolescence reserve............................................ 389 362
Allowance for doubtful accounts........................................... 151 154
Accrued vacation pay...................................................... 290 276
Other, net................................................................ 631 317
--------- ---------
$ 1,725 $ 1,999
Valuation allowance....................................................... -- (1,049)
--------- ---------
Net deferred taxes........................................................ $ 1,725 $ 950
--------- ---------
--------- ---------
</TABLE>
Prior to 1996, a valuation allowance was provided to the extent realization
of the deferred tax assets were dependent on taxable income (exclusive of
reversing temporary differences) in future years. The Company believes that all
deferred tax assets will be realizable and accordingly, in 1996, reversed its
previously established valuation allowance, which reduced current year income
tax expense.
At December 31, 1996, the Company has loss and credit carryforwards
available for tax purposes as follows (dollars in thousands):
<TABLE>
<CAPTION>
EXPIRATION
AMOUNT DATE
----------- -------------
<S> <C> <C>
Federal regular tax carryforwards acquired through business
combinations:
Operating losses...................................................... $ 624 2008
Research and development credits...................................... 380 2008
Investment tax credits................................................ 60 2008
Federal regular tax carryforwards:
Capital loss.......................................................... $ 98 2008
</TABLE>
NOTE 8: STOCKHOLDERS' EQUITY
The Company has four stock option plans: the 1984 Incentive Stock Option
Plan (the "1984 Option Plan"), the 1994 Stock Option Plan (the "1994 Option
Plan"), the 1990 Non-Employee Director Stock Option Plan (the "Director Stock
Option Plan"), and the 1994 Employee Stock Purchase Plan (the "Stock Purchase
Plan").
33
<PAGE>
BRITE VOICE SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
NOTE 8: STOCKHOLDERS' EQUITY (CONTINUED)
STOCK PURCHASE PLAN
In 1994, the Board of Directors and Stockholders approved the Stock Purchase
Plan. Under the Stock Purchase Plan, up to 200,000 shares of common stock of the
Company may be sold to employees. Eligible employees may authorize payroll
deductions of up to 10 percent of their compensation to purchase shares at the
lower of 85 percent of the fair market value of the common stock as of the date
of grant (first day of an offering period) or the last day of the six-month
offering period. The semi-annual offerings commenced on July 1, 1994 and will
terminate on July 1, 1999. No employee may purchase shares under the Stock
Purchase Plan, in any one year, having a fair market value on the offering date
of more than $25,000, nor may an employee purchase more than 500 shares in any
offering period. During 1996, 51,589 shares were purchased at the weighted
average fair value of $11.62. On December 31, 1996, there were 99,703 shares
reserved for issuance under the Stock Purchase Plan.
STOCK OPTIONS
In 1994, the Board of Directors and Stockholders approved the 1994 Option
Plan. A maximum of 1,000,000 shares of common stock may be issued under the 1994
Option Plan. Options are granted by the Board of Directors at prices not less
than the fair market value as of the date of the grant, generally have a
four-year vesting period and expire 10 years after the date of grant. At
December 31, 1996, a total of 18,900 shares were available for future grants
under the 1994 Option Plan. In addition, options to purchase 500,000 shares were
granted at fair market value to an executive of the Company under an Employment
Agreement entered into in 1996, of which 100,000 shares vested immediately, and
the remaining shares vest over a three year period. All such options not
previously exercised expire 10 years after the date of grant.
The 1984 Option Plan terminated on December 31, 1994, except as to
unexercised options remaining outstanding.
The Director Stock Option Plan provides for the granting of options to
purchase up to 150,000 shares of common stock. Options under this plan are to be
granted at prices not less than the fair market value as of the date of the
grant, and have a three year vesting period. At December 31, 1996, there were
options granted to purchase 58,000 shares of common stock at prices ranging from
$5.00 to $18.50 per share. At December 31, 1996, options to purchase 27,500
shares were exercisable.
34
<PAGE>
BRITE VOICE SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
NOTE 8: STOCKHOLDERS' EQUITY (CONTINUED)
Information regarding all outstanding stock options is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------------------------ ------------------------ --------------------------
SHARES WTD AVG EX SHARES WTD AVG EX SHARES WTD AVG EX
(000S) PRICE (000S) PRICE (000S) PRICE
----------- ----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of year....... 1,249 $ 12 904 $ 9 1,070 $ 7
Granted.............................. 1,018 14 434 18 131 13
Exercised............................ (67) 7 (52) 6 (219) 3
Cancelled............................ (38) 13 (37) 11 (78) 9
----- ----- -----
Outstanding, end of year............. 2,162 13 1,249 12 904 9
----- ----- -----
----- ----- -----
Exercisable, end of year............. 913 10 752 8 782 8
----- ----- -----
----- ----- -----
</TABLE>
The options outstanding at December 31, 1996 have exercise prices between
$1.25 and $20.00, with a weighted average remaining contractual life of 8.02
years.
The Company accounts for the stock options under APB No. 25 under which no
compensation expense has been recognized. Had compensation expense for these
plans been determined consistent with FASB Statement No. 123, the estimated
weighted average grant date fair value would have been $9.90 and $11.27 per
option share for those options granted in 1996 and 1995, respectively. The
Company's net income and earnings per share would have been reduced to the
following pro forma amounts:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Net income........................................................ $ 6,853,000 $ 3,544,000
Earnings per share................................................ $ .53 $ .29
</TABLE>
The resulting pro forma compensation expense for 1996 and 1995 may not be
representative of that to be expected in future years.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants.
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Risk free interest rates................................................... 5.92% 6.50%
Expected lives............................................................. 7.90 7.20
Expected volatility........................................................ 65% 54%
</TABLE>
35
<PAGE>
BRITE VOICE SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
NOTE 9: EMPLOYEE BENEFIT PLANS
The Company sponsors defined contribution retirement plans which cover
substantially all of its employees in the United States and the United Kingdom.
Company contributions to the United Kingdom plan are based on the employee's
age, while contributions to the United States plan are a percentage of employee
contributions at rates determined by the Board of Directors of the Company.
Company contributions to these plans were $835,000, $493,000 and $428,000 for
the years ended December 31, 1996, 1995 and 1994, respectively.
NOTE 10: LEGAL PROCEEDINGS
The Company is subject to claims and litigation from time to time arising in
the normal operation of its business. Management believes that the ultimate
resolution of any pending claim will not be material to the results of
operations or the financial position of the Company.
NOTE 11: ADDITIONAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
1996 1995 1994
---------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Interest paid............................................... $ 80 $ 316 $ 127
Income taxes paid, net...................................... 4,759 1,196 1,276
</TABLE>
NOTE 12: FINANCIAL INFORMATION RELATING TO FOREIGN AND DOMESTIC OPERATIONS AND
EXPORT SALES
Operations for the years ended December 31, 1996, 1995 and 1994 are as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Sales to unaffiliated customers:
United States....................................................... $ 79,675 $ 76,028 $ 67,088
Europe.............................................................. 30,734 21,050 12,852
---------- --------- ---------
Total............................................................. $ 110,409 $ 97,078 $ 79,940
---------- --------- ---------
---------- --------- ---------
Operating income:
United States....................................................... $ 8,714 $ 3,465 $ 4,818
Europe.............................................................. 2,985 2,243 1,187
---------- --------- ---------
Total............................................................. $ 11,699 $ 5,708 $ 6,005
---------- --------- ---------
---------- --------- ---------
Identifiable assets:
United States....................................................... $ 50,101 $ 43,866 $ 43,026
Europe.............................................................. 24,781 14,966 8,862
---------- --------- ---------
Total............................................................. $ 74,882 $ 58,832 $ 51,888
---------- --------- ---------
---------- --------- ---------
Export sales from United States....................................... $ 8,355 $ 6,090 $ 6,805
---------- --------- ---------
---------- --------- ---------
</TABLE>
One international customer represented 10% of total 1996 revenues.
36
<PAGE>
BRITE VOICE SYSTEMS, INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND END OF
DESCRIPTION OF PERIOD EXPENSE DEDUCTIONS PERIOD
- ------------------------------------------------------------------ ----------- ------------- ------------- -----------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended December 31, 1996.................................... $ 481 $ 429 $ 439 $ 471
Year ended December 31, 1995.................................... $ 844 $ 317 $ 680 $ 481
Year ended December 31, 1994.................................... $ 453 $ 548 $ 157 $ 844
</TABLE>
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS OF END OF
DESCRIPTION OF PERIOD SALES DEDUCTIONS PERIOD
- ------------------------------------------------------------------ ----------- ------------- ------------- -----------
<S> <C> <C> <C> <C>
Allowance for obsolete inventory:
Year ended December 31, 1996.................................... $ 1,069 $ 625 $ 279 $ 1,415
Year ended December 31, 1995.................................... $ 666 $ 635 $ 232 $ 1,069
Year ended December 31, 1994.................................... $ 639 $ 393 $ 366 $ 666
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS
The information concerning Directors of the Company required by Item 401 of
Regulation S-K will be contained in the Company's 1997 Proxy Statement under the
heading "Election of Directors", and is incorporated herein by reference.
EXECUTIVE OFFICERS
The information concerning executive officers of the Company required by
this Item is set forth in Item 1 hereof under the heading "Executive Officers".
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 402 of Regulation S-K will be contained in
the Company's 1997 Proxy Statement under the headings "Compensation of Directors
and Executive Officers", "Compensation Committee Interlocks and Insider
Participation", "Report of Compensation Committee on Executive Compensation" and
"Company Performance", and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 403 of Regulation S-K will be contained in
the Company's 1997 Proxy Statement under the heading "Common Stock Ownership",
and is incorporated herein by reference.
37
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 404 of Regulation S-K will be contained in
the Company's 1997 Proxy Statement under the heading "Compensation Committee
Interlocks and Insider Participation", and is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
(1) Financial Statements. The financial statements, notes and
independent auditors' reports described in Item 8, to which reference is
hereby made.
(2) Financial Statement Schedules. The financial statement schedules
described in Item 8, to which reference is hereby made.
(3) Exhibits. The following exhibits:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------
<C> <S> <C>
2.1 Agreement and Plan of Reorganization and Merger dated May 24, 1995 by and among Brite Voice
Systems, Inc., Telecom Services Limited (U.S.), Inc., Telecom Services Limited (West), Inc.,
TSL Software Services, Inc., TSL Management Group, Inc. and Alan C. Maltz, Scott A. Maltz,
Stephen B. Rockoff and Alan C. Maltz as custodian for Sari Maltz and Lori Maltz
(incorporated by reference to Annex A to the Company's definitive proxy statement dated July
17, 1995).
3.1 Restated Articles of Incorporation of the Registrant (incorporated by reference to the
Exhibit filed with Registrant's Registration Statement on Form S-1, No. 33-29750).
3.2 Bylaws of the Registrant (incorporated by reference to the Exhibit filed with Registrant's
Registration Statement on Form S-1, No. 33-29750).
10.1 Registrant's 1984 Incentive Stock Option Plan, as amended (incorporated by reference to the
Exhibit filed with Registrant's Annual Report on Form 10-K for the year ended December 31,
1991).
10.2 1993 Amendments to the Registrant's 1984 Incentive Stock Option Plan (incorporated by
reference to the Exhibit filed with Registrant's Annual Report filed on Form 10-K for the
year ended December 31, 1993).
10.3 Aircraft Lease Agreement between the Registrant and Brannan Leasing, Inc. dated November 10,
1992 (incorporated by reference to the Exhibit filed with the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1992).
10.4 Registrant's 1990 Non-Employee Director Stock Option Plan dated February 6, 1990
(incorporated by reference to the Exhibit filed with Registrant's Annual Report on Form 10-K
for the year ended December 31, 1989).
10.5 Registrant's Amended and Restated Non-Employee Director Stock Option Plan (incorporated by
reference to the Exhibit filed with the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1995).
10.6 Lease covering the Company's call center facility at 9229 E. 37th N., Wichita, Kansas, dated
April 22, 1994 (incorporated by reference to the Exhibit filed with the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1994).
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------
<C> <S> <C>
10.7 December 22, 1994 Amendment to Lease covering the Company's call center facility
(incorporated by reference to the Exhibit filed with the Registrant's Annual Report on Form
10-K for the year ended December 31, 1994).
10.8 Employment Agreement between the Registrant and David F. Hemmings dated September 8, 1993
(incorporated by reference to the Exhibit filed with the Registrant's Annual Report on Form
10-K for the year ended December 31, 1993).
10.9 Non-Statutory Stock Option Agreement between the Registrant and David F. Hemmings dated
September 8, 1993 (incorporated by reference to the Exhibit filed with the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1994). Confidential treatment has
been granted with respect to a portion of the Exhibit.
10.10 Lease covering the Company's facility at 40 Shawmut Road, Canton, Massachusetts, dated March
15, 1993 (incorporated by reference to the Exhibit filed with the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1993).
10.11 Registrant's 1994 Stock Option Plan (incorporated by reference to the Exhibit filed with the
Registrant's Annual Report on Form 10-K for the year ended December 31, 1994).
10.12 Registrant's 1994 Employee Stock Purchase Plan (incorporated by reference to the Exhibit
filed with the Registrant's Registration Statement on Form S-8, No. 33-80478).
10.13 Stock Purchase Agreement between the Registrant and Perry E. Esping dated March 28, 1990
(incorporated by reference to the Exhibit filed with the Registrant's Annual Report on Form
10-K for the year ended December 31, 1990).
10.14 Employment Agreement dated August 9, 1995, between the Registrant and Stephen B. Rockoff
(incorporated by reference to the Exhibit filed with the Registrant's Annual Report on Form
10-K for the year ended December 31, 1995).
10.15 Employment Agreement dated August 9, 1995, between the Registrant and Scott A. Maltz
(incorporated by reference to the Exhibit filed with the Registrant's Annual Report on Form
10-K for the year ended December 31, 1995).
10.16 Employment Agreement dated August 9, 1995, between the Registrant and Alan C. Maltz
(incorporated by reference to the Exhibit filed with the Registrant's Annual Report on Form
10-K for the year ended December 31, 1995).
10.17 Employment Agreement dated December 4, 1996, between the Registrant and David S. Gergacz.
10.18 Lease covering the Company's facility at Brook House, Park Road, Gatley, England, dated June
24, 1996.
21.1 Subsidiaries of Brite.
23.1 Consent of Arthur Andersen LLP.
27 Financial Data Schedule.
99.1 Report of Ernst & Young LLP.
(b) Reports on Form 8-K.
The Registrant did not file any reports on Form 8-K during the last quarter of the period
covered by this report.
</TABLE>
39
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
BRITE VOICE SYSTEMS, INC.
Dated: March 21, 1997 By: /s/ DAVID S. GERGACZ
-----------------------------------
David S. Gergacz
Chief Executive Officer
/s/ GLENN A. ETHERINGTON
-----------------------------------
Glenn A. Etherington
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons in the capacities and on
the dates indicated:
NAME TITLE DATE
- ------------------------------ -------------------------- -------------------
/s/ STANLEY G. BRANNAN
- ------------------------------ Chairman of the Board March 21, 1997
Stanley G. Brannan
/s/ DAVID S. GERGACZ
- ------------------------------ Chief Executive Officer, March 21, 1997
David S. Gergacz President and Director
/s/ PERRY E. ESPING
- ------------------------------ Director March 21, 1997
Perry E. Esping
/s/ C. MACKAY GANSON, JR.
- ------------------------------ Director March 21, 1997
C. MacKay Ganson, Jr.
/s/ JOHN F. KELSEY, III
- ------------------------------ Director March 21, 1997
John F. Kelsey, III
/s/ ALAN C. MALTZ
- ------------------------------ Director March 21, 1997
Alan C. Maltz
/s/ SCOTT A. MALTZ
- ------------------------------ Director March 21, 1997
Scott A. Maltz
40
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------
<C> <S> <C>
2.1 Agreement and Plan of Reorganization and Merger dated May 24, 1995 by and among Brite Voice
Systems, Inc., Telecom Services Limited (U.S.), Inc., Telecom Services Limited (West), Inc.,
TSL Software Services, Inc., TSL Management Group, Inc. and Alan C. Maltz, Scott A. Maltz,
Stephen B. Rockoff and Alan C. Maltz as custodian for Sari Maltz and Lori Maltz
(incorporated by reference to Annex A to the Company's definitive proxy statement dated July
17, 1995).
3.1 Restated Articles of Incorporation of the Registrant (incorporated by reference to the
Exhibit filed with Registrant's Registration Statement on Form S-1, No. 33-29750).
3.2 Bylaws of the Registrant (incorporated by reference to the Exhibit filed with Registrant's
Registration Statement on Form S-1, No. 33-29750).
10.1 Registrant's 1984 Incentive Stock Option Plan, as amended (incorporated by reference to the
Exhibit filed with the Registrant's Annual Report on Form 10-K for the year ended December
31, 1991).
10.2 1993 Amendments to the Registrant's 1984 Incentive Stock Option Plan (incorporated by
reference to the Exhibit filed with Registrant's Annual Report filed on Form 10-K for the
year ended December 31, 1993).
10.3 Aircraft Lease Agreement between the Registrant and Brannan Leasing, Inc. dated November 10,
1992 (incorporated by reference to the Exhibit filed with the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1992).
10.4 Registrant's 1990 Non-Employee Director Stock Option Plan dated February 6, 1990
(incorporated by reference to the Exhibit filed with Registrant's Annual Report on Form 10-K
for the year ended December 31, 1989).
10.5 Registrant's Amended and Restated Non-Employee Director Stock Option Plan (incorporated by
reference to the Exhibit filed with the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1995).
10.6 Lease covering the Company's call center facility at 9229 E. 37th N., Wichita, Kansas, dated
April 22, 1994 (incorporated by reference to the Exhibit filed with the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1994).
10.7 December 22, 1994 Amendment to Lease covering the Company's call center facility
(incorporated by reference to the Exhibit filed with the Registrant's Annual Report on Form
10-K for the year ended December 31, 1994).
10.8 Employment Agreement between the Registrant and David F. Hemmings dated September 8, 1993
(incorporated by reference to the Exhibit filed with the Registrant's Annual Report on Form
10-K for the year ended December 31, 1993).
10.9 Non-Statutory Stock Option Agreement between the Registrant and David F. Hemmings dated
September 8, 1993 (incorporated by reference to the Exhibit filed with the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1994). Confidential treatment has
been granted with respect to a portion of the Exhibit.
10.10 Lease covering the Company's facility at 40 Shawmut Road, Canton, Massachusetts, dated March
15, 1993 (incorporated by reference to the Exhibit filed with the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1993).
</TABLE>
41
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------
<C> <S> <C>
10.11 Registrant's 1994 Stock Option Plan (incorporated by reference to the Exhibit filed with the
Registrant's Annual Report on Form 10-K for the year ended December 31, 1994).
10.12 Registrant's 1994 Employee Stock Purchase Plan (incorporated by reference to the Exhibit
filed with the Registrant's Registration Statement on Form S-8, No. 33-80478).
10.13 Stock Purchase Agreement between the Registrant and Perry E. Esping dated March 28, 1990
(incorporated by reference to the Exhibit filed with the Registrant's Annual Report on Form
10-K for the year ended December 31, 1990).
10.14 Employment Agreement dated August 9, 1995, between the Registrant and Stephen B. Rockoff
(incorporated by reference to the Exhibit filed with the Registrant's Annual Report on Form
10-K for the year ended December 31, 1995).
10.15 Employment Agreement dated August 9, 1995, between the Registrant and Scott A. Maltz
(incorporated by reference to the Exhibit filed with the Registrant's Annual Report on Form
10-K for the year ended December 31, 1995).
10.16 Employment Agreement dated August 9, 1995, between the Registrant and Alan C. Maltz
(incorporated by reference to the Exhibit filed with the Registrant's Annual Report on Form
10-K for the year ended December 31, 1995).
10.17 Employment Agreement dated December 4, 1996, between the Registrant and David S. Gergacz.
10.18 Lease covering the Company's facility at Brook House, Park Road, Gatley, England, dated June
24, 1996.
21.1 Subsidiaries of Brite.
23.1 Consent of Arthur Andersen LLP.
27 Financial Data Schedule.
99.1 Report of Ernst & Young LLP.
</TABLE>
42
<PAGE>
EXHIBIT 10.17
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement"), is made and entered into December
2, 1996, by and between DAVID S. GERGACZ ("Executive") and BRITE VOICE SYSTEMS,
INC. ("Brite").
WHEREAS, Brite desires to engage Executive to perform services for Brite
and Executive desires to perform such services on the terms and conditions set
forth herein;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and in consideration of the
covenants and obligations herein contained, the parties hereto agree as follows:
1. EMPLOYMENT AND DUTIES. From and after December 2, 1996 ("Commencement
Date"), Brite shall employ Executive as Chief Executive Officer. Executive
shall perform such acts and duties as the Board of Directors of Brite ("Board")
shall from time to time direct and shall report directly to the Board.
Executive shall use his best efforts on a full time basis (at least forty (40)
hours per week) to Brite's business. Notwithstanding the foregoing, it is
understood that Executive may serve as an outside director of up to two
companies other than Brite, and such additional company or companies as may be
approved by the Board.
2. COMPENSATION AND BENEFITS.
2.1 SALARY. Executive's annual salary ("Base Salary") shall be at
least $350,000, payable pursuant to Brite's customary payroll policies in
force at the time of payment. For the period from the Commencement Date
through December 31, 1997, Executive's Base Salary shall be $350,000.
2.2 BONUS.
a. COMMENCEMENT DATE THROUGH DECEMBER 31, 1997. During the
period from the Commencement Date through December, 1997, Executive
will be entitled to a bonus in the amount of $189,500, payable in
equal installments at the same time as Executive's Base Salary
pursuant to Brite's customary payroll policies in force at the time of
payment.
b. 1998 AND THEREAFTER. For each year of employment after 1997,
Executive will be entitled to participate in an incentive compensation
program which shall provide for an annual bonus of at least 50% of his
Base Salary upon attainment of reasonable performance goals
established by the Board. Payments of any such bonus shall be made at
the times and in the amounts determined by the Board.
2.3 ANNUAL REVIEW. Commencing with calendar year 1998, the Board
shall conduct an annual performance review of the Executive as a part of
which increases in Executive's Base Salary and incentive will be
considered.
<PAGE>
2.4 BENEFITS. Executive shall be entitled to participate in Brite's
standard benefits provided to other employees having similar responsibility
with Brite, as established and/or modified by Brite from time to time,
including, but not limited to, life insurance, health insurance, and dental
insurance.
2.5 VACATION. Executive shall be entitled to a reasonable amount of
vacation to be scheduled by Executive, taking into consideration
Executive's responsibilities and the scheduled vacations of other executive
officers of Brite.
2.6 BUSINESS EXPENSES. Pursuant to Brite's customary policies in
force at the time of payment, Executive shall be promptly reimbursed,
against presentation of vouchers or receipts, for all authorized expenses
properly incurred by him in the performance of his duties hereunder.
2.7 MOVING, TEMPORARY LODGING AND RELOCATION COSTS. Brite will
reimburse Executive for all reasonable and necessary costs of moving
Executive's furniture, personal items and vehicles to the Wichita, Kansas
area, as well as reasonable and necessary closing costs, excluding prepaid
items, relating to the purchase of Executive's new home and the commission
payable with respect to the sale of his present home. Until such time as
Executive relocates his residence to the Wichita, Kansas area, which shall
be not later than six months from the date hereof, Executive will be
entitled to reimbursement for the cost of a furnished apartment and for
telephone service and utilities at such apartment. Brite shall reimburse
Executive for all expenses and costs provided for in this Section 2.7, and
the tax liability incurred by Executive with respect to the reimbursement,
against presentation of documentation detailing the same, up to the amount
of $235,000. All expenses and costs incurred in excess of this amount are
the responsibility of Executive.
3. STOCK OPTIONS
3.1 OPTION GRANT. Brite hereby grants Executive options ("Options")
to purchase 500,000 shares of its no par value common stock (the "Stock")
at the option exercise price of $14.875 per share.
3.2 VESTING OF OPTIONS. Subject to such further limitations and
qualifications as are provided herein, the Options shall be exercisable as
follows:
a. 100,000 shares on the date hereof;
b. 100,000 shares on December 2, 1997;
c. 150,000 shares on December 2, 1998; and
d. 150,000 shares on December 2, 1999.
Upon termination of Executive's employment, Executive shall have the
right to exercise the Options at any time within ninety days after such
termination of employment, to the extent his right to exercise such Options
had accrued pursuant to
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<PAGE>
Section 3.2 and had not previously been exercised at the date of such
termination. Upon a Change in Control, all previously unexercised Options
shall become immediately exercisable and shall be canceled ninety (90) days
thereafter.
3.3 METHOD OF EXERCISE. Each option shall be exercised by written
notice, directed to the Chief Financial Officer of Brite at Brite's
principal place of business and accompanied by a check in payment of the
exercise price for the number of shares of Stock being purchased. Brite
shall make immediate delivery of the Stock to be acquired upon such
exercise, provided that, if any law or regulation requires Brite to take
any action with respect to the Stock specified in such notice or for the
issuance thereof, the date of delivery of such Stock shall be extended for
the period necessary to take such action.
3.4 TERMINATION OF OPTION. Except as herein otherwise stated, each
Option, to the extent not previously exercised, shall terminate on December
2, 2006.
3.5 RECAPITALIZATION.
a. Subject to any required action by the stockholders, the
number of shares of Stock covered by each outstanding Option, and the
price per share of each such Option, shall be proportionately adjusted
for any increase or decrease in the number of issued shares of Stock
of Brite resulting from a subdivision or consolidation of shares or
the payment of a stock dividend (but only on the Stock) or any
increase or decrease in the number of such shares effected without
receipt of consideration by Brite.
b. Subject to any required action by the stockholders, if Brite
shall be the surviving corporation in any merger or consolidation,
each outstanding Option shall pertain to and apply to the securities
to which a holder of the number of shares of Stock subject to the
Option would have been entitled.
c. In the event of a change in the Stock as presently
constituted, which is limited to a change of all if its authorized
shares with par value into the same number of shares with a different
par value or without par value, the shares resulting from any such
change shall be deemed to be the Stock.
d. To the extent that the foregoing adjustments relate to stock
or securities of Brite, such adjustments shall be made by the Board,
whose determination in such respect shall be final, binding and
conclusive.
e. Except as hereinbefore expressly provided, Executive shall
have no rights by reason of any subdivision or consolidation of shares
of stock of any class or the payment of any stock dividend or any
other increase or decrease in the number of shares of stock of any
class or by reason of any dissolution, liquidation, merger of
consolidation or spin-off of assets or stock of another corporation,
and any issue by Brite of shares of stock of any class, or securities
convertible into
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shares of stock of any class, shall not effect, and no adjustment by
reason thereof shall be made with respect to, the number or price of
shares of Stock subject to an Option.
3.6 RIGHTS PRIOR TO EXERCISE OF OPTION. The Options are
nontransferable by Executive, and during his lifetime are exercisable only
by him; provided, however, in the event of the death of Executive, the
Options may pass to his executor or administrator or any person who shall
acquire the Options directly from Executive or his estate by bequest or
inheritance. Executive shall not have any rights as a stockholder with
respect to any shares covered by the Options until the date of the issuance
of a stock certificate to him for such shares. No adjustment shall be made
for dividends (ordinary or extraordinary, whether in cash, securities or
other property) or distributions or other rights for which the record date
is prior to the date such stock certificate is issued, except as provided
in Section 3.5 hereof.
3.7 INVESTMENT PURPOSE. The Options are granted on the condition
that any purchase of Stock thereunder shall be for investment purposes, and
not with a view to resale or distribution, except that in the event the
Stock subject to the Options is registered under the Securities Act of
1933, as amended, or in the event a resale of such Stock without such
registration would otherwise be permissible, such condition shall be
inoperative if, in the opinion of counsel for Brite, such condition is not
required under the Securities Act of 1933 or any other applicable law,
regulation, or rule of any governmental agency.
3.8 ADDITIONAL OPTION GRANTS. During January in each year beginning
in 2000, the Board shall grant Executive additional non-statutory stock
options to purchase at least 20,000 shares of Stock, with the exercise
price being the fair market value of the Stock as of the date of grant.
All other terms and conditions of such options shall be determined by the
Board.
4. TERMINATION.
4.1 TERMINATION FOR CAUSE. Executive shall be entitled to payment of
his Base Salary, accrued bonus (if any) and benefits existing at the time
of termination of his employment if such termination is a Termination for
Cause. Termination for Cause means one or more of: (i) voluntary
termination of employment by Executive for any reason; (ii) the death of
Executive; (iii) Executive having been unable to render services required
of him hereunder for a consecutive period of six months or for any period
in the aggregate of six months in any twelve month period because of a
serious and continuing health impairment, which impairment will most likely
result in Executive's continued inability to render the services required
of him hereunder; (iv) Executive's misappropriation of corporate funds; (v)
Executive's conviction of a felony; (vi) Executive's conviction of any
crime involving theft, dishonesty, or moral turpitude; (vii) Executive's
failure to devote substantially his full business time to Brite as provided
in Section 1 hereof; (viii) Executive's willful violation of directions of
the Board Brite
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which are consistent with Executive's duties as Chief Executive Officer;
(ix) falsification of any material representation made by Executive to
Brite; or, (x) the commission by Executive of a material breach of the
terms of this Agreement.
4.2 TERMINATION OTHER THAN FOR CAUSE. If Executive's employment with
Brite is terminated and such termination is not a Termination for Cause,
Executive will be entitled to payment of his Base Salary, bonus and other
benefits existing at the time of such termination, for a period of one year
thereafter with all such payments to be made periodically pursuant to
Brite's policies in force at the time of payment; provided, however, that
Brite shall not be obligated to continue any benefit if the plan or policy
under which such benefit is provided limits the provision of the benefit to
full-time employees of Brite, or if the validity of the plan or policy
would be adversely impacted by the continuation of the benefit.
4.3 CHANGE IN CONTROL. If, upon a Change in Control, Executive is
either terminated or elects to resign, such termination shall be treated as
a termination under Section 4.2, except that the time period for payment of
the Base Salary, bonus and benefits shall be extended from one year to two
years after the date of termination. "Change of Control" shall mean (i) a
dissolution or liquidation of Brite; (ii) a merger or consolidation in
which Brite is not the surviving corporation; or (iii) the acquisition of
more than 50% of the outstanding Stock by any person, or group of related
persons acting in concert, in a single transaction or series of related
transactions.
5. CONFIDENTIAL INFORMATION.
5.1 DEFINITION OF CONFIDENTIAL INFORMATION. For purposes of this
Agreement, the term "Confidential Information" means:
That secret, proprietary information of Brite not otherwise
publicly disclosed (whether or not discovered or developed
by Executive) and known by Executive as a consequence of
Executive's employment with Brite or as a consequence of
Executive's position as a director of Brite. Without
limiting the generality of the foregoing, such proprietary
information shall include: information not generally known
in the industry or related industries which concerns (i)
customer lists; (ii) computer programs and facilities; (iii)
the identity of specialized consultants and contractors and
confidential information developed by them for Brite; (iv)
operating and other cost data, including information
regarding salaries and benefits of employees; (v) cost and
pricing data; (vi) acquisition, expansion, marketing,
financial and other business plans; (vii) Brite manuals,
files, records, memoranda, plans, drawings and designs,
specifications and computer programs and records; and (viii)
all
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information which is a "trade secret" as defined in the Uniform Trade
Secrets Act as adopted in Kansas at K.S.A. 60-3320.
5.2 CONFIDENTIAL INFORMATION. During Executive's employment with
Brite, Executive will have access to and become familiar with Confidential
Information of Brite. Executive acknowledges that such Confidential
Information is owned and shall continue to be owned solely by Brite.
During the term of Executive's employment with Brite and after termination
of such employment, Executive shall not use or divulge Confidential
Information to any person or entity other than Brite, or persons to whom
Brite has given its written consent, unless such information has become
common knowledge and is no longer Confidential Information.
5.3 RETURN OF DOCUMENTS. Upon termination of Executive's employment
with Brite, all procedural manuals, guides, specifications, plans,
drawings, designs, records, lists, notebooks, software, diskettes, customer
lists, pricing documentation and other property which is or contains
Confidential Information, including all copies thereof, in the possession
or control of Executive, whether prepared by Executive or others, shall be
forthwith delivered by Executive to Brite.
6. COVENANTS NOT TO COMPETE.
6.1 RESTRICTIVE COVENANT. Executive covenants and agrees that during
Executive's employment with Brite and for a period of one year following
the date of termination of Executive's employment with Brite, Executive
shall not in any manner:
a. accept employment with the following companies or any
business venture in which they hold any investment or management
interest: Perphonics, Intervoice Precision Systems, Syntellect,
Octel, Boston Technology, Edify, Microlog, Premier Technology, Talx,
Brooktrout, or Comverse Technology.
b. start or join any business which after the date of this
Agreement enters into a line of business that is a line of business
conducted by Brite during the term of Executive's employment with
Brite.
This Section shall prevent Executive, directly or indirectly, on
Executive's own behalf or as an executive, officer, agent, director,
partner, consultant, lender, or advisor, during the period covered by this
Section, from forming, owning, joining, controlling, financing, or
otherwise participating in the ownership or management of or being
otherwise affiliated with any person or entity engaged in the type of
business prohibited by this Section. During the period covered by this
Section, Executive shall not permit any person or entity (other than Brite)
of which Executive is a shareholder, partner or director or in which
Executive has an ownership interest, to engage in any type of business
prohibited by this Section. Notwithstanding any other provision herein,
the parties agree that Executive may, during the period covered by this
Agreement, invest Executive's personal, private assets as a passive
investor in not more than one percent (1%) of the total outstanding shares
of any publicly traded company engaged in a
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competing business, so long as Executive does not participate in the
management or operations of the affairs of such company.
6.2 SOLICITATION OF EMPLOYEES. During the one-year period following
Executive's termination of employment with Brite, Executive shall not,
without the prior written approval of the Chairman of the Board of
Directors of Brite, directly or indirectly solicit, raid, entice, or induce
any person who is, or was at any time within six months prior to such
termination, an employee of Brite, to become employed by any other person,
firm, or corporation in any business which is in any manner in competition
with Brite. Furthermore, Executive shall inform Brite in writing if any
other person employed by Brite contacts Executive for the purpose of
seeking employment during such one year period.
6.3 NEW DEVELOPMENTS. Executive agrees that, with respect to its
work for Brite, any developments made by Executive or under Executive's
direction in connection with the work of Brite shall be the sole and
complete property of Brite and that any and all copyrights, patent rights
and other proprietary rights therein shall belong to Brite. Executive
shall cooperate with Brite and execute any documents prepared by Brite to
secure or protect any such rights.
7. REPRESENTATIONS OF EXECUTIVE. Executive hereby represents and
warrants that he has the unrestricted right to accept employment with Brite on
the terms and conditions set forth herein and to execute and perform this
Agreement without being in conflict with any other agreement, obligation or
understanding with any such third party. Executive represents that he is not
bound by any agreement or by any other existing or previous business
relationship which conflicts with, or may conflict with, the performance of his
obligations hereunder, or prevent the full performance of his duties and
obligations hereunder.
8. NOTICES. Any notice permitted or required to be given under this
Agreement shall be sufficient if in writing and delivered personally or by
registered mail return receipt requested, if to Executive, to Mr. David S.
Gergacz at his residence address as reflected in Brite's records, and if to
Brite, to the attention of Mr. Stanley G. Brannan, Chairman, Brite Voice
Systems, Inc., 7309 East 21st Street North, Wichita, Kansas 67206. A party may
change its address for receipt of notices by complying with this Section.
9. ENTIRE AGREEMENT. This Agreement contains the entire understanding of
the parties in respect of its subject matter and supersedes all prior agreements
and understandings between the parties with respect to such subject matter.
10. AMENDMENT; WAIVER. This Agreement may not be amended, supplemented,
canceled or discharged except by written instrument executed by the party
affected thereby. No failure to exercise, and no delay in exercising, any
right, power or privilege hereunder shall operate as a waiver thereof. No
waiver of any breach of any provision of this Agreement shall be deemed to be a
waiver of any preceding or succeeding breach of the same or any other provision.
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11. BINDING EFFECT; ASSIGNMENT. The rights an obligations of this
Agreement shall bind and inure to the benefit of any successor of Brite by
reorganization, merger or consolidation or any assignee of all or substantially
all of Brite's business and properties. Executive's rights or obligations under
this Agreement may not be assigned by Executive, except that upon Executive's
death, all right to compensation hereunder shall pass to Executive's executor or
administrator.
12. HEADINGS. The headings contained in this Agreement are for reference
purposes only and shall not affect the meaning or interpretation of this
Agreement.
13. GOVERNING LAW; INTERPRETATION. This Agreement shall be construed in
accordance with, and governed for all purposes by, the laws and public policy of
the State of Kansas applicable to contracts executed and to be wholly performed
within such State.
14. FURTHER ASSURANCES. Each of the parties agrees to execute,
acknowledge, deliver and perform, and/or cause to be executed, acknowledged,
delivered and performed, at any time and/or from time to time, as the case may
be, all such further acts, documents, transfers, conveyances, and/or assurances
as may be necessary and/or proper to carry out the provisions and/or intent of
this Agreement.
15. SEVERABILITY. If any one or more of the terms, provisions, covenants
or restrictions of this Agreement shall be determined by a court of competent
jurisdiction to be invalid, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions of this Agreement shall remain in full
force and effect and shall in no way be affected, impaired or invalidated.
IN WITNESS WHEREOF, the parties hereto have entered this Agreement
effective the date first above written.
BRITE VOICE SYSTEMS, INC.
By: /s/ Stanley Brannan
-----------------------
/s/ David S. Gergacz
-----------------------------
DAVID S. GERGACZ
-8-
<PAGE>
LEASE Dated 24th June 1996
Landlord: CAPITAL & COUNTIES PLC
Tenant: BRITE VOICE SYSTEMS GROUP LIMITED
Brook House Gatley
New General Purpose Lease Debenham & Co.
LSEGPN.D 20 Hans Road
Author of Standard: FS Knightsbridge
Last Revised: 30th April 1996 London SW3 1RT
@ Debenham & Co 1995
<PAGE>
CONTENTS
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CLAUSE PAGE
CLAUSE 1 PARTICULARS.................................................. 1
CLAUSE 2 DEFINITIONS.................................................. 4
CLAUSE 3 INTERPRETATION............................................... 9
3.1 Rights of the Landlord....................................... 9
3.2 Act or default of the Tenant................................. 9
3.3 Approvals of any superior landlord and mortgagee............. 9
3.4 Consent of the Landlord, approval, etc....................... 9
3.5 English law.................................................. 9
3.6 Gender and number............................................ 9
3.7 General and particular words................................. 9
3.8 Headings..................................................... 9
3.9 Joint and separate obligations............................... 10
3.10 Last year and end of the Tenancy............................. 10
3.11 Perpetuity period............................................ 10
3.12 Person and party............................................. 10
3.13 Rights and obligations....................................... 10
3.14 Statute...................................................... 10
3.15 Superior landlord............................................ 11
3.16 Tenant not to allow act...................................... 11
CLAUSE 4 LETTING...................................................... 12
4.1 Letting...................................................... 12
4.2 Rights and reservations...................................... 12
CLAUSE 5 TENANT'S RIGHTS.............................................. 13
CLAUSE 6 LANDLORD'S RIGHTS............................................ 14
6.1 Conducting Media............................................. 14
6.2 Light, support, etc.......................................... 14
6.3 Entry by Landlord............................................ 14
6.4 Landlord's right to carry out works on other premises........ 15
6.5 Letting board, etc........................................... 15
6.6 Goods left on the Property................................... 15
6.7 Variation on implied rights.................................. 15
CLAUSE 7 TENANT'S COVENANTS........................................... 16
7.1 Rent......................................................... 16
7.2 Outgoings.................................................... 16
7.3 Interest..................................................... 16
7.4 Repair and decoration........................................ 17
7.5 Maintenance.................................................. 17
7.6 Contribution to repair of party walls etc.................... 18
7.7 Repair on notice............................................. 18
7.8 Compliance with statutory requirements, etc.................. 18
7.9 Restrictions on dealings..................................... 19
<PAGE>
CLAUSE PAGE
7.10 Registration of assignments, etc............................. 22
7.11 Information.................................................. 22
7.12 Alterations.................................................. 23
7.13 Signs and Notices............................................ 23
7.14 Cost of removal by Landlord of unauthorised signs, etc....... 23
7.15 Service installations........................................ 23
7.16 Nuisance..................................................... 24
7.17 Use.......................................................... 24
7.18 Overloading.................................................. 24
7.19 Notices...................................................... 24
7.20 Planning..................................................... 24
7.21 Encroachments................................................ 24
7.22 Maintenance agreements....................................... 25
7.23 Defective premises........................................... 25
7.24 Landlord's rights............................................ 25
7.25 Landlord's Regulations....................................... 25
7.26 The CDM Regulations.......................................... 25
7.27 Landlord's costs............................................. 26
7.28 Indemnities.................................................. 27
7.29 Yield up..................................................... 27
7.30 VAT.......................................................... 27
CLAUSE 8 LANDLORD'S COVENANTS......................................... 28
Quiet enjoyment.............................................. 28
CLAUSE 9 INSURANCE.................................................... 29
9.1 Landlord to insure Property.................................. 29
9.2 Additional Landlord's fixtures............................... 29
9.3 Landlord to inform Tenant of insurance cover................. 29
9.4 Damage to Property........................................... 29
9.5 Option to terminate following damage by an Insured Risk...... 30
9.6 Option to terminate following damage by an Excluded Risk..... 30
9.7 Application by Tenant for new lease following termination.... 31
9.8 Tenant's obligations in respect of Landlord's insurances..... 31
9.9 Tenant's insurance........................................... 32
CLAUSE 10 SUSPENSION OF RENT........................................... 33
10.1 Application.................................................. 33
10.2 Suspension................................................... 33
10.3 Disputes..................................................... 33
CLAUSE 11 FORFEITURE................................................... 34
CLAUSE 12 DECLARATIONS, WARRANTIES AND MISCELLANEOUS................... 35
12.1 Representations and exclusion of use warranty................ 35
12.2 Accidents.................................................... 35
12.3 Payments recoverable as rent................................. 35
12.4 Release of the Landlord...................................... 35
12.5 Service of notices........................................... 35
12.6 Jurisdiction of the English courts........................... 35
12.7 Tenant's option to terminate................................. 36
<PAGE>
CLAUSE PAGE
CLAUSE 13 ARBITRATION OR DETERMINATION BY EXPERT....................... 37
13.1 Contrary Provision........................................... 37
13.2 Arbitration.................................................. 37
13.3 Determination by an expert................................... 37
13.4 Expert's terms of appointment................................ 37
13.5 Experience of arbitrator or expert........................... 38
13.6 Non-payment of costs of arbitrator or expert................. 38
CLAUSE 14 RENT REVIEW.................................................. 39
14.1 Definitions.................................................. 39
14.2 New Rent..................................................... 41
14.3 Memorandum................................................... 41
14.4 Delay........................................................ 41
CLAUSE 15 GUARANTEE.................................................... 42
15.1 Definition................................................... 42
15.2 Guarantee.................................................... 42
15.3 New lease on disclaimer, etc................................. 42
15.4 Waiver by Guarantor of rights................................ 43
15.5 Guarantor's liability not to be prejudiced................... 44
15.6 Surrender of part by Original Tenant......................... 44
15.7 Benefit of guarantee......................................... 44
15.8 Change of address............................................ 44
<PAGE>
LEASE
PARTICULARS
- -------------------------------------------------------------------------------
CLAUSE 1
- -------------------------------------------------------------------------------
1.1 DATE 24TH JUNE 1996
- -------------------------------------------------------------------------------
1.2 HEADLEASE/UNDERLEASE This lease is a headlease.
- -------------------------------------------------------------------------------
1.3 PARTIES
1.3:1 Landlord CAPITAL & COUNTIES PLC
Registered office: 40 Broadway London SW1H
0BU
(Company registration number: 280739).
----------------------------------------------
1.3:2 Tenant BRITE VOICE SYSTEMS GROUP LIMITED
Registered office: Dennis House Marsden Street
Manchester M2 1JD
(Company registration number: 2601740)
- -------------------------------------------------------------------------------
1.4 PROPERTY BROOK HOUSE (formerly Bridge House)
Stonepail Close Gatley Stockport Sk8 4HZ being
the whole of the land and buildings comprised
in the Landlord's freehold title number
GM681354
- -------------------------------------------------------------------------------
1.5 CONTRACTUAL TERM TEN YEARS from and including the 24th June
1996.
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1
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1.6 RENT
1.6:1 Amount To and including the 24th December
1996 TWENTY THOUSAND FIVE HUNDRED AND
FOURTEEN POUNDS (L20,514) a year; from and
including 25th December 1996 to and
including the 23rd June 1997 ONE HUNDRED AND
SEVENTY SEVEN THOUSAND SEVEN HUNDRED AND
EIGHTY EIGHT POUNDS (L177,788) a year; from
and including 24th June 1997 to and
including 23rd June 1998 TWO HUNDRED AND
THIRTY-TWO THOUSAND FOUR HUNDRED AND
NINETY-TWO POUNDS (L232,492) a year; from
and including 24th June 1998 to and
including the 23rd June 1999 TWO HUNDRED AND
NINETY FOUR THOUSAND AND THIRTY FOUR POUNDS
(L294,034) a year; from and including 24th
June 1999 to and including the 23rd June
2001 THREE HUNDRED AND TWENTY ONE THOUSAND
THREE HUNDRED AND EIGHTY SIX POUNDS
(L321,386) a year and thereafter THREE HUNDRED
THOUSAND EIGHT HUNDRED AND SEVENTY TWO
POUNDS (L300,872) a year as varied from time
to time under the provisions of this Lease
(including in particular the provisions for
review in clause 14).
----------------------------------------------
1.6:2 Rent 24th June 1996
Commencement
Date
----------------------------------------------
1.6:3 First Rent Payment 24th June 1996
Date
----------------------------------------------
1.6:4 Review Dates 24th June 2001 only.
- -------------------------------------------------------------------------------
1.7 INSURANCE RENT
COMMENCEMENT DATE 24th June 1996
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2
<PAGE>
1.8 PERMITTED USE Offices within Class B1 of the Town
and Country Planning (Use Classes)
Order 1987 and ancillary purposes
1.9 LANDLORD AND TENANT
(COVENANTS) ACT 1995
This Lease is a new tenancy under
section 1 of the Landlord and Tenant
(Covenants) Act 1995
- -------------------------------------------------------------------------------
3
<PAGE>
DEFINITIONS
CLAUSE 2
In this Lease the following definitions apply:
"ARBITRATION" arbitration under clause 13.2.
"AUTHORISED GUARANTEE has the meaning given to "authorised guarantee
AGREEMENT" agreement" in section 28 of the Landlord and
Tenant (Covenants) Act 1995.
"BASE RATE" the base rate from time to time of Barclays
Bank PLC or, if that is not available, the most
closely comparable rate of interest, to be
determined (if not agreed) by Arbitration.
"CONDUCTING MEDIA" all conducting media, including (but not
limited to) pipes, flues, ducts, wires,
cables, drains, sewers, gutters, gullies and
channels and their ancillary plan and
equipment.
"CONTRACTUAL TERM" the term specified in clause 1.5.
"EXCLUDED REVIEW (see clause 14.1)
MATTERS"
"EXCLUDED RISK" any risk which would have fallen within the
definition of "Insured Risks" but for the
Landlord exercising its discretion to
exclude the risk from that definition.
"FAIR PROPORTION" the fair proportion reasonably determined
from time to time by the Landlord's Surveyor.
"first rent payment date" the date specified in clause 1.6:3.
"group company" a company which is a member of the same
group as the Landlord or the Tenant (as the
case may be). For the purpose of this
definition:
(a) a company is a "subsidiary" of another
company if that other company:
(i) holds a majority of the voting
rights in it, or
(ii) is a member of it and has the right
to appoint or remove a majority of
its board of directors, or
(iii) is a member of it and controls
alone, under an agreement with
other shareholders or members, a
majority of the voting rights in it.
4
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(b) two companies shall be taken to be
members of the same group if, and only if:
(i) one is a subsidiary of the other, or
(ii) both are subsidiaries of a third,
or
(iii) one is a subsidiary of a company
which itself is a subsidiary of the
other.
"GUARANTOR" the person (if any) so named in clause 1.3:3.
"INSURANCE RENT" a sum equal to the cost of the insurances
described in clause 9.1 (including the cost
of any insurance valuations).
"INSURANCE RENT the date specified in clause 1.7.
COMMENCEMENT DATE"
"INSURED RISKS" (a) fire, explosion and lightning.
(b) impact,
(c) earthquake,
(d) aircraft (other than hostile aircraft)
and things dropped from aircraft,
(e) flood, storm and tempest,
(f) bursting or overflowing of water tanks,
apparatus, pipes, boilers, or heating
equipment,
(g) riot and civil commotion, and
(h) malicious damage,
(i) accidental damage to all plate glass in
the Property and any other risks which
the Landlord or any superior landlord may
from time to time reasonably insure, and
an "Insured Risk" means one of the risks.
Except that a risk will not be an
"Insured Risk" to the extent that, in the
reasonable opinion of the Landlord's
Surveyor, insurance cover is not
available in the normal market at a
reasonable premium and the Landlord
elects not to take out such insurance
cover for the Property and gives
reasonable prior written notice to the
Tenant of such election.
"LANDLORD" the person named in clause 1.3:1 or any
other person who, at the relevant time, is
entitled to the immediate reversion on this
Lease.
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<PAGE>
"LANDLORD'S SURVEYOR" the person from time to time appointed by
the Landlord to act as its surveyor for any
purpose under this Lease, who shall be a
professionally qualified surveyor, and may
be an employee of the Landlord.
"THIS LEASE" this lease, as varied and supplemented by
any document.
"NON-REINSTATEMENT (see clause 9.6:1).
NOTICE"
"OPEN MARKET RENT" (see clause 14.1).
"ORIGINAL LANDLORD" the person named in clause 1.3:1.
"ORIGINAL TENANT" the person named in clause 1.3:2.
"PLANNING ACTS" the Local Government Planning and Land Act
1980, the Town and Country Planning Act
1990, the Planning (Listed Buildings and
Conversation Areas) Act 1990, the Planning
(Hazardous Substances) Act 1990 the Planning
(Consequential Provisions) Act 1990 and the
Planning and Compensation Act 1991 and any
later similar legislation.
"PLANNING CONTROL" has the meaning given to it by the Town and
Country Planning Act 1990.
"PRESIDENT OF THE RICS" the President for the time being of The
Royal Institution of Chartered Surveyors, or
the person for the time being authorised to
act on his behalf.
"PROPERTY" the premises described in clause 1.4,
including:
(a) any vaults below or adjoining the
premises,
(b) any pavement lights serving the premises,
(c) Conducting Media within the premises
which do not belong to suppliers,
(d) Conducting Media outside the premises
which exclusively serve the premises and
do not belong to suppliers,
(e) landlord's fixtures in or forming part
of the premises, (including any toilets
and sanitary ware),
(f) any additions to the premises, and
(g) any grounds and approaches belonging to
the premises,
but excluding
(h) tenant's fixtures.
6
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[SAME AS FOLIO 6]
7
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"RENT" the amount (subject to variation and review)
specific in clause 1.6:1.
"RENT COMMENCEMENT the date specified in clause 1.6:2.
DATE"
"REVIEW ASSUMPTIONS" (see clause 14.1).
"REVIEW DATE" (see clause 14.1).
"SIGNS AND NOTICES" signs, notices, placards, posters, stickers,
advertisements, flags, logos, lettering and
numerals.
"TENANCY" the contractual tenancy created by this
Lease and any further tenancy of the
Property during any period of holding over
or extension or continuation of the
contractual tenancy by statute or under
common law.
"TENANT" the Original Tenant and its successors in
title as tenant under this Lease.
"TENANT COVENANT" means a "tenant covenant" (as defined by
section 28 of the Landlord and Tenant
(Covenants) Act 1995) which relates to the
tenancy created by this lease.
"TERMINATION EVENT" (see clause 15.1).
"TERMINATION NOTICE" (see clause 9.6:2.2.)
"VAT" value added tax and any similar tax.
8
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INTERPRETATION
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CLAUSE 3
This clause contains directions for interpretation, which apply unless a
contrary intention is clear from the wording elsewhere in this Lease.
3.1 RIGHTS OF THE LANDLORD
References to the rights of the Landlord are deemed to include the same
rights for any superior landlord, and anyone authorised by the Landlord
or a superior landlord.
3.2 ACT OR DEFAULT OF THE TENANT
References to the act or default or fault of the Tenant, and words to
similar effect shall include any act, default or fault of anyone at the
Property with the Tenant's authority and under the Tenant's control.
3.3 APPROVALS OF ANY SUPERIOR LANDLORD AND MORTGAGEE
Any provision in this Lease requiring the consent or approval of the
Landlord is to be construed as also requiring any necessary consent or
approval of:
3.3:1 any superior landlord, and
3.3:2 any mortgagee of the Landlord's or any superior landlord's interest
in the Property,
where such consent or approval shall be required.
3.4 CONSENT OF THE LANDLORD, APPROVAL, ETC.
References to consent of the Landlord, and words to similar effect,
mean a prior consent in writing signed by or for the Landlord.
References to approved and authorised and words to similar effect, mean
previously approved or authorised in writing.
3.5 ENGLISH LAW
This Lease shall be governed by and interpreted in accordance with
English law.
3.6 GENDER AND NUMBER
Words of one gender include all other genders. Singular words include
the plural and vice versa.
3.7 GENERAL AND PARTICULAR WORDS
General words are not limited because they are preceded or followed by
particular words in the same category or covering the same topic.
3.8 HEADINGS
Any footnotes, headings, index, marginal notes, table of contents and
underlinings are for guidance only, not interpretation.
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3.9 JOINT AND SEPARATE OBLIGATIONS
If an obligation is owed to or by more than one person, that obligation
is owed to or by those persons separately, jointly or in any
combination.
3.10 LAST YEAR AND END OF THE TENANCY
References to the last year of the Tenancy, or other period related to
the end of the Tenancy, and words to similar effect include the last
year of the Tenancy or such other period (as the case may be), even if
it ends before the end of the Contractual Term. References to the end
of the Tenancy and words to similar effect are to be similarly
interpreted.
3.11 PERPETUITY PERIOD
The perpetuity period applicable to this Lease is eighty (8O) years
from the start of the Contractual Term. Whenever in this Lease any
party is granted a future interest that interest must vest within such
perpetuity period and if it has not it will be void for remoteness.
3.12 PERSON AND PARTY
3.12:1 Any reference to a person includes a company, corporation or
other legal entity.
3.12:2 Any reference to "parties" or "party" means the Landlord and
the Tenant or either of them but, in the absence of a specific
reference to the contrary, does not include any
Guarantor.
3.13 RIGHTS AND OBLIGATIONS
3.13:1 The Tenant or any undertenant or occupier of the Property shall
not after the date of this Lease and during the Tenancy acquire
any implied or prescriptive right or easement from or over or
affecting any neighbouring premises in which the Landlord from
time to time has a freehold or leasehold interest.
3.13:2 Rights granted are not exclusive to the Tenant.
3.13:3 Rights and obligations are cumulative.
3.14 STATUTE
Any reference to a specific statute includes:
3.14:1 any statutory extension, variation or re-enactment of the
statute whether before or after the date of this Lease.
3.14:2 derivative orders, regulations and permissions, and
3.14:3 directives and regulations adopted by the European Union relating
to VAT.
Any general reference to "statute" or "statutes" includes those enacted
after the date of this Lease and includes all derivative orders,
regulations and permissions.
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3.15 SUPERIOR LANDLORD
3.15:1 Any reference to a superior landlord includes the Landlord's
immediate reversioner and any superior landlord.
3.15:2 Any reference to a superior iease includes the lease under which
the Landlord holds the Property and any lease superior to that.
3.15:3 When a superior landlord performs a landlord's obligation it
shall be deemed to have been performed by the Landlord.
3.16 TENANT NOT TO ALLOW ACT
An obligation by the Tenant not to do an act includes an obligation not
to knowingly allow that act to be done by another person.
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LETTING
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CLAUSE 4
4.1 LETTING
The Landlord lets the Property to the Tenant for the Contractual Term,
the Tenant paying during the Tenancy the following (all of which are
reserved as rent):
4.1:1 from and including the Rent Commencement Date the Rent by equal
quarterly payments in advance on the usual quarter days; the first
payment for the period from the Rent Commencement Date, being due
on the First Rent Payment Date,
4.1:2 from and including the Insurance Rent Commencement Date the
Insurance Rent within twenty one (21) days after a written demand,
4.1:3 any VAT payable on the above amounts.
4.2 RIGHTS AND RESERVATIONS
The letting includes the rights (if any) granted by clause 5 but is
subject to the exceptions and reservations set out in clause 6.
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TENANT'S RIGHTS
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CLAUSE 5
None
13
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LANDLORD'S RIGHTS
- -------------------------------------------------------------------------------
CLAUSE 6
The following rights are excepted and reserved to the
Landlord:
6.1 CONDUCTING MEDIA
The right to use, repair, alter, replace, add to and make connections
to the Conducting Media forming part of the Property which serve or are
capable of serving other premises.
6.2 LIGHT, SUPPORT, ETC.
The right of light, air, support and protection and all other easements
and rights now or after the date of this Lease, belonging to or enjoyed
by any other premises.
6.3 ENTRY BY LANDLORD
6.3:1 The right at reasonable times and on reasonable prior written
notice, but in case of emergency at any time without notice, to
enter the Property with necessary materials and appliances, and:
6.3:1.1 view and record the condition of the Property,
6.3:1.2 repair, maintain, alter or clean other premises, where
such work would not otherwise be reasonably practicable
6.3:1.3 inspect Conducting Media,
6.3:1.4 comply with obligations or exercise any rights under
this Lease or a superior lease,
6.3:1.5 make good any failure by the Tenant to repair, maintain
or decorate the Property in compliance with
clause 7.7:1,
6.3:1.6 remove anything which has been fixed, placed, displayed
or left on the Property in breach of clause 7.12 or
clause 7.13,
6.3:1.7 make good any other breach of covenant by the Tenant,
6.3:1.8 show prospective tenants and purchasers over the
Property, or
6.3:2 In exercising these rights the Landlord shall:
6.3:2.1 cause as little inconvenience to the Tenant as is
reasonably practicable,
6.3:2.2 as soon as reasonably practicable make good any damage
to the Property, and
6.3:2.3 indemnify the Tenant against any loss or damage to the
tenant's fixtures and the contents of the Property.
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6.4 LANDLORD'S RIGHT TO CARRY OUT WORKS ON OTHER PREMISES
6.4:1 The right to alter, add to and carry out works on adjoining or
nearby premises, Provided that the same shall not materially
obstruct affect or interfere with the amenity of or access to
the Property or the passage of light and air to the Property.
6.4:2 In carrying out any works under this clause 6.4 the Landlord
shall:
6.4:2.1 be entitled, if reasonably necessary, to erect
scaffolding which can be attached to the Property,
Provided that there shall not be erected any
scaffolding or other structures in front of or to the
rear or sides (if applicable) of the Property in such
a position so as to obscure the windows of the
Property or so as to prevent or interfere with access
to the Property by persons entering the Property or
in connection with the servicing thereof
6.4:2.2 cause as little inconvenience as reasonably
practicable to the Tenant and, as soon as reasonably
practicable, make good any damage caused to the
Property, and
6.4:2.3 ensure that after completion of the works the use of
the Property for any purpose permitted by this Lease
has not been materially adversely affected.
6.5 LETTING BOARD, ETC.
The right, during the last six (6) months of the Tenancy, on prior
written notice to display a letting board on the Property and at any
time to display a sale board on the Property, but not so that any board
unreasonably obstructs the light or air to the Property, or interferes
with the Tenant's or any undertenant's business being carried on at the
Property.
6.6 GOODS LEFT ON THE PROPERTY
6.6:1 The right to sell, as agent for the Tenant, any belongings of
the Tenant left in the Property for more than fourteen (14)
days after being requested in writing by the Landlord to do so
after the end of the Tenancy, unless the Tenant remains in
occupation of the Property under a new tenancy. The Tenant
shall indemnify the Landlord against any liability incurred by
the Landlord to anyone whose belongings are sold by the
Landlord in the mistaken belief, held in good faith (which
shall be presumed unless the contrary is proved), that such
belongings were owned by the Tenant.
6.6:2 In the event of a sale the Landlord shall account to the
Tenant for the proceeds of sale, less the reasonable and
proper costs of removal, storage and sale, if the Tenant shall
claim the proceeds of sale within six (6) months after the
date on which the Tenant has quit the Property. If no such
claim is made by the Tenant the proceeds of sale shall belong
to the Landlord.
6.7 VARIATION OF IMPLIED RIGHTS
The right to terminate or vary any implied right, from time to time
enjoyed by the Property, provided that such termination or variation
does not materially adversely affect the use of the Property for any
purpose permitted by this Lease.
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TENANT'S COVENANTS
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CLAUSE 7
The Tenant covenants with the Landlord:
7.1 RENT
7.1:1 To pay the Rent and other amounts in the manner specified in
clause 4.1.
7.1:2 Not to claim or exercise any right to set-off or to withhold
payment of any amounts due to the Landlord.
7.1:3 If required by the Landlord, to make payments to the Landlord
by banker's order or credit transfer to a bank and account in
the United Kingdom, nominated by the Landlord.
7.2 OUTGOINGS
7.2:1 To pay, and to indemnify the Landlord against, all existing
and future rates, taxes, assessments, impositions and
outgoings assessed or imposed on, or in respect of, the
Property (including those assessed or imposed on the Landlord
and any superior landlord), except any taxes assessed or
imposed on the Landlord or a superior landlord in respect of:
7.2:1.1 the rents,
7.2:1.2 the grant of this Lease, or
7.2:1.3 any dealing or deemed dealing by the Landlord or a
superior landlord with its interest in the Property.
7.2:2 If such an assessment or imposition is:
7.2:2.1 made on premises which include the Property, and
7.2:2.2 paid by the Landlord, to pay a Fair Proportion of it to
the Landlord within twenty one (21) days after a written
demand.
7.2:3 To indemnify the Landlord against any loss of rating relief on
the Property after the end of the Tenancy, caused by the
Property being left empty during the Tenancy.
7.3 INTEREST
7.3:1 if required by the Landlord, to pay interest at a yearly rate
of three per cent (3%) above Base Rate, on any sum payable
under this Lease by the Tenant to the Landlord (whether or not
formally demanded) that is not paid within seven (7) days of
its due date. To pay this interest from the due date to the
date of payment, both before and after any court judgment,
calculated on a daily basis and compounded with rests on the
usual quarter days.
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7.3:2 If, while a breach of any tenant's covenant continues, the
Landlord refuses to accept payment of any sum in order not to
waive the breach, the Tenant shall be deemed for the purposes
of this clause 7.3 to have failed to pay such sum.
7.3:3 This clause 7.3 is not to prejudice any other right or remedy
of the Landlord.
7.4 REPAIR AND DECORATION
7.4:1 To repair and maintain the Property and to keep it clean and
in good repair
7.4:2 To repair, maintain and keep clean and, when necessary, renew
the fixtures (including carpets) in the Property,
7.4:3 To prepare and paint all external paintwork of the Property in
the fourth (4th) and every subsequent third (3rd) year and in
the last three (3) months of the Tenancy, and at the same time
to prepare and polish any outside polished surfaces, and to
restore and make good the brickwork and stonework where
necessary (but not to paint any brickwork or stonework which
has not previously been painted).
7.4:4 To redecorate the interior of the Property in every fifth
(Sth) year and in the last three (3) months of the Tenancy,
preparing and painting, papering or polishing as appropriate
having regard to earlier treatment.
7.4:5 As often as necessary to clean and treat in an appropriate
manner all other external and internal materials, surfaces and
finishes of the Property.
7.4:6 In relation to the work referred to in this clause 7.4:
7.4:6.1 to carry out the work with appropriate materials of
good quality, in a good and workmanlike manner and to
the reasonable satisfaction of the Landlord's Surveyor,
7.4:6.2 to carry out all external painting, whenever carried
out, and the internal painting, papering and treatment
in the last three (3) months of the Tenancy in a colour
or colours approved in writing by the Landlord such
approval not to be unreasonably withheld or delayed.
7.4:7 Damage by an Insured Risk is excepted from the
Tenant's liability under this clause 7.4 except to
the extent that the insurance money is irrecoverable
because of an act or default of the Tenant.
7.4:8 Damage by an Excluded Risk is (subject to clause 9.7)
excepted from the Tenant's liability under this
clause 7.4 if the Landlord serves a Non Reinstatement
Notice as a result of such damage.
7.5 MAINTENANCE
7.5:1 To keep the Conducting Media which form part of the Property
clear and unobstructed. Not to do anything which causes an
obstruction or damage to any other Conducting Media serving
the Property.
7.5:2 Not to discharge any fluid of a poisonous or noxious nature
into the Conducting Media in or serving the Property.
17
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7.5:3 To take all reasonably necessary precautions against:
7.5:3.1 frost damage to any pipe, tank or water apparatus in
the Property, and
7.5:3.2 the bursting or overflowing of any pipe, tank or water
apparatus in the Property.
7.5:4 To sweep any chimneys and clean any ducts and flues of the
Property as often as reasonably necessary.
7.5:5 To clean the windows and other lights of the Property as often
as reasonably necessary.
7.5:6 To keep any yards, paths and areas of the Property clean,
unobstructed and tidy, and any gardens of the Property in good
order, properly cultivated and free from weeds and rubbish.
7.6 CONTRIBUTION TO REPAIR OF PARTY WALLS ETC.
To pay, within twenty one (21 ) days after a written demand, a Fair
Proportion of the expense of repairing, maintaining, renewing and
cleaning all mutual or party walls, roads, yards, fences, Conducting
Media and structures used or enjoyed by the Property in common with
other premises.
7.7 REPAIR ON NOTICE
7.7:1 To make good with all practicable speed any failure to repair,
maintain or decorate the Property for which the Tenant is
liable and of which the Landlord has given reasonable prior
notice in writing. To start the necessary work within two (2)
months after the Landlord's notice, or sooner if reasonably
necessary, and then diligently to continue and complete the
work.
7.7:2 If the Tenant does not comply with clause 7.7:1, to pay,
within twenty one (21 ) days after a written demand, the
reasonable and proper costs incurred by the Landlord in
carrying out the necessary work, including reasonable and
proper fees and expenses.
7.8 COMPLIANCE WITH STATUTORY REQUIREMENTS, ETC.
7.8:1 Subject to clause 7.8:2 and except where such compliance is
within the ambit of the Landlord's obligations contained in
this Lease, to carry out all works and provide and maintain
all arrangements in respect of the Property and the use to
which the Property is being put that are necessary in order to
comply with the requirements of:
7.8:1.1 the offices Shops and Railway Premises Act 1963, the
Fire Precautions Act 1971, the Defective Premises Act
1972 and the Health and Safety at Work etc. Act 1974,
7.8:1.2 any other statute,
7.8:1.3 any government department, local authority or other
public or competent authorify,
7.8:1.4 any court of competent jurisdiction, and
18
<PAGE>
7.8:1.5 any regulation of the European Communities, which
applies in the United Kingdom.
7.8:2 Not to carry out any works which the Landlord elects to carry
out by serving prior written notice on the Tenant.
7.8:3 To pay, within twenty-one (21) days after receiving a written
demand, the Landlord's reasonable and proper expenditure
(including reasonable and proper fees and expenses) on any
works which the Landlord has elected to carry out under this
clause 7.8.
7.8:4 To comply with any other obligations imposed by law relating
to the Property or its use, except where such compliance is
within the ambit of the Landlord's obligations contained in
this Lease.
7.8:5 Not to do anything in respect of the Property which imposes on
the Landlord a liability under any statute to pay any penalty,
damages, compensation or costs.
7.9 RESTRICTIONS ON DEALINGS
7.9:1 Not to underlet the whole or part of the Property without
first obtaining the prior consent of the Landlord (which must
not be unreasonably withheld or delayed (and procuring (as a
condition precedent to the giving of such
7.9:1.1 that the proposed underlessee enters into a direct
covenant with the Landlord to perform and observe the
covenants (save for the covenant to pay rent) on the
part of the Tenant and conditions contained in this
Lease,
7.9:1.2 that any underlease will be granted without any fine
or premium at a rent not less than the yearly open
market rent at which the Property (or (in the case of
an underlease of part) the part underlet) might
reasonably be expected to be let without taking a
fine or premium and will contain provisions approved
by the Landlord:
(a) for the review of the rent reserved by such
Underlease on the same basis and on the same
dates on which the rent is to be reviewed under
this Lease including provisions whereby such
review may at the option of the Landlord be
consolidated with any review of the rent payable
under this Lease upon terms equivalent to those
contained in Clause 14,
(b) prohibiting the undertenant from doing or
allowing any act or thing in relation to the
underlet premises which is inconsistent with or
in breach of the provisions of this Lease,
(c) imposing an absolute prohibition against all
dispositions or other dealings whatever with the
underlet premises other than an assignment,
underletting or charge of the whole,
(d) prohibiting the Undertenant from permitting any
other person to occupy the whole or any part of
the underlet premises,
(e) for re-entry on breach of any covenant by the
undertenant.
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7.9:1.3 Any such underlease of part of the Property will be
excluded from the operation of Sections 24 to 28 of
the Landlord and Tenant Act 1954 by Court order.
7.9:1.4 In relation to any permitted Underlease;
(a) to enforce the performance and observance by any
such undertenant of the provisions of the
underlease and not at any time either expressly
or by implication to waive any breach of
covenant or condition on the part of the
undertenant or any assignee of any underlessee,
(b) not without the consent of the Landlord to vary
the terms or accept a surrender of any permitted
underlease,
(c) to ensure that the rent is reviewed in
accordance with the terms of the underlease,
(d) not to agree the reviewed rent with the
undertenant without the approval of the Landlord
which shall not be unreasonably withheld or
delayed.
7.9:2 Not to assign, charge or part with possession or occupation of
part of the Property except by a permitted underletting.
7.9:3 Not to share possession or occupation of the whole or part of
the Property save with a Group Company provided that no
relationship of the Landlord and Tenant is thereby created.
7.9:4 Not to hold the whole or part of the Property as trustee or
agent for any other person.
7.9:5 Not to part with possession or occupation of the whole or part
of the Property, except by a permitted underletting of the
whole or part of the Property or assignment of the whole of
the Property.
7.9:6 Subject to the provisions of clauses 7.9:1, 7.9:2, 7.9:3,
7.9:4, 7.9:5, 7.9:7 and 7.9:8, not without the Landlord's
consent (which shall not be unreasonably withheld or delayed)
to assign or charge the Property as a whole.
7.9:7 It is agreed for the purposes of sub-section (1A) of section
19 of the Landlord and Tenant Act 1927 (as inserted by section
22 of the Landlord and Tenant (Covenants) Act 1995) that the
Landlord may (in addition to the Landlord's right to withhold
consent on other grounds) withhold consent to an assignment of
the Property if any one or more of the following circumstances
exist:
7.9:7.1 the Landlord reasonably determines that the financial
standing of the proposed assignee and any proposed
guarantor, offered by the proposed assignee, is not
satisfactory,
7.9:7.2 the proposed assignment is to a person connected with
the Tenant and the question whether a person is so
connected shall be determined in accordance with the
provisions of section 533 of the Income and
Corporation Taxes Act 197O (as originally enacted)
Provided in addition that a person shall be treated
as connected with the Tenant in relation to any
assignment or proposed assignment if the Landlord
reasonably
20
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determines that such person is dealing with the
Tenant otherwise than at arm's length,
7.9:7.3 the Landlord reasonably determines that there is a
material outstanding breach by the Tenant of a Tenant
Covenant,
7.9:7.4 any ascertained amount due from the Tenant to the
Landlord under this Lease has not been paid,
7.9:8 It is agreed for the purposes of sub-section (1A) of section
19 of the Landlord and Tenant Act 1927 (as inserted by section
22 of the Landlord and Tenant (Covenants) Act 1995) that the
Landlord may (in addition to the Landlord's right to impose
other conditions) give consent to an assignment of the
Property subject to any one or more of the following
conditions:
7.9:8.1 that:
(a) the assignor and
(b) anyone who has guaranteed the obligations of the
assignor (except a guarantor under an Authorised
Guarantee Agreement or a guarantor who has also
guaranteed the obligations of the immediate
predecessor in title of the assignor) enters
into a guarantee with the Landlord guaranteeing
the performance and observance by the assignee
of the Tenant Covenants,
7.9:8.2 if reasonably required by the Landlord that (in
addition to any guarantee under clause 7.9:8.1) a
guarantor reasonably acceptable to the Landlord
enters into a guarantee with the Landlord
guaranteeing the performance and observance by the
assignee of the Tenant Covenants,
7.9:8.3 that the proposed assignee shall join in the licence
to assign to give a direct covenant to the Landlord
to pay to the Landlord any ascertained amounts due
under this Lease from the Tenant to the Landlord at
the date of completion of the assignment,
7.9:8.4 (a) if the proposed assignee or, where there are
joint proposed assignees, each proposed
assignee is, in the case of an individual,
ordinarily resident outside the United Kingdom
or is, in the case of a body corporate,
incorporated outside the United Kingdom, or
(b) if reasonably required by the Landlord in the
case of any other assignee that the proposed
assignee delivers to the Landlord on completion
of the proposed assignment either:
(i) a rent deposit of an amount equal to the
Landlord's reasonable estimate of the Rent
and Service Charge (plus VAT) payable
under this Lease for the six months (or
such longer period as the Landlord
reasonably requires) immediately following
completion of the proposed assignment to
be held by the Landlord for as long as the
proposed assignee has any liability under
this Lease together with a duly executed
deposit deed in such form as the Landlord
reasonably requires, or (at the discretion
of the proposed assignee)
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(ii) a guarantee from a London clearing bank in
such form as the Landlord reasonably
requires.
7.9:8.5 that the Landlord may revoke the consent before
completion of the assignment if:
(a) any event referred to in clauses 11.4:1, 11.4:2,
11.4:3 and 11.5:1 to 11.5:5 (inclusive) has
occurred in relation to the proposed assignee or
any proposed guarantor, offered by the proposed
assignee, or
(b) the assignment is not completed within sixteen
(16) weeks after the date of consent.
Any guarantee under this clause 7.9:8 (except a
guarantee under clause 7.9:8.4(ii) shall be in the
form of the guarantee contained in clause 15 but
where applicable with the assignee substituted for
the original Tenant and with such other amendments as
the Land!ord reasonably requires and (where an
assignor is giving a guarantee) any further
amendments required to create an Authorised Guarantee
Agreement.
7.9:9 In respect of any circumstance or condition specified in
clauses 7.9:7 and 7.9:8 which is framed by reference to any
matter falling to be determined by the Landlord or by any
other person for the purposes of this Lease (except where the
power to determine such matter is required to be exercised
reasonably) the Tenant has an unrestricted right to have any
determination reviewed by an independent surveyor in
accordance with clause 13.3.
7.10 REGISTRATION OF ASSIGNMENTS, ETC.
7.10:1 Within one month after its date, to produce to the Landlord's
solicitors every assignment, underlease, charge or other
document evidencing a devolution of the whole or any part of
the Property. At the same time to provide the Landlord's
solicitors with a true copy of the document.
7.10:2 on production of a document under clause 7.10:1 to pay to the
Landlord's solicitors a reasonable registration fee of not
less than twenty-five pounds ( 25) plus VAT.
7.11 INFORMATION
7.11:1 To produce to the Landlord on request (but not more frequently
than may be reasonable) all plans, documents and other
evidence which the Landlord may reasonably require in order to
be satisfied that the Tenant has complied with its obligations
under this Lease.
7.11:2 When requested, to supply to the Landlord full details of all
occupations of the Property and derivative interests in the
Property, however remote.
7.11:3 As soon as reasonably practicable to notify the Landlord in
writing of each change in the principal address of the Tenant
(including in the case of an individual a change in the usual
place of residence and in the case of a Tenant with a
registered office a change in the address of the registered
office).
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7.12 ALTERATIONS
7.12:1 Not to alter, or add to, the structure or exterior of the
Property.
7.12:2 Not without the Landlord's consent (which shall not be
unreasonably withheld or delayed) to alter or extend:
7.12:2.1 the electrical installation (including wiring) in the
Property,
7.12:2.2 any gas installation (including piping) in the
Property, or
7.12:2.3 any air-conditioning system in the Property.
7.12:3 Not to make any other alterations or additions to the Property
without the Landlord's consent (which shall not be
unreasonably withheld or delayed). Provided that
notwithstanding clause 7.12:1 the Tenant may fit out the
Property to their specification as approved by the Landlord
such approval not to be unreasonably withheld or delayed.
7.12:4 on any application for consent to alter, to supply the
Landlord with two (2) sets of a specification and detailed
drawings identifying the proposed works.
7.12:5 Not without the Landlord's consent (which shall not be
unreasonably withheld or delayed) to fix, place or leave
anything (for example: any aerial, satellite dish,
telecommunications equipment, iighting, shade or awning) on
the exterior of the Property.
7.12:6 If required by the Landlord, to reinstate the Property by the
end of the Tenancy under the supervision and to the reasonable
satisfaction of the Landlord's Surveyor, to the condition it
was in before the carrying out of any permitted alterations or
additions.
7.13 SIGNS AND NOTICES
Not to place or display any Signs and Notices on the Property which can
be seen from outside the Property, except that the Tenant may display
external signs giving the Tenant's name and business, the size, style
and position of which have been first approved by the Landlord such
approval not to be unreasonably withheld or delayed.
7.14 COST OF REMOVAL BY LANDLORD OF UNAUTHORISED SIGNS, ETC
If anything is fixed, placed, displayed or left on the Property in
breach of clause 7.12 or clause 7.13 to pay to the Landlord, within
fourteen (14) days after a written demand, the reasonable and proper
cost of removal incurred by the Landlord.
7.15 SERVICE INSTALLATIONS
7.15:1 To pay to the suppliers, and to indemnify the Landlord
against, all charges for electricity, gas, water, telephone
and other services consumed or used at or for the Property
(including meter rents).
7.15:2 To comply with the requirements and regulations of the
suppliers of electricity, gas, water, telephone and other
services relating to the installations in the Property.
7.15:3 Not to overload the electrical installation in the Property.
To maintain the electrical installation, any gas installation
and any air-conditioning system in a safe condition.
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7.16 NUISANCE
Not to do anything on the Property which causes a nuisance, damage or
annoyance to the Landlord or others Provided that it is hereby agreed
that the use of the property for purposes permitted under this Lease
shall not of itself amount to a breach of this clause.
7.17 USE
7.17:1 Not to use the Property:
7.17:1.1 for any illegal or immoral purpose,
7.17:1.2 for any offensive, noisy or dangerous trade, business
or manufacture,
7.17:1.3 as a betting office, a booking office, a theatrical
agency, an employment agency or a travel agency,
7.17:1.4 as a sex establishment (as defined in the Local
Government (Miscellaneous Provisions) Act 1982), or
7.17:1.5 for any diplomatic use.
7.17:2 To use the Property only for the purpose stated in clause 1.8 or
for such other purpose as the Landlord shall approve, which
approval shall not be unreasonably withheld or delayed.
7.18 OVERLOADING
Not to overload the Property.
7.19 NOTICES
7.19:1 To supply the Landlord with a copy of any notice, order,
direction or proposal of any competent authority affecting the
Property as soon as reasonably possible after it has been
received by the Tenant.
7.19:2 To comply with any such notice, order, direction or proposal
or, at the request and cost of the Landlord, to make or join
with the Landlord in making such objections or representations
relating to it as the Landlord may reasonably require except
where the Tenant reasonably considers that any such objections
or representations are against its best interests or those of
any undertenant.
7.20 PLANNING
7.20:1 Not to commit any breach of Planning Control. To comply with
all provisions and requirements under the Planning Acts which
affect the Property.
7.20:2 Not without the Landlord's consent (such consent not to be
unreasonably withheld or delayed and which consent shall not
be required in relation to applications in respect of the
signage at the Property) to apply for planning permission
relating to the Property or to implement any planning
permission.
7.20:3 Unless the Landlord gives written notice to the contrary, to
carry out before the end of the Tenancy any works required to
be carried out to the Property as a condition of any planning
permission obtained by or for the Tenant or anyone having an
interest in the Property inferior to that of the
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Tenant. This applies even if the planning permission does not
require the works to be carried out until later.
7.21 ENCROACHMENTS
7.21:1 Not to stop up, darken or obstruct any window at the Property.
7.21:2 So far as reasonably possible, to preserve all easements and
rights enjoyed by the Property and to help the Landlord
prevent anyone acquiring any easement or right over the
Property.
7.22 MAINTENANCE AGREEMENTS
To maintain in force, throughout the Tenancy, agreements with competent
contractors approved by the Landlord (such approval not to be
unreasonably withheld or delayed) for the maintenance, repair and
upkeep of any electrical and mechanical equipment and apparatus and
other plant and machinery in and serving the Property.
7.23 DEFECTIVE PREMISES
7.23:1 Promptly to give written notice to the Landlord upon becoming
aware of any defect in the Property which might result in an
obligation on the Landlord to do or to stop doing anything
(for example, in order to comply with the provisions of this
Lease or the duty of care imposed by the Defective Premises
Act 1972).
7.23:2 To display and maintain all notices relating to the condition
of the Property which the Landlord shall reasonably require
the Tenant to display at the Property.
7.24 LANDLORD'S RIGHTS
To allow the Landlord to exercise its rights under this Lease free from
interference by the Tenant.
7.25 LANDLORD'S REGULATIONS
To comply with the regulations a copy of which is annexed.
7.26 THE CDM REGULATIONS
Where works are carried out on or for the benefit of the Property to
which the Construction (Design and Management) Regulations 1994 ("the
CDM Regulations~) apply and the works are carried out by or on behalf
of the Tenant or anyone having an interest in the Property inferior to
this Lease:
7.26:1 to comply with the CDM Regulations and to procure that any
person involved in carrying out such works complies with the
CDM Regulations,
7.26:2 to act (or if the works are to be carried out by an
undertenant to procure that the undertenant acts) as the only
c~ient for the works and before commencing the works to make
(or procure the making of) a declaration to that effect in
accordance with Regulation 4 of the CDM Regulations,
7.26:3 to comply with the following obligations in respect of the
health and safety file covering the works:
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7.26:3.1 to provide the Landlord:
(a) with a copy of the file on completion of the
works, and
(b) with copies of the whole or any part of the file
at any time on request,
7.26:3.2 to make the file available for inspection by the
Landlord on request,
7.26:3.3 to hand over the file to the Landlord at the end the
tenancy created by this Lease and any renewals of this
Lease,
7.26:4 as soon as reasonably practical after becoming aware of any
relevant information concerning health and safety relating to
the Property to provide such information to the Landlord,
7.26:5 to allow the Landlord and its agents to use any documents and
other information (including the making of copies) supplied by
the Tenant under this clause 7.26 for any purpose connected
with the Property,
7.26:6 to obtain all necessary copyright licences permitting the use
of the documents and other information under the provisions of
clause 7.26:5.
7.27 LANDLORD'S COSTS
7.27:1 To pay, on an indemnity basis, the reasonable and proper legal
charges, surveyor's fees, bailiff's charges and other costs
and expenses reasonably and properly incurred by the Landlord
and any superior landlord in relation to:
7.27:1.1 applications by the Tenant for the Landlord's
consent (including cases where consent is reasonably
refused or the application is withdrawn), unless
such refusal is unlawful whether because it is
unreasonable or otherwise
7.27:1.2 the preparation and service of a schedule of
dilapidations during or after the expiration of the
Tenancy (but if after the expiration of the Tenancy
only in respect of wants of repair occurring during
the Tenancy and where served within three months
after the expiration of the Tenancy) or a notice or
proceedings under Sections 146 or 147 of the Law of
Property Act 1925 (even if forfeiture is avoided
otherwise than by relief granted by the court),
7.27:1.3 the recovery of any sums due to the Landlord from
the Tenant, or
7.27:1.4 enforcing or requiring the Tenant to remedy a breach
of the provisions of this Lease.
7.27:2 Where the Landlord could recover the cost of advice or
services under clause 7.27:1 if undertaken by a third party
but the Landlord or a Group Company of the Landlord provides
the advice or services, to pay to the Landlord the amount that
would have been payable by the Tenant if that advice or
service had been provided by a third party.
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7.28 INDEMNITIES
To keep the Landlord indemnified against all liabilities, losses and
expenses, incurred by the Landlord arising out of the negligence or
wrongful act of the Tenant or any breach of the tenant's covenants in
this Lease.
7.29 YIELD UP
At the end of the Tenancy to give up the Property:
7.29:1 repaired, carpeted, decorated and, if required by the
Landlord, reinstated in accordance with:
7.29:1.1 any obligations under this clause 7, and
7.29:1.2 any consents given by the Landlord to the Tenant,
7.29:2 clear of any goods and refuse and any tenant's fixtures and
with all damage caused by such removal made good,
7.29:3 with all keys and electronic passes relating to the Property,
and
7.29:4 with all Signs and Notices put up by the Tenant removed and
all damage caused by removal made good.
7.30 VAT
7.30:1 To pay to the Landlord, and to indemnify the Landlord against,
any VAT chargeable in respect of:
7.30:1.1 the rents, payments and other consideration payable
or given by the Tenant to the Landlord or to any
person on the Landlord's behalf and any supply made
by the Landlord to the Tenant under or in connection
with this Lease, and
7.30:1.2 any payments made by, or other liability of, the
Landlord or any other person where the Tenant agrees
in this Lease to reimburse or indemnify the Landlord
in respect of any such payment or liability, except
to the extent that the Landlord is entitled to a
credit for such VAT as allowable input tax.
Provided that the Landlord will provide a valid VAT invoice in
the Tenant's name.
7.30:2 For the avoidance of doubt:
7.30:2.1 the Landlord shall not be under any duty to
exercise, or not to exercise, any option or right so
as to reduce or avoid any liability to VAT in
respect of the Property, and
7.30:2.2 it is confirmed that the amounts due under this
Lease from the Tenant to the Landlord are exclusive
of VAT.
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LANDLORD'S COVENANTS
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CLAUSE 8
The Landlord covenants with the Tenant:
QUIET ENJOYMENT
That, as long as the Tenant pays the rents and complies with the terms of
this Lease, the Tenant may enjoy the Property peaceably during the Tenancy
without any interruption (except as authorised by this Lease) by the Landlord
or any person lawfully claiming through, under or in trust for the Landlord.
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INSURANCE
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CLAUSE 9
9.1 LANDLORD TO INSURE PROPERTY
The Landlord shall insure the Property, (but not tenant's fixtures), so
far as such insurance is reasonably available:
9.1:1 with a reputable insurance company or with reputable
underwriters,
9.1:2 for the following sums:
9.1:2.1 the full reinstatement value of the Property (except
usual voluntary excesses) including the cost of
shoring up, demolition and site clearance, fees, an
allowance for inflation and VAT on all such sums,
9.1:2.2 loss of the Rent reasonably estimated by the
Landlord's Surveyor to be payable for three (3)
years, or such longer period as the Landlord's
Surveyor may reasonably consider necessary for
planning and carrying out the reinstatement or
rebuilding of the Property,
9.1:3 against damage or destruction by the Insured Risks,
9.1:4 on terms that the insurers waive their rights of subrogation
against the Tenant in respect of the Property, and
9.1:5 on terms not imposing unreasonable conditions having regard to
general market conditions at the time, but subject to such
excesses, exclusions and limitations and other terms as the
insurers may impose.
9.2 ADDITIONAL LANDLORD'S FIXTURES
If the Tenant installs fixtures which become landlord's fixtures, the
Tenant shall notify the Landiord in writing of the reinstatement value
so that the Landlord can arrange adequate insurance cover.
9.3 LANDLORD TO INFORM TENANT OF INSURANCE COVER
9.3:1 on request by the Tenant (and payment by the Tenant to the
Landlord of a reasonable fee), the Landlord shall produce to
the Tenant reasonable evidence of the terms of the insurance
policy and of payment of the current premium.
9.3:2 The Landlord shall notify the Tenant in writing of any
material changes in the risks covered and material changes in
the terms of the policy with which the Tenant must comply.
9.4 DAMAGE TO PROPERTY
9.4:1 If the Property or its essential accesses or services are
damaged or destroyed by an Insured Risk or an Excluded Risk:
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9.4:1.1 unless payment of any of the insurance money is
refused because of an act or default of the Tenant,
and
9.4:1.2 subject to the Landlord (using its best endeavours)
being able to obtain any necessary consents, and
9.4:1.3 subject to the necessary labour and materials being
and remaining available, the Landlord shall, subject
to clause 9.5, reinstate the damaged part or rebuild
the Property (but not so as to provide accommodation
identical in layout if it would not be reasonably
practicable to do so) as quickly as reasonably
possible.
9.4:2 The Landlord shall use reasonable efforts to obtain the
necessary consents (short of making appeals), labour and
materials.
9.4:3 The Tenant shall, on request, vacate the Property and remove
its fixtures and effects to allow the Landlord to reinstate
the Property.
9.5 OPTION TO TERMINATE FOLLOWING DAMAGE BY AN INSURED RISK
If the whole or a substantial part of the Property is made unfit for
use by damage or destruction caused by an Insured Risk and:
9.5:1 the damage or destruction occurs during the last four (4)
years of the Contractual Term, or
9.5:2 circumstances beyond the control of the Landlord prevent the
reinstatement or rebuilding of the Property being started by
the third (3rd) anniversary of the date of such damage or
destruction, either the Landlord or the Tenant may terminate
this Lease by notice in writing to the other. The notice may
only be given within six (6) months after either the date of
such damage or destruction under clause 9.5:1 or the third
(3rd) anniversary referred to in clause 9.5:2 (as the case may
be). on service of the notice this Lease shall terminate but
without prejudice to any claim of the Landlord or the Tenant
for an earlier breach of covenant by the other. on termination
of this Lease the insurance money shall belong to the Landlord.
9.6 OPTION TO TERMINATE FOLLOWING DAMAGE BY AN EXCLUDED RISK
9.6:1 If the whole or a substantial part of the Property is made
unfit for use by damage or destruction caused by an Excluded
Risk the Landlord may elect not to reinstate the Property. Any
such election shall be made by the Landlord serving notice in
writing ("Non-Reinstatement Notice") on the Tenant within six
(6) months after the date of such damage or destruction.
9.6:2 If the Landlord serves a Non-Reinstatement Notice:
9.6:2.1 the Landlord (despite any other provisions of this
Lease) shall not be under any obligation to
reinstate the Property, and
9.6:2.2 either the Landlord or the Tenant may terminate this
Lease by notice in writing to the other. Such a
notice ("Termination Notice") may only be given
within six (6) months after the date of service of
the Non-Reinstatement Notice. on service of a
Termination Notice, this Lease shall terminate, but
without prejudice to the claim of either the
Landlord or the Tenant for any earlier breach of
covenant by the other. on termination of this Lease
the insurance money shall belong to the Landlord.
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9.7 APPLICATION BY TENANT FOR NEW IEASE FOLLOWING TERMINATION
9.7:1 If following:
9.7:1.1 termination of this Lease under clause 9.5, or
9.7:1.2 service of a Termination Notice under clause 9.6,
the Tenant makes an application for a new lease of
the Property under the Landlord and Tenant Act 1954
then clause 9.7:2 shall apply.
9.7:2 Notwithstanding clauses 7.4:7, 7.4:8 and 1O, the Tenant:
9.7:2.1 shall, so far as reasonably possible, make good the
destruction of, or damage to, the Property caused by
an Insured Risk or an Excluded Risk which gave rise
to the termination of this Lease under clause 9.5 or
the service of a Termination Notice (as the case may
be), and
9.7:2.2 shall continue paying the Rent and the Insurance
Rent from the date of the destruction or damage
referred to in clause 9.7:2.1.
9.8 TENANT'S OBLIGATIONS IN RESPECT OF LANDLORD'S INSURANCES
9.8:1 The Tenant shall not, by act or omission, do anything which:
9.8:1.1 adversely affects any Landlord's insurance reiating
to the Property, or
9.8:1.2 causes any increase in the insurance premium payable
for any such insurance, unless the Tenant has
obtained the Landlord's approval and has agreed to
pay the additional premium, or
9.8:1.3 otherwise prevents the Landlord from renewing any
such insurance on terms that would have applied but
for the Tenant's act or omission.
9.8:2 The Tenant shall comply with the requirements and reasonable
recommendations of the insurers of the Property and the fire
authority and the reasonable requirements of the Landlord in
respect of the Property relating to:
9.8:2.1 explosive and specially flammable articles,
substances and liquids,
9.8:2.2 the provision and maintenance of fire fighting
equipment, and
9.8:2.3 fire and safety precautions.
9.8:3 The Tenant shall repay to the Landlord, within fourteen (14)
days after a written demand, all increased premiums paid and
all losses and damage suffered by the Landlord because of a
breach by the Tenant of this clause 9.8.
9.8:4 The Tenant shall immediately upon becoming aware of the
happening of any such event, inform the Landlord in writing of
any circumstance in respect of the Property which might
affect, or lead to a claim on, any Landlord's insurance
relating to the Property.
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9.8:5 If because of the Tenant's act or default, any insurance money
under the insurance policy arranged by the Landlord or a
superior landlord (other than in respect of the loss of rents)
is wholly or partially irrecoverable, the Tenant shall pay to
the Landlord, within fourteen (14) days after a written
demand, the irrecoverable amount but not so as to require
payment before the equivalent insurance money would have been
payable. on payment, clause 9.4 shall apply as though the
insurance money had been recoverable.
9.9 TENANT'S INSURANCE
9.9:1 The Tenant shall maintain in force throughout the Term
insurance in respect of the Property against any act or
default of the Tenant which gives rise to a liability to third
parties for injury to or death of any person or damage to any
property
9.9:2 The Tenant shall produce to the Landlord on request the policy
relating to any insurance specified in clause 9.9:1 and
evidence of payment of the current premium.
9.9:3 The Tenant shall indemnify the Landlord in respect of any loss
or damage against which the Tenant is obliged to insure under
this clause 9.9.
9.9:4 The Tenant shall not arrange any insurance of the Property
against an Insured Risk. If the Tenant has the benefit of any
such insurance, the Tenant shall hold all money receivable
under such insurance in trust for the Landlord.
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SUSPENSION OF RENT
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CLAUSE 10
10.1 APPLICATION
This clause 10 applies (subject to clause 9.7:2) if the Property or its
essential accesses or services are damaged destroyed by an Insured Risk
or (unless caused by the act or default of the Tenant) an Excluded Risk
so that any part of the Property is unfit for use.
10.2 Suspension
The whole or a Fair Proportion of the Rent, according to the extent of
the damage, shall be suspended until the earlier of:
10.2:1 the date that the whole of the Property (with the necessary
services) is again fit for use, and
10.2:2 the expiration of the period of three (3) years from the date
of the damage or, if longer, the period of the loss of rent
covered by the Landlord's insurance, except to the extent that
payment of any of the insurance money in respect of the loss
of rents is refused because of an act or default of the Tenant.
10.3 DISPUTES
Any dispute about this clause 1O shall be settled by Arbitration. If,
before an application is made for the appointment of an arbitrator, the
Landlord so elects by notice in writing served on the Tenant, a dispute
will instead be determined by an independent surveyor.
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FORFEITURE
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CLAUSE 11
If any of the following events occur:
11.1 any rents are unpaid for twenty-one (21 ) days after becoming due
(whether formally demanded or not),
11.2 there is a breach by the Tenant or the Guarantor (if any) of any
covenant or other term of this Lease,
11.3 the Tenant or the Guarantor (if any) enters into an arrangement or
composition for the benefit of creditors,
11.4 the Tenant or the Guarantor (if any) being an individual (or if more
than one individual then any one of them):
11.4:1 becomes bankrupt,
11.4:2 makes an application to the Court for an interim order under
Part Vlil of the Insolvency Act 1986, or
11.4:3 has been served with a statutory demand under the Insolvency
Act 1986 which has not been satisfied.
11.5 the Tenant or the Guarantor (if any) being a body corporate (or if more
than one of them is a body corporate then any one of them):
11.5:1 has a winding-up petition or a petition for an administration
order presented against it,
11.5:2 is subject to a resolution by the directors or shareholders to
present a petition for an administration order,
11.5:3 has an administration order made in respect of it,
11.5:4 passes a winding-up resolution or enters into liquidation
(other than a winding up or liquidation for the purpose of
reconstruction or amalgamation of a solvent body corporate), or
11.5:5 has a receiver or an administrative receiver or a receiver and
manager appointed, or,
11.6 execution or distress is levied on the Tenant's goods in the Property,
then the Landlord may, by re-entering any part of the Property, forfeit
this Lease and the Tenancy shall immediately end, but without prejudice
to any other rights and remedies of the Landlord or the Tenant.
Provided however that in the event that this Lease is mortgaged at the
time of the proposed re-entry and the Landlord has been given notice of
the existence of the mortgage then prior to such re-entry or
proceedings therefor the Landlord will serve a notice of such
proceedings and proposed re-entry on the mortgagee at the mortgagee's
last known address.
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DECLARATIONS, WARRANTIES AND MISCELLANEOUS
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CLAUSE 12
12.1 REPRESENTATIONS AND EXCLUSION OF USE WARRANTY
12.1:1 The Tenant acknowledges that this Lease has not been entered
into in reliance on any representation made by or on behalf of
the Landlord.
12.1:2 Nothing in this Lease, or in any consent granted by the
Landlord, shall imply a warranty by the Landlord that the
Property may be used for any specific purpose under the
Planning Acts.
12.2 ACCIDENTS
The Landlord is not liable to the Tenant nor to any other person for:
12.2:1 any damage to, or loss of, any goods or property sustained in
the Property, or
12.2:2 any other damage, loss, accident, happening or injury not
caused or contributed to by the negligence of the Landlord or
any employee of the Landlord.
12.3 PAYMENTS RECOVERABLE AS RENT
Amounts payable by the Tenant and any guarantor under this Lease not
expressly reserved as rent shall be recoverable as if they were rent.
12.4 RELEASE OF THE LANDLORD
The obligations on the Landlord under this Lease shall not be binding
on, or enforceable against, any person who has ceased to be the
Landlord to the extent that the obligations relate to any time after
that person has ceased to be the Landlord.
12.5 SERVICE OF NOTICES
The provisions of Section 196 of the Law of Property Act 1925 (as
amended by the Recorded Delivery Service Act 1962) and Section 23 of
the Landlord and Tenant Act 1927 shall apply to the service of all
notices under or in connection with this Lease except that Section 196
shall be deemed to be amended by the deletion of the words "and that
service ... be delivered45 at the end of Section 196(4) and the
substitution of the words "... and that service shall be deemed to be
made on the third Working Day after the registered letter has been
posted; "Working Day" meaning any day from Monday to Friday
(inclusive), other than Christmas Day, Good Friday and any statutory
bank or public holiday".
12.6 JURISDICTION OF THE ENGLISH COURTS
The parties, including any Guarantor, submit to the exclusive
jurisdiction of the English courts on all matters relating to this
Lease.
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12.7 TENANT'S OPTION TO TERMINATE
The Tenant may terminate this Lease on the 31 st December 20O2 by
giving to the Landlord not less than twelve (12) calendar months and
three (3) days' notice in writing and on expiry of such notice:
12.7:1 this Lease shall come to an end, but without prejudice to the
rights of either party against the other for any antecedent
breach of covenant,
12.7:2 the Tenant shal-l give vacant possession of the whole of the
Property, and
12.7:3 the Tenant shall cancel any notice, caution or land charge
registered to protect this Lease and shall, if the title to
this Lease is registered at H.M. Land Registry, assist the
Landlord in cancelling such title.
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ARBITRATION OR DETERMINATION BY EXPERT
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CLAUSE 13
13.1 CONTRARY PROVISION
Any contrary provision elsewhere in this Lease shall modify the
provisions of this clause 13.
13.2 ARBITRATION
13.2:1 Where this Lease provides for reference to Arbitration, a
reference shall be made, in accordance with the Arbitration
Acts 195O and 1979, to a single arbitrator.
13.2:2 The arbitrator may be appointed by the Landlord and the Tenant
jointly. otherwise the arbitrator shall be nominated by the
President of the RICS, on the application of either the
Landlord or the Tenant.
13.2:3 If an appointed or nominated arbitrator dies or declines to
act or it becomes clear that he will be unable to complete his
duties, a replacement shall be appointed or nominated by the
same process.
13.3 DETERMINATION BY AN EXPERT
13.3:1 Where this Lease provides for reference to the determination
of an independent surveyor a reference shall be made on the
terms of clause 13.4 to the determination of a single
independent surveyor.
13.3:2 The surveyor may be appointed by the Landlord and the Tenant
jointly or, in the absence of agreement on a joint
appointment, shall be nominated by the President of the RICS,
on the application of either the Landlord or the Tenant.
13.3:3 The surveyor shall act as an expert (not as an arbitrator) on
the terms set out in clause 13.4.
13.4 EXPERT'S TERMS OF APPOINTMENT
13.4:1 The surveyor shall give to the Landlord and the Tenant notice
in writing of his appointment. In that notice, the surveyor
shall invite the Landlord and the Tenant to submit within a
specified time period, not exceeding four (4) weeks, their
respective proposals and representations.
13.4:2 The surveyor shall:
13.4:2.1 consider the proposals and representations submitted
to him (but not be limited or fettered by them),
13.4:2.2 be entitled to rely on his own judgment and opinion,
13.4:2.3 state any reasons for his decision, and
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13.4:2.4 within eight (8) weeks after his appointment, or
within such extended period as the Landlord and the
Tenant may agree, give to the Landlord and the
Tenant written notice of his decision, and his
decision shall be final and binding on the Landlord
the Tenant and the Guarantor (if any).
13.4:3 If the surveyor:
13.4:3.1 does not give notice of his decision within
the time and in the manner referred to in
clause 13.4:2,
13.4:3.2 resigns from his appointment, or
13.4:3.3 dies,
or if for any reason it becomes clear that
he will be unable to complete his duties,
the Landlord or the Tenant may appoint, or
apply for the nomination of, a new
surveyor in his place, and this procedure
may be repeated as many times as necessary.
13.4:4 In the absence of a direction by the surveyor as to
how his fees or charges are to be borne, the
Landlord and the Tenant shall bear them equally.
13.4:5 if the provisions for an independent surveyor to
determine the issue fail completely, the issue shall
then be referred to Arbitration.
13.5 EXPERIENCE OF ARBITRATOR OR EXPERT
The arbitrator or independent surveyor shall, if reasonably
practicable, be a surveyor experienced in the valuation or letting of
premises similar to the Property.
13.6 NON-PAYMENT OF COSTS OF ARBITRATOR OR EXPERT
This clause 13.6 applies if the arbitrator or independent surveyor is
ready to make his award but is unwilling to do so due to the failure by
one party to pay its share of the costs of the award. If one party
fails to pay its share of the costs within fourteen (14) days after a
written request, the other party may pay that share and any amount so
paid shall be a debt due immediately from the party in default to the
other party.
38
<PAGE>
RENT REVIEW
- -------------------------------------------------------------------------------
CLAUSE 14
14.1 DEFINITIONS
In this clause the following definitions apply:
"REVIEW the following assumptions at the relevant Review Date:
ASSUMPTIONS"
(a) that the Property is fit for use and has been fully fitted
out and equipped by, and at the cost of, the Landlord so as
to be ready for immediate occupation and use for any purpose
permitted under this Lease by any prospective willing tenant,
(b) that no work other than work carried out in compliance with
clause 7.8 has been carried out to the Property during the
Tenancy or under an agreement for the grant of this Lease
which has reduced its rental value.
(c) that the Property is in a good state of repair and decorative
condition,
(d) that if the Property has been damaged or destroyed, it has
been fully restored,
(e) that the Property is available to let as a whole with vacant
possession by a willing landlord to a willing tenant without
a premium payable by the tenant,
(f) that the letting is to be on the same terms as those
contained in this Lease (other than the amount of the Rent)
but subject to the following qualifications:
(i) the term is to commence on the relevant Review Date and
is to continue for ten (10) years with tenant's option
to terminate after six and a half (6-1/2) years,
(ii) the rent is to be subject to review on the terms of
this clause 14 at five (5) yearly intervals after the
commencement of the term of the letting.
(iii) the permitted use is to be that originally permitted
by this Lease and by any consent given by the Landlord,
at the request of the Tenant, before the relevant
Review Date, but taking into account any provisions
entitling the Tenant to change the use with the
Landlord's consent,
(iii) the provisions of clauses 7.9:6 and 7.9:7 are excluded
(and clause 7.9:5 consequently amended) and
(iv) where this Lease has been varied, the variations are
to be incorporated into the new lease, unless the
variation document expressly states otherwise,
39
<PAGE>
(g) that the covenants by the Landlord and the Tenant in this
Lease have been and will continue to be fully performed and
observed,
(h) that no reduction is to be made to take account of any rental
concession which, on a new letting with vacant possession,
might be granted to the incoming tenant for a period within
which its fitting out works would be carried out,
(i) that the benefit of any planning or other consent or licence
current at the relevant Review Date is available also for
such willing tenant,
(j) that the Property may lawfully be used for the use originally
permitted by this Lease and permitted by any consent given
by the Landlord at the request of the Tenant, before the
relevant Review Date, and
(k) that any VAT chargeable on the rents is fully recoverable by
the Tenant as an input for VAT purposes.
"EXCLUDED the following matters at the relevant Review Date:
REVIEW
MATTERS" (a) any effect on the rent of the fact that the Tenant, or any
sub-tenant or any predecessor in title of either, is or has
been in occupation of the Property,
(b) any goodwill attached to the Property by reason of the
carrying on there of any business of the Tenant its
sub-tenants or their predecessors in title to their
respective businesses,
(c) any increase in rental value due to any improvements made to
the Property before or after the date of this Lease by the
Tenant or its sub-tenants with any consents (where required),
except improvements:
(i) made at the expense of, or under an obligation to, the
Landlord or its predecessors in title, or
(ii) completed more than twenty-one (21) years before the
relevant Review Date,
and for the avoidance of doubt the works specified in the
attached schedule have been or will be carried out by the
Tenant under an obligation to the Landlord (and so are not
Excluded Matters).
(d) any temporary legal restraint on making or recovering any
increase in the Rent,
(e) any depreciatory effect on the rent because VAT is charged or
chargeable on the rents,
"OPEN MARKET the yearly rent, making the Review Assumptions and disregarding
RENT" the Excluded Review Matters, which would reasonable be expected
to be payable for the Property on a letting in the open market on
the relevant Review Date.
"REVIEW DATE" each date specified in clause 1.6:4
40
<PAGE>
14.2 NEW RENT
From and including each Review Date, the Rent will be:
14.2:1 the sum agreed in writing between the Landlord and the Tenant at
any time, or
14.2.2 in the absence of such agreement, the greater of:
14.2:2.1 The Rent payable as specified in clause 1.6:1, or, if
payment of the whole or part of the Rent has been
suspended, the Rent that would have been payable had
there been no suspension, and
14.2:2.2 the Open Market Rent determined (but not earlier than
the relevant Review Date) by Arbitration. If before an
application is made for the appointment of an arbitrator,
the Landlord so elects by prior notice in writing served
on the Tenant, the determination will instead be made by
an independent surveyor. Any application for the
appointment of an arbitrator or an independent surveyor
may be made at any time after (but not before) the date
six (6) months before the relevant Review Date.
14.3 MEMORANDUM
14.3:1 Whenever a new Rent is agreed or determined under clause 14.2, the
Landlord and the Tenant shall each execute a memorandum recording
the agreed amount of the new Rent and the memoranda shall be
exchanged.
14.3:2 The memoranda will be prepared by the landlord and the parties
shall bear their own costs in this respect.
14.4 DELAY
If the Rent payable from a Review Date ("the New Rent") is not known until
after that Review Date:
14.4:1 the Rent payable immediately before the Review Date ("the Old
Rent") shall continue to be payable until the New Rent is
ascertained, and
14.4:2 when the New Rent is ascertained, the Tenant shall pay, within
fourteen (14) days after the date of ascertainment:
14.4:2.1 any difference ("the Shortfall") between the Old Rent
and the New Rent for the period since the Review Date,
and
14.4:2.2 interest at Base Rate on the Shortfall,
14.4:3 if interest is payable on the Shortfall, it shall accrue
separately on each instalment of the Shortfall from the date on
which each instalment would have been payable (had the New Rent
been known by the Review Date) to the date of payment of the
Shortfall, or to the date fourteen (14) days after the New Rent
becomes known, whichever date is the sooner.
41
<PAGE>
GUARANTEE
- -------------------------------------------------------------------------------
CLAUSE 15
15.1 DEFINITIONS
In this clause "TERMINATION EVENT" means:
(a) the disclaimer of this Lease, or
(b) the surrender of this Lease by a liquidator, administrative receiver
or trustee in bankruptcy, or
(c) the forfeiture of this Lease, or
(d) the Original Tenant (being a body corporate) ceasing to exist.
15.2 GUARANTEE
The Guarantor covenants with and guarantees to the Landlord, as a
premiinary obligation and with joint and several liability as if the
Guarantor were the tenant or a co-tenant with the tenant:
15.2:1 that the Original Tenant shall comply with its obligations:
15.2:1.1 to pay the rents under this Lease, including all
increases whether implemented in accordance with this
Lease or otherwise agreed or settled between the
Landlord and the Original Tenant, and
15.2:1.2 to perform and observe the Tenant Covenants, and
15.2:1.3 to perform and observe the provisions of any Authorised
Guarantee Agreement entered into by the Original Tenant
under the terms of this Lease,
15.2:2 that the Guarantor shall indeminify the Landlord against all
losses, claims, demands, damages, liabilities, costs, fees and
expenses suffered by the Landlord as a result, directly or
indirectly, of a breach by the Original Tenant of a Tenant
Covenant or the happening of a Termination Event.
15.3 NEW LEASE ON DISCLAIMER, ETC.
15.3:1 If the Landlord so requires, by notice in writing served on the
Guarantor within four (4) months after a Termination Event, the
Guarantor shall immediately take up a new lease of the Property.
The terms of the new lease shall be such that, under the
combination of this Lease and the new lease, the Landlord will be
in the same postion (so far as can be achieved) as if the
Termination Event had not occurred and the Guarantor had been the
tenant under this Lease. Without prejudice to these general
words, the new lease is to include the following provisions:
15.3:1.1 the term shall commence on (and shall include) the day
after the date of the Termination Event and continue
for the balance of the Contractual Term, and
42
<PAGE>
15.3:1.2 if on the date of the Termination Event there is an
outstanding rent review:
(a) the second day of the term shall be a review date
("New Lease First Review Date"),
(b) for the purpose of the review of the Rent on the
New Lease First Review Date (but not on any
subsequent Review Date) the Open Market Rent shall
be assessed as at the last Review Date in this
Lease falling before the New Lease First Review
Date,
(c) pending ascertainment of the New Rent payable from
the New Lease First Review Date (in accordance
with the provisions for review of the Rent) the
initial Rent shall be the Rent payable under this
Lease immediately before the date of the
Termination Event, and
(d) on ascertainment of the New Rent clause 14.4 shall
apply, and
15.3:1.3 the other terms shall be the same as the terms of this
Lease, with all provisions of a periodic nature,
including any relating to review of the Rent, applying
on the dates that would have applied if the Termination
Event had not occurred.
15.3:2 The Guarantor shall pay the Landlord's reasonable and proper
costs and expenses in connection with the grant of the new lease.
15.4 WAIVER BY GUARANTOR OF RIGHTS
15.4:1 The Guarantor waves any right to require the Landlord to proceed
against the Original Tenant or to pursue any other remedy which
may be available to the Landlord before proceeding against the
Guarantor.
15.4:2 The Guarantor shall not claim in any liquidation, bankruptcy,
composition or arrangement of the original Tenant in competition
with the Landlord.
15.4:3 While any liabilities of the Original Tenant or the Guarantor to
the Landlord remain outstanding:
15.4:3.1 the Guarantor shall pay to the Landlord the proceeds of
all judgments and distributions it receives from any
liquidator, trustee in bankruptcy or supervisor of the
Original Tenant,
15.4:3.2 the Guarantor shall hold for the benefit of the Landlord
all security and rights the Guarantor may have over
assets of the Original Tenant,
15.4:3.3 the Guarantor shall not be entitled to benefit from any
security held by the Landlord in respect of the
Original Tenant's obligations to the Landlord under
this Lease, and
15.4:3.4 the Guarantor shall not be entitled to stand in the
place of the Landlord in respect of any such security.
43
<PAGE>
15.5 GUARANTOR'S LIABILITY NOT TO BE PREJUDICED
The Guarantor's liability under this clause 15 is not to be discharged or
reduced by any of the following:
15.5:1 any time or indulgence granted by the Landlord to the Origianl
Tenant or any neglect or tolerance by the Landlord in enforcing
the Original Tenant's obligations,
15.5:2 the Landlord's refusal to accept rent tendered, when acceptance
of rent might have joepardised the Landlord's right of forfeiture,
15.5:3 any change in the constitution, structure or powers of the
Original Tenant, the Guarantor or the Landlord,
15.5:4 the liquidation, administration or bankruptcy of the Origianl
Tenant or the Guarantor
15.5:5 any legal limitation or any immunity, disability or incapacity of
the original Tenant, whether or not known to the Landlord, or any
dealings with the Landlord by the original Tenant outside the
powers of the original Tenant,
15.5:6 a variation of the terms of this Lease by agreement between the
Landlord and the original Tenant, or
15.5:7 any other thing by which (but for this provision) the Guarantor
would have been released.
15.6 SURRENDER OF PART BY ORIGINAL TENANT
If the original Tenant surrenders part of the Property:
15.6:1 the liability of the Guarantor shall continue in respect of the
remainder, after making any necessary apportionments under
Section 14O of the Law of Property Act 1925, and
15.6:2 any new lease granted under clause 15.3 shall be of the part of
the Property that has not been surrendered.
15.7 BENEFIT OF GUARANTEE
Successors of the Landlord shall automatically be entitled to the benefit
of this guarantee without the need for an assignment.
15.8 CHANGE OF ADDRESS
The Guarantor shall forthwith notify the Landlord in writing of each
change in the principal address of the Guarantor (including in the case of
an individual a change in the usual place of residence and in the case of
a Guarantor with a registered office a change in the address of the
registered office).
44
<PAGE>
EXECUTED BY THE PARTIES AS A DEED and delivered on, but not before, the date
inserted as the date of this Lease
(THE COMMON SEAL of
(CAPITAL & COUNTIES plc
(was affixed in the presence of:-
Director
Secretary
45
<PAGE>
REGULATIONS
- -------------------------------------------------------------------------------
1. MUSIC
Tenants must not play or use any musical instruments or equipment which
produces sound in their premises which can be heard outside their premises.
2. ANIMALS
Tenants must not keep any live animals (other than guide dogs), fish,
reptiles or birds in their premises.
3. PESTS
Tenants must keep their premises free from rats, mice and other pests.
4. RUBBISH
Tenants must keep all rubbish and refuse in properly covered rubbish bins
to the reasonable satisfaction of the Landlord and arrange for the removal
of all refuse from their premises at least weekly.
5. RESIDENCE
Tenants must not allow any person to reside or sleep on their premises.
6. AUCTION
Tenants must not hold any sale by auction on their premises.
7. SAFES AND OTHER HEAVY OBJECTS
Tenants must not bring any safe or other very heavy object on to their
premises without the Landlord's consent, such consent not to be
unreasonably withheld or delayed.
8. WINDOW SILLS AND BALCONIES
Tenants must not place flower-pots window-boxes or other articles on
externalwindow sills and balconies.
46
<PAGE>
THE SCHEDULE
- -------------------------------------------------------------------------------
Of works referred to in item (c) in the definition of Excluded Review Matters
in clause 14.1 Items to be included at rent review
1. Air conditioning systems in the following areas
Ground floor - Production Commissioning Area (Stonepail Close elevation)
- Training Rooms and Training Equipment Room (south wing
overlooking rear car park)
- VSD Lab and Development Systems Areas
- VM2OOO Lab
- Customer Test Area
First Floor - None
Second Floor - Conference Room Nos 1 & 2
2. Rearrangement of car park comprising 84 spaces to provide an additional 6
spaces.
3. Unisex shower to be provided on first or second floor in existing toilet
block.
4. Additional service bunking similar to existing perimeter bunking to be
provided to the six internal columns on each floor.
47
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES
State or Other Jurisdiction
Name of Subsidiary of Incorporation
------------------ ---------------------------
Brite Voice Systems Group, Limited United Kingdom
Brite Voice Systems Group, GmbH Germany
Brite Holding AG Switzerland
Brite Voice Systems AG Switzerland
Brite Voice Systems S.p.A. Italy
Brite Leasing, Inc. Kansas
Brite Voice Systems Pte Ltd. Singapore
Brite Voice Systems S.A. (Pty) Ltd. South Africa
<PAGE>
EXHIBIT 23.1
Arthur Andersen LLP
Consent of Independent Public Accounts
As independent public accountants, we hereby consent to the incorporation
of our reports included in this Form 10-K, into the Company's previously filed
Registration Statement File Nos. 33-44609, 33-59371, 33-66812, 33-67274 and
33-80478.
/s/ Arthur Andersen LLP
Kansas City, Missouri
March 24, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 8,084
<SECURITIES> 0
<RECEIVABLES> 35,538
<ALLOWANCES> 471
<INVENTORY> 12,507
<CURRENT-ASSETS> 58,259
<PP&E> 26,504
<DEPRECIATION> 12,204
<TOTAL-ASSETS> 74,882
<CURRENT-LIABILITIES> 20,701
<BONDS> 0
0
0
<COMMON> 38,417
<OTHER-SE> 15,764
<TOTAL-LIABILITY-AND-EQUITY> 74,882
<SALES> 63,980
<TOTAL-REVENUES> 110,409
<CGS> 27,729
<TOTAL-COSTS> 98,710
<OTHER-EXPENSES> (240)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 80
<INCOME-PRETAX> 11,859
<INCOME-TAX> 3,304
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,555
<EPS-PRIMARY> .71
<EPS-DILUTED> .00
</TABLE>
<PAGE>
EXHIBIT 99.1
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Telecom Services Limited (U.S.), Inc.
Telecom Services Limited (West), Inc.
TSL Software Services, Inc.
TSL Management Group, Inc.
We have audited the combined statements of operations and retained earnings
(deficit), and cash flows of Telecom Services Limited (U.S.), Inc., Telecom
Services Limited (West), Inc., TSL Software Services, Inc., and TSL Management
Group, Inc. for the year ended December 31, 1994 (not presented separately
herein). These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined results of operations and cash
flows of Telecom Services Limited (U.S.), Inc., Telecom Services Limited (West),
Inc., TSL Software Services, Inc., and TSL Management Group, Inc. for the year
ended December 31, 1994 in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
/s/ Ernst & Young LLP
MetroPark, New Jersey
April 7, 1995
